A Student’s Approach to Income Tax Business Activities 2019.

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The provisions of the Act regarding natural persons are dealt with in a separate book, A Student’s Approach to Income Tax/Natural Persons. Simple language has been used and the relevant sections of the Act are given and explained in simple terms. A further characteristic of this book is the steps used to explain certain topics and this is especially handy for those students who are making use of distance education. At the end of each chapter there are examination preparation questions with solutions that can be used to revise the various principles of the chapter. Each chapter begins with the learning outcome of each topic, in the form of critical questions, which enables the student to determine, by way of these questions, whether he or she understands the topic and can apply the principles. This book is directed at the undergraduate student and will provide students with the answers to most of their questions in respect of the taxation of business activities in this book. This work is not written for the tax practitioner but may in fact be used by general accountants for addressing basic tax problems. This book contains various examples and practical case studies. All examples and case studies relate to the year of assessment from 1 March 2018 to 28 February 2019 (the 2019 year of assessment). A date of 3 August will thus be the August during this year of assessment – 3 August 2018. Any date of 2 February will refer to 2 February 2019. Thus, unless otherwise indicated, all dates will fall within the 2019 year of assessment. This edition is up to date to the end of November 2018, and includes all legislative amendments promulgated before that date. Each chapter, apart from Chapter 1, also contains one or more additional questions that are available electronically. The purpose of these questions is to provide students with additional revision questions. We would like to thank all the persons who offered us their invaluable advice. A Student’s Approach to Income Tax/Business Activities vi Although care was taken to update, review and edit the content of this book, some errors might still occur. To help us and your fellow students, please send any possible mistakes you find to the authors at . Any mistakes we or your fellow students find will be provided on the electronic pages available. AUTHORS vii Assumptions and abbreviations Unless expressly stated to the contrary, the following assumptions must be made when interpreting the examples and practical questions in this volume: • References to “the Act” bear reference to the Income Tax Act 58 of 1962 (as amended). • The use of the concept “South Africa” or “the Republic” refers to the Republic of South Africa and vice versa. • All individuals are residents of the Republic. • No double tax agreements between South Africa and overseas countries are in force. • Enterprises are registered as vendors for Value-Added Tax (VAT). • The cost price of all purchases made by vendors registered for VAT purposes is net after any input tax credit to which they are entitled. • All married persons are married out of community of property. • Taxpayers, their spouses and their children are not disabled persons as defined. • Medical costs fulfil the requirements of section 6B of the Act. • The ages given are the ages of the persons on the last day of the year of assessment. • In the case of an individual, the current year of assessment ends on 28 February 2018. • All calculations are in rands only. Abbreviations used in this volume The Commissioner of the South African Revenue Service ................. The Commissioner South African Revenue Service ...................................................................................... SARS First-in-first-out .................................................................................................................. FIFO Last-in-first-out .................................................................................................................. LIFO Pay-as-you-earn ............................................................................................................... PAYE Value-Added Tax ................................................................................................................ VAT Kilometres .............................................................................................................................. km A Student’s Approach to Income Tax/Business Activities viii Close corporation .................................................................................................................. CC Capital gains tax .................................................................................................................. CGT Double tax agreement ....................................................................................................... DTA Section ......................................................................................................................................... s ix Contents Page Preface .................................................................................................................... v Assumptions and abbreviations ................................................................................... vii Chapter 1 Introduction .............................................................................................. 1 Annelize Oosthuizen Chapter 2 Value-added tax (VAT) ........................................................................... 13 Lizelle Bruwer Chapter 3 Taxable income of business enterprises ............................................... 147 Annelize Oosthuizen Chapter 4 Specific deductions and allowances ...................................................... 197 Carien Cass Chapter 5 Expenditure and allowances relating to capital assets....................... 275 Carien Cass Chapter 6 Capital gains tax ....................................................................................... 325 Alta Koekemoer Chapter 7 Partnerships .............................................................................................. 395 Annelize Oosthuizen Chapter 8 Taxation of companies and company distributions ........................... 431 Doria Cucciolillo Chapter 9 Turnover tax ............................................................................................. 483 Carien Cass Chapter 10 Tax avoidance and evasion .................................................................... 509 Lizelle Bruwer (assisted by Marese Lombard) Chapter 11 Taxation of trusts ..................................................................................... 531 Doria Cucciolillo A Student’s Approach to Income Tax/Business Activities x Page Chapter 12 Administrative procedures .................................................................... 595 Cinzia Stedall Appendices ....................................................................................................................... 637 Statutes ............................................................................................................................... 655 Index ................................................................................................................................... 659 1 1 Introduction Page 1.1 Introduction ............................................................................................................. 1 1.2 Selecting an enterprise type .................................................................................. 3 1.3 Tax implications of the different enterprise types ............................................. 4 1.4 Calculating taxable income ................................................................................... 6 1.5 Calculating the taxable income of a company or close corporation ............... 7 1.6 Summary .................................................................................................................. 9 1.7 Examination preparation ....................................................................................... 9 1.1 Introduction When starting your own business, you have to determine what kind of activities to undertake and where the market for the product or service is. After having established the need for the product or service and finding the correct place to do business, you are confronted with the choice of business structure. There are a number of factors that influence this choice, one of which is the taxation implications of the legal form. The legal form of the business has a direct bearing on the way the business is taxed. Broadly, the tax calculations can be divided into two categories, namely those where the person is taxed in his own hands on the income received (for example a sole trader or partnership) and those where the business is taxed and not the individual (for example companies, close corporations and trusts). The Income Tax Act 58 of 1962 (the Act) provides a fixed framework to be used when calculating taxable income. This framework stays the same for the different types