Taxation 298
Chapter 4 – Specific Inclusions
Par (a) – (n) of the definition of ‘gross income' includes certain amounts in
gross income, even though they may be of a capital nature
o ALWAYS included whether its income or capital in nature
o These take priority over the general definition of gross income (first
check if it is a specific inclusion and if not, check general definition)
Par (a) – Annuities
Excludes par d(ii) amounts (all amounts received from employer-owed
policies of insurance)
Living annuity = receive annuity from retirement fund after retirement
Annuity amount = payable per annuity contract or conversion/termination of
contract
Characteristics of an annuity:
Annual payment (can be divided into instalments)
Repetitively payable from year to year, at any rate for a certain period and
Contractually chargeable against some person
Examples of how an annuity may arise:
Purchased from an insurance company
Granted by way of donation or bequest through trust or otherwise
Received as consideration for the sale of a business or asset (goodwill)
Surrender of a right
Examples of amounts that ARE NOT annuities:
Voluntary payments, even if made regularly, cannot be annuities someone
must be obligated to pay
Settlement of debt in instalments
Par (b) – Maintenance Payments
Included in gross income for the receiving spouse
Any amount payable to the taxpayer
i. By the former spouse of TP, under any judicial order/written agreement
of separation or any order of divorce, by way of alimony or allowance
or maintenance of the TP OR
ii. i.t.o. maintenance order (s 7(4))
remember s10(1)(u) exemption
Please do not distribute
, Par (c) – Services
Amounts received/accrued in respect of:
o Services rendered or to be rendered (including voluntary reward) OR
o Employment or the holding of an office (but not s8(1) or 8C amounts)
o Proviso (i) [par (i) overrides par (c)]
Proviso (ii) amount received by a person for services rendered by another
person is specifically included in gross income of the person who rendered
the services.
When is it taxable?
o In the year in which the amount is received / accrued irrespective of the
period to which the services relate
Accumulated leave pay-outs are included in terms of par (c) and not in terms
of par (d)
Par (cA) and (cB) – Restraint of Trade
When employer doesn’t allow previous employee to render their services for specific
time/location & receives compensation therefore.
A restraint of trade is NOT a payment for services rendered, but a payment for an
undertaking NOT TO render services.
Right to trade freely = capital asset
Restraint of trade payment = capital in nature, but still gross income because
of specific inclusion
Par (cA) = person is a LB or PSP / PSC / PST: any restraint of trade payment
Par (cB) = person is a natural person receives restraint of trade payments in
respect or by virtue of
o Any past, present or future employment or
o The holding of an office
Par (d) – Services: Compensation in respect of the termination of employment
Please do not distribute
, d(i), d(ii) and d(iii) only lumpsums EXCEPT d(ii) includes annuities from
policies as well
d(i): lump sums from employers
o Relinquishment, termination, loss, repudiation, cancellation, or variation
in office/employment from employer or associated institution/possible
severance benefit
d(ii): lump sums paid from employer-owed policies of insurance
(including annuities par (a))
o Proceeds of policy of insurance directly or indirectly paid to employee /
dependent / nominee
d(iii): Policy of insurance ceded to employee/dependent/nominee (except
where the policy is a risk policy with no cash value or surrender value)
Proviso (bb) = Amount payable after death; deemed accrual to employee
immediately before death
Proviso (cc) = Amounts paid/ceded to dependent/nominee of employee are
deemed to be received by or accrued to the employee
Severance benefit (SB) = par (d)(i) lump sum received from an employer who
is not a fund if one of the following requirements (per the definition of
severance benefit in section 1(1)) is met:
o Person has reached the age of 55; or
o Person became permanently incapable to continue employment due to
sickness, accident, injury etc.; or
o Person’s employer ceased trade / employee has become redundant
(NB! If the employee at any time held more than 5% shares in the
company and received the lump sum due to the person’s employer
ceasing trade or the employee becoming redundant, then it is not a
SB)
NOTE: TP would want something to be a SB because you pay less tax
Par(f) – Services: Commutation of Amounts Due
“Commutation” = substitution
One type of amount due in terms of a contract of service or employment is
substituted for another type
Par (f) can also be a severance benefit
There is little need for par(f) because of wide scope of par(d).
