GROSS INCOME:

PART 2
SILKE: SOUTH AFRICAN INCOME TAX 2023: CHAPTER 3

LECTURER: MR A LATIEF
EMAIL: azlatief@uwc.ac.za
OFFICE NUMBER: 4.03
 LEARNING OBJECTIVES
• Demonstrate an in-depth knowledge of the criteria to
be applied in order to distinguish between a resident
and a non resident.
 Normal Tax
Gross Income XXX
Less: Exempt Income (XXX)
Income XXX
Less: Deductions and Allowances (XXX)
Add: Taxable Capital Gain XXX
Taxable Income XXX

Tax per tax tables XXX

Less: Rebates (XXX)
Normal Tax XXX
 GROSS INCOME DEFINITION
in any year or period of assessment, means -
i. In the case of any resident, the total amount, in cash or
otherwise, received by or accrued to or in favour of such
resident; or
ii. in the case of any person other than a resident, the total
amount, in cash or otherwise, received by or accrued to
or in favour of such person from a source within the
Republic,
during such year or period of assessment, excluding receipts
or accruals of a capital nature, but including...
 RESIDENT NATURAL PERSONS
Defined in s1:

A natural person is a resident if that person is:

1. Ordinarily resident in South-Africa

OR

2. If that person meets the requirements of the Physical

Presence Test (PPT)
 ORDINARILY RESIDENT
Not the same as being a citizen:
• Cohen v CIR
• 'return from his wanderings'
• CIR v Kuttel
• 'habitually and normally resident'

• Commences/ceases on day criteria met/cease to apply

• Excludes occasional absences (long or short)
• Not dependent on number of days present
 Example 1
Mr X lived in South Africa throughout the 2022 year of assessment. On 1
March 2022 (the start of the 2023 year of assessment) Mr X moved to New
York on an 18-month secondment. He will return to SA at the end of the 18
months.
Is Mr X ordinarily resident in SA?

Mrs Y lived in South Africa throughout the 2022 year of assessment. On 1

March 2022 Mrs Y left SA to take up a new permanent employment
position in New York. Mrs Y sold her house and car, bought a house in the
suburbs surrounding New York, and enrolled her children in school there.
Is Mrs Y ordinarily resident in SA?

Mr Z has been in SA for the past 2 years. He is a professional soccer player,

and this year his application for citizenship was fast-tracked so that he could
represent the SA national soccer side. He is now a SA citizen. However he
intends returning to his home country as soon as his international career is
over.
Is Mr Z ordinarily resident in SA?
 EXAM TECHNIQUE
Use Mark Allocation as a guide
Issue Within the required?
Principle 1. Not Defined in Legislation
2. Reference to court cases/Principles
3. Factors a court considers when deciding
on whether a taxpayer is ordinarily
resident
Application Apply - Information in the scenario to the
principles
Conclusion Always conclude
 PHYSICAL PRESENCE TEST
If not ordinarily resident (at any time during year), physical
presence:
• > 91 days in current year
• > 91 days in each of preceding 5 years
• > 915 in aggregate in preceding 5 years
Treated as resident from beginning of that year of assessment

If meets PPT criteria, ceases on date of leaving once absent for

at least 330 continuous days, otherwise end of year.
 EXAMPLE 2
Mrs. Z was ordinarily resident in South Africa from 2018 to 2020 tax
years. In the 2019 tax year she moved to London, where she has lived for
the past 3 tax years and where she is and was considered ordinarily
resident. However every tax year she returns to SA to spend the summer
here. Two years ago she spent an extended period of time here because
her mother was ill. Her time in South Africa has been as follows:
• 2018, 2019 & 2020 tax years – 365 days per year
• 2021 tax year – 185 days
• 2022 tax year – 101 days
• 2023 tax year – 93 days
Is Mrs. Z resident in SA for 2023, and if so for what proportion of the
year?

Would Mrs. Z have been resident in 2021, and, if so, for what proportion
of the year?
 RESIDENT: PERSONS OTHER THAN
NATURAL PERSONS
• A person other than a natural person, for example, a
company, CC or trust, is defined as a resident if such an entity
is:
- Incorporated, established or formed in South Africa
OR
- Has its place of effective management in South Africa
• The place of effective management is the place where the company is
managed on a regular or day-to-day basis by the directors or senior managers
of the company.
• The place from where the business is controlled or the directors meet is not
necessarily the same as where the day-to-day management takes place,
although they may coincide
 RESIDENCE - EXCLUSIONS
Person deemed exclusively a resident of another country in
terms of a DTA
SOURCE

Mr Azmatullah Latief
Room 4.03 4th Floor EMS Building
azlatief@uwc.ac.za
 GROSS INCOME DEFINITION
In any year or period of assessment, means -
i. In the case of any resident, the total amount, in cash or
otherwise, received by or accrued to or in favour of such
resident; or
ii. in the case of any person other than a resident, the total
amount, in cash or otherwise, received by or accrued to
or in favour of such person from a source within the
Republic,
during such year or period of assessment, excluding receipts
or accruals of a capital nature, but including...
 SOURCE APPROACH

Taxed as a
resident on
Resident world wide
income

Source
The income
Apply the
stream is
source
dealt with in
rules per s9
terms of s9
Identify
Non-
Income
Resident
Stream Apply case
The income law
stream is
not dealt CIR v LEVER
BROTHERS &
with in UNILEVER
terms of s9 LTD
 SOURCE
Where the income stream is not dealt with by section 9, look
to case law

General principle
• CIR v Lever Bros & Unilever
1. WHAT is originating cause of income?
2. WHERE is the originating cause located?
• CIR v Black
- Dominant cause
INCOME CATEGORIES DEALT WITH IN S9
• Dividends
• Interest
• Royalties
• Scientific, technical; industrial; or commercial knowledge or
information
• Public Office
• Services rendered in the public sector
• Pensions and annuities
 DIVIDENDS

Section Source Source within the Republic

Category
s9(2)(a) Dividends Any dividend received by or accrued to a
person.
 EXAMPLE 3
Danny, a resident of the United Kingdom, received dividends
of R5 000 on the 15 March 2022 from British American
Tobacco (Pty) Ltd.

