School of Accountancy

Taxation 298
2023

SILKE: First Touch to Tax

Chapter 7

Natural persons

1
 Natural persons
SILKE: First Touch to Tax Chapter 7
Learning Outcomes
After studying this chapter, you should be able to:
• Calculate the normal tax payable by a natural person using the
framework for the calculation of taxable income.
• Explain and practically apply the assessed loss provisions of s20 and s20A
• Calculate the deductions in respect of expenditure of a private nature that
can be claimed by natural persons in respect of contributions to retirement
funds and donations to public benefit organisations.
• Apply the anti-avoidance provisions of the Act in sections 7(2), (2A) and (3)
in respect of married persons and minor children.
• Demonstrate your knowledge by means of an integrated case study or
theoretical advice questions.

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 Natural persons
Class Preparation
• Read chapter 7 of SILKE: First Touch to Tax 2023
• Create your own summaries

The lecturer will lead and facilitate the discussion of the prescribed material through
extensive PowerPoint presentations and audio explanations. If needed, additional
explanations / diagrams in Word and/or PDF documents will be loaded on SUNLearn.

Caveat
This PowerPoint presentation is a lecturer’s teaching aid and is made available to better
facilitate learning activities. It does not replace your prescribed course material
(textbook). This presentation must not be treated as a summary of the prescribed work.
 General announcements

• Examples in Silke: Chapter 7  Self study

• Remember: greyed-out sections in SILKE are not examinable.

All section references in these notes refer to sections of the Income Tax Act, unless
specifically stated otherwise.

The following abbreviations are used in these notes:

AL: Assessed loss
AMTC: Additional medical expenses tax credit
DSOD: Donation, settlement or other disposition
ITA: Income Tax Act
MTC: Medical scheme fees tax credit
NP: Natural persons
PBO: Public benefit organisation
TP: Taxpayer
YoA: Year of assessment
Lesson 1
 7.1 Overview and framework
• Year of assessment for a natural person  1 March 2022 to
28 February 2023 (2023 year of assessment)
• Specific sequence in the calculation of a NP’s taxable income 
Framework (page 151 Silke)
• NPs can carry on more than one trade and can also receive
non-trade income.
Calculate the taxable income for various trades separately, to
! determine impact of sections 20 and 20A. To be discussed in
subsequent slides.
 7.1.1 Assessed losses s 20
• What is an assessed loss (AL)  s 20(2)

Taxable income is negative

Deductions > Income

• What is a balance of assessed loss (BAL) of a NP refers to the excess of an assessed loss
incurred in the carrying of a trade in 2022, over any taxable income from another trade carried on
in 2022 or from non-trade income in 2022, which is carried forward to the 2023 year of
7.1.1 Assessed losses s 20

S20(1): “For the purpose of determining the

taxable income derived by any person
from carrying on of any trade…..

Prior year of Current year

assessment The following amounts MAY be of assessment
(PYoA) set-off against income: (CYoA)

S 20(1)(a) S 20(1)(b)
Any BAL incurred in PYoA and Any AL incurred by a person in
carried forward to the current year same year of assessment from
of assessment carrying on any other trade (alone
[ignore the proviso] or in partnership)
a a
7.1.1 Assessed losses
s 20

S 20(1) Proviso – MAY NOT set-off the

following amounts:

SB Column 1
Framework
Proviso (b) Proviso (c)

Against income derived from a Against any retirement lump sum

source in the RSA: any AL (CYoA’s benefit, retirement lump sum withdrawal
AL or PYoA’s BAL) from a trade benefit or severance benefit: any AL
carried on outside the RSA (PYoA’s BAL or CYoA’s AL)

r r
 Remember:
s 20(1) Proviso (b) read with s 20(2A)(a) – MAY NOT SET OFF an AL (CYoA AL or
PYoA BAL) of a foreign trade against RSA trade income.

