TAX260S: Taxation II Study Guide (CPUT National Diploma in Accounting)

This study guide provides comprehensive exam-oriented notes for TAX260S: Taxation II as offered in South African institutions, with a particular focus on the Cape Peninsula University of Technology (CPUT) National Diploma in Accounting. It aligns with the South African tax framework (primarily the Income Tax Act, VAT Act and related legislation) and uses terminology and formats typical of CPUT, UNISA TAX2601/TAX2602 and similar modules (e.g. “Taxation II”, “TAX260S study notes”, “TAX260S exam preparation”). Use this as a structured reference for semester tests, assignments and final exam revision.

1. Core Structure of the South African Tax System (TAX260S Context)

TAX260S Taxation II at CPUT builds on first-year tax principles and requires a clear understanding of how the South African tax system is structured. Many exam questions test not only calculations but also your grasp of definitions, the tax base, and how various taxes interact.

1.1 Main Types of Taxes Covered in TAX260S

For second-year accounting and taxation modules (like TAX260S at CPUT, UNISA TAX2601, CUT Taxation 2), the main focus is on:

Income Tax (Individuals and basic companies)
Capital Gains Tax (CGT) (as part of income tax)
Value-Added Tax (VAT)
Employees’ Tax (PAYE), Provisional Tax and Site-related administration concepts
Basic fringe benefits and allowances
Basic estate duty and donations tax (introductory level in some syllabi)

Other taxes (e.g. transfer duties, customs and excise, skills development levy) may be mentioned briefly but are usually not as heavily examined in TAX260S as income tax and VAT.

1.1.1 Income Tax vs VAT – Conceptual Differences

Feature	Income Tax	VAT
Nature	Direct tax	Indirect tax
Tax base	Taxable income (net profit plus other income)	Value added at each stage of production/distribution
Charged on	Annual taxable income of persons and entities	Supply of goods and services; importation
Legislation	Income Tax Act 58 of 1962	VAT Act 89 of 1991
Period	Year of assessment (individuals: mainly 12 months)	Tax periods (e.g. bi-monthly, monthly, etc.)
Who bears the tax	The taxpayer directly (cannot generally shift)	Final consumer economically bears the tax
Administration	Assessed annually or via provisional tax	Self-assessed on periodic VAT201 returns

Examiners often test these differences in short written questions, especially in TAX260S CPUT exams and in UNISA TAX2602 multiple choice sections.

1.2 Tax Residency and Tax Base

Understanding residence is fundamental for determining the scope of tax liability:

Residents are generally taxed on worldwide income.
Non-residents are taxed only on South African-source income and certain capital gains from SA assets.

Residency is determined using:

Ordinary residence test
- A person is ordinarily resident in South Africa if SA is their real home on a settled, regular basis.
- Factors: location of family, permanent home, business interests, intention to stay, habitual abode.
Physical presence test (for individuals not ordinarily resident)
Over a 6-year period, a person is resident if:
- They are physically present in SA for more than 91 days in the current year of assessment, and
- More than 91 days in each of the 5 previous years, and
- More than 915 days in total during those 5 years.
  If all three conditions are met, the person is a resident from the first day of the 6th year of assessment.

In exams, you may be given a timeline of days spent in South Africa and asked to decide if the physical presence test is met. Always lay out the 5 preceding years clearly and show the total of 915 days.

Example: Physical Presence Test

Mr D, a foreign consultant, has the following days in SA:

Year 1: 120 days
Year 2: 180 days
Year 3: 200 days
Year 4: 160 days
Year 5: 170 days
Year 6: 110 days

Check:

Year 6: 110 > 91 → condition 1 satisfied.
Preceding 5 years (1–5): each > 91 → condition 2 satisfied.
Total for years 1–5 = 120 + 180 + 200 + 160 + 170 = 830 days. This is less than 915, so condition 3 not met.
=> Mr D is not resident by physical presence test in Year 6.

Exam tip (TAX260S, UNISA TAX2601 style): Show each leg of the test separately. Markers allocate method marks even if your final conclusion is incorrect.

1.3 Year of Assessment and Tax Periods

Individuals and non-standard companies: Usually a 1 March – 28/29 February year of assessment (YOA).
Companies: Can have their own financial year, e.g. 1 July – 30 June, with the tax year aligned to that financial year.

