Taxation

ACCESS FOR SUCCESS IN

ACCOUNTING

CHAPTER ONE –
THE INCOME TAX MODEL

Unit 3 – Gross Income: Residence and Source

UNIT GUIDE

Copyright © 2023
REGENT BUSINESS SCHOOL
All rights reserved; no part of this book may be reproduced in any form or by any means, including
photocopying machines, without the written permission of the publisher.

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Table of Contents

1. Learning activities, outcomes and knowledge levels ....................................... 2

2. Prescribed reading ............................................................................................... 3
3. Prior Learning ....................................................................................................... 3
4. Integration............................................................................................................. 4
5. Introduction .......................................................................................................... 4
6. Unit Content .......................................................................................................... 5
6.1. Gross income: Residence ........................................................................... 5
Concept Question 1 ............................................................................................ 5
Concept Question 2 ............................................................................................ 8
Concept Question 3 ............................................................................................ 9
Concept Question 4 .......................................................................................... 10
Concept Question 5 .......................................................................................... 11
6.2. Source ......................................................................................................... 13
Concept Question 6 .......................................................................................... 15
Concept Question 7 .......................................................................................... 16
7. Unit Summary ..................................................................................................... 17
8. Tutorial questions .............................................................................................. 17
Appendix A – extract from SARS Interpretation Note No. 4 (issue 5)................ 18

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1. Learning activities, outcomes and knowledge levels

The learning activities for this week are as follows:
• Read through the module unit notes provided.
• Read the relevant chapters in Silke: South African Income Tax 2023. Keep the
Legislation Handbook open and highlight the relevant sections.
• Attempt the key concept questions as and when recommended in the unit guide and then
compare your attempt with the suggested solution to get feedback on whether or not you
have understood the concepts being tested.
• Work through the study examples in the textbook for guidance on how to answer a tutorial
question.
• Attempt the tutorial questions.
• After the tutorial, mark your attempt against the mark plan provided. To benefit from
this exercise, identify those areas that were incorrectly answered as well as the
parts to the solution that were left out. Determine the reason for these errors and
address any knowledge gaps that have been identified.

After studying this unit, you should be able to:

• Understand the relevance of the residency status of a taxpayer and how it affects “gross
income” as defined in the Income Tax Act.
• Determine whether a person (natural or juristic) is a resident for income tax purposes,
using the definition of a “resident” in the Income Tax Act and/or relevant principles arising
from case law.
• Determine whether or not income is received or accrues from a source within South Africa,
by using the relevant section 9 source provisions in the Income Tax Act or principles arising
from case law, where relevant.
• Demonstrate the ability to apply the relevant legislation and principles of case law to a
taxpayer scenario and be able to construct a logical discussion to address issues within
the scenario.

Competence and
Learning Outcomes
Knowledge Level
Able to interpret tax legislation by applying decisions of the relevant courts that
X
dealt with tax issues
Understands the taxpayer's profile – specifically the taxpayer’s residency (for
X
an individual, company or trust) and liability for tax
Definitions of “gross Income” and “resident” 3
Source of income (section 9) 3
Change of residence consequences for a natural person (section 9H) 2

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2. Prescribed reading

SILKE: South African Income Tax 2023

• Chapter 3 – relevant parts for this unit – see below:

Reference in Ch. 3
Contents
(Silke 2023)
Overview 3.1
Resident and non-resident 3.2
Residence of natural persons 3.2.1
Residence of persons other than natural
3.2.2
persons

• Chapter 21 – 21.3 only (excluding 21.3.3 and 21.3.7)

SAICA Legislation Handbook – Income Tax Act Section

• Section 1 – definition of “gross income”
• Section 1 – definition of “Republic”
• Section 1 – definition of “resident”
• Section 9H – change of residence (refer to table below)
• Section 9 – source of income (refer to table below)

References for section 9 and section 9H of the Income Tax Act

Reference in
Section in the Act Description
Silke 2023
s9H (2) and (4)(a) Change of residence (natural person ONLY) 3.2.3
s9(2)(a) Source of dividend income 21.3.1
s9(2)(b) Source of interest income 21.3.2
s9(2)(i) Source of amounts received from retirement funds 21.3.8
s9(2)(j) and (k) Source of amounts derived from disposal of assets 21.3.5
s9(4)(a), (b) and (d) Amounts from a source outside the Republic 21.3

3. Prior Learning
The concepts of residence and source in relation to “gross income” will have been covered to
some extent during your undergraduate studies. The material in this unit is a refresher of some
of this knowledge and covers these concepts at the level expected for students advancing into
the Postgraduate Diploma in Accounting (PGDA) programme.