Example: Foreign trade losses

RSA Salary: R250 000

Foreign Trade income: R25 000
Foreign trade expenses: R160 000
7.1.1 Ring-fencing of assessed
losses from certain trades s 20A
• S 20A only applies to NP’s (not juristic persons).
• The set-off provisions in s 20 are always subject to the s 20A ring-fencing
provisions.

• What does ring-fencing mean:

An assessed loss from a specific trade can only be deducted against income from that
same trade. Offsetting assessed losses from suspect trades against other taxable
income (both trade and non-trade activities) is restricted by ring-fencing the losses from
suspect trades (s20A(1)

• How long does ring-fencing apply s20A(5):

Ring-fenced losses are ring-fenced forever.
The AL from the ring-fenced trade may only be
set-off against future income from that same
trade
7.1.1 Ring-fencing of assessed
losses from certain trades s 20A
• When does ring-fencing apply s 20A(2) – must meet ALL 3
requirements:

Requirement 1

S 20A(2): The sum of NP’s (taxable income + CYoA’s AL + PYoA’s BAL)

≥ R1 731 601
Amount at which max
marginal rate of tax
AND (requirement 2 next slide) applicable
7.1.1 Ring-fencing of assessed
losses from certain trades
s20A

Requirement 2

Meet one of the following two requirements

Either/or

S 20A(2)(a): TP has incurred AL in at OR

S 20A(2)(b): The trade is specifically
least “3 out of 5” years in carrying on
listed as suspect trade
that specific trade
7.1.1 Ring-fencing of assessed
losses from certain trades
s 20A
Requirement 3

“Facts and circumstances”

escape clause s 20A(3) does not
apply:
• A TP meeting the requirements of the
“either/or” test (requirement 2), can not
prove that the trade “constitutes a
business in respect of which there is a
reasonable prospect of deriving a
taxable income (disregarding taxable
capital gain) within a reasonable
period..”
Onus on TP
• Take the surrounding facts and
circumstances listed in s 20A(3)(a) – (f)
into account 6 objective factors listed in
ITA
7.1.1 Ring-fencing of assessed
losses from certain trades s 20A

Limitation on the facts and circumstances escape clause:

the ‘six-out-of-ten year’ trade loss prohibition s 20A(4):

• If the TP has, during a ten-year period ending on last day of

current YoA, incurred an AL in at least six YoA ‘s in carrying on
that trade, the facts and circumstances escape clause can not
apply
Requirement 4
Implication:
If the ‘6 out of 10 years’ prohibition is
met, the ring-fencing provisions will
apply
7.1.1 Ring-fencing of assessed losses from certain trades s
20A (Thought process)

1 731
601
Source: Silke p. 155
Class example 1
Lesson 2
 7.2 Calculation of normal tax payable
FRAMEWORK
Column 3 -
Other
income and
deductions

Normal tax determined per the progressive tax table on taxable income Rxxx
in column 3
Less: Section 6(2) rebates (xxx)
Add: Additional tax in terms of s 12T(7)(a) xxx
Normal tax payable on the taxable income from SB xxx
Less: Section 6A and 6B credits (xxx)
Normal tax payable by the individual Rxxx

7.2.1 – The s 6(2) rebates

[Refer to Chapter 2 notes]

NB! Remember proportionate rebate in broken years of assessment.
Silke Example 7.6: “for his 2023 year of assessment”
7.2.2 s6A and s6B medical tax credits

GENERAL CONSIDERATIONS:

• MTCs = credits and not deductions

• Credits against normal tax payable

• Cannot be used to create a tax refund

• Excess cannot be carried over to a following YoA.