In Taxation II modules like TAX260S at CPUT and TAX2601 at UNISA, many calculation questions specify the year of assessment (e.g. “Assume the 2025 year of assessment”). This is vital because:

Tax brackets, rebates, interest exemptions, and other thresholds change annually.
Exam questions usually require you to assume a specific tax year and apply the corresponding figures. Use the table given in the test or exam paper.

1.4 Taxable Entities in TAX260S

The main classes of taxpayers relevant in second-year modules include:

Natural persons (individuals)
- Salaried employees, sole proprietors, independent contractors.
Companies
- Private companies (Proprietary Limited), public companies, small business corporations (special concessions, but often covered more fully in later modules).
Trusts (basic level in some syllabi)
- Inter vivos trusts, testamentary trusts.
- Income may be taxed in the trust or in the beneficiaries’ hands depending on distributions.
Partnerships
- Not separate taxpayers; income flows through to partners, but there are specific calculation mechanics.

TAX260S exams often include one main question on individuals and one on a company with smaller questions on VAT and payroll taxes.

1.5 Tax Administration Basics for TAX260S

Although detailed tax administration (objections, appeals, penalties, Tax Administration Act) is more heavily covered in advanced modules, TAX260S requires familiarity with:

Registration
- Income tax registration (IT number) for individuals and entities.
- VAT registration: when turnover exceeds the R1 000 000 compulsory threshold (unless changed by legislation indicated in your exam year info).
Returns
- ITR12 for individuals.
- ITR14 for companies.
- VAT201 for VAT vendors.
Due dates and interest
- Late payment attracts interest and penalties.
- Provisional tax payments (for individuals and companies not subject to PAYE only) to avoid underestimation penalties.

Examiners may test short theory questions (2–5 marks) on procedures, for example: “List two methods of tax collection from individuals” (PAYE, provisional tax, assessment on submission of return).

2. Income Tax: Individuals (TAX260S / UNISA TAX2601 Style)

This section is typically the biggest component of a Taxation II paper at CPUT and UNISA, often worth 40–60 marks. It requires mastering:

Gross income and exemptions
Special inclusions
Deductions and allowances
Fringe benefits and allowances
Tax on taxable income (including rebates and tax thresholds)

2.1 Structure of the Individual Tax Calculation

The typical format in TAX260S and similar modules follows:

Gross income
Less: Exempt income
Income
Less: Deductions (allowable)
Add: Taxable capital gain (after CGT calculation – covered in section 3)
Equals: Taxable income
Apply tax tables and rebates
Equals: Normal tax payable (before medical credits and foreign tax credits, if applicable)
Less: Rebates and credits
Equals: Tax payable (or refundable)

Exams reward a structured layout, so always present the calculation in this framework, even if the question only asks for normal tax.

2.2 Gross Income and Exemptions

Gross income is “the total amount, in cash or otherwise, received by or accrued to a resident, excluding receipts or accruals of a capital nature …” (with adjustments for non-residents). Key points:

“Amount” can be money or the cash equivalent of benefits.
“Received by” refers to the taxpayer actually receiving the amount.
“Accrued to” refers to unconditional entitlement, even if not yet received.

Common Gross Income Items (Individuals)

Remuneration: salaries, wages, overtime, bonuses, commissions.
Fringe benefits: company car, subsidised loans, employer-provided accommodation.
Allowances: travel, subsistence, entertainment, etc.
Investment income: interest, dividends (although many dividends are exempt, they are gross income before exemption).
Rental income: from property or movable assets.
Business income: gross receipts from sole proprietorship activities.
Annuities and pensions: certain pensions and annuity amounts are taxable.
Lump sums: from retirement funds, severance benefits (taxed according to specific tables, often taught in more detail in Taxation III; but basic principles may appear in TAX260S).

Exempt Income Examples

Key exemptions tested at second-year level include:

Local dividends (for individuals; generally exempt but subject to dividends tax at shareholder level – often not in the hands of the individual).
Certain interest for non-residents.
Some compensation for personal injuries.
Long-term insurance policy proceeds under specific circumstances.
Scholarships or bursaries under qualifying conditions.

Exam questions often require classification: given a list of receipts, identify which are gross income, which are exempt, and which are capital.

2.3 Deductions for Individuals: General vs Specific

Two main categories:

General deduction formula (section 11(a) read with section 23(g)):
- Expenditure and losses actually incurred in the production of income, not of a capital nature, laid out for purposes of trade.
Specific deductions provided by legislation:
- E.g. retirement fund contributions, wear and tear, travel expenses, bad debts, home office expenses (if specific requirements met).