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4. Integration
Gross Income is the starting point when calculating a person’s taxable income and this
knowledge is then used throughout the sections dealing with the Income Tax Act. In discussing
tax issues and in performing a tax calculation, the residence of a taxpayer is a key consideration.
If dealing with a non-resident taxpayer, the source of the income will have to be considered.
Vertical Integration
Chapter 1 – The Income Tax Model:
Units 1 – 19

5. Introduction
This unit consists of two parts – Gross Income: Residence and Source.

An in-depth knowledge of each component of the definition of “gross income” is essential to the
study of taxation. As discussed in Unit 1, the definition of “gross income” differs depending on
whether the taxpayer is considered to be a resident or a non-resident. For a non-resident, only
income from a source within the Republic is included in gross income. The term “Republic” is
defined in section 1 of the Income Tax Act, and refers to the Republic of South Africa (SA).

The first part of this unit outlines the requirements in order to be considered a “resident” in terms
of the Income Tax Act. Read through the relevant sections in Chapter 3 of SILKE: South African
Income Tax 2023 (see prescribed reading above), to obtain an understanding of this component,
taking special note of the principles obtained through case law. You will need to understand these
principles and apply them to any given taxpayer scenario appropriately. The tutorials selected for
this unit will assist you to develop the ability to set out a logical discussion addressing key issues,
and demonstrate how case law and the applicable principles should be used in this discussion.
It is vital that you work through the prescribed textbooks and the tutorials, as well as any additional
resources provided to you.

The second part of this unit deals with the concept of source, which is relevant in relation to a
taxpayer that is a non-resident. The determination of the source of income is done with reference
to the provisions of section 9 of the Income Tax Act, as well as principles derived from case law.
Read through the relevant references from Chapter 21 of SILKE: South African Income Tax
2023 (outlined above and referenced throughout this study guide) to ensure that you have
understood the concepts covered in this part of the unit.

In order to answer questions at the appropriate level, it is important that you know and
understand the underlying principle/s for each examinable case and are able to apply the
principle/s to a taxpayer scenario. The following table indicates the list of examinable cases
applicable to this unit:

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Words or phrase
Relevant to Name of the court case
considered
Cohen v CIR
Definition of gross income Resident
CIR v Kuttel
'from a source within the
Definition of gross income CIR v Lever Brothers and Unilever Ltd
Republic'

For this unit, part of the additional resources provided on Moodle are relevant Interpretation Notes
published by the South African Revenue Service (SARS). These are to assist your understanding
on concepts covered in this unit. The Interpretation Notes are not printed in the SAICA
Legislation Handbook, and you may NOT take a printed copy into test/exam venues – refer
to the Open Book Policy in the Module Outline.

6. Unit Content
6.1. Gross income: Residence
Refer to the definition of “gross income” outlined in Unit 1 and the associated components of
the definition. As explained above, the definition of “gross income” differs depending on
whether the taxpayer is considered to be a resident or a non-resident.
• A “resident”, as defined in section 1 the Income Tax Act, is taxed on worldwide receipts or
accruals (i.e. a residence basis of taxation), irrespective of the source of the receipts or
accruals.
• Non–residents, are only taxed on their receipts or accruals that are from a source within
the Republic (i.e. a source basis of taxation).

Concept Question 1
Is the following statement true or false:
It is irrelevant whether a taxpayer is considered to be a resident or non-resident,
as only income generated in South Africa is subject to income tax in terms of
South Africa’s tax legislation.

