Silke: South African Income Tax 4.1 4.

that the specific inclusions as listed do not limit the scope of th

4 Specific inclusions in gross income Any amounts not included in terms of paras (a) to (n) can therefore still be included in gross income
in terms of the general definition. It is submitted that the specific inclusion provisions do enjoy priority
over the general definition, even though the Act does not contain a similar provision in this regard,
Linda van Heerden like s 23B(3), that deals with the precedence of the specific provisions for deductions over s 11(a). All
income in terms of any other provision of the Act,
n).
Outcomes of this chapter
After studying this chapter, you should be able to: definition (s 1(1)).

The authority for the inclusion of an amount in gross income is either a reference
even though they may be of a capital nature, and support your opinion with the rele-
to the specific paragraph of the definition of gross income (in the case of a spe-
vant authority cific inclusion), or the general definition of gross income. Although the use of
Please note!
demonstrate your knowledge in a practical case study (both in a calculation question the subtotal method in chapter 7 facilitates the calculation of taxable income
and a theoretical advice question). and the total tax liability, reference to the column in which an amount must be
included is not authority for the inclusion of an amount in gross income.

Contents The specific inclusions in gross income are now discussed separately.

Page 4.2 Annuities (paras (a) and (d)(ii) of the definition of ss 10(1)(gA),
4.1 Overview............................................................................................................................. 59 10A, and par 2(4) of the Fourth Schedule)
4.2 Annuities (paras (a) and (d)(ii) of the definition of (gA), 10A Paragraph (a) specifically includes in gross income any amount received or accrued by way of
and par 2(4) of the Fourth Schedule)................................................................................. 60
an annuity
4.3 Maintenance payments (par (b
10(1)(u)).............................................................................................................................. 62 a
4.4 Services (paras (c) and (n) of the definition of ss 8B, 8C, 10(1)(gC), an as defined in s 10A(1).
(nA) to (nE), (o) and (q) and s 57B) ................................................................................... 64 Paragraph (a) specifically excludes an amount received or accrued from the proceeds of a policy of
4.5 Restraint of trade (paras (cA) and (cB) of the definition of ...................... 67 insurance where the person is or was an employee or director of the policy holder (par (d)(ii)
4.6 Services: Compensation for termination of employment (par (d) of the definition of see 4.6). This exclusion aims to eliminate a possible double inclusion in gross income in respect of
and s 10(1)(gG)) ........................................................................................ 68 compulsory insurance annuities for the benefit of employees and their dependents. Such annuities
are therefore dealt with solely in terms of par (d)(ii). This exclusion under par (a) is to the benefit of
4.7 Fund benefits (paras (e) and (e .............................. 70
the taxpayer. This is because the inclusion under par (d)(ii) means that the compulsory insurance
4.8 Services: Commutation of amounts due (par (f) ........ 70 annuity income may be exempt (in terms of s 10(1)(g
4.9 Lease premiums (par (g) of the definition of s 11(f) and (h)) ................... 70
4.10 Compensation for imparting knowledge and information (par (gA) of the definition of Annuities (except s 10A annuity amounts) are not divided into capital and income and are taxable in
s 9(2)(e) and (f))........................................................................................ 71 full under par (a), irrespective of whether the receipts or accruals are of a capital nature. Para-
4.11 Leasehold improvements (par (h) of the definition of s 11(h)) ................. 71 graph (a), however, does not override the source rules. The source of annuities is determined by the
4.12 Taxable (fringe) benefits (paras (c) and (i) of the definition of ................ 72 place where the contract was concluded (as held in Boyd v CIR (1951 AD), the fons et origo is the
4.13 Proceeds from the disposal of certain assets (par (jA) of the definition of formal act giving rise to the annuity).
a), 22(8) and 26A) ................................................................................... 73 Annuities
4.14 Dividends (par (k) of the definition of ss 10(1)(k) and 10B) ..................... 73
4.15 Subsidies and grants (par (l) of the definition of and par 12(1) of the
in case law. The main characteristics of an annuity, listed in ITC 761 (1952) and confirmed in KBI en
First Schedule) ................................................................................................................... 73
(1993 AD), are
4.16 Amounts received by or accrued to s 11E sporting bodies (par (lA) of the definition of
................................................................................................................... 73 (1) It is an annual payment (this would probably not be defeated if it were divided into instalments).
4.17 Government grants (par (lC) of the definition of and s 12P) ..................... 73 (2) It is repetitive: payable from year to year for, at any rate, a certain period.
4.18 Key-man insurance policy proceeds (par (m) of the definition of ........... 74 (3) It is chargeable against some person.
4.19 Amounts deemed to be receipts or accruals and s 8(4) recoupments (par (n) of the An annuity may arise in a variety of ways:
definition of ss 7, 8C and 24I)................................................................... 74 It may be bought from an insurance company.
4.20 Amounts received in terms of certain short-term insurance policies (s 23L(2))................ 74 It may be granted by way of a donation or bequest, through a trust or otherwise.
It may be received as consideration for the sale of a business, or an asset, or for the surrender of
4.1 Overview a right.
The following are examples of amounts that do, or do not, constitute annuities:
The annual payment of instalments due, in terms of a transaction of a capital nature with a definite
ted in paras (a) to (n) of the definition ascertainable price, is not an annuity and falls outside the scope of par (a).
Annual voluntary amounts payable in terms of a discretion are not annuities, but rather individual
income even though they may be of a capital nature. The other elements of the general defin- gifts and capital in nature.
ition also apply to the specific inclusions, except where otherwise stated. It is specifically provided

59 60
 4.2 Chapter 4: Specific inclusions in gross income
A pension paid by an employer to the widow of a deceased employee, terminable at the will of
the employer, cannot be regarded as an annuity. However, a life pension payable to the widow
by an employer who has bound himself to pay the pension for life would constitute an annuity.
A contractual obligation or an obligation in terms of a trust deed to make regular monthly or
annual payments for life or for a fixed period would constitute an annuity.
Fixed annual amounts payable out of the residue of an estate in terms of a will constitute an
annuity. These amounts would constitute annuities, whether they were payable for a specified
number of years or for the lifetime of the recipient. Even if there were variations in the amounts of
the annual payments because of certain contingencies, they would still constitute annuities. It is
immaterial whether the annuity is payable out of the income or the capital assets of the estate.
In (1993 AD) the taxpayer, a fireman, instituted an action for a lump sum
compensation from the Motor Vehicle Assurance Fund after being seriously injured in a collision. The
Fund undertook to pay his claim for loss of future earning capacity by way of monthly instalments.
The issues were whether these payments constituted an annuity and, if so, whether the Fund should
f a lump sum as pay-
ment for the loss of future earning capacity; moreover, the payment of each instalment
was conditional on proof that he was still alive. The delictual obligation to compensate him
was replaced by a contractual obligation to pay the instalments while he lived, without creating a
liquid or determinable debt capable of being reduced by those instalments. The payments met all the
be
deducted, no matter what the contractual arrangements provided.
any person by way of any amount referred to in par (a) of the definition of the term gross
Annuities from funds
When a member retires from any retirement fund (pension fund, pension preservation fund, provident
fund, provident preservation fund or retirement annuity fund), the member is only allowed to take one-
-thirds are reinvested to
ensure a future income and is paid out in the form of annuities (see chapter 9) .