For salaried employees (typical TAX260S scenarios), many private expenses are not deductible. Key non-deductible examples:

Personal medical expenses (instead, handled through medical tax credits).
Private motor vehicle running costs when no travel allowance is paid.
Personal entertainment and clothing (unless protective clothing for work).
Domestic or personal living costs (rent, groceries, etc.).

Examiners may include “trap” items such as private cellphone costs or school fees; these must be correctly identified as non-deductible.

2.4 Fringe Benefits and Allowances

TAX260S and UNISA TAX2601 place heavy emphasis on fringe benefits, which are added to gross income based on SARS fringe benefit valuation rules. Common benefits include:

Use of motor vehicle (company car)
- A set percentage of the vehicle’s determined value is included in taxable income monthly.
Interest-free or low-interest loans from employer
- Taxable benefit equals SARS official rate minus actual interest rate, times the loan amount.
Employer-provided accommodation
- Value usually based on formula considering remuneration and property rental value.
Subsidised services or goods at below cost.
Employer contributions to certain funds (subject to specific rules).

Travel Allowance vs Company Car

Exams often test numbering and calculations around travel allowance vs a company car fringe benefit.

Travel allowance:
- A portion (e.g. 80% or 20%) may be subject to PAYE monthly.
- For final tax calculation, the actual business travel expense portion is deductible (based on logbook and SARS tables).
- Always separate business km and private km.
Company car:
- A fringe benefit is included monthly based on a formula.
- Fuel or maintenance provided by employer may adjust the fringe benefit.

Example (simplified, conceptual):

Ms B receives a travel allowance of R8 000 per month (R96 000 per year). She drives 30 000 km in total during the year, of which 18 000 km are business. SARS prescribes a cost per km of R3.00 for her vehicle.

Business proportion = 18 000 / 30 000 = 60%
Deductible travel expense = 18 000 km × R3.00 = R54 000
Travel allowance taxable portion = R96 000 – R54 000 = R42 000 included in taxable income.

In the exam, always show km breakdown and formula clearly.

2.5 Retirement Contributions and Other Specific Deductions

Retirement fund contributions are governed by specific rules:

Contributions to pension, provident and retirement annuity funds are aggregated and subject to overall limits (e.g. percentage of remuneration or taxable income, subject to absolute rand caps, depending on the exam year figures provided).
Excess contributions may be carried forward.

Other key specific deductions often tested:

Wear and tear / depreciation on assets used in trade.
Bad debts and doubtful debts allowances (for traders).
Legal expenses related to income-producing activities.

2.6 Calculating Normal Tax for Individuals

Once taxable income is calculated, tax is determined by applying the individual tax tables for the specified YOA.

Steps:

Determine the taxable income.
Use the tax bracket table from the exam paper (e.g. progressive rates 18%, 26%, 31%, etc. with base tax amounts).
Subtract primary, secondary, and tertiary rebates (if applicable – based on age).
Adjust for:
- Medical scheme fees tax credits
- Additional medical expenses tax credit
- Any foreign tax credits (if tested)

Example (conceptual, not year-specific):

Taxable income: R350 000
Assume bracket: R226 001 – R353 100 taxed at 26% with base tax of R40 000 for first R226 000.

Tax = R40 000 + 26% of (R350 000 – R226 000)
= R40 000 + 0.26 × R124 000
= R40 000 + R32 240 = R72 240

Less: Primary rebate (say R16 000 for the relevant year)
Normal tax = R72 240 – R16 000 = R56 240

TAX260S exam tip: Markers expect the step where you identify the bracket and show base tax + incremental portion. Copy the bracket line number from the exam table to avoid errors.

3. Capital Gains Tax (CGT) for TAX260S / UNISA TAX2602

Capital Gains Tax is tested as a component of income tax. For individuals, only a portion of net capital gains is included in taxable income (via inclusion rate).

3.1 Basic Structure of CGT Calculation

The generic steps:

Identify a disposal of an asset.
Determine proceeds from disposal.
Determine base cost.
Calculate capital gain or loss = proceeds – base cost.
Sum all gains and losses for the year.
Apply any annual exclusion (for individuals).
Apply inclusion rate to arrive at taxable capital gain.
Add taxable capital gain to taxable income in the main tax calculation.