The definition of a “resident” in section 1 of the Income Tax Act distinguishes between how
this is determined for a natural person and for persons other than natural persons. Refer to
the definition in the SAICA Legislation Handbook – paragraph (a) of the definition deals with
a natural person and paragraph (b) deals with persons other than natural persons.

The definition also specifically provides that if a person is deemed to be exclusively a resident
of another country in terms of a Double Tax Agreement (DTA), then that person will not be
considered to be a resident of South Africa. DTAs will be covered in detail in Advanced Tax
(PGDA).

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6.1.1. Residence of a natural person

Based on the definition of a “resident” in section 1 of the Income Tax Act, a natural person can
be considered a “resident” either if he/she is ordinarily resident in the Republic OR if he/she
meets the physical presence test. This can be represented as follows:

“Resident”
(natural person)
EITHER:

Meets the physical presence test

OR
Ordinarily resident in the Republic (Only use for persons who are not ordinarily resident in the
Republic at any time during the relevant year of
assessment)

Physically present in the Republic for:

➢ >91 days in aggregate in the current year of
assessment; AND
➢ >91 days in aggregate in each of the
preceding five years of assessment AND
➢ >915 days in aggregate over the preceding
five years.

It is important to note that the physical presence test should not be applied to a natural
person that was, at any time during the relevant year of assessment, ordinarily resident in the
Republic. Therefore, the order of enquiry is ALWAYS to first consider whether the taxpayer is
ordinarily resident in the Republic (this may be stated in the question or you may be required
to consider this in your discussion). If the answer is yes, then no further enquiry as to physical
presence should be made.

Only once it has been established that the person is NOT ordinarily resident during the
relevant year of assessment, will you apply the physical presence test. Refer to Silke which
further explains this, and your tutorial questions which demonstrate how to approach your
discussion of these aspects in a logical manner.

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6.1.1.1. Ordinarily resident

The term ‘ordinarily resident’ is not defined in the Income Tax Act. Therefore, guidance is
sought from the principles established by case law that dealt with this aspect.

The two pertinent South African cases that should, at a minimum, be referred to when
answering a question in this regard, are:
• Cohen v CIR; and
• CIR v Kuttel.

Remember that you need only refer to “Cohen’s case” and “Kuttel’s case” and need not learn
the full citation. You must also provide the key case principle in addition to the case
name, but you do not need to provide all the background. In certain tutorial solutions, a
detailed discussion of these two cases is presented to provide background information to the
cases. In a test or exam, the background to the cases would not be required in as much detail
(unless two similar cases are being discussed or compared), however, the key principles of
the two cases would be required.

Refer to 3.2.1 of SILKE which discusses each of these cases in detail.

The main principle established in Cohen v CIR was that a person's ordinary residence was
the country to which he would naturally and as a matter of course return from his
wanderings, to his usual or principal residence and what could be described as his real
home. A person cannot be considered to be ordinarily resident in more than one country
at the same time. Furthermore, the court found that one should not only consider a person’s
actions during the year of assessment concerned; but also, his mode of life outside that
year of assessment, in determining where he/she is ordinarily resident. In addition, the court
held that a person can be physically absent from a country for the entire year, but still
be considered to be ordinarily resident in that country.

In CIR v Kuttel, the court established that a person was ordinarily resident where he had
his usual or principal residence. It was held that the principle from the Cohen case should
be adopted - that a person is ordinarily resident where he has his usual or principal residence,
that is, what may be described as his real home. This is where a person was habitually and
normally resident apart from temporary or occasional absences of long or short
duration.

SARS has published Interpretation Note No. 3 (issue 2) (June 2018) which discusses the
concept of ‘ordinarily resident’. Refer to Silke (pg. 28) which summarises SARS’ view on this
concept, as well as further guidelines set out in the Interpretation Note. A copy of the
Interpretation Note will be provided on Moodle as an additional resource, which you may
peruse for your understanding.