A member can either invest the two-thirds in a guaranteed life annuity or a living annuity. The main
differences between life annuities and living annuities are as follows:
Life annuities
Life annuities can offer the assurance that you will not outlive your capital.
Life annuities provide an income for life, with annual increases.
Not all types of life annuities will guarantee that the increases in income will keep up with inflation.
Life annuities will not leave capital for your dependants to inherit once you die you only receive
the annuities while you are alive.
Living annuities
Living annuities are market-linked and will fluctuate depending on the performance of its under-
lying investment portfolio.
You can choose how much you want to draw as income annually. (Pensioners are obliged by law
to take an income from between 2,5% and 17,5% per year.)
If the drawdown rate remains below the growth rate of the investment portfolios, you will likely
have capital remaining to leave as an inheritance once you die.
any retirement fund (see chapter 9), or his or her dependant or nominee, to an annuity purchased or
provided on or after the retirement date of that member. These annuities can be purchased from
another person (for example another fund) or can be provided by the fund to which the member
belongs. The value of the annuity is determined solely by reference to the value of the assets speci-
fied in the annuity agreement and held for paying the annuities (par (a
of the annuity is determined according to a method or formula prescribed by
the Minister of Finance, and it is not guaranteed by the person from which it is purchased or the fund
that provides it (paras (b) and (d - as soon as possible after a divorce. The various amendments opened the possibility to issue a mainte-
ments on a monthly or other agreed basis, at a rate of between 2,5% and 17,5% per annum calcu-
lated on the reducing balance of capital. The practical working of such annuity agreement is like an
61
Silke: South African Income Tax 4.2 4.3
investment account and the possibility therefore exists that the funds (the value of the assets) are
depleted before the person receiving the annuities dies.
The full remaining value of the assets specified in the annuity agreement may be paid as a lump sum
when the value of those assets become less than an amount prescribed by the Minister of Finance
(par (c
Notice No. 619 dated 1 June 2020). On the death of the member or former member, the value of the
assets may be paid as an annuity and/or lump su e) of
Paragraph (e
trust, the value of the assets must be paid to the trust as a lump sum pursuant to that termination.
e)). Before the
amendment, if a trust that was initially nominated as the owner of a living annuity upon the death of
the original annuitant was subsequently terminated, such trust was unable to make payments to its
nominees. Paragraph (eA) rectifies this problem.
Please see chapter 9 for a discussion of the s 10C exemption in respect of qualifying annuities.
Annuity amounts
An
(as defined) and in consequence of the commutation or termination of an annuity contract (s 10A).
These annuity amounts are bought from insurers in return for a lump sum cash consideration (pur-
chased annuity).
In terms of the annuity contract, the insurer guarantees to pay an annuity until the death of the
annuitant or the expiry of a specified term.
An annuity amount under s 10A is divided into capital and income. The total annuity amount is in-
cluded in gross income in terms of par (a) and the capital part, determined by a formula (s 10A(3)), is
exempt from tax (s 10A(2)).
4.3 Maintenance payments (par (b) of the definition of ross ss 7(11) and
10(1)(u))
Section 15(1) of the Maintenance Act of 1998 confirms that maintenance orders for the maintenance of
a child are directed at the enforcement of the common law duty on parents to support children who are
unable to suppo
reaches a particular age, but it usually does so when the child becomes self-supporting. Majority is
not the determining factor here. Spouses also have a reciprocal duty to support one another. Sec-
tion 7 of the Divorce Act of 1979 makes provision for our courts to grant maintenance orders. In our
rt that a divorced person gives his or her spouse is invariably
-
sion that follows.
Maintenance payments are normally paid monthly from the after-tax income of the paying spouse. Up
until 2006 the tax implications were as follows:
In respect of any divorce on or before 21 March 1962, the paying spouse was entitled to a de-
duction for such payments. All amounts received by a spouse or former spouse (the receiving
spouse) by way of maintenance for such spouse or any child were included in the gross income
of such spouse in terms of par (b) of the definition of gross income. The tax liability regarding
maintenance payments therefore rested on the receiving spouse.
In respect of any divorce after 21 March 1962, the paying spouse was not entitled to a deduction
for such payments. All amounts received by a spouse or former spouse (the receiving spouse) by
way of maintenance for such spouse or any child, were included in the gross income of such
spouse in terms of par (b) of the definition of gross income. The receiving spouse qualified for an
exemption in terms of s 10(1)(u) for all such amounts, and therefore the receiving spouse had no
tax liability regarding maintenance payments.
From 2007 to 2009, various amendments were made to the Pension Funds Act, the Maintenance Act,
and the Divorce Act, giving effect to the so-
entails that parties should (if circumstances permit) become economically independent of each other
nance order or a divorce order against the minimum individual reserve (the balance of all the mem-
-
ment fund.
62
 4.3 Chapter 4: Specific inclusions in gross income
including the periodical payment, of sums of money towards the maintenance of any person issued by
any court in the Republic. This wide definition does not limit the source from which the payments are
made, and therefore includes both maintenance payments made from the after-tax income of the
paying spouse and amounts deducted from the minimum individual reserve of the member spouse in
terms of a maintenance order.
The aforementioned amendments led to the introduction of, and amendments to, s 7(11) in the Act and
par 2(1)(b)(iA) of the Second Schedule from 2007 to 2009. Section 7(11) only affects the tax implications
of a deduction from a
erms of a
divorce order is taxed as a retirement fund lump sum withdrawal benefit in the hands of the receiving
spouse (par 2(1)(b)(iA) of the Second Schedule) (see chapter 9).
Numerous amendments were also made to par (b) of the definition of gross income and s 10(1)(u) in
the same period. These sections and paragraphs must be read together to determine the current tax
implications of maintenance payments. As explained below, the combined effect of the amendments
may inadvertently have caused an uncertainty regarding the normal tax implications of payments for
the maintenance of a child made from the after-tax income of the paying spouse.