Difference = par(f) is applicable to any contract, employment, or service
Example: An employee may substitute his right in terms of his service
agreement to be given notice before the termination of his services for a cash
payment
Par(g) – Lease Premiums
Rent = received for use of asset
Rental deposit = received upfront
Please to do
cover
notpotential
distribute
losses (normally refundable)
Upfront rental receipt = bullet rental and is for use or right of use and is rent
Chapter 4 – Specific Inclusions
Par (a) – (n) of the definition of ‘gross income' includes certain amounts in
gross income, even though they may be of a capital nature
o ALWAYS included whether its income or capital in nature
o These take priority over the general definition of gross income (first
check if it is a specific inclusion and if not, check general definition)
Par (a) – Annuities
Excludes par d(ii) amounts (all amounts received from employer-owed
policies of insurance)
Living annuity = receive annuity from retirement fund after retirement
Annuity amount = payable per annuity contract or conversion/termination of
contract
Characteristics of an annuity:
Annual payment (can be divided into instalments)
Repetitively payable from year to year, at any rate for a certain period and
Contractually chargeable against some person
Examples of how an annuity may arise:
Purchased from an insurance company
Granted by way of donation or bequest through trust or otherwise
Received as consideration for the sale of a business or asset (goodwill)
Surrender of a right
Examples of amounts that ARE NOT annuities:
Voluntary payments, even if made regularly, cannot be annuities someone
must be obligated to pay
Settlement of debt in instalments
Par (b) – Maintenance Payments
Included in gross income for the receiving spouse
Any amount payable to the taxpayer
i. By the former spouse of TP, under any judicial order/written agreement
of separation or any order of divorce, by way of alimony or allowance
or maintenance of the TP OR
ii. i.t.o. maintenance order (s 7(4))
remember s10(1)(u) exemption
Please do not distribute
, Par (c) – Services
Amounts received/accrued in respect of:
o Services rendered or to be rendered (including voluntary reward) OR
o Employment or the holding of an office (but not s8(1) or 8C amounts)
o Proviso (i) [par (i) overrides par (c)]
Proviso (ii) amount received by a person for services rendered by another
person is specifically included in gross income of the person who rendered
the services.
When is it taxable?
o In the year in which the amount is received / accrued irrespective of the
period to which the services relate
Accumulated leave pay-outs are included in terms of par (c) and not in terms
of par (d)
Par (cA) and (cB) – Restraint of Trade
When employer doesn’t allow previous employee to render their services for specific
time/location & receives compensation therefore.
A restraint of trade is NOT a payment for services rendered, but a payment for an
undertaking NOT TO render services.
Right to trade freely = capital asset
Restraint of trade payment = capital in nature, but still gross income because
of specific inclusion
Par (cA) = person is a LB or PSP / PSC / PST: any restraint of trade payment
Par (cB) = person is a natural person receives restraint of trade payments in
respect or by virtue of
o Any past, present or future employment or
o The holding of an office
Par (d) – Services: Compensation in respect of the termination of employment
Please do not distribute
, d(i), d(ii) and d(iii) only lumpsums EXCEPT d(ii) includes annuities from
policies as well
d(i): lump sums from employers
o Relinquishment, termination, loss, repudiation, cancellation, or variation
in office/employment from employer or associated institution/possible
severance benefit
d(ii): lump sums paid from employer-owed policies of insurance
(including annuities par (a))
o Proceeds of policy of insurance directly or indirectly paid to employee /
dependent / nominee
d(iii): Policy of insurance ceded to employee/dependent/nominee (except
where the policy is a risk policy with no cash value or surrender value)
Proviso (bb) = Amount payable after death; deemed accrual to employee
immediately before death
Proviso (cc) = Amounts paid/ceded to dependent/nominee of employee are
deemed to be received by or accrued to the employee
Severance benefit (SB) = par (d)(i) lump sum received from an employer who
is not a fund if one of the following requirements (per the definition of
severance benefit in section 1(1)) is met:
o Person has reached the age of 55; or
o Person became permanently incapable to continue employment due to
sickness, accident, injury etc.; or
o Person’s employer ceased trade / employee has become redundant
(NB! If the employee at any time held more than 5% shares in the
company and received the lump sum due to the person’s employer
ceasing trade or the employee becoming redundant, then it is not a
SB)
NOTE: TP would want something to be a SB because you pay less tax
Par(f) – Services: Commutation of Amounts Due
“Commutation” = substitution
One type of amount due in terms of a contract of service or employment is
substituted for another type
Par (f) can also be a severance benefit
There is little need for par(f) because of wide scope of par(d).
Difference = par(f) is applicable to any contract, employment, or service
Example: An employee may substitute his right in terms of his service
agreement to be given notice before the termination of his services for a cash
payment
Par(g) – Lease Premiums
Rent = received for use of asset
Rental deposit = received upfront
Please to do
cover
notpotential
distribute
losses (normally refundable)
Upfront rental receipt = bullet rental and is for use or right of use and is rent