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Concept Question 2
Which of the following statement/s is/are correct?
a. A natural person may be considered to be ordinarily resident in more than
one country at the same time
b. If a natural person is ordinarily resident in the Republic during the 2023
year of assessment, the physical presence test is not applicable to him
during that year of assessment
c. A natural person is considered to be a resident of the Republic either by
being ‘ordinarily resident’ or by having a ‘permanent establishment’ in the
Republic
d. A natural person is considered to a resident of the Republic either by
being ‘ordinarily resident’ or by meeting the physical presence test
e. a, b and d are all correct
f. b and d are correct

Beginning and ending of being ‘ordinarily resident’

A person may be ‘ordinarily resident’ in the Republic for a full year of assessment, but may
also become ‘ordinarily resident’ or cease being ‘ordinarily resident’ in the Republic from a
specific date DURING a year of assessment. Therefore, clarity is required as to when such
persons will begin/stop being considered to be ‘ordinarily resident’. Refer to SILKE (pg. 28) for
a discussion of this aspect.

In summary:

• A person who immigrates to the Republic during a year of assessment:

o will be regarded as ‘ordinarily resident’ from the day he/she becomes ordinarily resident
in the Republic;
o will be regarded as a non-resident from the beginning of the year of assessment to the
day before he/she becomes ordinarily resident.
o You will use the applicable guidelines and principles to establish on which date a person
becomes ordinarily resident in the Republic for these purposes, based on the given
scenario.
• A person who emigrates from the Republic during a year of assessment:
o will cease to be a resident from the date of emigration (the day he/she leaves the
Republic);
o will be taxed as a resident from the beginning of the year of assessment to the day
before he/she emigrates; and
o will be regarded as a non-resident from the date of emigration to the end of the year of
assessment.

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Concept Question 3
Otrina Nkosi was born in South Africa and resided and worked in Johannesburg.
For various reasons, Otrina felt that Australia could offer her better prospects
and decided to emigrate permanently. She began all the necessary applications
and on 1 February 2023, Otrina formally exited the Republic and immigrated to
Australia.
Is the statement below True or False:
Otrina will be taxed in South Africa on her worldwide receipts and accruals from
1 March 2022 up to 28 February 2023.

6.1.1.2. Physical presence test

The physical presence test is the subsidiary test for a natural person who is not ‘ordinarily
resident’ in the Republic at any time during the relevant year of assessment.

Refer to the diagram below which sets out the requirements of the physical presence test (note
that the current year of assessment (YOA) refers to the year that residency is being
determined for):

Physically present in the Republic for >91 days in aggregate during NO

the current year of assessment?

YES Not a
“resident”
Physically present in the Republic for >91 days in aggregate during NO
for the
EACH of the preceding five years of assessment? entire
current
YES YOA

Physically present in the Republic for >915 days in aggregate during NO

the preceding five years?

YES

“resident” for the entire current YOA

When the physical presence test is performed to determine if a natural person can be
considered to be a “resident” for a particular year of assessment, and the test is passed then
the person is deemed to be a resident in South Africa with effect from the first day of that year
of assessment.

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When considering the physical presence test, note that the >91 days and >915 days need not
be continuous, the total days (refer to the words “in aggregate”) physically present will be
considered. Furthermore, the following rules contained in proviso (A) of the definition of
“resident” in section 1 of the Income Tax Act must be borne in mind:

• A day includes part of a day;

• A day does not include any day in transit through the Republic between two places
outside the Republic, as long as there is no formal entry into the Republic through a “port
of entry”.

SARS has also published Interpretation Note No. 4 (issue 5) (August 2018) which discusses
the application of the physical presence test. A copy of the Interpretation Note will be provided
on Moodle as an additional resource, which you may read for your understanding.