Maintenance payments made from amounts deducted from the minimum individual reserve of a mem-
ber spouse (the paying spouse)
Section 7(11) currently applies in respect of all amounts, once-off and periodical, deducted from the
minimum individual reserve in terms of a maintenance order for the maintenance of both a former
spouse and a child. Such deduction(s) from the minimum individual reserve means that the paying
spouse will no longer be taxed on that amount when he or she retires or withdraws from the retire-
ment fund, but s 7(11) ensures that the tax implications of such reduction will remain in the hands of
the member whose minimum individual reserve is reduced. The member of the fund (being the pay-
ing spouse, and not the receiving spouse) must include the sum of the following amounts deducted
from his or her minimum individual reserve in his or her income:
the amount by which the minimum individual reserve of the member was reduced in terms of the
maintenance order, and
the tax withheld by the fund in respect of the aforementioned amount.
ats all pre-retirement
withdrawals from retirement savings as income accrued to the member (as opposed to the recipient)
if the withdrawal stems from a maintenance order under section 37D(1)(d)(iA) of the Pension Funds
the paying spouse, the receiving spouse need not include such
amounts for the maintenance of the spouse or a child in gross income in terms of par (b)(i) or (ii) of
the definition of gross income.
s 7(11) (the aforementioned sum) is
f advance is included in gross income even though the services are rendered in a later year. If an
reserve also co -on-
7(11) amounts by following the special steps laid out in Interpretation
Note No. 89 (see chapter 10).
Maintenance payments made from the after-tax income of the paying spouse
Paragraph (b)(i) of the definition of gross income currently includes any amounts payable to a spouse
or former spouse (the receiving spouse) under any judicial order or written agreement of separation
or under any order of divorce, by way of maintenance for such spouse. These amounts are payments
made from the after-tax income of the paying spouse because if maintenance payments for a spouse
are made via deductions from the minimum individual reserve of the member spouse, it is deemed to
accrue to the member spouse in terms of s 7(11). The receiving spouse qualifies for an exemption in
terms of s 10(1)(u)(i) for all such amounts.
Paragraph (b)(ii) of the definition of gross income currently includes amounts payable to the taxpayer
- portion of an allowance or advance to the extent that the allowance or advance, or a portion thereof,
after-tax income of the paying spouse because if maintenance payments for a child are made via
deductions from the minimum individual reserve of the member spouse, it is deemed to accrue to the
member spouse in terms of s 7(11). The accompanying exemption for such amounts (contained in
s 10(1)(u)(ii) up until 2008) was, however, deleted in 2009. The 2009 Explanatory Memorandum
63
Silke: South African Income Tax 4.3 4.4
section 7(11) fully re-allocates the amount from the recipient to the m
It is submitted that it was incorrect to claim that the exemption in s 10(1)(u)(ii) was no longer neces-
sary since s 7(11) only re-allocates maintenance payments made via deductions from the minimum
individual reserve of the member spouse to the member spouse. Maintenance for a child paid from
the after-tax income of the paying spouse should still be exempt in the hands of the receiving spouse
because the paying spouse has already been taxed on the income from which it is paid. It is submit-
ted that, until a new exemption clearing up this position is enacted, the exemption in s 10(1)(u)(i)
should be interpreted widely to allow an exemption for all maintenance payments paid from the after-
tax income of the paying spouse for the maintenance of both the receiving spouse and any child.
This was the position in s 10(1)(u) up until 2006, before all the amendments were made, and it is
submitted that the receiving spouse must still have no tax liability regarding such maintenance pay-
ments.
4.4 Services (paras (c) and (n) of the definition of ss 8B, 8C,
10(1)(gC), (nA) to (nE), (o) and (q) and s 57B)
Amounts received or accrued in respect of services rendered or to be rendered, or any employment
or the holding of an office, for example salaries paid to employees, are included in gross income
(par (c)). Voluntary awards in respect of services rendered, for example annual bonuses made ex
gratia, are specifically included. If the amount is awarded to an employee in respect of services
rendered, it is included in gross income, irrespective of whether it is payable under a contract of
service. In Stevens v CSARS (2006 SCA) an ex-gratia payment was made by a company to a tax-
payer to compensate the taxpayer for the loss of a share option when the company went into volun-
employment, and such receipt therefore fell within par (c).
There must be a causal relationship between the amount received and the services rendered or to be
services were rendered (CIR v Crown Mines Ltd (1923 AD)). The causal relationship need not be a
direct relationship (ITC 1439 (1987)). The causal relationship does not only exist in an employee-
employer relationship. If a person is, for example, paid for information relating to stolen diamonds
s rendered and the amount will be
included in gross income in terms of par (c) (CSARS v Kotze (2002 (C)).
Awards for services rendered are taxable in the year of their receipt or accrual, irrespective of the
year of assessment but refers to the total period, long or short, of the services of the taxpayer. The
full
amount received by or accrued to him, even though the services were rendered in a previous year of
assessment or will be rendered only in a later year of assessment. The full amount of a salary paid in
amount is paid to an employee for concluding a contract of service, it is paid as a consideration for
the rendering of future services and falls within gross income.
Exclusions from par (c) and provisos to par (c)
Amounts referred to in ss 8(1), 8B and 8C
Not all amounts paid respect services rendered are included in gross income in terms of
par (c). It is specifically stated that the ambit of par (c
(allowances and advances), 8B (broad-based employee share plans) and 8C (equity instruments). It
allowance, or to the net amount, being the gross amount paid as an allowance less any portion
thereof that is exempt from normal tax in terms of s 10(1).
The reason for this uncertainty is that s 8(1)(a)(i) provides that any amount paid or granted by a
principal (for example an employer) to a recipient (the person receiving the amount, for example an
employee) as an allowance or advance must be included in the taxable income of the recipient. Any
is exempt from normal tax under s 10(1) is, however, specifically excluded from such amount to be
included in taxable income.
to the gross amount paid as an allowance. By excluding the portion of an allowance or advance to
64
 4.4 Chapter 4: Specific inclusions in gross income
the extent that the allowance or advance, or a portion thereof, is exempt under s 10(1) from the
amount to be included in taxable income in terms of s 8(1)(a)(i), it can be reasoned that s 8(1) is in
effect not applicable to the gross amount of such allowances. For example, if an allowance is fully
exempt (like a special uniform allowance in terms of s 10(1)(nA)), viewpoint one means that the gross
amount of such allowance cannot be included in taxable income in terms of s 8(1). However, before
any amount can be exempt in terms of s 10(1), there must be an inclusion in gross income. Viewpoint
one submits that this inclusion of the gross amount of the allowance is in terms of par (c) because the
allowance is received in respect of services rendered. This is supported by the fact that an employer
who pays such a special uniform allowance that is exempt in terms of s 10(1)(nA) to an employee,
must still show the full allowance on the IRP5 of the employee (under
non-
allowance paid. It can be reasoned that, since par (c) of the gross income definition specifically
c), par (c) cannot be applic-
able to any portion of an allowance or advance to the extent that the allowance or advance, or a por-
tion thereof, is exempt under s 10(1). This means that only s 8(1)(a)(i) can apply to such allowance or
advance, or portion thereof, that is exempt.
The two viewpoints lead to different disclosures in the comprehensive framework for natural persons
in chapter 7, and it is suggested that both options should be accommodated when assessing stu-
dents:
par (c) and claim the exemption in terms of s 10(1) und
Viewpoint two: Include an amount of Rnil in in terms of s 8(1)(a)(i) (after subto-
tal 3 in the comprehensive framework), with complete disclosure of both the gross amount of the
allowance received and the exemption in terms of s 10(1).
