Taxation for Wits BAccSc Students: Key Concepts (TAXA2003 / ACCN2005 Exam Study Guide)

A comprehensive exam-focused guide for University of the Witwatersrand BAccSc students taking TAXA2003 Taxation and ACCN2005 Accounting and Taxation. These notes emphasise South African income tax fundamentals, typical question styles, and exam strategies aligned with Wits, UNISA, CUT and other South African commerce curricula. Core concepts such as gross income, exemptions, deductions, capital allowances, capital gains tax (CGT), VAT, and individual vs corporate tax are unpacked with worked examples and exam tips relevant to BAccSc and comparable courses like UNISA TAX3701, TAX2601 and CUT TAXP2015.

1. South African Income Tax Framework for BAccSc (TAXA2003 Core)

1.1 The Role and Structure of Tax in South Africa

South African income tax is governed primarily by the Income Tax Act 58 of 1962, administered by the South African Revenue Service (SARS). For Wits BAccSc students, especially in TAXA2003 Taxation, understanding the framework is essential before diving into computations.

Key purposes of taxation:

Revenue raising: Funding public services (health, education, infrastructure).
Redistribution: Progressive personal income tax brackets shift a higher burden to higher earners.
Regulation and incentives: Sin taxes, tax incentives (e.g. Section 12B, 12C allowances) to influence behaviour and investment.

Main tax types BAccSc students must know:

Income tax on individuals and companies.
Capital Gains Tax (CGT) – part of income tax, not a separate tax.
Value-Added Tax (VAT) – governed by the VAT Act 89 of 1991.
Dividends Tax, Withholding Taxes (interest, royalties) – often tested conceptually.
Provisional tax system – timing of payments rather than a separate tax.

For courses like UNISA TAX2601 / TAX3701 and CUT TAXP2015, the same statutory base and principles apply, so understanding them for Wits BAccSc has cross-university relevance.

1.2 Residents vs Non-Residents (Who Is Taxed?)

Exam questions often start with: “Determine whether X is a resident for South African tax purposes.” Resident status determines the scope of taxable income.

1.2.1 Definition of Resident (Individuals)

Two main tests:

Ordinarily resident test:
- A person is a resident where their real and permanent home is located.
- Factors:
  - Where family lives
  - Where personal belongings are kept
  - Intention to return
  - Duration and continuity of presence in a country
Physical presence test:
- Applied only if not ordinarily resident.
- Requires all three to be satisfied:
  - Present in SA > 91 days in the current year of assessment
  - Present in SA > 91 days in each of the 5 preceding years
  - Present in SA for > 915 days in total during those 5 preceding years

If the physical presence test is met, the person is a resident from the first day of the current year, unless they later become non-resident by ceasing to be ordinarily resident, emigration, or double taxation agreement (DTA) tie-breaker.

Exam tip (TAXA2003 / TAX2601):
Always:

Test ordinarily resident first.
Only if not ordinarily resident, apply the physical presence test.
Mention the DTA tie-breaker where relevant (centre of vital interests, habitual abode).

1.2.2 Resident Companies

A company is resident in SA if:

It is incorporated in South Africa, or
It has its place of effective management in South Africa.

Place of effective management usually means where key strategic decisions are made (e.g. board meetings, senior management decisions).

1.2.3 Tax Consequences of Residence

Residents: taxed on worldwide income (subject to exemptions, foreign tax credits).
Non-residents: taxed only on South African source income (and certain deemed-source amounts, e.g. immovable property in SA, service income performed in SA).

Example:

Lerato, a Wits BAccSc graduate, permanently relocates to London on 1 March 2025 and breaks her ordinary residence in SA.
For the year ending 28 February 2026:
- Income before 1 March 2025: taxed in SA as resident (worldwide).
- Income after 1 March 2025: only SA-source income taxed (e.g. SA rental property).

This type of fact pattern appears in TAXA2003 and UNISA TAX4861 case-study questions.

1.3 Year of Assessment, Taxpayers and Tax Base

Year of assessment:

Individuals: 1 March to end of February (natural year).
Companies: Financial year as per registered year-end (e.g. 1 July – 30 June).

