RBV202: Taxation 2.2 Exam Notes – Nelson Mandela University (NMU) BCom Accounting Sciences (CA Stream)

These exam notes are tailored to RBV202: Taxation 2.2 for Nelson Mandela University (NMU) BCom Accounting Sciences (CA Stream) students. They focus on South African income tax at an intermediate level, aligning with typical university outcomes and the depth expected in a second-year CA-stream taxation module. The emphasis is on practical exam application, detailed computations, and correct referencing to the Income Tax Act 58 of 1962, the Eighth Schedule, and relevant SARS practice.

1. Core Framework of South African Income Tax (RBV202 Focus)

1.1 Tax System Overview and RBV202 Context

RBV202: Taxation 2.2 builds on the introductory tax concepts covered in earlier modules and extends them to more complex areas such as capital gains tax (CGT), allowances and recoupments, business vs. employment income, and basic tax planning. The South African personal and corporate income tax system is:

Residence-based: Residents taxed on worldwide income, non-residents on SA-source income.
Progressive for individuals: Higher taxable income → higher marginal tax rate.
Flat (or tiered flat) for companies: A single company tax rate, with specific regimes.

For RBV202, students must be able to:

Distinguish gross income, exempt income, capital vs. revenue, deductions, and assessed losses.
Compute taxable income and normal tax for individuals, sole proprietors, and basic companies.
Apply the Eighth Schedule for CGT in typical exam scenarios.

1.2 Key Definitions and Concepts

A firm grasp of statutory definitions is vital. In exam questions, quoting or paraphrasing the correct section often gains easy method marks.

1.2.1 Gross Income – Section 1

Gross income (for a resident) is defined in section 1 as:

“…the total amount, in cash or otherwise, received by or accrued to or in favour of such resident, during such year of assessment, excluding receipts or accruals of a capital nature…”

Key takeaways:

“Amount” includes money and anything with measurable monetary value (fringe benefits, assets received).
“Received by or accrued to”:
- Received: Actually received or coming into the taxpayer’s possession.
- Accrued: When the taxpayer obtains an unconditional right to an amount, even if payment is later.
Capital vs. revenue: Capital receipts are generally excluded, but capital gains are separately taxed under the Eighth Schedule.

For non-residents, gross income only includes SA-source amounts (e.g., SA rental income, SA employment income if services rendered in SA).

1.2.2 Exempt Income – Section 10

Exempt income is included in gross income but is explicitly exempt from normal tax under section 10. Examples relevant to RBV202:

Section 10(1)(i): Certain foreign pensions or annuities (subject to conditions and treaties).
Section 10(1)(gC): Portion of interest for individuals under 65 (up to a threshold) – historically relevant, though in practice interest exemption has been frozen and eroded by inflation, still examinable conceptually.
Section 10(1)(n): Certain war pensions (often mentioned conceptually only).
Section 10(1)(o)(ii): Foreign employment income exemption (subject to residency and days-worked tests – often examined at least conceptually).

Exempt income:

Does not form part of taxable income.
Must still be identified and disclosed in exam answers to demonstrate understanding.

1.2.3 Income vs. Capital

Distinguishing between income (revenue) and capital is core to RBV202. Courts use multiple tests (not a single mechanical rule):

Intention at acquisition
- Acquired for resale at a profit → often revenue (stock-in-trade).
- Acquired for long-term use or investment → generally capital.
Frequency of transactions
- Regular buying and selling → revenue nature.
- Once-off or infrequent disposal of an asset held long-term → usually capital.
Nature of the taxpayer’s business
- If the taxpayer is a property developer, sale of land is likely revenue.
- If the taxpayer is an accounting practice selling its office building, likely capital.
Method of financing
- Short-term financing consistent with trading may indicate revenue.
Length of holding period
- Long-term holding tends to support capital intention.

In exam questions, clearly justify your classification (e.g., “The property was acquired to develop and sell in the ordinary course of business; therefore, proceeds are revenue and included in gross income.”).

1.2.4 Taxable Income and Normal Tax

The basic computation for individuals (conceptually) is:

Gross income
Less: Exempt income
= Income
Less: Deductions (e.g., s 11(a) + other specific deductions)
= Taxable income
Apply tax tables to taxable income → Normal tax
Less: Rebates (primary, secondary, tertiary)
= Tax payable (before medical credits and other credits).

In RBV202 you are often:

Given a list of receipts and expenses.
Required to classify, include/exclude, and compute taxable income accurately.
Expected to understand the interaction between normal income and capital gains (via inclusion rate).

1.3 Residents vs. Non-Residents

Residence status is tested conceptually and in calculation questions involving foreign income.

1.3.1 Tests for Residence (Individuals)

Two main tests exist in the Income Tax Act:

Ordinarily resident test
- A factual test based on where the person’s real home is.
- Consider:
  - Where the person’s family lives.
  - Where their permanent home is kept.
  - Intentions to remain or return.
- An individual can be ordinarily resident in only one country at a time.
Physical presence test (section 1 definition of “resident”)
- Requires presence:
  - > 91 days in current year of assessment; and
  - > 91 days in each of the five preceding years; and
  - > 915 days in total during those five preceding years.
- If all three conditions are met, the individual is deemed a resident for that year.
- Ceases if the person is absent from South Africa for a continuous period of >330 full days.

