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- ADDENDUM -
TAXATION FOR INDIVIDUALS
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Copyright © 2024
MANAGEMENTCOLLEGE OF SOUTHERN AFRICA
All rights reserved; no part of this book may be reproduced in any form or by any means, including photocopying machines,
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 This Module Guide,
Taxation for Individuals (NQF Level 6)
will be used across the following programmes:

• Bachelor of Commerce in Accounting

• Bachelor of Commerce in Financial Management
Local Government 2A

January 2024
TAXATION FOR INDIVIDUALS

Unit 1: Introduction to South African Taxation System ...................................................................................................2

Unit 2: Gross income......................................................................................................................................................6

Unit 3: Income Exempt from Tax....................................................................................................................................9

Unit 5: Fringe Benefits..................................................................................................................................................11

Unit 6: Retirement Benefits ..........................................................................................................................................15

Unit 8: Income and Expenses of Individuals ................................................................................................................20

1 MANCOSA – Bachelor of Public Administration Year 3

i
 Taxation for Individuals

Unit
1: Introduction to
South African Taxation System

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Taxation for Individuals

1.4 Calculation of Taxable Income (Section 5)

It is worth noticing that the calculation of taxable income for couple married in community of property is different from
that of couple married out of community of property. For a couple married in community of property, passive income
(any income other than trade income) is deemed to have accrued equally to both partners. Examples of passive income
includes dividends received and interest income. Although income from letting a property is from trade however, it is
also treated as passive income for tax purposes of couples married in community of property.

The following steps are followed when calculating taxable income of couple married in community of property:

Table 1.1: Steps to Calculate Taxable Income Couple Married in Community of Property

(Source: Coetzee et al. 2023:11)

Take note of the following definition and interest exemptions table below and then attempt example 1.2:
The definition of a South African source varies according to the type of income or expenditure being assessed. For the
purposes of interest income, Section 9 of Income Tax Act states that an interest (as defined in section 24J of the Act)
shall be deemed to have been received or accrued from a source within the Republic, where such interest was derived
from the utilization or application in the Republic by any person of any funds or credit obtained in terms of any form of
interest-bearing arrangement.

Table 1.2: Interest Exemptions

Table 1.2 above provides a list of interest exemptions available to natural persons as per the Income Tax Act. These
exemptions imply that if a natural person who is younger than 65 receives interest from a South African source, the
interest that is not taxable (exempt from tax) is limited to R23 800. Any amount of interest received above R23 800 is
taxable. For a natural person who is 65 or older, the exemption is limited to R34 500.

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 Taxation for Individuals

1.5 Calculation of Net Normal Tax Liability

Table 1.4: Tax Rebates Source: The South African Revenue Service (2023)

Attempt the following example to understand the application of rebate.

NB: Normal tax rebates are deducted from normal tax and not from taxable income.

Now that you have learnt how to account for normal tax rebates, proceed to medical scheme fees tax credit in the
following section.

1.5.4 Medical scheme fees tax credit (Section 6A)

Medical scheme fees tax credits are deductions allowed in terms of section 6A of the Income Tax Act. In order to qualify
for this allowance, the taxpayer must make medical contributions to a registered medical aid scheme. As from 1 March
2018, where more than one person pays fees to a medical scheme, the medical tax credits listed in table 1.5 below
must be apportioned between the people paying in the same proportion as their payment is to the total payment”. Table
1.5 below provides the medical scheme fees tax credits applicable in the 2024 year of assessment.

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Table 1.5: Medical tax credit rates

(Source: The South African Revenue Service 2023)

To understand how medical aid tax credits are applied in calculation of net normal tax liability,
attempt example 1.5 below. Thereafter, attempt activity 1.3 below to test your understanding of
medical aid scheme tax credits.

NB: Medical scheme fees tax credit is deducted from normal tax and not from taxable income. You
should also note that medical scheme fees tax credit should not exceed normal tax

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Unit
2: Gross income

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2.2 Resident of the Republic

Step 1:
Is the person an exclusive resident of another Yes
country due to double-tax agreement?

No The person is not a resident in the

Republic

Step 2: Yes
Is the person an ordinarily resident in the Republic?

The person is a resident in

No
the Republic

Step 3:
Does the person comply with requirement of a Yes
physical presence test?

No

1Figure2.2:
Figure 2.2:Steps
Stepstotodetermine
determinewhether
whethera aPerson
personisisa aResident
residentof
ofthe
theRepublic
Republicor
orNot
not

NB: To determine ordinarily resident status, there are two important tax cases that you should take note of. These
are:
• Cohen v Commissioner for Inland Revenue 13 SATC 362; and
• Commissioner for Inland Revenue v Kuttel 54 SATC 298

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 Taxation for Individuals

The principle established in the case of “Cohen v Commissioner for Inland Revenue 13 SATC 362’ was that ordinarily
resident refers to the place where a person will return to after his wanderings. In the case of ‘Commissioner for
Inland Revenue v Kuttel 54 SATC 298’ a person’s residence is where he had his usual or principal residence that which
may be described as his real home. It was further established that a person may have a second home, for example in
South Africa, however, the South African home must be seen as his home to which the person will return to after his
wanderings.

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Unit
3: Income Exempt from Tax

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 Taxation for Individuals

3.1 Introduction
The previous study unit discussed the requirements that must be met in order for any type of income to be included in
gross income. In this study unit, the discussed is centered on the types of income that qualify to be included in gross
income but exempt from tax. In other words, the income that is free from tax. The main focus of this study unit is on
the provisions of section 10 of the Income Tax Act. Section 10 is going to be explored in respect of exemptions resulting
from the status of the taxpayer, exemptions available to non-residents and exemptions based on the nature of income.

