ch7 natural persons
Thursday, 09 May 2024 23:00
outcomes of this chapter:
- calculate the normal tax payable by a natural person using the framework for the calculation of taxable income
- explain and practically apply the assessed loss provisions
- calculate the deductions i.r.o. expenditure of a private nature that can be claimed by natural persons i.r.o. contributions t o retirement
funds and donations to public benefit organisations
- apply the anti-avoidance provisions i.r.o. married persons and minor children
- apply the provisions of the act i.r.o. antedated salaries
- demonstrate your knowledge by means of an integrated case study, or theoretical advice questions
the following abbreviations will be used in these notes:
abbreviation description
al assessed losses
cyoa current year of assessment
pyoa prior year of assessment
bal balance of assessed losses
np natural persons
yoa year of assessment
7.1. overview & framework
the use of the comprehensive framework (subtotal method) can facilitate the calculation of the taxable income and the normal tax payable
by natural persons. just note that 3 separate columns are used due to the following reasons:
• certain expenses are not allowed to be deducted against severance benefits, retirement fund lump sum benefits, and retirement fund
lump sum withdrawal benefits
• the tax on severance benefits, retirement fund lump sum benefits, and retirement fund lump sum withdrawal benefits are calc . i.t.o.
separate tax liabilities.
• assessed losses cannot be offset against severance benefits, retirement fund lump sum benefits, and retirement fund lump sum
withdrawal benefits
• the s6 rebates cannot be reduce the normal tax payable on severance benefits, retirement fund lump sum benefits, and retireme nt
fund lump sum withdrawal benefits
gross income xxx
less: exempt income (xxx)
subtotal 1 - income xxx
less: deductions (xxx)
subtotal 2 xxx
less: assessed losses - ch7 (xxx)
subtotal 3 xxx
add: taxable allowances xxx
subtotal 4 xxx
add: taxable capital gains xxx
subtotal 5 xxx
less: s11F - retirement fund deductions - ch7 (xxx)
subtotal 6 xxx
less: s18A deduction - ch7 (xxx)
taxable income xxx
normal tax thereon (18% of taxable income) xxx
less: s6(2) - rebates (xxx)
less: s6A and 6B tax credits - ch7 (xxx)
normal tax payable xxx
s35A - withholding tax on immovable property (xxx)
normal tax due to/by taxpayer xxx
7.1.1. assessed losses - s20 [SILKE p.158]
▪ what is an assessed loss?
▫ an assessed loss is defined as an amount by which the deductions exceeds the income from which they are so admissible
▫ an assessed loss therefore arises when the taxable income of a tp for a specific yoa is a negative amount
▪ what is a balance of assessed loss of a natural person?
▫ it refers to the excess of an assessed loss incurred in the carrying of a trade in the yoa, over any taxable income from another
trade carried on in the yoa, or from non-trade income in the yoa, which is carried forward to the next yoa
▪ the following accounts may be set-off against the income derived from any taxable income from non-trade activities:
▫ any balance of assessed losses incurred in pyoa and carried forward to the cyoa
▫ any assessed loss incurred by a person in the cyoa from carrying on any other trade: alone, or in partnership
ch7 Page 1
, ▫ any assessed loss incurred by a person in the cyoa from carrying on any other trade: alone, or in partnership
▪ limitations regarding the set-off of assessed losses the following amounts may not be set-off
▫ income derived from a source in south africa: any assessed losses, cyoa & pyoa, from a trade carried on outside south africa
▫ against any severance benefit: any assessed losses, pyoa's balance, or cyoa's assessed losses
▪ assessed losses: ring-fencing of assessed losses from certain trades - s20A
▫ s20A only applies to natural persons, not juristic persons: the set-off provisions in s20 are always subject to the s20A ring-
fencing provisions
▫ what exactly does ring-fencing mean & how long does it apply?