British American Tobacco was incorporated in South Africa,

but has it’s place of effective management in Mauritius.

What would South African tax effects of this transaction for

Danny, if any?
 INTEREST
Section Source Source within the Republic
Category
9(2)(b) Interest Interest as defined in s 24J or deemed
interest in terms of s 8E(2) will be from a
South African source if:

(i) Incurred by a resident, unless the

interest is attributable to a PE which is
situated outside of the RSA; or

(ii) Is received or accrued in respect of

any funds used or applied by any
person in the RSA.
 EXAMPLE 4
Olivia was born and raised in the USA and still lives there. During the
2023 year of assessment she made the following loans to her friends
(see next slides).

Identify the source of the interest received from these loans and
indicate if these amounts will be included in Olivia’s gross income
for South African normal tax?
 EXAMPLE 4
Friend 1:
Interest on a loan that Olivia made to a friend who lives in
Malaysia. The friend used the money to settle outstanding
payments on her home loan from a bank in Malaysia .
- Is the interest paid by a resident?
- Is the funds utilized in South Africa?
 EXAMPLE 4
Friend 2:
Interest on funds that Olivia had lent to her friend Julia, a South
African resident. Julia used the money to buy shares in a South
African company in Cape Town.
- Is the interest paid by a resident?
- Is the funds utilized in South Africa?
 ROYALTIES

Section Source Source within the Republic

Category
Royalties will be from a South African
source if:
9(2)(c) Royalties The royalties are incurred for by a
resident, unless the royalty is attributable
to a PE which is situated outside the RSA.
9(2)(d) Royalties Royalties is received in respect of the use
of any intellectual property in the RSA.
 EXAMPLE 5
Bongi, a resident of the United Kingdom (UK), recently
designed a new patented formula of detecting when students
cheat in examinations. The process was patented in the UK.
His process has been widely acclaimed and used by many
universities throughout the world.

In 2023, Bongi received R100 000, in the form of royalties

from UWC, which successful utilised his process in
Department of Accounting.

Is the amount received by Bongi from UWC, from a South

African Source?
SCIENTIFIC, TECHNICAL OR COMMERCIAL
KNOWLEDGE OR INFORMATION
Section Source Category Source within the Republic
Amounts received for imparting scientific, technical
or commercial knowledge of information will be
from a South African source if:
9(2)(e) Scientific, technical The amounts received for imparting scientific,
or commercial technical or commercial knowledge of information
knowledge or are incurred by a resident, unless the amount is
information attributable to a PE which is situated outside the
RSA.
9(2)(f) Scientific, technical Amounts received for imparting scientific, technical
or commercial or commercial knowledge of information, and that
knowledge or imparting scientific, technical or commercial
information knowledge of information used in South Africa
 EXAMPLE 6
Gary, an optician (a maker or seller of spectacles and contact
lenses) who is ordinarily resident in Germany, agreed to assist
a South African manufacturer in the production of artificial
eyeballs.

He did not visit the Republic, but gave his advice over the
telephone and by e-mail.

For his advice he gave during the 2023 year of assessment he

billed the South African manufacturer the equivalent of
R7 000.

How much of the amount received by Gary’s is taxable in the

Republic?
 PUBLIC OFFICE AND PUBLIC
SECTOR
Section Source Source within the Republic
Category
9(2)(g) Public Office Amounts received or accrued will be from
a South Africa source if public office is
held South Africa
9(2)(h) Services Amount received or accrued will be from a
rendered in South African source if the service is
the public rendered to or work is performed on
sector behalf any of the listed employers in the
public sector.
 PENSION AND ANNUITIES
Section Source Category Source within the Republic

9(2)(i) Pensions and Amounts received or accrued will be from a South

Annuities Africa source if the pensions or annuities received
or accrued in respect of services rendered within
the RSA

If the amount is received or accrued in respect of

services which is rendered partly outside the RSA,
only the portion which relates to services rendered
in South Africa is regarded as being received from a
South Africa Source.

SA Source =
Pension/Annuity x (Years of service in SA/Total Years
Service)
 EXAMPLE 7
Jacques, a resident of Australia, pension of R30 000 a month from an
Australian pension fund.

Jacques recently retired from his employment from an Australian based

company.

Jacques first worked at the Cape Town branch of the company for 4 years
and afterwards he worked at the Australian Head Office for 18 years,
from where he retired.

Jacques, has contributed to Pension Fund since he started working for the
company.

What amount per year is taxable in SA for Jacques?

 SECTION 9(4)
• In terms of s9(4) amounts will be from a source outside of
South Africa if that amount:
- Constitutes a foreign dividend [s9(4)(a)]; or

- Constitutes interest or deemed interest that is not from a source

within the South Africa as per
s 9(2)(b) [s9(4)(b)]; or

- Constitutes a royalty that is not from a source within the RSA in

terms of s 9(2)(c) or (d) [s9(4)(c)]
 GROSS INCOME:
DISCUSSION POINTS

• Exam technique for discussion questions:

- Apply scenario to all elements of the definition (briefly)
- Focus the discussion on the main issue(s)
• Revenue vs. Capital
• Received by or Accrued to
• Resident vs. Non-resident
- Refer to case law
• Describe principle in the case law
• Apply to scenario
- Conclude