 7.2.2 s6A and s6B medical tax
credits
DEFINITIONS:

Dependant s6B(1)
1.) spouse (refer to s1(1) for definition)
2.) child or child of spouse
3.) member of person’s family iro who liable for family
care and support
4.) ANY OTHER PERSON who is dependent ito medical
scheme
7.2.2 s6A and s6B medical tax
credits
Includes adopted /
DEFINITIONS: illegitimate children

Child look at requirements of both s1(1) and s6B(1)

Person’s child / child of spouse, and
Meets one of requirements in table below

Source: Silke pg 167

 7.2.2 s6A medical scheme fees
tax credits

s6A
FOR WHAT – s6A(2)(a) Own: Contributions paid to MS

Contributions paid by ER to MS, if contributions form part

of income of TP - fringe benefit ito par(i) of GI definition.
S6A(3)(b)

FOR WHO – s6A(2)(a) TP and dependants

Credit relates to MS contributions; but is not

limited to the actual fees paid by the person
 7.2.2 s6A medical scheme fees tax credits

s6A
HOW MUCH – s6A(2)(b) The amount of the MSTC for each month of YoA iro which
fees are paid:

s6A(2)(b)(i)(aa) R347 – only TP / If TP not member of MS:

Credits are for Dependent who is member of MS or dependent of a member
each month of MS
OR
s6A(2)(b)(i)(bb) R694 – only TP and ONE dependent
Based on total
OR
number of s6A(2)(b)(i)(cc) R694 – TWO dependents
qualifying persons
for the month ie AND
s6A(2)(b)(ii) R234 – each ADDITIONAL dependent
dependents
7.2.2 s6A medical scheme fees tax credits
S6A(3A): where more than one person pays any fees iro
benefits to a person or dependent

Eg: TP1 and TP 2 each contribute to the medical scheme fees iro their mother

• Apportion the s6A credit

• Burden proof on TP to prove that amount was paid by more
than one person
• Apportionment done in same ratio that the fees paid by each
person bear to the total amount of the fees payable

Source: Silke pg 164

EXAMPLE 1: MTC [S6A]
TP (aged 47) contributed R1 700 per month to a registered medical scheme in the
2023 YOA.
• He did not incur any other medical expenses.
• His taxable income for the 2023 YOA is R170 000.
• He is the main member of the medical scheme and 3 other dependants are
registered on the scheme.

Calculate the normal tax payable by the TP for the 2023 YOA.
EXAMPLE 2: MTC [S6A(3A)]

Taxpayer A (member of MNO medical scheme) and Taxpayer B (member of PQR

medical scheme) pay their mother’s medical scheme fee. Their mother relies on them
for financial support and is a member of XYZ medical scheme. A and B each pay
R1 500 per month in respect of their mother’s medical scheme fees. The total monthly
fee paid to XYZ medical scheme on behalf of their mother is therefore R3 000.

Calculate the monthly s6A MTCs that can be claimed by the

following taxpayers:
A, B and their mother.
Lesson 3
7.2.2 s6B Additional medical expenses tax
credit
1. Excess contributions to medical scheme,
• Credit relates to:
AND
2. Qualifying medical expenditure
• What is qualifying medical expenditure ito s6B(1):
• Any amounts actually paid by TP, except those amounts
recoverable by a TP or his/her spouse from MS
• For purposes of TP or dependent of TP
• Amounts paid can be for the following:
1. Par (a)(i): Services or medicines supplied by medical practitioner, dentist etc
2. Par (a)(ii): nursing home or hospital for illness or confinement
3. Par (a)(iiI): pharmacist for prescription medicines NOT OVER THE COUNTER
MEDICATION
4. Par (b) medicine or service supplied outside of the RSA
5. Par (c) expenditure necessarily incurred and paid in consequence of physical
impairment or disability
Look at ordinary dictionary meaning
Direct link btwn exp and disability Exp necessary to alleviate or support disability
 7.2.2 s6B Additional medical expenses tax
credit

s6B
FOR WHAT 1. Excess contributions to medical scheme and
2. Qualifying medical expenditure as set out in
s6B(1)
FOR WHO TP and dependants