A person is a resident if they satisfy either:

Ordinarily resident, or
Physical presence test,

unless excluded by a double taxation agreement (DTA) “tie-breaker” rules.

1.3.2 Residents’ and Non-Residents’ Taxable Base

Residents:
- Taxed on worldwide income.
- Eligible for foreign tax credits (section 6quat) if foreign tax was paid on foreign-sourced income.
Non-residents:
- Taxed only on South African-sourced income (e.g., SA rental, employment in SA, business carried on in SA).
- Often subject to withholding taxes on interest, royalties, and certain service fees.

In RBV202, foreign tax credits are usually covered at a basic level; emphasis is on correct identification of SA-source vs foreign-source income and treatment of residents vs non-residents.

1.4 Overview of Taxpayers Covered in RBV202

1.4.1 Individuals (Including Sole Proprietors)

RBV202 expects:

Determining taxable income from:
- Employment (salary, bonus, fringe benefits).
- Business (sole proprietorship).
- Investment (interest, dividends, rental).
- Capital gains (disposal of shares, property, etc.).
Application of:
- Section 11(a) general deduction formula.
- Section 23(g) private vs. trade apportionment.
- Limitations on certain deductions (e.g., home office, medical contributions and expenses, retirement annuities – depending on module scope).

1.4.2 Companies and Close Corporations (CCs)

At RBV202 level:

Focused on basic company tax:
- Company tax rate (e.g., 27% for years of assessment from 31 March 2023; historically 28%).
- No rebates; flat rate on taxable income.
Treatment of:
- Depreciable assets and allowances.
- Recoupments.
- Capital gains with higher inclusion rate than individuals.
Dividends paid by companies:
- Typically exempt from normal tax in shareholders’ hands, but subject to Dividends Tax (a separate tax) at shareholder level, generally at 20%.

1.5 Exam Technique Tip for RBV202

When answering RBV202 questions, always:

Identify type of income (employment, business, interest, rental, capital gain).
Check if it is gross income in terms of section 1.
Check for exemptions (section 10).
Apply deductions (section 11 and others).
Deal separately with capital gains (Eighth Schedule) and then integrate the taxable capital gain into taxable income.
Clearly show all steps and workings; even if the final number is incorrect, method marks are often awarded.

2. Employment Income, Fringe Benefits and Retirement Contributions

2.1 Employment Income and Taxable Allowances

Employment income typically includes:

Salary/wages, bonuses, commissions, overtime, leave pay.
Taxable allowances and fringe benefits.

2.1.1 Basic Salary and Cash Benefits

All cash amounts received for services rendered are part of gross income (section 1). Common items:

Basic salary or wage.
Overtime and commissions.
Annual bonus or 13th cheque.
Sick pay or maternity pay from employer.

These are straightforward inclusions in gross income for RBV202 purposes.

2.1.2 Allowances vs. Reimbursements

A frequent exam area is differentiating between allowances and reimbursements, especially for travel and subsistence.

Allowances (e.g., travel allowance, subsistence allowance):
- A fixed or periodic amount paid upfront to meet specific expenses.
- Included in gross income.
- A deduction or non-taxable portion may be allowed based on actual or deemed expenditure rules.
Reimbursements:
- Employee incurs actual expenses on employer’s behalf, and the employer reimburses exact cost.
- Correctly documented reimbursements (with supporting vouchers) are generally not gross income.
- Special rules apply to reimbursive travel at SARS rate-per-km.

2.1.3 Travel Allowances – s 8(1)(b)

Travel allowances are a staple RBV202 exam topic.

Travel allowance: Paid to an employee who uses their own motor vehicle for business travel.
Tax treatment:
- The full allowance is included in gross income.
- For employees’ tax (PAYE), generally 80% of the travel allowance is included in remuneration (20% if employer satisfied that at least 80% of travel is business).
- In the final assessment, the employee may claim a deduction for business travel costs, using either:
  - Actual expenses (if detailed records are kept), or
  - SARS prescribed rates per km and table.

Key concepts:

Business vs. private km:
- Business km: Trips for work (client visits, off-site meetings).
- Private km: Home-to-work commute and personal trips.
Only business travel qualifies for deductions.
Logbook is essential in practice; in exams, a logbook or details are usually given.

Example (simplified):
Lebo receives a travel allowance of R60,000 for the year. She travelled 20,000 km in total, of which 12,000 km were business. Using a simplified SARS table rate of R4 per km (given in exam), her deductible business travel is 12,000 × R4 = R48,000. Gross income includes R60,000; a deduction of R48,000 applies, so net inclusion is R12,000.

2.1.4 Subsistence Allowances

Subsistence allowances are paid to cover meals and incidental expenses when an employee is required to sleep away from home for business.

