Special Inclusions and Exempt income

• Special inclusions


  Certain types of income which would not necessarily be included if the general principles applying to Gross Income were to be applied
• Special inclusions are included under the Gross Income, regardless of the Gross Income definition
• Where to include special inclusions in tax calculations: They are included in Total Income, which comprises Gross Income PLUS Special Inclusions LESS Exempt income
• Why do we have special inclusions?

  Section 1 Paragraphs (a) – (n) of the definition of "gross income" include certain types of income which would not necessarily be included if the general principles applying to GI were to be applied
• You must know the section numbers for specific special inclusions
• Special inclusions to be discussed

  • Annuities - section 1 Gross Income definition par (a)
  • Lease Premiums - section 1 Gross Income definition par (g)
  • "Know-how" payments - section 1 Gross Income definition par (gA)
  • Leasehold Improvements - section 1 Gross Income definition par (h)
  • Dividends - section 1 Gross Income definition par (k)
  • Amounts received in respect of services rendered, employment or holding an office paragraphs (c), (cA), (cB), (d), (f) and (i)
• Annuity


  Fixed annual payments (also in instalments) payable for a certain period, chargeable against some person, normally there will be a policy / a contract. Repayment of capital debt is not considered to be an annuity.
• Lease Premiums


  Pay an extra amount for the right to lease a valuable asset. These lump-sum premiums are normally capital of nature, but section 1 includes them in Gross Income. The full amount is included in the first year of the contract / lump sum accrued (right accrues).
• "Know-how" payments


  Impart scientific, technical, industrial or commercial knowledge = service rendered. Examples: technical advisory services, sale of information in an interactive way. Sale of copyright is not "know-how" as it is the right to ownership of intellectual property, not information sold.
• Leasehold Improvements


  The value to be included in Lessor's gross income only applies if the lessor has the right to improvements effected to the property. There must be an arrangement / agreement (obligation) between the lessor and the lessee whereby the lessee must effect improvements.
• Dividends


  All local and foreign dividends received are included in Gross Income. There are dividends which are exempt from tax which will be discussed at a later stage.
• Other amounts included in gross income


  • Government Grants Par (l)
  • Amounts received from the sale of an asset manufactured, produced, contracted or assembled Par (jA)
  • Other paragraphs (n, m, lA)
• Special Inclusions


  Include them under G1, regardless of the definition
• TOTAL INCOME


  Gross Income + Special Inclusion - Exempt Income
• The Act provides for capital of nature items to be included under a special Inclusion
• ANNUITIES


  Fixed annual amounts, Payable for a certain period, Chargeable against same person, Normally there will be a policy/contract, Repayment of capital debt is not considered
• LEASEHOLD PREMIUMS


  Pay an extra amount for the right to lease a valuable asset, These lump-sum premium normally-capital of nature, But sect includes in G, Full amount in first year of contract/lump sum accrued (right accrues)
• "KNOW-HOW" PAYMENTS


  Impart scientific, technical, industrial or commercial knowledge, Service rendered, EG: technical advisory services, sale of information in an interactive way, etc.
• Sale of Copyright is not information sold, but right to ownership of Intellectual property
• LEASEHOLD IMPROVEMENTS


  The value to be included in Lessor's Gi, Only applies if lessor has right to improvements effected to the property, There must be an arrangement/agreement between the lessor and the lessee whereby the lessee must effect Improvements
• DIVIDENDS


  All local and foreign dividends received included in GI, There are dividends which are exempt from Tax which will be discussed later
• GOVERNMENT GRANTS


  Any amount received by the government by means of a government grant
• Other amounts included in GI

  • Par(jA)-amounts received from the sale of an asset manufactured, produced, contracted or assembled
  • Par(n)-Redetermination of capital allowances
  • Par(m)-Recoupment of capital allowances
  • Par(1A)-Bodily injury or death compensation
• Exempt Income


  First included in GI, then deducted as an exemption
• Examples of bodies or persons who do not pay tax

  • Any institution, board or body, whose principal object is to Conduct scientific, technical or industrial research EG. CSIR
  • Foreign banks who are not residents of the Republic
  • PBO, Eg Nelson Mandela Foundation
  • Pension Funds, retirement annuity funds and benefit funds
  • Any level of government in the republic. eg. Municipality
• Nature of Taxpayer who do not pay Tax

  • Municipalities
  • Registered political parties
  • Recreational Clubs
  • Body corporate levies
  • NPO'S
• Local dividends


  Fully exempt from Normal Income Tax
• Foreign Dividends Received


  • Complete exemption if the person receiving the dividends holds at least 10% of the total equity and voting rights in the company declaring the foreign dividend
  • Dividend declared on JSE listed shares are exempt
  • Partial Exemption Ratio exemption: A=BxC, A-Exemption amount, B-Ratio 2545 (Natural person) 7/27 (companies), C-Aggregate amount of dividends that did not qualify for other foreign dividends exemptions