HOW MUCH 3 Categories:

s6B(3)(a) TP > 65 years
s6B(3)(b) disability
s6B(3)(c) other – younger than 65 and no
disability
7.2.2 s6B Additional medical
expenses tax credit
FORMULAS
1) 65 years and older [s6B(3)(a)]
2) Disability [s6B(3)(b)]
3) Other [s6B(3)(c)] – default for TP younger than 65 and no disability

Categories 1 and 2 Category 3

MS contributions (ER & EE (taxed xx MS contributions (ER & EE (taxed as FB) xx

as FB)
Less 4 x 6A credit (xx)
Less 3 x 6A credit (xx)
=Excess MS contributions xxx
=Excess MS contributions xxx
Add QME xx
Add QME xx
xxx
xxx
Less 7.5% of taxable income excl SB (xx)
X33.3%
xxx
=s6B credit xxx
X25%

=s6B credit xxx

EXAMPLE 1: AMTC [S6B]

TP is 44 years old and has a wife and two children.

• Child 1: 23 years old, unmarried and works on a full-time basis.
• Child 2: 16 years old and still at school.
• His taxable income amount to R170 000 for the 2023 YOA

The TP is not a member of a registered medical scheme and paid the following
medical expenses during the 2023 year of assessment:

1. Prescription medicine for child 1: R3 500

2. Doctor’s consultation fees for child 2: R5 000
3. Hospital fees for himself: R50 000

Calculate the qualifying medical expenditure in respect of the 2023 YOA.

EXAMPLE 2: AMTC [S6B]

TP: 67 years old

Taxable income: R215 000
The Taxpayer’s spouse is recognised as a dependant in terms of the rules of his
medical scheme and he has no other dependants.

Medical expenses (PAID):

• Medical scheme contributions (own) R3 100 per month
• R6 250 out-of-pocket expenses for prescription medicine
• R2 500 for spectacles (that were not covered by medical scheme)
• R280 for a consultation with a general practitioner on 20 February 2023. The
amount was only paid on 31 March 2023.

Calculate the ss 6A and 6B medical tax credits that can be claimed by the TP in
respect of the 2023 YOA.
EXAMPLE 3: AMTC [S6B]

TP = 34 years old
Salary= R300 000
Own contributions to medical aid: R22 900
Employer contributions to medical aid: R24 000 (Fringe benefit)

Other medical expenses:

• Out-of-pocket expenses for prescription medication: R19 323

The taxpayer (main member) has 2 other dependants in terms of the rules of his
medical scheme.

Calculate the ss 6A and 6B medical credits that can be claimed by the TP in

respect of the 2023 YOA.
Lesson 4
 7.3 RECOVERY OF NORMAL TAX
FRAMEWORK Column 3 - Other
income and
deductions
Normal tax determined per the progressive tax table Rxxx

Less: Section 6(2) rebates (xxx)

Add: Additional tax in terms of s 12T(7)(a) xxx

Normal tax payable on the taxable income from SB xxx

Less: Section 6A and 6B credits (xxx)

Normal tax payable by the natural person xxx

Less: PAYE, provisional tax and s35A withholding tax i.r.o non-residents (xxx)

Normal tax due by or to the natural person on assessment xxx

The normal tax payable by an individual is recovered through:

• Employee’s tax in the form of PAYE (chapter 10 – covered in 4 th term)
• Provisional tax payments (chapter 11 – tax 399)
• Withholdings tax on the sale of immovable property by non-residents (refer back to chapter 21
notes).
• A final settlement on assessment if necessary.