Basic principles:

Allowance is included in gross income.
A deemed expenditure (non-taxable portion) is allowed if:
- Employee is more than a certain distance from home (e.g., > 50 km), and
- Must spend at least one night away from usual residence.
SARS publishes daily deemed amounts for meals and incidental costs in South Africa and foreign travel.

In exam questions:

Distinguish clearly between:
- Daily allowance vs. actual expenses.
- Time spent away from home.
Use the deemed amounts given in the question or the exam booklet.

2.2 Fringe Benefits – Seventh Schedule

The Seventh Schedule to the Income Tax Act codifies fringe benefits and deeming provisions. For RBV202, you should understand:

Which benefits are taxable.
How to value them (fringe benefit value).
Where the value is included (gross income via the definition of “remuneration” and paragraph (i) of gross income definition as read with the Seventh Schedule).

Common examinable fringe benefits:

2.2.1 Use of Company Car

Employer provides employee with right of use of a company-owned or leased motor vehicle.
Fringe benefit value is based on determined monthly value (percentage of vehicle’s determined value), typically:
- 3.5% of cost per month, or
- 3.25% if subject to maintenance plan (figures may vary per current legislation; exam will specify).
80% of the fringe benefit is subject to PAYE (20% if employer satisfied that at least 80% of use is business).
Employee may claim a deduction in personal return for business travel if accurate logbook exists; this can reduce the taxable value.

Exam tasks:

Determine monthly and annual fringe benefit value.
Adjust for employee contribution (if any).
Adjust for business use where relevant in final tax computation.

2.2.2 Employer-Owned Accommodation

Where employer provides rent-free or low-rent accommodation:

Fringe benefit arises based on deemed rental value.
Seventh Schedule prescribes a formula (often a percentage of property value, adjusted for market rental and other factors).
Key factors:
- Cost of the property.
- Market rent.
- Employee’s remuneration level.
- Whether utilities are included, etc.

Often RBV202 only touches basic calculation using a given formula in exam. Follow the specific instructions.

2.2.3 Low-Interest or Interest-Free Loans

If employer grants an interest-free or low-interest loan to employee (e.g., housing loan):

Fringe benefit equals difference between:
- Interest at official rate, and
- Interest actually paid by employee.
Official rate is set by SARS (based on repo rate + a certain margin).

The benefit is usually deemed to accrue monthly and is included in gross income under “remuneration”.

2.2.4 Other Common Fringe Benefits

Medical aid contributions paid by employer (on behalf of employee).
Payment of employee’s personal debts.
Free or discounted services or goods.
Free meals, uniforms, tools – some may be partially or wholly exempt if they meet specific conditions (e.g., uniforms clearly required for work and not suitable for private wear).

In all such cases:

Determine whether a fringe benefit arises according to the Seventh Schedule.
Calculate taxable value (use formulas or values given).
Include in gross income (remuneration).
In later sections, consider related deductions (e.g., medical tax credits rather than straight deductions).

2.3 Retirement Contributions and Tax Treatment

Retirement contributions are often examinable in RBV202, both conceptually and computationally, though detailed retirement lump sum tables may appear more heavily in later modules.

2.3.1 Types of Retirement Funds

Pension funds:
- Typically employer-based.
- Part of the contribution may be employer’s, part employee’s.
Provident funds:
- Historically different withdrawal rules; reforms have gradually harmonised with pension funds for new contributions.
Retirement annuity (RA) funds:
- Usually individual-based (not employer-provided).
- No employer contributions; individuals contribute on own.

2.3.2 Deductibility of Retirement Fund Contributions

Currently, contributions to approved retirement funds (pension, provident, RA) enjoy a combined deduction for individuals up to 27.5% of the greater of:

Remuneration, or
Taxable income (before retirement contributions and capital gains).

With an absolute annual monetary cap (e.g., R350,000 per year).

For RBV202, exams might simplify with:

Given amounts of pension and RA contributions.
Instruction to apply “27.5% rule, max R350,000”, or older rules if exam context uses prior legislation (always follow exam instructions).

Any excess contributions:

Not deductible in current year.
Carried forward to future years, and/or
May be used to reduce taxable portion of retirement lump sums or annuities in future.

2.3.3 Retirement Lump Sums and Annuities (Introductory Scope)

While detailed tables often belong to advanced modules, RBV202 may ask conceptual questions like:

Distinguish between:
- Retirement lump sum benefits (received on retirement).
- Retirement lump sum withdrawal benefits (pre-retirement withdrawals).
Basic principle:
- Certain portions of lump sums are tax-free according to tax tables, while balances are taxed at progressive rates.
Annuities (pension income) are typically taxable as normal income in year of receipt.

For exam purposes, if tables are required, they are provided; focus on:

Identifying nature of amount (lump sum vs annuity).
Applying correct tax treatment (taxable vs tax-free portion).