Taxpayers commonly tested in Wits BAccSc:

Individuals (salaried employees, independent contractors).
Companies (private and public).
Close corporations (treated as companies for tax).
Trusts (normal trusts and special trusts).
Small business corporations (SBCs) – special concessions.

Tax base:

The basic formula underpinning almost every computation:

Taxable income = Gross income – Exempt income – Deductions + Taxable capital gain (if any)

Each component of this formula is examined in detail in subsequent sections, and is central to Wits TAXA2003 and similar modules like UNISA TAX3703.

1.4 Source vs Residence Principles

South Africa uses residence-based tax with significant source-based elements, especially for non-residents.

Source of income depends on:

Services: Where the service is rendered.
Employment: Where the employment duties are physically performed.
Interest: Source normally where the debtor resides.
Dividends: Source where the company is resident.
Rental: Where the property is located.
Royalties: Where the intellectual property is used.

Example (exam-style):

A non-resident consultant, Maria, spends 40 days in Johannesburg doing work for a SA company, earning R200 000.
Source of income: South Africa (service rendered in SA).
Taxable in SA as non-resident on this SA-source income.

Link to VAT and other taxes: even if an item is exempt for income tax, it may still be relevant for VAT or PAYE discussions in BAccSc coursework and in comparable courses like UNISA TAX2601.

2. Gross Income, Exempt Income and Capital Receipts (Core for Wits TAXA2003 and ACCN2005)

2.1 Definition and Scope of Gross Income

The starting point in almost all exam problems is identifying gross income.

Statutory definition (simplified):

“Gross income” means the total amount, in cash or otherwise,
received by or accrued to or in favour of
a resident (or from a source within South Africa for non-residents),
excluding receipts or accruals of a capital nature,
during the year of assessment,
but including specific amounts listed in the Act (e.g. certain capital receipts).

Key elements:

Amount – must be quantifiable in money terms.
Received by or accrued to – timing point.
In cash or otherwise – includes non-cash benefits.
Capital vs revenue – capital receipts are excluded from gross income, unless specifically included.
During the year of assessment – timing important for exam calculations.

2.2 Received vs Accrued (Timing)

Received:
Income is “received” when it comes into the taxpayer’s hands, actually or constructively, for their own benefit.

Accrued (or accrued to):
Income is “accrued” when the taxpayer obtains an unconditional right to the amount, even if not yet paid.

Examples:

Salary – generally both received and accrued monthly.
Interest on fixed deposit:
- If interest capitalises annually, it accrues when the right to interest arises (e.g. year-end), not when withdrawn.
Rental income:
- If rent is payable in advance for 12 months, the full amount may accrue when the legal entitlement exists, even if paid monthly.

Exam tip:
For TAXA2003 / TAX2601, marker’s memos reward:

Correct identification of year of assessment.
Clear indication of received vs accrued with brief explanation.
Correct inclusion/exclusion based on timing.

2.3 Capital vs Revenue – Distinguishing the Nature of Receipts

Determining whether a receipt is capital or revenue is a common theory and case-study question, drawing on landmark South African cases (e.g. CIR v Pick ‘n Pay Employee Share Purchase Trust).

Revenue receipts (included in gross income unless exempt):

Arise from ordinary operations or trading.
Recurring, periodic in nature.
Represent profit-making returns on capital (e.g. interest, trading profits).

Capital receipts (generally excluded from gross income, but may trigger CGT):

Sale of fixed capital assets (e.g. manufacturing plant, long-held investment).
Once-off, non-recurring disposals.
Receipts relating to the structure of the business, not its day-to-day operations.

Factors used by courts:

Intention at acquisition: held as investment vs held for resale.
Holding period: long-term holding suggests capital, frequent turnover suggests trading.
Manner of realisation: organised, systematic disposal may suggest a trading scheme.
Taxpayer’s business: property developer vs ordinary investor.

Example (Wits BAccSc style):

Thabo, a Wits BAccSc student, buys shares in ABC Ltd in 2018 as a long-term investment. In 2025 he sells them at a profit of R80 000.
- Likely capital receipt (investment).
- Excluded from gross income (but subject to CGT).
If Thabo is a share dealer, buying and selling as his business, then the profit is revenue, included in gross income.

Make sure to justify the capital/revenue conclusion in your exam answers, referencing intention, frequency, and period of holding.