All gains made by a person in terms of s 8B (broad-based employee share plan) or s 8C (equity instru-
ments) are included in the income of the person in terms of those sections. All gains referred to in
ss 8B and 8C are consequently not included in gross income in terms of par (c). Please remember
that any amounts included in in terms of any other provision of the Act are effectively included
in gross income in terms of par (n). Please see chapter 8 for a detailed discussion of the s 8(1) allow-
ances and advances, s 8B and s 8C.
Amounts included in terms of par (i) of the gross income definition (proviso (i) to par (c))
Benefits or advantages that are included in gross income in terms of par (i), that is, any taxable
(fringe) benefit in terms of the Seventh Schedule, are also excluded from par (c) (proviso (i) to
par (c)). Receipts in terms of par (c) are subject to par (i) (proviso (i) to par (c)). This means that if a
terms of the Seventh Schedule is received, par (c) will not apply since par (i)
whether the Seventh Schedule excludes a specific type of benefit as a taxable benefit, or merely
states that no value must be placed on it. Taxable benefits are benefits or advantages contemplated
in par 2 of the Seventh Schedule given by employers to employees by virtue of employment or as a
reward for services rendered or to be rendered, in a form other than cash.
granted to an employee. This means that the Seventh Schedule does not apply to such benefit and
that it cannot be included in gross income in terms of par (i). It can, however, still be included in
gross income in terms of par (c), being an amount received in respect of services rendered. Any
benefit, the amount or value of which is exempt from tax in terms of s 10 (for example relocation
expenses paid by the employer that are exempt in terms of s 10(1)(nB)), is, for example, specifically
can therefore not be included in gross income in terms of par (i). As mentioned earlier, it can be
included in gross income in terms of par (c) but will be exempt in terms of s 10 again.
If the Seventh Schedule states that no value must be placed on a benefit (for example if the employer
continues to pay the contributions to the medical scheme after retirement in
par 12A(5)(a)), it means that there is still a taxable benefit (as defined) and that it must be included in
gross income in terms of par (i), even though the cash equivalent of the taxable benefit is Rnil.
Paragraph (c) can consequently not apply to such a no-value taxable benefit.
Amounts received by reason of services rendered by another person (proviso (ii) to par (c))
If a person (A) receives an amount in respect of services rendered by another person (B), the amount
is expressly included in the gross income of the person who renders the services (B) (proviso (ii) to
65
Silke: South African Income Tax 4.4
par (c)). This anti-avoidance provision prevents the employee or officeholder from trying to avoid tax
by diverting his salary or rewards for services to other taxpayers, such as family members. The effect
of the proviso is that no matter who receives the remuneration, the person who rendered those ser-
vices remains liable for normal tax thereon.
Wit
attention that some taxpayers have devised schemes aimed at undermining the donations tax provi-
sions. These schemes entail a service provider (for example, an employee or independent contrac-
tor) ceding the right to receive an asset for services rendered or to be rendered to an employer prior
to the employee becoming entitled to that asset. It is generally ceded to a family trust before services
are rendered.
In these instances, the service provider may be able to circumvent donations tax in terms of s 54 as
this right to receive an asset would have been ceded to the trust before the services are rendered
and a value can be attached to it. The argument is that the service provider is simply disposing of a
worthless spes and is therefore not liable for donations tax at the time the services have been ren-
dered and the employer transfers the asset to the cessionary. Moreover, the service provider will not
be entitled to the asset and cannot be regarded as having disposed of it in terms of the Eighth
Schedule.
Section 57B addresses this two-legged transaction. The implications of the transaction between the
employer and the employee are stipulated in s 57B(2)(a), and that of the transaction between the
employee and the other person in s 57B(2)(b). Section 57B provides that
the disposal by the employee of the right to the asset to another person prior to becoming entitled
thereto must be disregarded (s 57B(2)(a))
the employee is deemed to have acquired the asset from the employer for an amount equal to the
amount included in the gross income under proviso (ii) to par (c) or under par (i)
(s 57B(2)(a)), and
the employee is deemed to have disposed of the asset to the other person by way of a donation
for the same amount and the other person is deemed to have acquired the asset for the same
amount (s 57B(2)(b)).
Long service awards (proviso (vii) to par (c))
The current practice of employers is to grant employees a wider range of awards than non-cash
assets in recognition for long service (as defined in par 5(4) of the Seventh Schedule). With effect
from 1 March 2022, the new proviso (vii) to par (c) ensures that such awards in recognition of long
service can include cash amounts. To the extent that the aggregate of such cash amount together
with all amounts determined under paras 5(2)(b) (acquisition of an asset), 6(4)(d) (right of use of an
asset) and 10(2)(e) (free or cheap services) of the Seventh Schedule awarded to an employee for
long service do not exceed R5 000, such cash amount will not be included in gross income in terms
of par (c).
Example 4.1. Amounts received or accrued in respect of services rendered
Discuss whether the following amounts are included in gross income by virtue of par (c) of the
definition:
a pension or retirement allowance received by an ex-employee from an employer, whether
payable in terms of a service contract or awarded voluntarily by an employer
an amount received on retirement in lieu of accumulated leave
a salary received in lieu of the notice required to be given by the employer in terms of the
service agreement
a prize won by an employee for excellent services rendered
a climatic allowance received by a public servant or employee
an allowance paid by an employer to an employee for the upkeep of the garden of a house
belonging to the employer but occupied by the employee
amounts received by way of however small the service might be.
66
 4.4 4.5 Chapter 4: Specific inclusions in gross income
SOLUTION
The pension will be included by virtue of par (c) since the causal relationship to services ren-
dered exists and voluntary awards are specifically included.
The amount in respect of accumulated leave will be included by virtue of par (c) since leave is a
benefit that accrues in respect of services rendered.
The salary in lieu of the notice required will be included by virtue of par (c) since it is payable
under a service contract.
The prize won will be included by virtue of par (c) because of the causal link to excellent services
rendered. Although it might be seen as an amount of a capital nature, the specific inclusions are
included in gross income even though they may be of a capital nature.
The climatic allowance will not be included by virtue of par (c) but will be included in taxable
income in terms of s 8(1) being an allowance.
The allowance for the upkeep of the garden will not be included by virtue of par (c) but will be
included in taxable income in terms of s 8(1) being an allowance.
Amounts by way of tips are voluntary amounts but will be included by virtue of par (c) because the
causal relationship to services rendered exists and voluntary awards are specifically included.
Leave is a condition of service and accrues to the employee as the services are
rendered. Accumulated leave is paid out because a benefit has accumulated in
respect of services rendered. In terms of the Guide for Employers in respect of
Employees Tax 2022 (PAYE-GEN-01-G03), leave pay (including accumulated
Please note! leave payments) does not form part of a severance benefit (see 4.6). It is a
payment in respect of services rendered and must be included in gross income
in terms of par (c
also seen as variable remuneration in terms of s 7B). See chapters 10 and 12
for detail on s 7B.
