SCHOOL OF ACCOUNTANCY

TAXATION 388
2023

SILKE: CHAPTER 7

NATURAL PERSONS

Lecturer: Anja van Niekerk

 SILKE: Chapter 7
Natural persons
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 ss 20 and 20A
• 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 ss 7(2), (2A), (2B), (3) and (4) in
respect of married persons and minor children.
• Demonstrate your knowledge by means of an integrated case study or theoretical
advice questions.

Class Preparation
• Read chapter 7 of SILKE
• Create your own summaries

The lecturer will lead and facilitate the class discussion of the prescribed material. The
lecturer will assume that students have worked through the relevant chapter prior to the
lecture and the class discussion will proceed from this basis.
Caveat
This PowerPoint presentation is the lecturer’s teaching aid and is made available to
better facilitate classroom activities, it does not replace your prescribed course material
(textbook and the Act). This presentation must not be treated as a summary of the
prescribed work.

General announcements
• Examples in Silke: Chapter 7  Self study
• Remember: the 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
CYoA: Current year of assessment
PYoA: Previous year of assessment
BAL: Balance of assessed loss
ITA: Income Tax Act
NP: Natural persons
YoA: Year of assessment
Lecture 1 of 3
 7.1 Overview and framework
• Year of assessment for a natural person (NP) runs from the 1 st day of
March to the last day of February in following year.
• The end date indicates the YoA

2023 YoA: 1 March 2022 up to and including 28 February 2023

• NP’s 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 ss 20 and 20A.

• NP’s can also be liable for certain withholding taxes

For example, WHT on interest, as discussed, in chapter 21 of Silke

7.1 Overview and framework
• With reference to the Subtotal method (Comprehensive
Framework on page 151 of Silke) of calculating a NP’s
taxable income, take note of the following:
• There is a specific sequence in the calculation of taxable
income.
• Comprehensive Framework consists of 3 columns 
different tax tables are applicable.

You are already familiar with the tax table applicable to Column 1 (tax table
applicable to severance benefits – p. 284 in Act) and Column 3 (progressive tax table
applicable to natural persons – p.281 in Act)

• Comprehensive Framework facilitates calculation of

taxable income and is NOT AUTHORITY FOR INCLUSION
OF ANY AMOUNT  refer to specific section in ITA.
Subtotal method: Comprehensive framework for the 2023 year of assessment

Chp 7

Chp 17

Chp 7

Chp 7

Chp 7
The taxable capital gain of a natural person is determined as follows in
accordance with the pro­visions of the Eighth Schedule:

Sum of a natural person’s capital gains for the year of assessment Rxxx

Less: Sum of his capital losses for the year of assessment (xxx)

Less: Annual exclusion of R40 000 (or R300 000 in the year of (xxx)
death)
Less: Any assessed capital loss brought forward from the previous (xxx)
year
Net capital gain for the year Rxxx

Taxable capital gain: 40% × net capital gain Rxxx

(See chapter 17.)

It is very important to remember that many words used in the Act have
specific meanings. Note, for example, that the net capital gain is the amount
after the deduction of the annual exclusion and assessed capital loss. The
40% must be applied to this net capital gain in order to calculate the taxable
capital gain. Students frequently incorrectly swop the sequence of the annual
exclusion and the 40%.
 7.1.1 Assessed losses s 20
• What is an assessed loss (AL)  s 20(2)

• 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 assessment.
7.1.1 Assessed losses s 20

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

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

The following amounts MAY be

set-off against income:

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

S 20(1) Proviso – MAY NOT set-off the

following amounts:

Proviso (b)
Proviso (c)
Against income derived from a
source in the RSA: any AL (CYoA’s Against any severance benefit: any AL
AL or PYoA’s BAL) from a trade (PYoA’s BAL or CYoA’s AL)
carried on outside the RSA
 Remember:
S 20(1) Proviso (b) read with s 20(2A)(a) – MAY NOT set-off an AL (CYoA’s AL
or PYoA’s BAL) from a foreign trade against RSA Income