3.2 Definitions for Exam Purposes

Asset: Broadly, any property or right (including shares, immovable property, equipment, etc.).
Disposal: Any event where ownership changes or is deemed to change, e.g. sale, donation, death, certain share buy-backs.
Proceeds: The amount received or accrued from disposal (money or market value if non-cash).
Base cost may include:
- Purchase price
- Incidental costs: transfer duties, legal fees, commissions, advertising
- Improvements and additions
- Certain valuation costs, depending on valuation date rules.

For second-year modules, valuation date rules (1 October 2001) are sometimes summarised but not examined in depth; focus is usually on simpler “post-valuation-date” acquisitions and disposals.

3.3 Annual Exclusion and Inclusion Rate

For individuals and special trusts, the CGT calculation includes:

An annual exclusion (exam figures will vary by year; for example, R40 000 in many years) – reduce the aggregate capital gain by this amount.
For year of death, the exclusion is increased (e.g. R300 000, depending on the year’s rules).

After the annual exclusion:

Apply the individual inclusion rate (e.g. 40% in recent legislation, but always use the rate given in your exam materials).
The resulting taxable capital gain is added to taxable income and taxed at normal marginal rates.

3.4 Common CGT Exam Scenarios (TAX260S, UNISA TAX2602 Style)

Commonly tested assets:

Primary residence:
- There is an exclusion on the first portion of the capital gain on disposal of a primary residence (e.g. R2 million of the gain or gain on first R2 million of proceeds, depending on law at the time and exam requirements).
- Only gains exceeding the exclusion may be subject to CGT.
Personal-use assets:
- Certain personal-use assets (like clothing, personal furniture) may be excluded from CGT.
- Losses on personal-use assets are often not allowed.
Immovable property (investment property):
- No primary residence exclusion if property is not a primary residence.
- Full calculation of proceeds and base cost as usual.
Shares:
- Capital vs revenue nature must be considered.
- Holding periods, intention, frequency of trades: indicate capital or trading stock.
- If capital, CGT applies; if trading, profit/loss is income tax.
Assets on death:
- Deemed disposal at market value (unless subject to rollover relief to surviving spouse, etc.).

3.5 Step-by-Step CGT Example

Assume Mr X (an individual) sells a holiday home (not primary residence) in the 2025 YOA.

Purchase price in 2015: R800 000
Transfer fees and legal costs at purchase: R40 000
Improvements in 2018: R120 000
Selling price in 2025: R1 600 000
Agent commission and advertising for sale: R80 000

Step 1: Base Cost

Purchase price: R800 000
Acquisition costs: R40 000
Improvements: R120 000
Selling costs: R80 000
Total base cost = 800 000 + 40 000 + 120 000 + 80 000 = R1 040 000

Step 2: Proceeds

Proceeds: R1 600 000

Step 3: Capital Gain

Capital gain before exclusions = R1 600 000 – R1 040 000 = R560 000

Step 4: Apply Annual Exclusion

Assume annual exclusion for individuals in 2025 is R40 000:

Net capital gain = R560 000 – R40 000 = R520 000

Step 5: Apply Inclusion Rate

Assume inclusion rate = 40%:

Taxable capital gain = 0.40 × R520 000 = R208 000

This R208 000 is included in Mr X’s taxable income.

Exam tip: In TAX260S and UNISA TAX2602 style questions, structure your CGT solution in a separate section, then clearly transfer the taxable capital gain to the income tax calculation.

3.6 Distinguishing Capital vs Revenue

A frequent problem in Taxation II exams is classifying gains/losses as capital or revenue:

Capital nature (CGT applies):
- Long-term investments.
- Intention to hold and derive long-term benefit (rental, dividends).
- Low frequency of transactions.
Revenue nature (normal income tax):
- Frequent buying and selling (trading).
- Business of dealing in similar assets (e.g. property developers).
- Intention is resale at a profit.

Marks are often allocated to motivation. For example, “Explain whether the profit on sale of shares is capital or revenue and support your answer with two reasons.” Reference intention, frequency, holding period and nature of taxpayer’s business.

3.7 Interaction of CGT with Other Taxes

CGT is part of income tax; it is not a separate tax on its own. It interacts with:

Estate duty: CGT on deemed disposals upon death (subject to exclusions and rollovers) affects the estate’s net value.
Donations tax: Some donations trigger CGT as well as donations tax.