The employee is liable for tax on the full amount paid to him, even when the Commissioner has dis-
allowed a portion of the payment made to the employee as a deduction to the employer (for
example because the requirements of s 11(a) are not met). The taxability in the hands of the receiver
and the deductibility in the hands of the payer are therefore independent of each other.
Most receipts or accruals in respect of services will fall under both the general
definition and par (c), but the amount cannot be included in
Please note!
terms of both provisions. It can only be taxed once. Specific provisions override
general provisions.
4.5 Restraint of trade (paras (cA) and (cB) of the definition of
right to trade freely is an incorporeal asset (ITC 1338 (43 SATC 171)) and
compensation paid for the restriction or loss of such right is a receipt of a capital nature. Restraint of
trade payments received by a person who
is or was a without a certificate of exemption, or
is or was a service or
are specifically included in gross income (par (cA)).
Restraint of trade payments received by the above-mentioned persons will therefore be included in
gross income irrespective of whether it is of a capital nature or not. Restraint of trade payments of a
capital nature received by companies and trusts that are not personal service providers will not form
part of gross income (Interpretation Note No. 7).
Restraint of trade payments received by any natural person, which are related to any past, present or
future employment or the holding of an office, are specifically included in gross income (par (cB)).
Even though such payments may relate to employment, it is received for the acceptance of a restraint
67
Silke: South African Income Tax 4.5 4.6
of trade and not in respect of the termination or variation of any office or employment. It consequently
does not fall within par (d).
A restraint of trade payment received by a natural person that does not relate to employment, for
example if a natural person sells his business as sole proprietor and the buyer places a restraint of
trade on him, will not be included in gross income since it is capital in nature.
The payer of the restraint of trade payment will be allowed to claim a deduction
under s 11(cA) provided that the recipient is taxed under par (cA) or (cB). The
Please note!
receipt is taxed immediately and in full in the hands of the receiver, but the de-
duction in the hands of the payer must be spread over a certain period see
chapter 12.
4.6 Services: Compensation for termination of employment (par (d) of the definition
gG))
Paragraph (d) includes any amount received or accrued in respect of the termination or variation of
any office or employment (this also includes death as a reason for the termination) (par (d)(i)). It also
includes amounts received because of employer-owned policies of insurance that pay out or are
ceded as provided for (par (d)(ii) and (d)(iii)). Since paragraph (d) specifically excludes annuities
contemplated in par (a
compulsory insurance annuities contemplated in par (d)(ii)). Amounts received from employer-owned
policies of insurance (par (d)(ii) amounts) are, in turn, specifically excluded from par (a). This means
that all amounts (annuities and lump sums) from such policies of insurance will be included in gross
income in terms of par (d). Lump sums from employer-owned policies of insurance consist of amounts
paid out (par (d)(ii) amounts) or ceded (par (d)(iii) amounts) to the employee or director and any of
their dependants or nominees. All such amounts are deemed to be received by or accrued to the
employee or director and not by the dependant or nominee (proviso (cc)). The effect is that the
employee or director must include all such amounts in his or her gross income, even though a de-
pendant or a nominee receives such amount, or such policy is ceded to him or her. All such amounts
are exempt in terms of s 10(1)(gG) if the requirements of that section are met.
Voluntary amounts are also specifically included, and a voluntary amount therefore does not need to
be paid in terms of a contract. The words amount . . . received or ac indicate that the
gross amount of such a lump sum received or accrued is included in gross income. Students often
incorrectly claim the deductions claimable against lump sum benefits in terms of the Second Sched-
ule against lump sums in terms of par (d). No allowable deduction is claimable against lump sums in
terms of par (d).
Any lump sum award from a retirement fund is excluded in terms of proviso (aa) and is specifically
included in gross income in terms of par (e). If an employee receives a lump sum in respect of the loss
or variation of any office or employment (par (d)(i)) from an employer that is not a retirement fund, it
ation is important since it will determine in which column of the comprehensive
framework for natural persons in chapter 7 the amount must be included, and in terms of which tax
table the normal tax thereon must be calculated.
The courts have not exhaustiv d). The domin-
ant criterion in a determination of whether any situation constitutes employment for this purpose is that
rds, the employer must
have control of the conduct of the work in which the employee is employed, and a duty must rest on
the employee to carry out that work in accordance with the instructions of the employer as given from
time to time (SIR v Somers Vine, 29 SATC 179). Like par (c) (see 4.4), the words respect require
a causal or direct relationship between the amount received and the employment or office. It must be
clear that the amount is received in consequence of the service or office.
The word has been interpreted to mean a position that
generally carries with it some remuneration
has an existence independent of the person who fills it, and
will, usually, be filled by successive holders.
A director of a company therefore clearly holds an office. A firm of attorneys that receives a monthly
SIR v Somers Vine, 29 SATC 179).
68
 4.6 Chapter 4: Specific inclusions in gross income
Any par (d) amount that becomes payable in consequence of a death is deemed to accrue
to the deceased immediately prior to his or her death (proviso (bb)). Such amount is included in the
extinguishing any normal tax consequences for the actual recipient of that benefit.
The following amounts are examples of par (d)(i) amounts:
an amount determined with reference to the unexpired portion of his contract received by an
employee from his employer for breach of his contract of employment
a payment made by a company to its managing director in consideration of his resignation from
the company
a payment made by a company to its managing director in consideration of his agreeing to
accept a smaller salary in the future or to surrender his future rights to a pension
compensation paid to a prospective employee because of the failure of his prospective employer
to conclude a contract of employment
an amount received by a director for surrendering his right to a permanent directorship
an amount of compensation paid in respect of the death of any person arising out of and in the
course of his employment and to which the s 10(1)(gB) exemption will apply
an asset given to an employee at retirement as a final benefit from his employer.
Insurance payouts received by employers are included in gross income under
Please note! the provisions of par (m) see 4.18. Paragraph (d)(ii) and (iii) are aimed at in-
surance payouts received by or ceded to employees or directors.
Severance benefits
employer and an associated institution in relation to that employer. It specifically excludes a retire-
ment fund lump sum benefit, a retirement fund lump sum withdrawal benefit, as well as the two pol-
icies of insurance in terms of par (d)(ii) and (iii). Therefore, only lump sums in respect of the
termination or variation of any office or employment (par (d)(i) amounts) and lump sums received in
commutation of amounts due under a contract of employment or service (par (f) amounts see 4.8
below) can be severance benefits. To be a severance benefit, the amount must be received by way
of a lump sum (in terms of par (d)(i) or (f)) and one of the following three requirements must be met:
(a) the person is 55 years of age, or
(b) the person has become permanently incapable of holding his or her office or employment due to
sickness, accident, injury, or incapacity through infirmity of mind or body, or
(c) the employer has ceased to trade or made a general or specific reduction in personnel*.
t received due to the em-
ployer ceasing to trade or a personnel reduction will not be a severance benefit. Such an amount will
still be included in gross income in terms of par (d)(i) but will be taxed in terms of the progressive tax
table for natural persons (and will be included in column 3 (and not in column 1) of the comprehen-
sive framework in chapter 7).