Example: Foreign Losses

RSA Salary: R250 000 Cannot be set off against RSA

Foreign trading income: R25 000 income of R250 000 -> only
Foreign trading expenditure: R160 000 against other foreign income

RSA Foreign

Salary R250 000

Foreign trading income R25 000

Foreign trading (R160 000)

expenditure
R250 000 (R135 000)
Example: Foreign Losses
Cannot be set off against RSA
RSA Salary: R250 000 income of R250 000 → only @
Foreign trading income: R25 000 other foreign income
Foreign trading expenditure: R160 000
RSA Foreign

Salary R250 000

Foreign trading income R25 000

Foreign trading (R160 000)

expenditure
R250 000 (R135 000)

Calculation of taxable income of NP in terms of the comprehensive framework

Column 3 CYoA’s AL of
GROSS INCOME R135 000 is ring-
fenced ito s 20A 
Salary 250 000
carry forward to
Foreign trading income 25 000 2024 YoA
LESS DEDUCTIONS  only set-off
against foreign
Foreign trading expenditure (25 000)
income in following
TAXABLE INCOME 250 000 YoA
7.1.1 Assessed losses s 20
With specific reference to NP’s (s 20(2A):
• S 20(2A)(a): may set-off a CYoA’s AL or a PYoA’s BAL against income derived
from any trade activities AND from non-trade activities (i.e, passive income for
example interest and dividends)

• S 20(2A)(b): May carry forward a BAL, even if the NP has not derived any income
in the next YoA

• S 20A ring-fences assessed losses from

certain trades. To be discussed hereafter.
 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. (s20A(1)

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

Ring-fenced losses are ring-fenced forever.
 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

AND (requirement 2 next slide)

7.1.1 Ring-fencing of assessed
losses from certain trades
s20A

Requirement 2

Meet one of the following two requirements

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
AND (requirement 3 next slide)
 7.1.1 Ring-fencing of assessed losses from certain
trades s 20A

“Facts and circumstances” escape clause s 20A(3) does not apply:

Requirement 3

• If 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..”

• Take the surrounding facts and circumstances listed in s 20A(3)(a) – (f) into account
 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

Implication:
If the ‘6 out of 10 years’ prohibition is
met, the ring-fencing provisions will
apply
 7.2 Calculation of normal tax payable

Different tax tables are used to calculate normal tax payable on the taxable
incomes of NP as calculated per columns 1 to 3 of the sub-total method
Cannot be used to create a tax refund
7.2.1 s 6(2) rebates Excess cannot be carried over to a
following YoA
• Refer back to Chapter 2

• Rebates are as follows:

Primary = R16 425

Secondary (65 yrs and older) = R9 000
Tertiary (75 yrs and older) = R2 997

• Broken years of assessment  apportion all rebates

In event of birth,
death or insolvency
Lecture 2 of 3
7.2.2 s 6A and s 6B medical scheme tax credits (MSTC)

GENERAL CONSIDERATIONS:

• MSTCs = credits and not deductions or rebates (s 6A(1))

• Credits are deductible against normal tax payable, but after any
normal tax payable on SB are added

• Cannot be used to create a tax refund

• Excess cannot be carried over to a following YoA.

Subtotal method: Comprehensive framework for the 2023 year of assessment

Qualify for s6A or s6B or both

Look at its place in the framework – it

reduces any normal tax payable
 7.2.2 s 6A and s 6B MSTC
Important DEFINITIONS:
Dependant s 6B(1)
a) person’s spouse (refer to s1(1) for definition)
b) person’s child or child of spouse
c) member of person’s family i.r.o. who he is liable for family care
and support
d) ANY OTHER PERSON [other than a-c] who is a dependant i.t.o.
medical scheme
7.2.2 s 6A and s 6B MSTC
Important DEFINITIONS:
Child look at requirements of both ss1(1)&6B(1)
Person’s child / child of spouse, and
Meets one of the requirements:

Source: Silke p. 167

7.2.2 s 6A Medical scheme fees tax credit
s 6A applicable on natural persons
FOR WHAT – s 6A(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. S 6A(3)(b)
[Chapter 8 – Fringe benefits]
FOR WHO – s 6A(2)(a) TP and dependants

S 6A credit relates to MS
contributions
7.2.2 s 6A Medical scheme fees tax credit
AMOUNT OF CREDIT – S 6A(2)(b)
The amount of the credit for each month of the YoA iro which fees are paid:

S 6A(2)(b)(i)(aa) R347 – only TP / If TP is not a member of MS: Dependant

who is member of MS or dependant of a member of MS
OR
S 6A(2)(b)(i)(bb) R694 – only TP and ONE dependant
OR
S 6A(2)(b)(i)(cc) R694 – TWO dependants

AND
S 6A(2)(b)(ii) R234 – each ADDITIONAL dependant

Based on total number of qualifying persons Credits are for each month
for the month that contributions are paid
 7.2.2 s 6B Additional medical expenses tax credit

• Credit relates to:

1. Excess contributions to medical scheme,

AND
2. Qualifying medical expenditure

• What is qualifying medical expenditure ito s 6B(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 dependant of TP
• Amounts paid can be for the following:
7.2.2 s 6B Additional medical expenses tax credit

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:

S 6B(3)(a) TP > 65 years
S 6B(3)(b) disability
S 6B(3)(c) other – younger than 65 and no
disability
 7.2.2 s 6B Additional medical expenses tax credit
FORMULAS
1) 65 years and older [s 6B(3)(a)]
2) Disability of person, spouse or child [s 6B(3)(b)]
3) Other [s 6B(3)(c)] – default for TP younger than 65 and no disability

Category 3
Categories 1 and 2
MS contributions (ER & EE (taxed as xx
MS contributions (ER & EE (taxed as xx FB))
FB)) Less 4 x 6A credit [full year’s credit] (xx)
Less 3 x a6A credit [full year’s credit] (xx)
= Excess MS contributions[positive xxx
amount limited to R0]
= Excess MS contributions xxx
[positive amount limited to R0] Add QME xx
Add QME xx xxx

xxx Less 7.5% of taxable income (Column (xx)

3)
X 33.3%
xxx
= s 6B credit xxx X 25%
= s 6B credit xxx
Lecture 3 of 3
7.3 Recovery of normal tax - selfstudy
7.4 Deductions
• If an individual is carrying on a trade, certain deductions might be allowed.

• ‘Employment’ is a trade as defined in s 1(1).

• Nevertheless, deductions of persons earning remuneration is limited by ss

23(b) and 23(m) – chapter 6.

• Certain deductions are subject to limitations that are based on subtotals and
must therefore be taken into account in the correct place in the
comprehensive framework for natural person, namely:
• Contributions to retirement funds (7.4.1)
• Donations to a PBO (7.4.2)
Subtotal method: Comprehensive framework for the 2023 year of assessment

Subtotal 4 and 5 have an impact on

the calculation of s11F

Subtotal 6 has an impact on the

calculation of s18A
 7.4.1 Deduction in respect of contribution to
retirement funds (s 11F)

• Contributions paid to any pension fund, provident fund or retirement annuity fund
during the YoA may be claimed as a deduction (s 11F(1))
 7.4.1 Deduction in respect of contribution to
retirement funds (s 11F)

• Excess contributions : (s 11F(3)) any contributions not claimeddue to exceeding limit is

carried over to next YoA and deemed to be contributed in the current YOA but the
whole explanation regarding the order in which the unclaimed balance of
contributions in Silke 7.4.1 is applied is Excluded for Tax 388 since we Exclude
chapter 9 and s 10C
 7.4.1 Deduction in respect of contribution to
retirement funds (s 11F)