2.4 Practical Exam Approach to Employment and Fringe Benefits

When presented with an employment-based scenario (typical RBV202 exam question):

List all receipts from employer:
- Salary, bonus, allowances, fringe benefits, lump sums, reimbursements.
Classify each:
- Salary/bonus: fully taxable.
- Allowance: taxable, but check if deduction permitted (e.g., travel, subsistence).
- Fringe benefits: taxable per Seventh Schedule.
- Reimbursements: Generally non-taxable if properly substantiated.
Compute taxable amounts of allowances/fringe benefits using SARS or exam-prescribed formulas.
Apply any legitimate deductions (e.g., business travel against travel allowance).
Feed resulting employment income figure into the overall taxable income computation.

Clarity of classification and consistent referencing to relevant sections (s 8, Seventh Schedule, s 10 for exemptions, s 11(a) and 23 for deductions) are crucial for maximum marks.

3. Business Income, Deductions, Allowances and Recoupments

3.1 Gross Income from Trade or Business

Many RBV202 exam questions revolve around a sole proprietor or a small company carrying on trade. Income from trade includes:

Sales of goods or services.
Fees, commissions, and other business receipts.
Rental income (if property letting is part of business).
Royalties (if part of core activities).
“Other income” (e.g., sundry income, discounts received).

All such items form part of gross income, unless they are of a capital nature or specifically exempt.

3.2 The General Deduction Formula – Section 11(a) and Section 23(g)

The general deduction formula is central to determining which expenses are deductible:

Section 11(a): “expenditure and losses actually incurred in the production of the income, provided such expenditure and losses are not of a capital nature…”

Read with section 23(g) which limits deductions to expenditure “not laid out for the purposes of trade”.

3.2.1 Requirements for Deductibility under s 11(a)

For an expense to be deductible under s 11(a):

Actually incurred:
- Legal obligation to pay must have arisen.
- Not just provision for a future expense (unless specific provisions are allowed).
In the production of income:
- The expense must have a sufficiently close connection to income-producing activities.
Not of a capital nature:
- Should be revenue rather than capital.
During the year of assessment:
- It must relate to or be incurred in the current year of assessment.

Common deductible expenses:

Advertising and marketing.
Salaries and wages.
Rent and utilities for business premises.
Repairs and maintenance (not enhancement/improvement).
Telephone and internet (appropriately apportioned for private vs business use).
Professional fees (e.g., audit fees, bookkeeping, legal fees related to trade).

3.2.2 Capital vs. Revenue Expenditure in Deductions

Even if an amount is “in the production of income”, if it is capital, it is not deductible under s 11(a). Instead, it may qualify for capital allowances (see later).

Examples:

Capital:
- Purchase of machinery, vehicles, buildings.
- Major improvements/additions increasing capacity or useful life.
Revenue:
- Routine repairs (e.g., replacing worn parts).
- Small tools used up within a short time.
- Regular maintenance of equipment.

Exam technique:

Provide brief justification:
- “Purchase of new delivery vehicle is capital in nature and not deductible under s 11(a). Depreciation for accounting is not allowed; instead, claim wear-and-tear / s 11(e) allowance.”

3.2.3 Apportionment – Section 23(g)

Where an expense is incurred partly for:

Income-producing trade, and
Private or non-trade purposes,

it must be apportioned; only the portion relating to trade is deductible.

Example:

A sole proprietor uses a cellphone contract for both business and private calls; if 70% of usage is business, then 70% of the expenditure is deductible.

In exams, the percentage is usually given or calculable from usage data.

3.3 Specific Deductions, Provisions and Disallowed Items

RBV202 also encompasses selected specific deduction provisions and non-deductible expenses, including:

3.3.1 Bad Debts and Doubtful Debts

Bad debts (s 11(i)):
- Amounts previously included in income (e.g., trade debtors) that are now irrecoverable.
- Deductible in year written off.
Doubtful debts:
- Not fully bad yet, but doubtful; historically allowed as provision subject to SARS practice and case law.
- Specific allowances for doubtful debts are now governed by section 11(j), requiring careful conditions (often simplified in RBV202).

Exam questions may require:

Identifying genuine bad debts vs general provisions.
Deductibility of bad debts only, with general provisions disallowed under s 23(e) or similar.

3.3.2 Provisions and Accruals

General rules:

Provisions for future expenses (e.g., provision for leave pay, warranties, general repairs) are usually not deductible unless a specific section allows.
Accrued expenses (where obligation already exists) are usually deductible under s 11(a).

Example:

Provision for future repairs: not yet incurred → not deductible.
Unpaid but already invoiced electricity bill at year-end: obligation exists → deductible.

Carefully read exam questions to distinguish provisions vs accruals.

3.3.3 Fines, Penalties and Donations

Fines and penalties paid for contravention of law (e.g., traffic fines, SARS penalties) are generally not deductible (s 23(c)).
Donations:
- To approved Public Benefit Organisations (PBOs) – deductible under s 18A, subject to limits.
- Other donations are usually capital and not deductible under s 11(a).

RBV202 may ask conceptually about deductibility of these items or require exclusion from deductions list.

3.4 Capital Allowances and Wear-and-Tear

Instead of a deduction for purchase price of capital assets, taxpayers claim capital allowances under specific sections. RBV202 expects familiarity with:

3.4.1 Wear-and-Tear Allowance – Section 11(e)

Section 11(e) permits a deduction for the depreciation (wear-and-tear) of depreciable assets used in trade.