• ring-fencing is when an assessed loss from a specific trade can only be deducted against income from that same trade
• ring-fenced losses are ring-fenced forever
▫ there are 4 steps which will determine if an assessed loss can be ring-fenced if all four requirements are met:
i. sum of natural person's taxable income + cyoa assessed loss + pyoa balance of assessed losses ≥ R1 817 000, AND,
ii. the " ⁄ years" requirement, or the 'listed suspect trade requirement, AND,
iii. the "facts-and-circumstances" test :. the escape clause, AND,
iv. the " ⁄ years" requirement :. catch-all provision
7.2. calculation of normal tax payable [SILKE p.167]
different tax tables are used to calc. the normal tax payable on the taxable income of an individual. it is advised that the normal tax payable
on the taxable income should be calc. first.
▪ step 1: determine the normal tax payable on the taxable income applicable to the natural persons, deceased estates, insolvent
estates & special trusts
▫ the primary, secondary & tertiary rebates only reduce normal tax payable on the taxable income & not the taxable income on
lump sum- & severance benefits
▪ step 2: calc. the normal tax payable on the taxable income from any lump sum - & severance benefits
▫ this is calc. separately and i.t.o. separate tax tables applying the cumulative principle
▫ the normal tax payable must now be added to the normal tax payable on the taxable income & the additional tax (s12T(7)
(a),(b))
▪ a natural person can deduct the medical tax credits & the solar energy tax credit in determining the normal tax payable by th e natural
person
▫ therefore, these credits can reduce all the amounts of normal tax payable the normal tax payable by a natural person is
the net result of all the aforementioned
▫ both rebates & credits reduce the final amount of normal tax payable
▪ if the individual is a resident whose taxable income incl. amounts from countries outside south africa, the rebate for foreig n taxes
must also be deducted in determining normal tax payable by the natural person
7.2.1. s6(2) rebates [SILKE p.168]
▪ s6(2) rebates are non-refundable :. they cannot be used as the basis for a refund if the rebate exceeds the normal tax payable on
the taxable income & cannot be carried forward to the following yoa
▪ s6(2) rebates are as follows:
2023 2024
primary rebate (<65) 16 425 17 235
ch7 Page 2
Thursday, 09 May 2024 23:00
outcomes of this chapter:
- calculate the normal tax payable by a natural person using the framework for the calculation of taxable income
- explain and practically apply the assessed loss provisions
- calculate the deductions i.r.o. expenditure of a private nature that can be claimed by natural persons i.r.o. contributions t o retirement
funds and donations to public benefit organisations
- apply the anti-avoidance provisions i.r.o. married persons and minor children
- apply the provisions of the act i.r.o. antedated salaries
- demonstrate your knowledge by means of an integrated case study, or theoretical advice questions
the following abbreviations will be used in these notes:
abbreviation description
al assessed losses
cyoa current year of assessment
pyoa prior year of assessment
bal balance of assessed losses
np natural persons
yoa year of assessment
7.1. overview & framework
the use of the comprehensive framework (subtotal method) can facilitate the calculation of the taxable income and the normal tax payable
by natural persons. just note that 3 separate columns are used due to the following reasons:
• certain expenses are not allowed to be deducted against severance benefits, retirement fund lump sum benefits, and retirement fund
lump sum withdrawal benefits
• the tax on severance benefits, retirement fund lump sum benefits, and retirement fund lump sum withdrawal benefits are calc . i.t.o.
separate tax liabilities.
• assessed losses cannot be offset against severance benefits, retirement fund lump sum benefits, and retirement fund lump sum
withdrawal benefits
• the s6 rebates cannot be reduce the normal tax payable on severance benefits, retirement fund lump sum benefits, and retireme nt
fund lump sum withdrawal benefits
gross income xxx
less: exempt income (xxx)
subtotal 1 - income xxx
less: deductions (xxx)
subtotal 2 xxx
less: assessed losses - ch7 (xxx)
subtotal 3 xxx
add: taxable allowances xxx
subtotal 4 xxx
add: taxable capital gains xxx
subtotal 5 xxx
less: s11F - retirement fund deductions - ch7 (xxx)
subtotal 6 xxx
less: s18A deduction - ch7 (xxx)
taxable income xxx
normal tax thereon (18% of taxable income) xxx
less: s6(2) - rebates (xxx)
less: s6A and 6B tax credits - ch7 (xxx)
normal tax payable xxx
s35A - withholding tax on immovable property (xxx)
normal tax due to/by taxpayer xxx
7.1.1. assessed losses - s20 [SILKE p.158]
▪ what is an assessed loss?