Refer to SILKE example 7.11 and pay attention to where each of these amounts are deducted in
the framework for natural persons.
7.3 Recovery of tax- selfstudy

7.4 Deductions

1. If an individual is carrying on a trade – deductions may be allowed

under s11(a).
2. “Employment’ is a trade as defined in s1(1). Nevertheless deductions of
salaried employees may be limited by s23(m) – revise chapter 6.
3. Contributions to retirement funds (7.4.1)
4. Donations to a PBO (7.4.2)
7.4.1 Contributions to retirement
funds

FOR: Contributions paid to any pension fund, provident fund or retirement annuity
fund during the YoA
HOW MUCH: S 11F(2) deduction: Actual contributions to all three funds, limited to
the lesser of:
(a) R350 000;
(b) 27.5% of the higher of
* remuneration from all employers (excluding SB) or
* taxable income (excluding SB) before the
s 11F and s 18A deductions (therefore in effect subtotal 5); or
(c) Taxable income before s 11F deduction and before the inclusion of
any taxable capital gain (therefore in effect subtotal 4 in the comprehensive
framework)
7.4.1 Contributions to retirement
funds
(continued)
• Applies not withstanding s23(g) – therefore deduction allowed against both
trading and non-trading income.
• Excess contributions: any contributions not claimed due to exceeding limit –
carried over to next YoA (11F(3))
• CE of ER contributions taxed as fringe benefit and deemed to be contributed by
EE during CY.
• 11F cannot increase or create an assessed loss (11F(2)(c))
Section 11F – contributions to retirement funds class example

Ms Z, aged 30, is a sales representative.

For the 2023 year of assessment, she earned a salary of R300 000 and rental income
amounting to R264 300.

Her monthly contributions to a pension fund amounted to R4 500 and she contributed an amount
of R10 000 to a retirement annuity fund every month. Her employer contributed R5 000 per
month to her pension fund on her behalf.

The balance of unclaimed contributions in respect of the 2022 year amount to R8 000. Ms Z
realised a taxable capital gain of R58 000 during the 2023 year.

Calculate her taxable income for the 2023 year of assessment.

You may assume that Ms Z’s remuneration for the 2023 year of assessment amounts to R300 000. The
remuneration figure will be given in A1S2. The definition of remuneration will only be covered in the 4 th
term in Chapter 10
7.4.2 Donations to Public Benefit
Organisations [s18A]
Donation: is a gratuitous disposal by the donor out of pure liberality or generosity,
under which the donee is enriched and the donor is impoverished. (There is no quid
pro quo, no reciprocal obligations and no personal benefit for the donor).

• Deduction granted for donations paid in cash or transfer of property in kind

to an approved PBO during YoA [S18A(1)]
• Last deduction in the calculation of taxable income.
• Limited to 10% of the taxable income (excluding SB) before s18A has been
taken into account. [Excess can be carried forward to next YoA]
• CRUX: taxpayer must be in possession of a s18A receipt from the PBO
(cannot assume – must be stated before s18A can be claimed) [S18A(2)]
Note: only section 18A(1), (3), are included in the SAICA examinable
pronouncements. Ignore the other subsections of s18A

Cash donations- Tax 298

Non-cash donations – Tax 399
Example: donations to public benefit organisations [s18A]

a) An individual donates R1 900 to a PBO. Her taxable income before any deduction
under s18A is R30 000.
b) An individual donates R16 000 to a PBO. Her taxable income before any
deduction under s18A is R30 000.
c) An individual donates R6 000 to a PBO. She has an assessed loss before any
deduction under s18A of R1 000.

Calculate the amount of the s18A deduction that the individual can claim
assuming that she is in possession of a section 18A receipt for each of the
scenarios above.
Solution:
a) Limitation: 30 000 x 0.1= R3 000 – S18A deduction limited to actual donation of
R1 900. (i.e. deduct whole donation)
b) Limitation: 30 000 x 0.1 = R3 000 – S18A deduction limited to R3 000. (Balance
of R13 000 not claimed carried to next YoA)
c) No s18A deduction – assessed loss position and R6 000 may be carried
forward to next YoA
Lesson 5
7.5 Married couples: background

• Each spouse is taxed separately.