Concept Question 4
Tiffany Bond is ordinarily resident in Canada. Her employer requires her to
travel to South Africa regularly to undertake work with certain clients. Days
spent in South Africa for recent years of assessment are as follows:
2018: 145 days
2019: 196 days
2020: 221 days
2021: 117 days
2022: 246 days
2023: 98 days
Select the correct statement from the options provided below:
a. The physical presence test does not need to be performed for Tiffany
because she is ordinarily resident in Canada
b. Tiffany will be taxed in South Africa on a source basis for the 2023 year
of assessment
c. Tiffany meets the requirements of the physical presence test for the 2023
year of assessment and is accordingly deemed to be tax resident in
Canada
d. Tiffany meets the requirements of the physical presence test for the 2023
year of assessment and is accordingly deemed to be tax resident in South
Africa
e. Tiffany does not meet the requirements of the physical presence test for
the 2023 year of assessment

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Beginning and ending of being a “resident” in terms of the physical presence test
As mentioned above, if the physical presence test is passed, a person is deemed to be a
resident in South Africa with effect from the first day of that year of assessment for which the
test is being applied.

In terms of proviso (B) of the definition of “resident” in section 1 of the Income Tax Act, a
person will cease to be a resident in terms of the physical presence test if he/she remains
outside the Republic for a continuous period of at least 330 full days. Residence will cease
from the day that the person left the Republic.

Note that this proviso DOES NOT apply to a person who is ‘ordinarily resident’ in the Republic,
even if he/she is physically absent for a continuous period of at least 330 days. It only applies
to persons considered to be a “resident” through the physical presence test.
Refer to SILKE (pg. 29) which explains this further. Ensure that you work through examples
3.1 and 3.2.

Refer to Appendix A of this unit guide for a full physical presence test diagram (extracted from
SARS Interpretation Note No. 4), including the proviso discussed above, which will assist your
understanding.

6.1.2. Residence of persons other than natural persons

In terms of paragraph (b) of the section 1 definition of a “resident”, a person other than a
natural person (for example a company, close corporation or trust) will be regarded as a
resident in the Republic if it is:
• incorporated in the Republic OR;
• established in the Republic OR;
• formed in the Republic OR;
• has its place of effective management in the Republic

Refer to 3.2.2 for an explanation of how the above definition is applied. Note that for purposes
of this module, the place of effective management will be stated in a question. Accordingly,
you need not know how to determine this for the purposes of tests/exams, but it is
recommended that you have an overall understanding of what the term refers to.

Concept Question 5
ABC (Pty) Ltd was incorporated in South Africa in terms of the Companies Act
71 of 2008. The company’s place of effective management is Dubai. Ignore
DTAs.
Which of the following statements is correct?
a. The company is ordinarily resident in Dubai
b. The company is considered tax resident in South Africa
c. The company is taxed in South Africa on a Source Basis

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6.1.3. Change of residence of a natural person – s9H

In this module, only the consequences of a change of residence in relation to a natural person
will be covered. When reading through 3.2.3 of Silke, please ignore the parts that relate to a
change of residence of a company, ceasing to be a controlled foreign company (CFC) and
becoming a headquarter company. The examinable parts of section 9H for this module have
been listed in the references table under prescribed reading.

Section 9H(2) states that when a natural person ceases to be a resident of the Republic during
a year of assessment:
(a) a deemed disposal of assets takes place, at market value, on the date immediately before
he/she ceases to be a resident and a deemed reacquisition takes place, at market value,
on the day he/she ceases to be a resident;
(b) that year of assessment is deemed to end on the date immediately before the day on which
he/she ceases to be resident;
(c) the next succeeding year of assessment is deemed to start from the day he/she ceases to
be resident.

For example, if a natural person emigrates on 1 July 2022, he/she ceases to be a resident on
that date, therefore:
• the deemed disposal of assets will take place on 30 June 2022 and the deemed
reacquisition will take place on 1 July 2022;
• his/her 2023 year of assessment as a resident is deemed to end on 30 June 2022 (he/she
will be taxed as a resident from 1 March 2022 to 30 June 2022); and
• his/her 2023 year of assessment as a non-resident is deemed to start from 1 July 2022
(he/she will be taxed as a non-resident from 1 July 2022 to 28 February 2023).

In terms of section 9H(4)(a), the deemed disposal and reacquisition of assets does not apply
to immovable property situated in the Republic that is held by the person ceasing to be a
resident.