Key points:

Based on cost of the asset (excluding VAT for VAT vendors where VAT claimed).
The asset must be used for trade during the year.
Deduction is based on:
- Write-off period prescribed by SARS tables, or
- Method acceptable to SARS (straight-line or other).
Often, exam questions give the write-off period directly (e.g., computer equipment: 3 years; machinery: 5 years; vehicles: 5 years).

Example:

Machine cost R200,000, write-off period 5 years:
- Annual allowance = R200,000 / 5 = R40,000.
If purchased mid-year and used for 6 months:
- Pro-rate: R40,000 × 6/12 = R20,000.

Always cross-check for private use portion (if asset partly private, e.g., sole proprietor’s car).

3.4.2 Initial Allowance – Section 12E/12C/12D (depending on regime)

At RBV202 level, focus is often on one or two allowances, as specified in the exam or textbook (e.g., s 12C for manufacturing assets, or simplified small business corporation rules). The principle:

An initial accelerated allowance on new and unused qualifying assets (e.g., manufacturing plant).
Followed by annual write-off on remaining balance.

An exam will usually:

Provide relevant section reference and percentage rates, or
Direct you to assume a particular depreciation rate.

Stick to the data given in the scenario.

3.5 Recoupments – Section 8(4)(a)

When a taxpayer disposes of an asset on which allowances were previously claimed, and the proceeds exceed the tax value (cost less allowances claimed), a recoupment arises.

The recoupment is ordinary income – included in gross income (often under s 8(4)(a)).
Calculated as:

Recoupment = Lesser of (1) Proceeds, and (2) Original cost
minus tax value (cost less allowances claimed)

If proceeds exceed original cost:

Excess portion is considered part of capital gain (under Eighth Schedule), not recoupment.

Example:

Asset cost R100,000.
Total wear-and-tear claimed over years: R70,000.
Tax value at disposal: R30,000.
Proceeds of disposal: R90,000.

Recoupment = min(R90,000, R100,000) – R30,000 = R90,000 – R30,000 = R60,000.
Any additional difference above cost (R90,000 vs R100,000) doesn’t arise here as there is no excess over cost; no capital gain on disposal (assuming asset is depreciable with no CGT or limited CGT consequences).

In exam answers:

Show calculation of tax value, proceeds, recoupment.
Include recoupment as income in taxable income computation.
Separately consider any capital gain if proceeds > cost (subject to CGT rules).

3.6 Assessed Losses – Section 20

An assessed loss arises when:

Allowable deductions (including capital allowances) > income from trade in a year.

Treatment:

Assessed loss is carried forward to next year.
It is set off against taxable income in subsequent years, subject to SARS and legislative restrictions (for companies, some limitations may apply where there is no trade; follow exam’s legislative context).

In RBV202 exam questions:

Identify any assessed loss brought forward.
Deduct it from current year income (after including current year recoupments and deductions).
Tracker: Ensure you do not double-deduct an assessed loss.

4. Capital Gains Tax (CGT) – Eighth Schedule Focus

4.1 Overview of CGT in South Africa

CGT is part of the broader income tax system, introduced from 1 October 2001. It applies to:

Residents: All worldwide assets, subject to some exclusions.
Non-residents: Only on certain SA-situated assets (e.g., immovable property in SA, or assets of a permanent establishment in SA).

Instead of taxing the full capital gain as income, a portion is included in taxable income using an inclusion rate:

For individuals and special trusts: lower inclusion rate (e.g., 40% under many recent rules).
For companies and other entities: higher inclusion rate (e.g., 80%).

RBV202 focuses on:

Calculation of capital gain or loss on disposals.
Determining base cost.
Applying annual exclusions and inclusion rates.
Integrating taxable capital gains into taxable income.

4.2 Key Definitions in the Eighth Schedule

4.2.1 Asset

“Asset” includes property of any kind, movable or immovable, tangible or intangible (shares, land, intellectual property, etc.).
Certain exclusions apply (e.g., some personal use assets, long-term insurance policies in specific conditions), but exam questions will typically specify.

4.2.2 Disposal

A disposal includes:

Sale, donation, exchange, destruction, expropriation, redemption, vesting of an interest, etc.
Deemed disposals can occur (e.g., on death or emigration for certain assets).

CGT is triggered at date of disposal (contract date or specific rule as per Eighth Schedule).

4.2.3 Base Cost

Base cost includes:

Original acquisition cost of asset (purchase price).
Certain incidental costs of acquisition and disposal:
- Transfer duties.
- Legal fees.
- Broker commissions.
- Valuation fees.
Capital improvement expenses enhancing the asset’s value (not maintenance).

Items not included in base cost:

Routine repairs and maintenance (revenue nature).
Interest and financing costs (typically revenue, though there are complex CGT exceptions beyond RBV202’s core).