For TAX260S level, the emphasis is on the CGT mechanics and basic interactions, not advanced estate duty planning.

4. Value-Added Tax (VAT) – TAX260S / UNISA TAX2602 Focus

VAT is a major component in Taxation II modules at CPUT and other South African universities (e.g. UNISA TAX2602 VAT section, CUT Tax 2 VAT questions). Mastery of output tax, input tax, and VAT returns is essential.

4.1 Basic Principles of VAT

VAT is levied at each stage of the supply chain on the value added.
Registered vendors charge VAT on taxable supplies and can claim back VAT on business inputs, subject to rules.
Non-registered persons (e.g. small businesses below the threshold not voluntarily registered) cannot charge or claim VAT.

Key terms:

Output tax: VAT charged by a vendor on taxable supplies made.
Input tax: VAT paid by a vendor on qualifying acquisitions, which can be credited against output tax.
Taxable supply: Any supply of goods or services in the course of a vendor’s enterprise that is not exempt supply; includes standard-rated and zero-rated supplies.
Standard-rated supplies: Taxed at the standard VAT rate (e.g. 15% in recent years).
Zero-rated supplies: Taxed at 0%; vendor charges no VAT but can claim input VAT.
Exempt supplies: No VAT charged and no input VAT claim allowed for related expenses.

4.2 VAT Registration and Tax Periods

Compulsory registration threshold: If taxable supplies exceed R1 000 000 in any 12-month period.
Voluntary registration: Allowed above a lower threshold (often R50 000 in taxable supplies; check numbers given in exam material).

Tax periods:

Category A/B: Generally two-monthly periods (e.g. Feb–Mar, Apr–May).
Category C: Monthly periods, usually for larger vendors.
Category D/E: Farming, small-scale, or specific sectors (less common at second-year level).

Exam questions may ask:

Whether a person must register as a vendor.
What their VAT period is.
When they must submit their VAT201 return.

4.3 Output VAT Calculation

Output tax is calculated as:

Output tax = Value of taxable supplies × VAT rate

If a vendor quotes prices including VAT, extract VAT using:

VAT portion = (Standard rate / (100 + Standard rate)) × VAT-inclusive amount
For 15% VAT: VAT = 15/115 × VAT-inclusive amount

Example:

A vendor sells goods for R11 500 including VAT at 15%.

VAT = 15/115 × 11 500 = R1 500
Net supply value = 11 500 – 1 500 = R10 000

In exams, clearly indicate whether amounts are inclusive or exclusive of VAT to avoid errors.

4.4 Input VAT and Denied Expenses

Input tax is generally claimable on:

Goods and services acquired for the purpose of making taxable supplies.

However, there are critical denied items where input tax is not allowed (commonly tested):

Passenger motor vehicles (unless used in certain qualifying activities like driving schools, car dealers, etc.).
Entertainment expenses (e.g. meals, drinks, staff parties, client entertainment).
Club subscriptions (e.g. golf clubs) for staff or business associates.
Dwellings used for residential accommodation (e.g. staff housing) – generally no input VAT.

Construction:
If a vendor builds a house to be used as a private residence, input VAT on materials and services is not claimable.

Exam tip (TAX260S, UNISA VAT sections): When calculating input tax, list qualifying expenses and show which ones are denied with a brief reason. There are often marks for correct exclusion.

4.5 Zero-Rated vs Exempt Supplies

Zero-rated supplies (section 11 of VAT Act):
- Exports of goods.
- Certain basic foodstuffs (brown bread, maize meal, etc. – as per schedule).
- Certain services supplied to non-residents.
- International transport services.
Exempt supplies (section 12):
- Financial services (e.g. interest).
- Educational services by recognised institutions.
- Residential accommodation (long-term rentals).

Impact on vendor:

Zero-rated:
- Charge VAT at 0% (i.e. no additional amount to customer).
- Still allowed to claim input VAT on costs.
Exempt:
- No VAT charged on outputs.
- No input VAT claim allowed for related expenses.

Exam questions may ask students to classify supplies and explain the impact on input tax.