Any severance benefit paid after the death of a person is deemed to have accrued to such person
immediately prior to his or her death (proviso to the definition of severance benefit). The severance
benefit is therefore included in the gross income for the period ending on the date of his
or her death.
The taxability of the two types of par (d)(i) amounts can be summarised as follows:
Type Taxability
Paragraph (d)(i) amounts that do not meet the require- Include in gross income in column 3 of the compre-
ments of the definition of severance benefit hensive framework (see chapter 7) and tax in terms of
the progressive tax table applicable to the taxable
income of natural persons
Paragraph (d)(i) amounts that meet the require- Include in gross income in column 1 of the compre-
ments of the definition of severance benefit hensive framework (see chapter 7) and tax in terms of
the separate tax table applicable to severance benefits
(see 9.2.1)
69
Silke: South African Income Tax 4.6 4.9
Students are advised to keep severance benefits in a separate column (together with retirement fund
lump sum benefits) in the calculation of the taxable income of a natural person. This will facilitate
remembering that the normal tax payable on such amounts is calculated separately in terms of the
specific tax tables applicable to such amounts. It will also facilitate the calculations of some deduc-
tions as explained in chapter 7. See chapters 7 and 9 for complete details regarding the three col-
umns of the subtotal method and the comprehensive framework.
4.7 Fund benefits (paras (e) and (eA) of the definition of
included in gross income (par (e)). The taxable amounts to be included in gross income are calculat-
ed in terms of par 2(1) of the Second Schedule (as indicated by the definitions of these two terms in
s 1(1)). See chapter 9 for a detailed discussion on these retirement fund benefits.
The taxable portion of lump sum benefits from funds is included in gross income
and not the gross lump sum benefit received. The taxable portion means the
balance remaining after the deduction of the allowable deductions in terms of
Please note!
paras 5 and 6 of the Second Schedule from the gross amount of the lump sum
benefit. T -
-
Amounts included in terms of par (eA) are excluded from par (e). Lump sums from State or Local
Authority pension funds and State or Local Authority provident funds (public sector funds) are taxed
on a favourable basis (see chapter 9). Until 28 February 2021, a member of a provident fund was
able to take his or her total retirement interest as a lump sum instead of only one-third, like in the case
of a pension fund. Paragraph (eA) aims to discourage members of State or Local Authority pension
funds to transfer their benefits to a provident fund of the same employer to increase the lump sum
benefit.
If fund benefits are transferred from such a pension fund to such a provident fund, two-thirds of the
amount transferred are included in the gross income of members who remain in the service of the
same employer (par (eA)). Two-thirds of the amounts payable from the fund to a member or used to
redeem a debt are also included. These provisions also apply to State or Local Authority provident
funds with effect from 1 March 2018. This inclusion is also applicable in the case of a conversion from
a pension fund to a provident fund. It further also applies if a court granted an order during the di-
vorce proceedings of a member in terms of which any part of his or her benefits should be paid to his
or her former spouse (proviso to par (eA)(bb)).
4.8 Services: Commutation of amounts due (par (f) of the definition of
Amounts received or accrued in commutation of amounts due under a contract of employment or
service are included in gross income (par (f
that the person substituted his right to receive a certain benefit under a contract of employment with
a right to receive another benefit. For example, an employee may substitute his right in terms of his
contract of employment to be given notice before the termination of his services for a cash payment.
Such amount will be included in his gross income in terms of par (f). Commuted amounts can also be
severance benefits if the requirements of that definition (see 4.6) are met.
In view of the wide scope of par (d), it seems that there is little need for par (f) (which was enacted
many years prior to the enactment of par (d)). Paragraph (d -
f
The taxability of par (f) amounts is the same as lump sum amounts received on the termination of
employment (par (d)(i)) discussed in 4.6.
4.9 Lease premiums (par (g) of the definition of s 11(f) and (h))
Amounts paid for the use of assets are normally called
defined in the Act. Case law has confirmed that lease premiums are amounts paid by the lessee to
the lessor, whether in cash or otherwise, for the use (or right of use) of certain assets distinct from and
in addition to, or instead of, rent (CIR v Butcher Bros (Pty) Ltd (1945 AD)). Lease premiums must have
70
 4.9 4.11 Chapter 4: Specific inclusions in gross income
an ascertainable monetary value. Such amounts paid in respect of the wide variety of tangible and
intangible assets listed are gross income (par (g)).
A lease premium must be distinguished from a rental deposit and an upfront rental receipt by the
lessor (Interpretation Note No. 109). A lease premium is usually, but not necessarily, received as a
cash lump sum at the commencement of the lease and is not refundable. A rental deposit is generally
also received up front, but its purpose is to cover potential damages that may occur during the lease
period. It is normally refundable to the lessee at the end of the lease period if not required to cover
damages or related costs specified in the lease agreement. An upfront rental receipt, also called a
bullet rental, is for the use or right of use, and remains rent in nature. A rental deposit or upfront rental
with these features is not a lease premium or consideration in the nature of a premium. No hard and
fast rule can be formulated to determine whether the receipt of an amount constitutes a lease premi-
um, a rental deposit, or an upfront rental. All the facts and circumstances of a particular case must be
considered in making that determination.
The whole amount of the premium is included in gross income in the year in which it is received by or
accrues to the lessor. The Commissioner may make an allowance to the lessor in special circum-
stances (s 11(h) see chapter 13). In practice, however, s 11(h) is rarely applied in respect of lease
premiums received because the lease premium is received in cash. This contrasts with leasehold
improvements received, where the lessor will only benefit from the improvements after the lease con-
tract has expired see 4.11.
If a lessee sublets land to a sub-lessee for a lump sum payment of R120 000 plus a monthly rental of
R25 000, it is submitted that the R120 000 is a lease premium, since it is a consideration passing
from the sub-lessee to the sub-lessor (the principal lessee) in addition to the rent. Paragraph (g)
therefore applies to a premium passing from a sub-lessee to a sub-lessor.
If the lessee cedes or sells his rights under the lease to a third person for a payment of R120 000, this
amount is not a lease premium, since it is a consideration (purchase price for the right of use) pas-
sing from a new lessee to a former lessee and not from a lessee to a lessor. For an amount to qualify
as a lease premium, it must meet the requirement that it is a payment passing from a lessee to a
lessor. The R120 000 will therefore not form part of the gross income of the original lessee, being a
requirements.
The same amount that is deductible by the lessee paying the lease premium (in terms of s 11(f)), is
the amount that will be taxable in the hands of the lessor (in terms of par (g)). The deduction may,
however, only be claimed by the lessee if the amount is taxable in the hands of the lessor in terms of
par (g) and not, for example, if the lessor is exempt from tax as taxpayer. The deduction for the
lessee is spread over the period of the lease (s 11(f) see chapter 13), while the amount received by
the lessor is included in one year.