Deduction in a YoA (s 11F(2) = Total actual contributions to retirement funds, limited

to the lesser of:
a) R350 000; or
b) 27.5% of the higher of
• Remuneration [Given] from all employers (excluding SB) or
• taxable income (excluding SB) before the s 11F and s 18 deductions (therefore in
effect subtotal 5 in the framework); or
c) Taxable income (excluding SB) before s 11F and s 18A deductions and before the
inclusion of any taxable capital gain (therefore in effect subtotal 4 in the framework)
Subtotal method: Comprehensive framework for the 2023 year of assessment

Subtotal 4 and 5 have an impact on

the calculation of s11F
 7.4.2 Donations to Public Benefit Organisations [s 18A]

• Deduction is granted for bona-fide donations paid in cash or transfer of property

in kind to an approved PBO during YoA [S 18A(1)]
• Last deduction in the calculation of taxable income.

• Limited to 10% of the taxable income (excluding SB) before s 18A has been taken
into account [S 18A(1)(B)] .
• Excess can be carried forward to next YoA [Proviso].

• Taxpayer must be in possession of a s 18A receipt from the PBO (when answering
a question, cannot assume – must be stated before s 18A can be claimed) [S
18A(2)].

Ignore donations in kind (Silke p180), as well as qualifying donations of immovable property (Silke p181)
Subtotal method: Comprehensive framework for the 2023 year of assessment

Subtotal 6 has an impact on the

calculation of s18A
7.5 Married persons
7.5.1 Deemed inclusion s (7)(2)(a) ignore

• Each spouse is taxed separately, unless one of the deemed inclusion rules of
ss7(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. [anti-avoidance]

• Marriage/separation/divorce/death of spouse during the year has no effect on

determination of normal tax liability of individual, unless ss 7(2) or 7(2A) applies.

• Definition of ‘spouse’ (s 1(1))

 7.5.2 Marriages in community of property (ss 7(2A), (2C))

• Assets and liabilities of both spouses constitute the joint estate (50-50 interest).

• A marriage in terms of the Laws of the Republic is by default in community of

property.
 7.5.2 Marriages in community of property (ss 7(2A), (2C))

• However, assets and income earned from it can fall outside the joint estate, then
only taxed in one spouse’s hands.

SILKE p. 185
 7.5.2 Marriages in community of property (ss 7(2A), (2C))

S7(2A)(a): Trade income

[excluding rental from fixed property]

• Only spouse carrying on trade is taxed.

• Carry on trade jointly  agreement / reasonably entitled.

• Ito s 7(2C) certain types of income are DEEMED to be derived by ONE spouse from
his/her trade. Eg: retirement funds/preservation funds (including lumpsums &
annuities received from retirement funds), s10A annuities and income from patents,
designs, trademarks, copyrights and property of a similar nature [refer to ACT]
 7.5.2 Marriages in community of property
(ss 7(2A), (2C))

A7(2A)(b): Rental from fixed property and non-trade 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
 7.5.3 Meaning of ‘income’ for the purposes of
deeming provisions in s 7

• Look at ordinary meaning, ie, profits.

• NOT: gross income less exempt income.

7.5.4 Expenditure and allowances in s 7(2B)

• When the income of the spouse receiving it is deemed to be the income of the donor

spouse, the expenses associated with the income are also available to the benefit of

the donor spouse.

7.6 Separation, divorce and maintenance orders

• Revise Chapter 4 and 5
 7.7 Minor children s7(3)
• Ignore s7(4)

• Income is subject to tax in the hands of the minor child, unless s 7(3) applies

• S 7(3) only applies if “donation, settlement or other disposition (DSOD)” is made

by a parent and his/her minor child or stepchild receives the income as result
• Look at age of child on date that income is received: minor means <18
years old

• “by reason of DSOD” Donation need not be made directly to child.

• Is there a causal relationship?