2.4 Fringe Benefits and Non-Cash Amounts (Included in Gross Income)

South African tax explicitly includes various fringe benefits in an employee’s gross income at taxable values determined by the Seventh Schedule to the Income Tax Act. These are particularly important for Wits BAccSc and UNISA TAX2601 exam questions.

Common fringe benefits:

Company car
Interest-free or low-interest loans
Use of employer-owned assets
Right of use of residential accommodation
Subsidised services or goods

Example – Company car:

An employee is given the right of use of a company-owned car (cost price R300 000). The standard fringe benefit is generally 3.5% of cost per month (subject to SARS tables and possible reductions for business use).

Monthly fringe benefit: 3.5% × R300 000 = R10 500
Annual fringe benefit: R10 500 × 12 = R126 000
This R126 000 is included in the employee’s gross income (subject to SARS rules on travel allowances and logbooks for business use).

Example – Interest-free loan:

Employer grants employee an interest-free loan of R100 000. SARS prescribes a “official interest rate” (e.g. 10% per annum – use current rate in real exam). The fringe benefit is the difference between:

Interest at official rate: R100 000 × 10% = R10 000
Actual interest paid by employee: R0

Fringe benefit: R10 000, included in gross income.

2.5 Exempt Income: Common Sections for Exams

Certain receipts, although falling within the basic definition of gross income, are specifically exempt.

Common exam-relevant exemptions (section numbers approximate or summarised):

Local dividends (Section 10(1)(k)):
- Dividends from South African resident companies are generally exempt from normal tax in the hands of individuals (but subject to dividends tax at company/shareholder level).
- Make sure to distinguish between normal tax and dividends tax.
Certain interest:
- For non-residents, interest may be exempt if not connected with a permanent establishment in SA and conditions are met.
- For individual residents, there used to be interest exemptions with age-based thresholds; current rules should be checked in the year’s tax tables used in assessments. Even in theory questions, examiners may still refer to the concept of interest exemption.
Lump sums from certain retirement funds – partially or fully exempt depending on type and timing, with tax tables applied separately.
War pensions, certain scholarships and bursaries, certain foreign employment income subject to conditions (see Section 10(1)(o)(ii) with time and remuneration caps).

Example – Local dividends:

Boitumelo receives R25 000 dividends from a JSE-listed company.
For purposes of normal income tax:
- R25 000 is exempt income.
- Excluded from taxable income calculation (but may still be declared on a return).
For exam answers in TAXA2003 or ACCN2005, explicitly show:
- Gross income: R25 000
- Less: Exempt income (local dividends): (R25 000)

2.6 Practical Gross Income Computation (Individual Example)

Scenario:

Naledi, a Wits BAccSc student, earned the following for the year ended 28 February 2026:

Salary: R350 000
13th cheque: R25 000
Local dividends: R12 000
Interest from SA bank: R7 000
Rental income from flat in Braamfontein: R60 000 (R5 000 × 12)
She made a once-off profit of R40 000 from selling long-held investment shares.

Required: Determine gross income and exempt income elements (ignore any expenses, deductions and CGT calculations for now).

Step-by-step:

Salary (R350 000)
- Revenue, fully taxable.
- Included in gross income: R350 000
13th cheque (R25 000)
- Employment income, revenue in nature.
- Included in gross income: R25 000
Local dividends (R12 000)
- Included in gross income by definition, but exempt under Section 10(1)(k).
- Show as gross income and then exempt.
Interest from SA bank (R7 000)
- Revenue in nature, included in gross income.
- May be subject to individual interest exemption depending on legislation at the time.
Rental income (R60 000)
- Revenue, income from letting property.
- Included in gross income: R60 000
Profit from sale of long-held investment shares (R40 000)
- Capital in nature (investment, not trading).
- Excluded from gross income; will form part of CGT base.

Computation layout (often expected in Wits / UNISA exams):

Naledi – Gross Income: Year ended 28 Feb 2026

Salary                                                  350 000
13th cheque                                              25 000
Interest from SA bank                                     7 000
Rental income                                            60 000
Dividends (local)                                        12 000

Gross income                                            454 000
Less: Exempt income (dividends – s10(1)(k))            (12 000)

Gross income after exemptions                          442 000

Note: The R40 000 capital profit is not in gross income; later, for CGT, it will be treated separately.