Lessor: Lessee:
Gross income par (g) Section 11(f ) deduction
Include full amount in one year Spread the deduction over greater of
lease period or 25 years
4.10 Compensation for imparting knowledge and information (par (gA) of the
s 9(2)(e) and (f))
Any amount received by a person for imparting (disclosing or communicating) any scientific, tech-
nical, industrial, or commercial knowledge or information is included in gross income (par (gA)).
Rendering any assistance or service in connection with the application or utilisation of such know-
ledge or information is also included in terms of par (gA).
- d
-how payments received by non-residents are
deemed to be derived from a source within the Republic if they are paid by a resident or paid for the
use of the knowledge or information in the Republic (s 9(2)(e) and (f)).
4.11 Leasehold improvements (par (h) of the definition of s 11(h))
The lessor (owner) must include the value of the improvements effected on his land or to his buildings
by the lessee in his gross income (par (h)). The inclusion only applies if the lessor has a right to have
the improvements effected to his property. This means that the lessee has a legal and enforceable
71
Silke: South African Income Tax 4.11 4.12
obligation in terms of an agreement to effect improvements on the land or to the buildings of the
lessor.
A strict interpretation of the wording in the Act leads to an inclusion in the tax year in which the im-
provements (or the right to have them effected) accrue to the lessor. The right to have improvements
effected generally accrues when the lessor acquires the right to have the improvements effected
(Interpretation Note No. 110). The date of accrual is normally the date on which all the parties to the
lease agreement sign the lease agreement. Therefore, if the amount of the improvement is stipulated
assessment when all the parties sign the lease agreement. However, if the amount of the improve-
ments is not stipulated in the lease agreement, the date of completion of the improvement is general-
ly regarded as the date of accrual because the amount can only be determined then (Interpretation
Note No. 110).
The amount to be included in gross income of the lessor is
the amount stipulated in the agreement as the value of the improvements, or
the amount stipulated in the agreement as the amount to be expended on the improvements, or
if no amount is stipulated, an amount representing the fair and reasonable value of the improvements.
If t
gross income. For example, if a lessee has agreed under a lease of land to erect buildings up to the
value of R500 000 but spends R600 000 on the improvements, only R500 000 is included in the
stipulated amount must still be included in the lessor's gross income under paragraph (h). When the
contract does not stipu
objectively determined having regard to all the relevant facts and circumstances of the case. The fair
and reasonable value can correspond to the cost incurred by the lessee in certain cases.
A lease may obligate a lessee to erect certain specified buildings, such as a hotel or a parking gar-
age, or a building that must meet certain specifications with a certain stated minimum value. The
income in such a case is the fair and reasonable value of
the improvements and not merely the minimum amount stated. This is because the lessor does not
merely require the erection of buildings he requires the erection of a particular building, and the
lessee must meet his requirements even if the cost is more than the stated minimum value in the
lease.
If the stipulated amount is contractually varied later, the increased sum will be included in the gross
income of the lessor provided the improvements are still in the course of construction at the date of
the variation of the lease (COT v Ridgeway Hotel Pty Ltd (1961)).
The lessor must include the full amount in the year in which the right accrued. The Commissioner
may, however, allow the deduction of a special allowance (s 11(h) see chapter 13), having regard
to, amongst other things, the fact that the lessor will become entitled to the benefit of the improve-
ments only upon the expiry of the lease.
4.12 Taxable (fringe) benefits (paras (c) and (i) of the definition of
Benefits and advantages received by an employee from an employer, and which normally do not
gross income (par (i
rendered (par (c)).
Paragraph (i) overrides par (c) and a benefit or an advantage to which par (i) applies can therefore
not be considered for par (c) (proviso (i) to par (c)). Paragraph (i), different to par (c), does not refer
to voluntary amounts.
In KBI v Kotze (1992 (T)) it was held that where a new employer releases an employee from an obli-
gation the employee had towards a previous employer, it constitutes a fringe benefit in terms of
par (i). See chapter 8.4.13 and par 13(3) of the Seventh Schedule for a no value rule in respect of
such a fringe benefit.
Gains in respect of the right to acquire marketable securities that are taxable in terms of s 8A (rights
obtained on or before 26 October 2004) are also specifically included in gross income in terms of
par (i).
For a detailed discussion on the taxability of taxable (fringe) benefits from employment, see chapter 8.
72
 4.13 4.17 Chapter 4: Specific inclusions in gross income Silke: South African Income Tax 4.18 4.20

4.13 Proceeds from the disposal of certain assets (par (jA) of the definition of 4.18 Key-man insurance policy proceeds (par (m) of the definition of
a), 22(8) and 26A)
The proceeds from the disposal by a taxpayer of fixed capital assets are capital in nature and the Employers often hedge themselves against risks that relate to the death, disablement or illness of an
capital gain on the disposal may form part of the taxable capital gain that must be included in the employee or director by taking out policies of insurance. Paragraph (m) includes the proceeds of
taxable income of the taxpayer in terms of s 26A. such policies of insurance paid out to the employer, including by way of a debt, in its gross income.
If a company that manufactures vehicles uses certain vehicles that it manufactures as fixed capital The final amount paid out must be reduced by the amount of any debt that is or has previously been
m)).
assets within its business operations, the proceeds from the subsequent disposal of these vehicles
are capital in nature. However, if the asset is manufactured, produced, constructed, or assembled by
the taxpayer and the asset is similar to any trading stock used for the purposes of manufacture, sale 4.19 Amounts deemed to be receipts or accruals and s 8(4) recoupments
or exchange by the taxpayer, such proceeds must be included in gross income (par (jA)). The dis- (par (n ss 7, 8C and 24I)
posal of such fixed assets does not give rise to a taxable capital gain, but to a gross income inclu-
sion.
For example: A manufacturer, Alfa Ltd, uses one vehicle manufactured by it (at a cost price of are included in gross income in terms of par (n). Examples of such amounts are the anti-avoidance
R250 000 in the 2021 year of assessment) in its business operation as a demonstration model, and provisions of s 7 where certain donations are made, s 8C gains on the vesting of equity instruments
gave the right of use of another similar vehicle to an employee as a fringe benefit (in the 2021 year of and s 24I foreign exchange gains. Furthermore, it is deemed that these amounts are received by or
assessment). Alfa Ltd disposes of both the vehicles during the 2022 year of assessment for an accrued to the taxpayer (even if no actual amounts were received, for example, since s 24I taxes an
amount of R280 000 per vehicle. This will have the following consequences: unrealised foreign exchange profit that results in no physical receipt by the taxpayer, it is deemed
that he received that amount).
the assets will be included in closing stock at the end of the 2021 year of assessment and in
See chapter 13 for a detailed discussion of the various s 8(4) recoupments and chapter 15 for a
opening stock at the beginning of the 2022 year of assessment at the cost price of R250 000 per
discussion of s 24I.
vehicle
the full proceeds from the disposals (R280 000 per vehicle) are included in gross income in the
2022 year of assessment in terms of par (jA) (similar to when trading stock is sold), even though 4.20 Amounts received in terms of certain short-term insurance policies
the vehicles were used as fixed capital assets (s 23L(2))
no wear-and-tear allowances are claimed on these vehicles in the 2021 year of assessment and -
no capital gains are calculated on the disposal of the vehicles in the 2022 year of assessment term policy as defined in the Long-term Insurance Act (s 23L(1)).
no inclusion takes place under s 22(8) in the 2021 year of assessment, and No deduction is allowed in respect of premiums paid that are not taken into account as an expense
no recoupment is included in terms of s 8(4)(a) in the 2022 year of assessment.