Before you proceed to the following section, it is important to know where the exempt income fits in the calculation of
taxable income. This is shown in the following diagram:

Figure 3.1: Taxable Income Framework

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 Taxation for Individuals

Unit
5: Fringe Benefits

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5.1 Introduction
There are cases where an employee is entitled to use company’s assets for their own benefits and, in addition, receives
some amounts or allowances over and above their salaries. These amounts or allowances and use of company’s
assets are referred to as fringe benefits. The Seventh Schedule of the Income Tax Act lists benefits that are classified
as fringe benefits and should be included in taxable income. This study unit discusses types of fringe benefits that are
specifically listed in the Seventh Schedule and the rules applicable for calculating the value of the fringe benefit to be
included in the income of the taxpayer. The special inclusion rules that were discussed in study unit 2 (Gross Income)
in relation to fringe benefits are also examined further in this study unit. Refer to the framework used to calculate
taxable income (figure 5.1 below), where fringe benefits are included in gross income calculation.

Figure 5.1: Framework for the calculation of taxable income (Coetzee et al. 2023: 185)

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5.2 Fringe Benefits in Terms of the Seventh Schedule

Determined Value
(Retail market value = cost including VAT but excluding finance charges

Value of Private

3,5% or 3,25% per month of the Determined Value

On Assessment:
Deduction for business use if a record of kilometers travelled for private and
business use is kept

Bears all the fuel cost pro rata Bears all the fuel cost pro rata
deduction for business use deduction for business use

Receives a travel allowance for same vehicle?

Yes No

Deduct consideration paid by

employee

Taxable benefit

Figure 5.2: Summary of Calculation of Taxable Benefit

(Source: Coetzee et al. (2023: 201))

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 Taxation for Individuals

5.3 Allowances and Advances

Table 5.2: Rate per kilometer (1 March 2023 - 29 February 2024)

(Source: SARS 2023)

The fixed costs in the table per annum and in Rands while the fuel and maintenance costs are in cents per kilometre.
This means that the fixed costs will have to be converted into cents and proportioned on a pro rata basis, if the right of
use of a vehicle was not for a full year

NB: If the employer pays a travel allowance to an employee based on actual number of kilometres expended for
business purposes, the allowance is not taxable up to 464 cents per kilometre. This means that any cost above 464
cents per kilometre will be taxable, although the kilometres would have been expended for business purposes. This is
applicable where the employee does not receive a fixed monthly travel allowance.

NB: “Eighty per cent (80%) of a travel allowance paid by an employer is included in remuneration for employees’ tax
purposes. Employees’ tax is not deducted from a reimbursive travel allowance. If it can be proved that most of the
travelling is done for business purposes, only 20% of the allowance could be included for employees’ tax purposes”
(Coetzee et al. 2023: 236).

5.3.2 Subsistence allowance (section 8(1)(c))

Subsistence allowance is provided to employees when they are away from their place of residence for at least one
night. It is provided to cover costs incurred by the employee in respect of accommodation, meals and other incidental
costs.

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Unit
6: Retirement Benefits

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6.4 Lump Sum Benefits Received

A lump sum can be received either from an employer or from a retirement fund to which the employee belongs. Lump
sums are paid out on termination of service to an employer by the employee. A termination of service by an employee
may be through resignation, death, withdrawal from the fund or retrenchment. Taxation of lump sum benefits paid to
non-resident is different from that paid to a resident of the Republic. The portion of the lump sum paid to a non-resident
is taxable in South Africa to the extent of the number of years a non-resident worked in South Africa. The formula to
calculate the portion of the lump sum taxable in South Africa is as follows:

Amount taxed in South Africa = Lump Received X No of years worked in South Africa

Total period worked

6.4.1 Retirement fund lump sum withdrawal benefits (paragraphs 2(1)(b) and 6)

If an employee received a retirement fund lump sum due to withdrawal from employment before retirement age, the
retirement fund will be kept and taxed separately according to the workings of the Second Schedule. You should also
note that this type of retirement fund lump sum benefit is taxed differently from the retirement fund benefit received as
a result of retirement, retrenchment or death. Some of the reasons why a retirement fund would be taken before time
could be the result of a divorce order, an employee might be withdrawing from a fund that is dissolving, or transferring
from one fund to another fund. Some deductions are allowed on where the taxpayer retirement fund is as a result of
divorce or transfer out from a fund. For the deductions to be allowed in respect of retirement fund transfer, an approved
fund that is receiving the fund in terms of the Income Tax Act should be ascertained. Take note of the following steps
are followed to calculate tax on the retirement fund lump sum withdrawal benefit from 1 March 2011

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Taxation for Individuals

Table 6.1: Steps to Calculate Tax on a Withdrawal Benefit

(Source: Coetzee et al. 2023: 339)

Take note of the following tax table to calculate tax on retirement fund lump sum withdrawal benefit for the current year
of assessment.

Table 6.2: 2024 Retirement Fund Lump Sum Withdrawal Tax Table

(Source: SARS (2019))

Attempt the following example to test your understanding of this section.

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 Taxation for Individuals

Table 6.3: Steps to calculate tax on a retirement benefit.

Take note of the following tax table to calculate tax on retirement, death or severance lump sum benefits for the current
year of assessment.

Table 6.4: 2024 Retirement & death benefits or severance benefits tax table

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Answers to Activities

Practical Application or Examples 2

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 Taxation for Individuals

Unit
8: Income and Expenses
of Individuals

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Taxation for Individuals

Answers to Activities

Practical Application or Examples 1

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 Taxation for Individuals

Activity 1

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Taxation for Individuals

Answers to Revision Questions

Unit 8

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