This type of structured working is crucial for TAXA2003 timing and presentation and aligns with marking approaches in UNISA TAX2601 and CUT TAXP2015.

3. General Deductions, Specific Deductions and Capital Allowances (TAXA2003 and ACCN2005 Core Application)

3.1 Structure of Deductions in South African Tax

Once gross income less exempt income is determined, the next major step in tax computations is identifying allowable deductions.

Three main categories:

General deductions – section 11(a) read with section 23(g).
Specific deductions – explicitly allowed (e.g. retirement contributions, medical, donations).
Capital allowances – wear-and-tear, depreciation (sections 11(e), 12C, etc.).

Examiners in Wits TAXA2003, UNISA TAX3701, and CUT TAXP2015 regularly set questions mixing revenue expenses and capital items to test conceptual understanding and practical skills.

3.2 General Deduction Formula (Section 11(a) & Section 23(g))

Section 11(a) (simplified):

Allows the deduction of expenditure and losses
actually incurred in the production of income,
provided such expenditure and losses are not of a capital nature
and are incurred during the year of assessment.

Section 23(g) (negative test):

Disallows any expenditure not laid out or expended
for the purposes of trade or in the production of income.

Combined test – often referred to as the “general deduction formula”:

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

Actually incurred – it must be a real obligation; not merely planned or budgeted.
Incurred in the production of income – there must be a sufficiently close link to income-earning operations.
Not of a capital nature – must be revenue expense, not acquisition/improvement of fixed assets.
For purposes of trade – the taxpayer must be engaged in a trade, broadly defined.
During the year of assessment – incurred in the relevant tax year.

Examples – Deductible vs Non-deductible:

Deductible (likely under s11(a)):
- Consumable stock purchases for resale.
- Advertising and marketing expenses.
- Routine repairs and maintenance.
- Salaries and wages.
Non-deductible:
- Purchase price of a factory building (capital; may qualify for allowances).
- Private or domestic expenses (e.g. personal gym membership, private holiday).
- Fines and penalties (often specifically prohibited).
- Donations (generally require specific deduction rules, e.g. section 18A).

In Wits BAccSc and UNISA TAX2601 exams, you are expected to motivate why an expense is capital or revenue with a one-line reason referencing the general deduction formula.

3.3 Capital vs Revenue Expenditure for Deductions

Capital expenditure:

Costs of acquiring or improving fixed, income-producing assets (e.g. machinery, buildings).
Not deductible under section 11(a).
May qualify for capital allowances (e.g. section 11(e) wear-and-tear, section 12C manufacturing allowances).

Revenue expenditure:

Day-to-day operating costs, consumed within a short time.
Directly linked to using the asset or running operations.
Generally deductible if incurred in the production of income.

Example:

A small manufacturing business (Wits BAccSc case):
- Buys a machine for R400 000 (useful life 5 years).
  - Capital; not deductible under s11(a).
  - May claim wear-and-tear (s11(e)) or s12C.
- Pays R6 000 to repair the machine after a breakdown.
  - Revenue expense; deductible under s11(a).

3.4 Specific Deductions: Retirement, Medical, Donations

Many deductions are not allowed under the general deduction formula but have their own sections.

3.4.1 Retirement fund contributions

Individuals can deduct qualifying contributions to:
- Pension funds
- Provident funds
- Retirement annuity funds

The legislation provides percentage-based and/or monetary limits (e.g. a percentage of taxable income or remuneration, subject to a cap per year). Always use the latest SARS tables provided in your exam or test.

In exams, contributions exceeding the limit become “disallowed contributions” which may carry forward to future years.

3.4.2 Medical contributions and expenses

Deductibility structured through a combination of:
- Medical scheme fees tax credits
- Additional medical expenses tax credit

Although often handled as rebates/credits rather than deductions, BAccSc students must know how to classify medical contributions in computations, following exam instructions (some tests ask for taxable income only, others for tax payable including credits).

3.4.3 Donations (Section 18A)

Donations to approved Public Benefit Organisations (PBOs) may be deductible, usually limited to a percentage of taxable income before donations.
Donations above the threshold are carried forward.
Requires PBO receipt and must meet section 18A requirements.