▫ an assessed loss is defined as an amount by which the deductions exceeds the income from which they are so admissible
▫ an assessed loss therefore arises when the taxable income of a tp for a specific yoa is a negative amount
▪ what is a balance of assessed loss of a natural person?
▫ it refers to the excess of an assessed loss incurred in the carrying of a trade in the yoa, over any taxable income from another
trade carried on in the yoa, or from non-trade income in the yoa, which is carried forward to the next yoa
▪ the following accounts may be set-off against the income derived from any taxable income from non-trade activities:
▫ any balance of assessed losses incurred in pyoa and carried forward to the cyoa
▫ any assessed loss incurred by a person in the cyoa from carrying on any other trade: alone, or in partnership
ch7 Page 1
, ▫ any assessed loss incurred by a person in the cyoa from carrying on any other trade: alone, or in partnership
▪ limitations regarding the set-off of assessed losses the following amounts may not be set-off
▫ income derived from a source in south africa: any assessed losses, cyoa & pyoa, from a trade carried on outside south africa
▫ against any severance benefit: any assessed losses, pyoa's balance, or cyoa's assessed losses
▪ assessed losses: ring-fencing of assessed losses from certain trades - s20A
▫ s20A only applies to natural persons, not juristic persons: the set-off provisions in s20 are always subject to the s20A ring-
fencing provisions
▫ what exactly does ring-fencing mean & how long does it apply?
• ring-fencing is when an assessed loss from a specific trade can only be deducted against income from that same trade
• ring-fenced losses are ring-fenced forever
▫ there are 4 steps which will determine if an assessed loss can be ring-fenced if all four requirements are met:
i. sum of natural person's taxable income + cyoa assessed loss + pyoa balance of assessed losses ≥ R1 817 000, AND,
ii. the " ⁄ years" requirement, or the 'listed suspect trade requirement, AND,
iii. the "facts-and-circumstances" test :. the escape clause, AND,
iv. the " ⁄ years" requirement :. catch-all provision
7.2. calculation of normal tax payable [SILKE p.167]
different tax tables are used to calc. the normal tax payable on the taxable income of an individual. it is advised that the normal tax payable
on the taxable income should be calc. first.
▪ step 1: determine the normal tax payable on the taxable income applicable to the natural persons, deceased estates, insolvent
estates & special trusts
▫ the primary, secondary & tertiary rebates only reduce normal tax payable on the taxable income & not the taxable income on
lump sum- & severance benefits
▪ step 2: calc. the normal tax payable on the taxable income from any lump sum - & severance benefits
▫ this is calc. separately and i.t.o. separate tax tables applying the cumulative principle
▫ the normal tax payable must now be added to the normal tax payable on the taxable income & the additional tax (s12T(7)
(a),(b))
▪ a natural person can deduct the medical tax credits & the solar energy tax credit in determining the normal tax payable by th e natural
person
▫ therefore, these credits can reduce all the amounts of normal tax payable the normal tax payable by a natural person is
the net result of all the aforementioned
▫ both rebates & credits reduce the final amount of normal tax payable
▪ if the individual is a resident whose taxable income incl. amounts from countries outside south africa, the rebate for foreig n taxes
must also be deducted in determining normal tax payable by the natural person
7.2.1. s6(2) rebates [SILKE p.168]
▪ s6(2) rebates are non-refundable :. they cannot be used as the basis for a refund if the rebate exceeds the normal tax payable on
the taxable income & cannot be carried forward to the following yoa
▪ s6(2) rebates are as follows:
2023 2024
primary rebate (<65) 16 425 17 235
ch7 Page 2