4.3 Determining Capital Gain or Loss

Basic formula:

Capital gain (or loss) = Proceeds on disposal − Base cost

Where:

Proceeds: Amount received or accrued from disposal (minus any allowable costs of disposal not already included in base cost).
Base cost: As above.

If proceeds > base cost → capital gain.
If proceeds < base cost → capital loss.

4.3.1 Example – Simple Share Disposal

Example:
Sipho bought 1,000 shares in XYZ Ltd at R10 each (total cost R10,000). Five years later, he sells them for R18 each (total proceeds R18,000) and incurs broker fees of R500 on sale.

Acquisition cost: R10,000.
Add allowable incidental costs of sale: R500.
Base cost = R10,000 + R500 = R10,500.
Proceeds = R18,000.
Capital gain = R18,000 − R10,500 = R7,500.

4.4 Annual Exclusion and Inclusion Rates (Individuals)

For individuals:

An annual exclusion applies to net capital gains or losses for the year (e.g., R40,000 as a common threshold in recent years – exam will specify).
On death, a higher exclusion applies (e.g., R300,000) in the year of death – again, check exam data.

Process:

Add all capital gains and capital losses for the year.
Arrive at aggregate capital gain or loss.
Apply annual exclusion:
- If there is a net capital gain, reduce by annual exclusion to get net capital gain after exclusion.
- If there is a net capital loss, annual exclusion reduces that loss (but cannot create a further gain).
Resulting figure is annual net capital gain or loss.
Apply inclusion rate (e.g., 40% for individuals).
Result is taxable capital gain (or assessed capital loss to carry forward).

4.5 CGT for Companies (Overview)

For companies and close corporations:

No annual exclusion generally (unless special rules apply for small businesses etc.).
Higher inclusion rate (e.g., 80%).
Process is similar: aggregate all capital gains/losses, then multiply by inclusion rate to find taxable capital gain.

RBV202 typically emphasises:

Differences in inclusion rates between individuals and companies.
Correct application of annual exclusion for individuals only.

4.6 Common CGT Exam Scenarios

4.6.1 Primary Residence Exclusion (Individuals)

Where an individual disposes of a primary residence, a specific exclusion may reduce or eliminate CGT.

Key principles:

A primary residence is a property:
- Owned by a natural person (not a company/trust for general exemption).
- Used mainly for domestic purposes by that person as their main residence.
A limited portion of capital gain on disposal is excluded from CGT (e.g., first R2 million of capital gain; exam will specify exact figure).
Where part of property is used for business, portion of gain relating to business use may not qualify for full primary residence exclusion.

RBV202 questions often:

Give purchase and sale details.
Specify that property was used as primary residence.
Require calculation of capital gain with primary residence exclusion applied.

4.6.2 Small Business CGT Relief (Simplified)

Some advanced provisions (e.g., para 57 of Eighth Schedule) offer CGT relief for small business assets at retirement or death of an individual (subject to conditions). At RBV202, this may be introduced conceptually:

Relief for individuals above a certain age (e.g., 55) disposing of qualifying small business assets, up to a lifetime limit (e.g., R1.8 million).
Rarely examined in full calculation detail in RBV202, but conceptually relevant.

4.6.3 Disposal of Depreciable Assets (Overlap with Recoupments)

Where an asset has been subject to capital allowances (e.g., wear-and-tear):

On disposal, you may have:
- Recoupment (income portion) if proceeds exceed tax value.
- Capital gain if proceeds exceed original cost, or
- Capital loss if proceeds are below tax value (subject to rules for depreciable assets).

Exam answers must correctly:

Separate recoupment (s 8(4)(a) – income) from capital gain or loss (Eighth Schedule).

4.7 Including Taxable Capital Gains in Taxable Income

Once taxable capital gain has been determined:

Add it to other taxable income items (trade income, salaries, etc.).
It forms part of taxable income.
Then apply normal tax tables and rebates as usual (for individuals) or flat rate (for companies).

Example (simplified individual):

Taxable income before taxable capital gain: R300,000.
Taxable capital gain: R40,000.
Total taxable income: R340,000.
Apply individual tax tables to R340,000, then subtract primary rebate, etc.

In RBV202, demonstration of this integration is crucial for full marks.

5. Integrated Tax Computations, Rebates, Credits and Exam Strategy

5.1 Individual Tax Computation Structure

RBV202 emphasizes structured, well-laid-out calculations. A typical individual tax computation format:

Income from employment
- Salary
- Bonus
- Fringe benefits (Seventh Schedule)
- Taxable allowances less related deductions
Income from business or trade
- Net profit/(loss) from sole proprietorship (after s 11(a) deductions, capital allowances, recoupments).
Investment income
- Local interest (after interest exemption if applicable)
- Foreign interest
- Local dividends (mostly exempt for normal tax; note Dividends Tax conceptually)
- Rental income (net of deductible expenses).
Capital gains
- Summary of disposals, base cost, gains/losses
- Net capital gain/loss after annual exclusion
- Inclusion rate applied → Taxable capital gain.
Other income adjustments (if any).
Total taxable income.
Normal tax on taxable income (apply rates from exam booklet).
Less: Rebates
- Primary
- Secondary/tertiary (if age qualifies).
Tax after rebates.
Less: Tax credits
- Medical tax credits (if within syllabus scope)
- Foreign tax credits (section 6quat – basic level)
- Employees’ tax (PAYE) withheld.
Final tax payable / (refundable).