The non-deductibility of any such premiums during the current or any previous year of assessment
4.14 Dividends (par (k) of the definition of ss 10(1)(k) and 10B) (see chapter 6) causes a reduced amount to be included in gross income when the policy is paid out
(s 23L(3)).
All dividends and foreign dividends are included in gross income (par (k)). The principles of the
residence-based system of tax for residents, and the source-based system of tax for non-residents Example 4.2. Gross income
must be considered. Section 10(1)(k) and s 10B provide exemptions from normal tax for certain divi-
dends (see chapter 5). The withholding tax on dividends (see chapter 19) might be applicable to John (33 years old and unmarried) is an RSA resident. He designs websites and is in the full-time
employment of Webdezine CC, an RSA close corporation. Webdezine often sends him to pro-
such exempt dividends. vide training to its United States of America (USA) clients. receipts and accruals during
the 2022 year of assessment were as follows:
4.15 Subsidies and grants (par (l) of the definition of and Note R
Salary ....................................................................................................... 1 192 000
par 12(1) of the First Schedule) Lump sum from employer ........................................................................ 2 32 000
Rent received........................................................................................... 3 91 300
Any grants, subsidies in respect of any soil erosion works and certain capital development expendi- Leasehold improvements......................................................................... 3 ?
ture in terms of par 12(1) of the First Schedule are included in the gross income of farmers (par (l )). Lease premium received ......................................................................... 3 ?
Interest received ...................................................................................... 4 16 600
Dividends received .................................................................................. 5 49 000
4.16 Amounts received by or accrued to s 11E sporting bodies (par (lA) of the Annuity ..................................................................................................... 6 ?
Leave conditions amended ..................................................................... 7 4 000
Private work ............................................................................................. 8 28 000
Amounts received by or accrued to non-profit sporting bodies must be included in gross income if Gambling ................................................................................................. 9 12 000
another sporting body that is allowed a deduction in terms of s 11E paid the amount. Royalties .................................................................................................. 10 130 000
Notes
4.17 Government grants (par (lC) of the definition of and s 12P) (1) lary was divided between the periods that he worked in the RSA and the USA (he
was, however, at all times an RSA resident):
Any amount received by or accrued to a person by way of a government grant as contemplated in South Africa R128 000 (8 months)
USA R64 000 (4 months)
s 12P must be included in gross income (par (lC)). The list of such government grants exempted in
terms of s 12P is contained in the Eleventh Schedule and is discussed in chapter 5. Total R192 000
(2) In recognition of all his years of faithful service, Webdezine voluntarily paid an amount equal

continued

73 74
4.20 Chapter 4: Specific inclusions in gross income Silke: South African Income Tax 4.20

(3) John owns a house in Stellenbosch, which he let to the Khumalo couple for the whole year. Item Amount Reason
The lease contract was concluded on 1 August 2020 and specified the following: (R)
The Khumalos must pay a monthly rent of R8 300 from 1 August 2020. The Khumalos Rental 99 600 General definition
only paid the February 2022 rental on 15 March 2022. Total = R8 300 × 12 = R99 600
The Khumalos are obligated to effect improvements to the house to the value of rental has already accrued
R40 000. Due to cash flow problems, the Khumalos only completed the improvements Practice: earlier of receipt or accrual
during April 2021 at an amount of R35 000. Leasehold 0 Par (h) leasehold improvement included at lessor
The lease term expired on 31 July 2021. However, the Khumalos had a preference improvement Act: in the year contract was concluded (i.e., 2021 year of
right to lease the house again and paid a once-off amount of R6 000 as a lease premi- assessment)
um (the right to occupy the house) on 1 August 2021. The monthly rent remained un- The amount is specified and John was taxed on R40 000
changed at R8 300. (irrespective of amount incurred by lessee) in 2021
(4) John has fixed deposits at various banks and received the following interest: Lease premium 6 000 Par (g) lease premium included at Lessor
From South Africa R9 100 Interest received 9 100 General definition
From Switzerland R7 500 7 500
Total R16 600 16 600
(5) John owns shares in both RSA and Australian companies and received the following divi- Dividends 32 000 Par (k) dividend and foreign dividends
dends: 17 000
From South Africa R32 000
From Australia R17 000 49 000
Total R49 000 Annuity 15 000 Par (a) annuity
= R5 000 × 3 = R15 000
(6) John purchased an annuity from Old Mutual Life Insurers at R420 000 on 1 December The capital portion (R1 100 × 3) is later exempt in terms of
2021. He receives a monthly annuity of R5 000 since 1 December 2021. The capital portion s 10A
that is calculated in terms of section 10A amounts to R1 100 per monthly annuity.
Leave conditions 4 000 Par (d) lump sum from employer OR
(7) Due to the recession, Webdezine amended the leave conditions of all its employees. From
Par (f) also applies (because in terms of employment
1 June 2021 John is no longer entitled to paid study leave. To compensate him for this,
contract). It is not a severance benefit.
Webdezine paid a once-off amount of R4 000 to John on 1 June 2021.
(8) John updates the websites of his private clients over weekends. His total fees for the 2022 Private work 28 000 Par (c) services rendered
year of assessment amounted to R28 000. Gambling Capital of nature does not meet the general definition of
(9) On his birthday (14 March 2021), John and a few of his friends gambled at the Grandwest gross income
Casino for fun. John won R12 000 that evening.
Royalties 86 000 General definition
(10) John wrote a manual on web design that was published during November 2021. The man- 44 000
ual is distributed across the world, and he received the following gross royalties:
From South Africa R86 000 130 000
From overseas R44 000
Gross income 572 200
Total R130 000
Calculate gross income for the 2022 year of assessment.
Indicate for each item whether it complies with the general definition of gross income or a
specific inclusion of the s 1 gross income definition.
If it is a specific inclusion, provide the paragraph number, for example par (c). You do not
have to provide a reason for your answer.
If an item is not included in gross income, provide a short reason by identifying the element
that is not met.
You do not have to refer to case law (court cases).

SOLUTION
NB: John must include worldwide amounts, as he is an RSA resident.
Item Amount Reason
(R)
Salary 128 000 Par (c) services rendered
64 000
192 000
Lump sum 32 000 Par (c) services rendered
Not par (d) as employment conditions were not amended,
nor was the employment terminated.
continued

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