4.6 VAT Return Calculation Example

A typical TAX260S or UNISA TAX2602 exam will include a question: “Prepare the VAT calculation (VAT201) for Vendor A for the tax period ending …”

Example (simplified):

Vendor A (registered, standard-rated) has the following for March–April 2025 (assume 15% VAT):

Cash sales (VAT inclusive) of standard-rated goods: R230 000
Credit sales (VAT exclusive) of zero-rated goods: R80 000
Rental income from residential property (exempt): R20 000 (no VAT)
Purchases of trading stock (VAT exclusive): R120 000
Computer equipment purchased (VAT inclusive): R34 500
Entertainment for staff function (VAT inclusive): R11 500

Calculate VAT payable/refundable.

Step 1: Output Tax

Standard-rated sales (inclusive): R230 000
- Output VAT = 15/115 × 230 000 = R30 000
Zero-rated sales: No output VAT (0%)
Exempt rental: No output VAT

Total output tax = R30 000

Step 2: Input Tax

Trading stock purchases (exclusive): R120 000
- Input VAT = 15% × 120 000 = R18 000
Computer equipment (inclusive): R34 500
- Input VAT = 15/115 × 34 500 = R4 500
Entertainment (inclusive): R11 500 (denied – entertainment)
- Input VAT = 15/115 × 11 500 = R1 500 → not claimable

Total allowable input tax = 18 000 + 4 500 = R22 500

Step 3: Net VAT

VAT payable = Output VAT – Input VAT
= R30 000 – R22 500 = R7 500 (payable to SARS)

Exam tip: Show the calculation line by line. Even if you misclassify one item, you may still score method marks for the remaining items correctly.

4.7 VAT Adjustments and Special Cases

Some extra concepts that may appear in TAX260S / UNISA VAT questions:

Credit notes and debit notes: Issued for returns, discounts after the fact, or errors; affect output VAT.
Irrecoverable debts (bad debts):
- Vendor can claim a deduction of output VAT on debts that officially become bad (write-off).
- If later recovered, must declare output VAT again.
Change of use adjustments:
- If an asset, originally used to make taxable supplies, is later used for exempt purposes, an output VAT adjustment is required.
- Likewise, if an asset initially used privately is brought into the enterprise, input VAT may be claimable.

Markers often allocate a smaller sub-question (8–12 marks) on such adjustments.

5. Exam Strategy, Common Pitfalls and Integrated Example (CPUT TAX260S Focus)

For TAX260S: Taxation II at CPUT and similar courses like UNISA TAX2601/TAX2602, success depends on technical knowledge as well as exam technique. This section consolidates key approaches and includes an integrated example tying together individual income tax, CGT and VAT-style thinking.

5.1 Exam Question Types in TAX260S (CPUT) and Similar Modules

Expect a mix of:

Long-form calculation questions (25–45 marks):
- Individual tax calculation.
- Company tax calculation.
- CGT integrated into individual or company.
- VAT calculation (VAT201 format).
Short written theory questions (2–10 marks each):
- Definitions (gross income, resident, capital asset).
- Comparisons (zero-rated vs exempt; capital vs revenue).
- Rules (physical presence test, fringe benefit valuation, allowable deductions).
Scenario-based questions:
- Interpret facts, identify tax consequences (e.g. classification of receipts, whether a person should register for VAT, whether a fringe benefit arises).

Time management is crucial. In a 3-hour exam with 100 marks:

Allocate about 1.5–1.8 minutes per mark.
If stuck, move on and return later.

5.2 Common Pitfalls and How to Avoid Them

Ignoring instructions about the year of assessment
- Leads to using wrong tax tables or thresholds. Always note “YOA 2025” or similar at the top of your script.
Not separating exempt income and non-deductible expenses
- Always show them for clarity, even if you immediately exclude them.
Mixing up VAT-inclusive and VAT-exclusive amounts
- Underline or circle “incl” or “excl” on the exam paper to remind yourself.
Forgetting annual exclusions and inclusion rate in CGT
- Write the formula at the top:
  - Net capital gain – annual exclusion × inclusion rate = taxable capital gain.
Not indicating reasons for classification decisions (capital vs revenue, resident vs non-resident, etc.)
- Examiners give marks for explaining your reasoning, not just the final yes/no.
Untidy layout
- Use headings: Gross income, Exempt income, Deductions, etc. Markers follow logic; a clear layout reduces careless errors.

5.3 Integrated Individual Tax Example (TAX260S-Level)

This example is similar to what might appear in a CPUT TAX260S main question or a UNISA TAX2601 integrated problem.

