Tax unit 2

• Gross income


  The total amount, in cash or otherwise, received by or accrued to or in favour of a resident, during a year or period of assessment, excluding receipts or accruals of a capital nature
• Resident


  • Taxed on worldwide income
  • Non-resident taxed only on income from South African source
• Determining if a person is a resident


  1. Apply "ordinarily resident" test

  2. If not ordinarily resident, apply "physical presence" test
• Ordinarily resident


  Where a person returns to from their wanderings (based on Cohen v CIR and CIR v Kuttel cases)
• Physical presence test


  A natural person who is not ordinarily resident may be resident if physically present in SA for certain periods
• Both residence tests must be applied before deciding if a natural person is not a resident of SA
• Being a SA "resident" does not necessarily mean being a SA passport holder
• Ordinarily resident


  A natural person who is a resident of South Africa for tax purposes
• Physical presence test


  • All the requirements must be met before a natural person qualifies as a resident
  • Being a South African "resident" does not necessarily mean that you are a South African passport holder
• Nokuthula Matlatla has never been ordinarily resident in the Republic
• Nokuthula spent 92 days in the Republic during the 2024 year of assessment and a total of 460 days in the five previous years of assessment (92 days each year from 2019 – 2023)
• Determining if Nokuthula Matlatla is a resident of the Republic for the 2024 year of assessment


  Apply the definition of a "resident" as set out in section 1 of the Income Tax Act
• Gross income


  An actual amount received or accrued before there can be any question of gross income
• The case of CIR vs Butcher Bros (Pty) Ltd established the principle of how the value is determined
• Tax is assessed on all receipts or accruals having a money value
• If it is something that has no value in money or cannot be turned into money or exchanged for something else, it cannot fall into gross income
• The value of any property received must be included in gross income
• This was established in the Lategan v CIR 2 SATC case where the court held that the term "amount" included not only money, but also the value of every form of property the taxpayer earned
• Received


  A taxpayer receives the amount for his or her own benefit and on his or her own behalf
• Accrued


  The taxpayer has become unconditionally entitled to the amount
• An amount is included in gross income at either date of receipt or date of accrual, whichever event happened first
• You cannot be taxed twice on an amount
• James Poonsamy is an author and writes children's books
• During the 2024 year of assessment, he received royalties from South Africa, England, and Germany of R30 000, R64 000 and R54 000 respectively
• Determining if the royalties received by James will be included in his gross income for the 2024 year of assessment


  Apply the definition of "received by or accrued to or in favour of" a taxpayer
• An amount is only income and subject to taxation in a relevant year if it has been received by or has accrued to a taxpayer during that year of assessment
• Each year of assessment stands on its own
• Receipts or accruals of a capital nature

  Excluded from the definition of gross income
• The nature of the receipt is determined by subjective considerations, the intention of the taxpayer is considered, but it must be supported by objective factors
• The receipt or accrual will be income in nature if the asset was acquired with the purpose of selling it at a profit
• If the asset itself was acquired and held, not for the purpose of resale at a profit, but to produce income from that asset such as manufacturing, rent, interest, or dividends, then the proceeds on the disposal of the asset will be capital in nature
• Amounts of a capital nature are excluded from gross income, but these amounts could nevertheless be subject to income tax in accordance with the special inclusions or the Eighth Schedule to the Act, which regulates capital gains tax (CGT)
• In terms of 9C of the Income Tax Act, 58 of 1962 (the Act), where shares have been held for a period of at least three years, the amount received in respect of the share sale will automatically be deemed to be of a capital nature
• Gross income is the first building block of taxation and forms the basis of the tax calculation