• Who qualifies as TPs spouse? Definition of spouse – s1(1)
3 scenarios: married in laws of republic (in); religion/unions (out of);
• Default rule is married in community of property for marriages i.t.o laws
of the Republic
• Default rule is married out of community of property for marriages i.t.o
religion and live-together unions in the absence of proof to the contrary
• Anteneptual contract: used if OUT OF. Contract that says “mine is mine
& yours is yours”. Assumption: accrual system is in place
[everything earned after married is joint estate unless the contract
explicitly states EXCLUDE ACCRUAL SYSTEM]
• Accrual principal: everything earned after married is joint estate
• In community of property but separated by bed and table and
permanently? [split but not divorced yet, then will be OUT OF]
 Summary: married couples

In community of property Out of community of property

By default, contract Antenuptial contract

Accrual system by default With accrual system by default

Without accrual system if specifically indicated in

antenuptial contract
7.5 Married couples

• Each spouse is taxed separately, unless one of the deemed

inclusion rules of sections 7(2) or 7(2A) applies.
• 7(2)(a): excluded from syllabus
• 7(2)(b): Trade connected and excessive remuneration: recipient
spouse taxed on reasonable remuneration and donor-spouse
taxed on excessive remuneration.
• Marriage/separation/divorce/death of spouse during the year
have no effect on determination of normal tax liability of
individual, unless s 7(2) or s 7(2A) applies.
• Definition of ‘spouse’ (s 1(1))
• Example 7.17  self-study
7.5.2 Marriages in community of
property (section 7(2A) and (2C)

• Joint estate (50-50 interest) but assets or income can fall outside the
joint estate (then only taxed in one spouse’s hands)
• Trade income [excluding rental from fixed property]
• Only the spouse carrying on of the trade is taxed
• See s 7(2C) for income that is DEEMED to be earned from a trade by
one spouse (income or accruals from retirement funds)
• Rental from fixed property and non-trade income (passive
income)
• Deemed to have accrued in equal shares to both spouses  eg.
interest, dividends etc.
• Income which does not fall into the joint estate is deemed to have
accrued to the spouse who is entitled to it.

Example 7.19  self-study

This table is in silke!
Class example [Marriage]:

Sunny and Veil are engaged to be married and have approached a lawyer to draft their
marital contract. They are uncertain what the tax implications would be if they married
in or out of community of property. Assume that both spouses are residents for South
African Income Tax purposes.

Sunny:
• Earns a monthly salary of R60 000 from his employer;
• Owns an investment property which is rented out at R5 500 per month;
• Owns an interest-bearing investment of R1500 000 with a yield of 8% per annum.

Veil:
• Earns a monthly salary of R12 000 from her employer;
• Owns JSE-listed shares of R50 000 with a dividend yield of 6% per annum.

Required:
Assuming that none of their assets or any income thereon will be excluded from
the joint estate, determine whether it would be more tax beneficial for the couple
to marry in or out of community of property.
51
7.6 Separation, divorce and
maintenance orders
• Refer to Chapter 4 and 5.
• Ignore s 7(11) – not included in syllabus
7.7 Minor children

• Income is subject to tax in the hands of the minor child, unless

s 7(3) or s 7(4) applies (ignore 7(4)).
• As soon as the minor child reaches majority, section 7(3) no
longer applies.
• s 7(3): Parent makes donation, settlement or other disposition
(DSOD) and his minor child or step child (MC/SC) receives
income  parent taxed
• Where a person advances an interest-free or low-interest
bearing loan to another person, the courts have held that this
constitutes a continuous donation or other disposition for
purposes of s 7 (CIR v Berold and C:SARS v Woulidge) (will be
covered in detail in Hons)
• Example 7.21(a) and (d)
A1S2 2022 QUESTION
A1S2 2022 SOLUTION
Assume trade 2 is a suspect trade i.t.o
section 20A. What are the tax
consequences?
• Trade 1 income: 50
• Trade 2 income: 10

• Trade 1 deductible expenditure = 20

• Trade 2 deductible expenditure = 50 (ringfenced)
R