5.3.1 Scenario

Assume the 2025 year of assessment. Taxpayer: Ms L, age 35, SA resident, employed as an accountant. The following information relates to her tax year:

Remuneration:
- Basic salary: R600 000.
- Bonus (December): R50 000.
- Employer contributes R25 000 to a pension fund on her behalf (regarded as taxable fringe benefit based on rules provided in exam). Ms L contributes R30 000 to the same pension fund.
Fringe benefit – company car:
- Employer provides a motor vehicle from 1 March 2024. Cost to employer: R300 000 (incl. VAT). Ms L is allowed private and business use.
- Employer pays all running costs and fuel (ignore any limitation for simplicity).
- According to SARS guidelines in exam, fringe benefit is 3.5% of determined value per month (assume determined value equals cost).
- Ms L keeps a logbook indicating 20 000 km total for year; 14 000 km are business.
Investment income:
- Interest from a local bank: R20 000.
- Local dividends received: R12 000.
Rental income:
- Ms L owns a flat which she rents out for R8 000 per month (for the full tax year).
- Expenses:
  - Rates and taxes: R12 000 per year.
  - Repairs (normal maintenance): R5 000.
  - Agent’s commission: R4 800 per year.
Capital transaction:
- Ms L sold listed shares (investment, not trading) on 1 October 2024 for R180 000.
- She bought these shares in 2019 for R100 000. No other costs.
Medical scheme:
- Ms L is a main member of a registered medical scheme, with one dependant.
- She pays R4 000 per month in contributions.
- Out-of-pocket qualifying medical expenses (not refunded): R6 000.

Ignore any retirement lump sums and assume Ms L has no other income or deductions. Assume tax table values, medical tax credits and annual CGT exclusion as per the exam table (here we use generic names: “primary rebate”, “medical tax credits”, etc., without specific rand amounts since these change each year).

Required: Calculate Ms L’s taxable income and her normal tax liability before any PAYE credits.

5.3.2 Solution Outline

Step 1: Gross Income

Salary: R600 000
Bonus: R50 000
Taxable fringe benefits:
- Employer pension contribution: R25 000 (assume taxable in full under rules for that year).
- Company car:
  - Determined value = R300 000.
  - Fringe benefit per month = 3.5% × 300 000 = R10 500.
  - Annual fringe benefit = 12 × 10 500 = R126 000.
Investment income:
- Interest: R20 000.
- Dividends: R12 000 (gross income, later exempt).
Rental income:
- 12 months × R8 000 = R96 000.

Total gross income =
= Salary 600 000

Bonus 50 000
Pension FB 25 000
Car FB 126 000
Interest 20 000
Dividends 12 000
Rental 96 000
= R929 000

Step 2: Less Exempt Income

Local dividends: (R12 000) exempt for individual.

Income after exempt income:

R929 000 – R12 000 = R917 000

Step 3: Deductions

Consider deductible items:

Rental property expenses (allowable as they are incurred in the production of rental income):
- Rates and taxes: R12 000
- Repairs: R5 000
- Agent’s commission: R4 800
  Total rental deductions = R21 800
Pension fund contributions (employee portion) – specific deduction:
- Ms L’s contribution: R30 000.
- Employer’s contribution of R25 000 is already included in gross income as a fringe benefit; total contributions for deduction purposes = R55 000.
- The allowable deduction will depend on legislative limit (e.g. percentage of remuneration or taxable income). For this example, assume the entire R55 000 is within the allowed limit and therefore deductible.

No other deductible expenses given.

Total deductions = R21 800 (rental) + R55 000 (retirement contributions) = R76 800

Step 4: Income after Deductions (Before CGT)

Income after deductions = R917 000 – R76 800 = R840 200

Step 5: Capital Gains Tax Calculation

Shares (investment) disposal:

Proceeds: R180 000
Base cost: R100 000
Capital gain = 180 000 – 100 000 = R80 000

Apply annual exclusion (e.g. R40 000 for individuals – confirm from exam datasheet):

Net capital gain = 80 000 – 40 000 = R40 000

Apply inclusion rate (e.g. 40%):

Taxable capital gain = 40% × 40 000 = R16 000

Step 6: Taxable Income

Taxable income = Income after deductions + taxable capital gain
= R840 200 + R16 000
= R856 200

Step 7: Calculate Normal Tax Using Individual Tax Table

Use the 2025 individual tax table provided. For illustration, assume the table (fictional) states:

Tax on first R857 900 = base amount, etc.