Consistent formatting aids both exam marking and error checking.

5.2 Individual Tax Rebates and Thresholds

Rebates reduce normal tax liability directly (not taxable income). RBV202 typically requires knowledge of:

Primary rebate: Available to all resident individuals.
Secondary rebate: For individuals 65 or older.
Tertiary rebate: For individuals 75 or older.

Exact amounts change annually; in an exam, relevant year’s rebates will be provided. The tax threshold (income below which no tax is payable) is effectively linked to these rebates and tax tables.

Example concept:

If primary rebate = R16,425 and first bracket tax rate is 18% up to certain income, then threshold is that income where calculated tax equals rebate.

Exam requirements:

Use the tables and rebates supplied for the specific year of assessment in question.
Show deduction of correct rebate based on taxpayer’s age.

5.3 Medical Scheme Fees Tax Credits (High-Level)

The medical scheme fees tax credit system replaced the previous deduction-based system.

For RBV202, common expectations:

Awareness that medical aid contributions generally do not reduce taxable income directly.
Instead, a fixed monthly tax credit per beneficiary applies (e.g., R364 for first two beneficiaries, R246 for each additional – amounts vary by year; exam will specify).
Additional tax credit for qualifying out-of-pocket medical expenses depends on age (65+), disability status, and whether contributions exceed a percentage of taxable income.

Exam scope may be limited to:

Calculating basic monthly medical scheme credits and total for year.
Offsetting this against normal tax to determine final tax liability.

5.4 Corporate Tax Computation (Basic)

For companies within RBV202 scope, a typical tax computation format:

Accounting profit before tax (if starting from financial statements).
Add back non-deductible expenses:
- Depreciation (replace with wear-and-tear).
- Fines and penalties.
- Donations beyond limits.
- Capital items expensed in accounting.
Subtract non-taxable income:
- Exempt dividends received (depending on source).
- Other exempt items per s 10.
Adjust for capital allowances (s 11(e), other sections).
Adjust for recoupments (increasing income).
Result: Taxable income.
Apply company tax rate:
- Historically 28%, reduced to 27% for years of assessment from 31 March 2023 (exam indicates applicable rate).
Deduct any foreign tax credits or other applicable credits (basic level only).
Arrive at company tax liability.

Companies do not receive personal rebates.

5.5 Source vs Residence – Cross-Border Income in Exams

RBV202 often tests:

Classification of foreign income for residents vs non-residents.
Basic understanding of section 6quat (foreign tax credit) at conceptual level.

Process for residents with foreign income:

Include foreign income in gross income (worldwide basis).
If foreign tax was paid:
- Determine if credit is allowed in South Africa (section 6quat).
Calculate normal tax on worldwide taxable income.
Allocate a proportion of SA tax to foreign income component.
Allow credit limited to:
- Lower of foreign tax actually paid and SA tax attributable to that foreign income.

In many RBV202 questions:

A simplified scenario is given.
You may be asked simply to note or state that a foreign tax credit under s 6quat would be available; detailed calculation might not be required unless explicitly asked.

5.6 Integrated Example – Individual with Multiple Income Sources

Below is a conceptual walk-through of an integrated RBV202-style question (values for illustration):

Scenario (simplified):
Thandi, a 30-year-old resident of South Africa, is employed as an accountant and also runs a small side business from home. For the year ended 28 February 20X5:

Employment income:
- Salary: R400,000.
- Bonus: R40,000.
- Travel allowance: R72,000.
- Employer contributes R24,000 to approved pension fund.
- Employer also provides Thandi with a company car (cost R250,000, including VAT; maintenance plan included). She is allowed private use and does limited business trips.
Travel details:
- Total km: 25,000.
- Business km: 10,000 (with logbook).
- SARS table indicates deemed cost of R4.20/km for this vehicle (assumed given).
Side business:
- Gross receipts: R150,000.
- Expenses:
  - Rent (home office portion): R24,000.
  - Telephone (70% business): R8,000.
  - Advertising: R10,000.
  - New computer purchased (cost R18,000; SARS wear-and-tear period 3 years).
Investments:
- South African interest income: R18,000.
Disposal of investment:
- Sold listed shares (acquired years ago for R20,000) for R55,000 (broker fees R1,000).

Required (conceptually):

Calculate Thandi’s taxable income and normal tax payable before rebates, indicating major steps.