Example: Jack was born in the Republic. He emigrated to Australia on 1 July 2022. At that
date, he owned the following assets:
• A home in Cape Town (market value on 30 June = R5 600 000)
• A house in Australia (market value on 30 June = R9 200 000)
• JSE listed shares (market value on 30 June = R450 000)

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The tax consequences under s9H are as follows:

• Jack ceased to be a resident on the date he emigrated (1 July 2022).
• In terms of s9H(2)(b), his year of assessment as a resident is deemed to end on 30 June
2022.
• In terms of s9H(2)(c), his year of assessment as a non-resident is deemed to start from 1
July 2022.
• In terms of s9H(2)(a), Jack is deemed to have disposed of his assets at market value on
30 June 2022 and he is deemed to have reacquired those assets as a non-resident on 1
July 2022, at market value
• In terms of s9H(4)(a), the deemed disposal does not apply to the home in Cape Town
(immovable property situated in the Republic), therefore there will only be a deemed
disposal on 30 June 2022 of the house in Australia (at market value of R9 200 000) and
the listed shares (at market value of R450 000) and a deemed reacquisition of these assets
on 1 July 2022 at market value.
• Note: since these are capital assets held by Jack, they will result in capital gains tax (CGT)
– this topic is covered in Unit 11.

Since you should have an overall understanding of CGT from your undergraduate studies, you
should be able to understand example 3.3 in SILKE.

6.2. Source
The concept of source is relevant to “gross income” (as defined) in relation to a non-resident.
For non-resident persons, only income from a source within the Republic is to be included in
gross income. Source is determined either with reference to section 9 of the Income Tax Act,
which deals with specific types of income, or, where there is no applicable section 9 rule,
reference is then made to the common law source principles established by judicial decisions.

6.2.1. Statutory source rules – s9

Refer to 21.3 of SILKE and section 9 of the Income Tax Act in the SAICA legislation handbook.
Note that sections 9(1), 9(2)(c), (d), (e), (f), (g), (h) and (l), and sections 9(4)(c) and (e)
are not examinable, therefore you may ignore the sections in SILKE that discuss these
provisions. Some of the provisions make reference to the term “permanent establishment”,
which refers to a fixed place of business through which the business of an enterprise is wholly
or partly carried on – for the purposes of tests/exams, where applicable, you will be given the
place of permanent establishment, you are not required to determine this.

The following table summarises the source rules contained in section 9 (please ensure that
you read through the applicable sections in Silke, and refer to your SAICA Legislation
Handbook to ensure you understand these sections):

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ITA Ref in
Income Source within the Republic if:
Section Silke
• distributed by a resident (SA) company
Dividend s9(4)(a) further states that a foreign dividend (a
s9(2)(a) 21.3.1
income dividend paid by a non-resident company) is
considered to be from a source OUTSIDE the Republic
• the interest is paid by a resident (unless attributable
to a permanent establishment situated outside the
Republic) OR
• the interest is received/accrued in respect of 21.3.2 &
Interest
s9(2)(b) funds/credit used/applied in the Republic – in this Example
income
case the payer’s residence is not relevant 21.1
s9(4)(b) states that any interest that does not meet
either of the above criteria is considered to be from a
source OUTSIDE the Republic
Amounts
received
• it is in respect of services rendered in the Republic
from
NOTE: if services were rendered partly within and
retirement
partly outside the Republic, the amount is from a
s9(2)(i) funds 21.3.8
source within the Republic is apportioned on the basis
(lump
of [period rendered within Republic/total period of
sums/
service])
pensions/
annuities)
• the property is situated in the Republic
Disposal
s9(4)(d) states that any amount from the disposal of
of
s9(2)(j) immovable property that does not meet the above 21.3.5
immovable
criteria is considered to be from a source OUTSIDE the
property
Republic
Disposal In relation to a resident:
of • the asset is not effectively connected to a
movable permanent establishment (of the resident) outside
s9(2)(k) asset the Republic and 21.3.5
(including • proceeds from disposal have not been subject to
trading tax in another country
stock)