Ms L’s taxable income of R856 200 falls into the relevant bracket. Here, do the mechanical steps according to the actual exam table:

Find bracket that includes R856 200.
Apply base tax for lower limit plus marginal rate on excess.
Subtract primary rebate and other age-related rebates (she is 35, so only primary rebate).

Since actual bracket values differ year to year, in a real TAX260S exam you would plug R856 200 into the latest 2025 SARS table provided on the exam paper.

Step 8: Medical Tax Credits (Conceptual)

Ms L contributes R4 000 per month to a medical scheme for herself and one dependant:

Annual contribution = 12 × 4 000 = R48 000.

Based on SARS rules for the year (given in exam tables):

A fixed medical scheme fees tax credit per month per beneficiary (Ms L + 1 dependant = 2 members).
Also, an additional medical expenses tax credit may apply if out-of-pocket costs exceed a percentage of taxable income and certain thresholds.

Use the formula in the exam for:

Medical scheme fees tax credit: (fixed amount × 12 × 2).
Additional credit: some percentage of the excess of qualifying expenses over a threshold (often 7.5% of taxable income, but refer to year-specific rules).

Subtract these credits from normal tax to determine final tax payable before PAYE.

Exam tip: Always split:

Normal tax on taxable income.
Less: rebates (primary, secondary, etc.).
Less: medical scheme fees tax credit and additional medical expenses tax credit.

This structured approach demonstrates understanding and earns partial marks even if your arithmetic is slightly off.

5.4 Integrating VAT-Style Thinking in Income Tax Scenarios

While VAT is a separate system, CPUT TAX260S and UNISA TAX2602 examiners sometimes integrate thinking skills:

Rental income: No VAT if landlord is not a VAT vendor or if rental is residential (exempt). But remain attentive: if question context states landlord is a VAT-registered enterprise, treat rental differently (commercial vs residential).
Company car and fuel: In VAT, certain motor vehicles and fuel have specific input tax rules; in income tax, you deal with the fringe benefit side. Examiners may ask you to separately show income tax and VAT consequences.

Recognise that:

For individual taxation, VAT rarely features (private individuals are not vendors).
For business owners/sole proprietors, both income tax and VAT calculations may be required. Income tax deals with net profits; VAT deals with output minus input tax.

5.5 Practical Study Strategy for TAX260S (CPUT: National Diploma in Accounting)

To prepare effectively:

Start with the framework
- Memorise the layouts:
  - Individual tax computation format.
  - CGT computation format.
  - VAT201 schedule (output – input tax).
- Practice writing these formats from memory.
Use past exam papers
- CPUT TAX260S past papers, UNISA TAX2601/TAX2602 past exams, and similar National Diploma in Accounting resources are highly valuable.
- Time yourself on at least two full papers.
Focus on high-yield topics
- Individual income tax (employment, rental, investment income, fringe benefits).
- VAT calculations (including adjustments and input tax denials).
- CGT on simple assets (shares, properties, primary residence).
- Basic company tax concepts if included in your specific TAX260S curriculum.
Summarise legislation rules
- Create one-page summaries of:
  - Residents vs non-residents tests.
  - Fringe benefit valuation rules.
  - Commonly allowed/non-allowed deductions.
  - VAT zero-rated vs exempt lists.
  - CGT annual exclusion and inclusion rates.
Work through multi-step questions systematically
- Underline key numbers and words (inclusive, exclusive, resident, date of disposal).
- Tackle each required element separately, referencing the same facts.
Check your answers
- For long calculations, do a rough sense check:
  - Does taxable income seem reasonable relative to gross income?
  - Is VAT payable consistent with the scale of operations?
  - Does your CGT taxable gain make sense given proceeds vs base cost?

Consistent practice with real exam-style questions from CPUT and similar institutions (UNISA TAX2601/TAX2602, CUT Taxation II) will reinforce both knowledge and exam technique.

This study guide, oriented specifically to TAX260S: Taxation II in the context of the Cape Peninsula University of Technology (CPUT) National Diploma in Accounting, aligns closely with the South African tax environment and the style of exam questions set by South African universities such as CPUT, UNISA and CUT. Use it as a comprehensive reference alongside your prescribed textbook, SARS summaries and official university study guides to deepen conceptual understanding and sharpen exam performance.