Outline of approach (high level, not complete marks model answer but exam technique illustration):

Employment income
- Salary: R400,000
- Bonus: R40,000
- Travel allowance: R72,000
- Company car fringe benefit:
  - Monthly value = (3.25% × R250,000) = R8,125 (if maintenance plan rule 3.25% applies).
  - Annual = R8,125 × 12 = R97,500.
  - Include full value in gross income; possible deduction for business use is separate.
- Employer pension contribution is taxable fringe benefit (if treated as such under current rules) – include R24,000 as fringe benefit; but Thandi can claim a deduction for retirement contributions under s 11F up to 27.5% limit.
Travel allowance deduction
- Total business km: 10,000.
- Deemed cost: 10,000 × R4.20 = R42,000.
- Deduction against travel allowance: R42,000.
- Net taxable portion of travel allowance: R72,000 − R42,000 = R30,000.
Total employment taxable income component
- Salary: 400,000
- Bonus: 40,000
- Company car fringe benefit: 97,500 (no business use reduction assumed here for simplicity, though exam may allow partial reduction in final tax)
- Pension fringe benefit: 24,000
- Travel allowance (net): 30,000
- Employment income subtotal: R591,500.
Side business
- Gross receipts: R150,000
- Deductible expenses:
  - Rent: R24,000
  - Telephone: 70% of 8,000 = 5,600
  - Advertising: 10,000
  - Wear-and-tear on computer: 18,000 / 3 = 6,000
- Total deductible business expenses: R45,600
- Net business income: R150,000 − R45,600 = R104,400.
Investment income
- Interest: R18,000
- Apply interest exemption (for individuals under 65; e.g., R23,800 if applicable for that year):
  - Only R18,000 interest earned → entire amount may be exempt depending on current threshold.
  - Assume threshold > R18,000 → interest exempt in this example (section 10(1)(i) equivalent).
- If exam year threshold is lower, only portion exempt and remainder taxable.
Capital gains
- List of disposals: shares only.
- Proceeds: 55,000
- Base cost: 20,000 + 1,000 broker fees = 21,000
- Capital gain: 55,000 − 21,000 = 34,000
- Aggregate capital gain: R34,000
- Apply annual exclusion (e.g., R40,000) → net gain after exclusion = R34,000 − R34,000 = R0
- So taxable capital gain = 0 (since entire gain is below annual exclusion).
- In many exam years, annual exclusion is sufficient to eliminate smaller gains.
Retirement fund deduction
- Employer pension contribution (treated as Thandi’s contribution): R24,000.
- She may also independently contribute to RA (not mentioned here).
- Deduction limited to 27.5% of greater of remuneration or taxable income before this deduction, capped at R350,000.
- 27.5% of (employment remuneration + business income etc.) will exceed R24,000 here → full R24,000 deductible.
Taxable income
- Employment income subtotal: 591,500
- - Business income: 104,400
- - Taxable interest: 0 (assuming fully exempt)
- - Taxable capital gain: 0
- = 695,900
- − Retirement fund deduction: 24,000
- = Taxable income: R671,900.
Normal tax
- Apply individual tax table to R671,900 for relevant year of assessment.
- Subtract primary rebate (and secondary/tertiary if applicable by age – not here as Thandi is 30).
- Result is Thandi’s tax payable for the year before credits like medical credits, PAYE withheld, etc.

In an actual RBV202 exam, each block would be expanded with:

Clear references to relevant sections (s 1, 8, 11(a), 11(e), 11F, 10).
Appropriately rounded numeric answers.
Integration with any given PAYE or provisional tax already paid.

5.7 RBV202 Exam Strategy – Nelson Mandela University (NMU) BCom Accounting Sciences (CA Stream)

To perform well in RBV202: Taxation 2.2 at NMU within the CA stream:

Master the statutory structure
- Know key sections: s 1, s 10, s 11(a), s 11(e), s 23(g), s 8(4), Eighth Schedule.
- Understand Seventh Schedule conceptually for fringe benefits.
Practice full computations
- Combine employment, business, investment, and CGT into a single integrated tax calculation.
- Time yourself: full questions often carry heavy marks and need disciplined time allocation.
Write structured answers
- Use clear headings: “Gross income”, “Exempt income”, “Deductions”, “Capital gains”.
- Show all workings; do not simply jump to final figures.
Be precise with terminology
- Differentiate: allowance vs reimbursement, capital vs revenue, resident vs non-resident, gross income vs taxable income.
- Use statutory terms correctly to gain method marks.
Use the information provided for the correct year of assessment
- Apply tax tables, inclusion rates, annual exclusions, rebates exactly as given in the exam booklet.
- Do not mix rates from memory if they conflict with exam data.
Check for common traps
- Forgetting to include fringe benefits such as company car, accommodation, loan benefits.
- Misclassifying capital receipts as revenue or vice versa.
- Ignoring annual CGT exclusion for individuals.
- Misapplying the interest exemption or retirement contribution limits.
Past papers and consultation of NMU guidelines
- RBV202 at NMU typically follows a pattern in question structure; studying prior exam papers and memos reveals frequently tested themes.
- Align study with the Nelson Mandela University BCom Accounting Sciences (CA Stream) curriculum guidelines and tutorial questions.

Through systematic practice, clear application of statutory rules, and thorough understanding of the integrated nature of income tax, RBV202 students can confidently approach both mid-term tests and the final summative exam within the NMU CA-stream pathway.