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ITA Ref in
Income Source within the Republic if:
Section Silke
In relation to a non-resident:
• the asset is effectively connected to a permanent
establishment (of the non-resident) situated in the
Republic

s9(4)(d) states that any amount from the disposal of

movable assets that does not meet the above criteria is
considered to be from a source OUTSIDE the Republic

Concept Question 6
Harold is considered to be a tax resident in the United Kingdom. The following
amounts were received by or accrued to him for the 2023 year of assessment:
Dividends from South African resident companies – R57 000
Dividends from foreign companies (non-SA residents) – R162 500 (Rand
equivalent)
Select the total amount that should be included in Harold’s gross income
for the 2023 year of assessment:
a. R0
b. R57 000
c. R162 500
d. R219 500

6.2.2. Common law source principles

For any income that does not have a source rule contained in the legislation, reference must
be made to case law. In CIR v Lever Brothers & Unilever Ltd, the court discussed the concept
of the originating cause, which is the foundation for establishing the source of a receipt. This
involves that two questions be considered:

• What is the originating cause? (i.e. what gives rise to the income?)
• Where is that originating cause located?

In considering the above questions, a case may arise where more than one originating cause
is identified. Therefore, in such cases, it is necessary to establish which is the DOMINANT
CAUSE of the income. This involves considering the main or substantial cause of the income.

A few general guidelines are listed below to assist with the determination of the source of
certain types of income:

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• Rental income – the source is normally where the asset is situated/located BUT this is
not a universal rule. Refer to 21.3.4 of SILKE.
o Consideration must be given to a business where the emphasis is on the business
and not the asset (consider a car hire for example) – in such a case, it is not
necessarily important where the asset is used and the source of the rental may be
where the business is situated.
• Income from Employment/Services rendered – the source is normally the place
where services are rendered (regardless of where the contract is signed or where
payment is made). Refer to 21.3.6 of SILKE.
• Directors’ fees – the source of such income is generally where the head office of the
company is situated, or where the board of directors meet.
• Business income (other than that covered by s9) – the source is the place where
business is carried on or where business capital is employed, whichever is the dominant
cause.

Note that the above are only guidelines and may not apply in every scenario. Each case
must be considered on its own facts.

Concept Question 7
Sandra Lewis is a resident of the USA. She has never been to South Africa.
She owns a number of rent-producing properties around the world. Details of
the properties and the rentals accrued for the 2023 year of assessment are as
follows:
Property 1 – situated in USA – Rand equivalent of rentals accrued is R135000
Property 2 – situated in London – Rand equivalent of rentals accrued is
R263000
Property 3 – situated in South Africa – R224000 rentals accrued
Property 4 – situated in Spain – Rand equivalent of rentals is R185000

Select the total amount that should be included in Sandra’s gross income
for the 2023 year of assessment:
a. R135 000
b. R320 000
c. R224 000
d. R185 000
e. R544 000

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7. Unit Summary
It is necessary that the “gross Income” definition be understood in much detail. “Gross Income”
is a very important definition in the Income Tax Act and the case law relating to the underlying
components is extremely pervasive throughout the course. The questions that relate to this
section are typically discussion type questions and students need to develop a technique when
approaching these types of questions (see guidance provided in Unit 1 study guide).

This unit covered the components of residence and source in relation to the “gross income”
definition.

The next unit will cover how to distinguish between amounts that are capital in nature and
amounts that are revenue in nature. This determination is important, as the “gross income”
definition in the Income Tax Act excludes receipts and accruals of a capital nature, unless they
are form part of the special inclusions (this will be covered in Unit 5).

8. Tutorial questions
The tutorial questions are from the prescribed books:
Solutions that are not contained in the above books will be provided on Moodle.

Graded Questions on Questions on SA Tax 2023 (Parsons)

Focus area Income Tax in South Africa ([S] indicated below means the solution
2023 (Mitchell) is found in the book)
Residence and Source 3.1, 3.2 1.2, 1.3, 1.4

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Appendix A – extract from SARS Interpretation Note No. 4 (issue 5)

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