Example:

Siyanda, Wits BAccSc student, donates R10 000 to an approved PBO.
His taxable income (before donations) is R200 000.
If the limit is, say, 10% of taxable income:
- Maximum deductible donation: R20 000.
- Siyanda’s R10 000 fully deductible.
In an exam, show:
- Deduction for donation: R10 000 (section 18A).

3.5 Capital Allowances and Wear-and-Tear (Section 11(e), 12C, etc.)

Capital allowances allow taxpayers to recover the cost of capital assets over time as the asset is used to earn income.

3.5.1 Section 11(e) – Wear-and-tear allowance

Applies to movable depreciable assets (e.g. computers, office furniture).
Deduction is based on cost and useful life.
SARS issues binding general rulings suggesting useful lives for various assets (e.g. computers 3 years, office furniture 6 years).

Example:

A Wits BAccSc graduate starts a small practice:

Buys a laptop for R21 000 on 1 March 2025.
SARS recommended useful life: 3 years.
Annual wear-and-tear: R21 000 ÷ 3 = R7 000.

If the laptop is used 100% for business, deductible allowance = R7 000 per year. If 70% business, 30% private, only R4 900 (70% of R7 000) is deductible.

3.5.2 Section 12C – Manufacturing assets

Provides accelerated allowances on qualifying manufacturing plant and machinery.
Typically allows a faster write-off (e.g. 40% in year 1, 20% in years 2–5; check the current schedule for specific assets).
Very common in TAXA2003 corporate questions.

Example (simplified, exam-style):

A manufacturing company buys a qualifying machine for R500 000 on 1 March 2025.
Allowance pattern: 40% year 1, 20% years 2–5.

For the 2026 year of assessment:

Year 1 allowance: 40% × R500 000 = R200 000
Deductible as a capital allowance.

3.5.3 Buildings and other capital items

Other sections (e.g. section 13, 13quin, 13sex) allow deductions on:

Certain industrial buildings
Commercial buildings used in trade
Residential units built and used in a particular way (affordable housing concessions)

For Wits BAccSc TAXA2003 and UNISA TAX3702, be able to:

Identify which section applies.
Calculate the annual allowance using the rate and base cost.
Adjust for part-year use where necessary.

3.6 Practical Deduction Computation (Individual with Small Business)

Scenario:

Kabelo, a Wits BAccSc student operating as a sole proprietor, has the following for the year ended 28 February 2026:

Gross income from tutoring business: R220 000
Expenses:
- Stationery and printing: R8 000
- Laptop bought 1 March 2025: R24 000
- Internet (used 70% for business): R12 000
- Travel (personal car, 60% business use out of total R20 000 running costs)
- Donation to approved PBO: R6 000

Required: Compute allowable deductions (assume SARS wear-and-tear on laptop is 3 years, ignore medical/retirement).

Solution outline:

Stationery and printing (R8 000)
- Revenue expense incurred in producing tutoring income.
- Deductible under s11(a): R8 000.
Laptop (R24 000)
- Capital asset, not deductible under s11(a).
- Apply s11(e):
  - Useful life 3 years → annual wear-and-tear: R24 000 ÷ 3 = R8 000.
  - 100% business use assumed (unless otherwise stated).
  - Deductible allowance: R8 000.
Internet (R12 000, 70% business)
- Revenue expense, but apportion for private use.
- Deductible: 70% × R12 000 = R8 400.
Travel using personal car (R20 000, 60% business)
- Revenue expense, apportion.
- Deductible: 60% × R20 000 = R12 000.
Donation to approved PBO (R6 000)
- Specific deduction under s18A.
- Assume less than % limit of taxable income.
- Deductible: R6 000.

Total deductions:

Stationery and printing                               8 000
Wear-and-tear (laptop)                                8 000
Internet (70% business)                               8 400
Travel (60% business)                                12 000
Donation (s18A)                                       6 000

Total deductions                                     42 400

This style of working, clearly labelling which section applies, is expected in Wits TAXA2003, ACCN2005, UNISA TAX2601, and CUT TAXP2015 assessments.

4. Capital Gains Tax (CGT) and Corporate Taxation (Advanced BAccSc Topics and Exam Focus)

4.1 Overview of Capital Gains Tax (CGT)

Introduced in 2001, Capital Gains Tax (CGT) is part of normal income tax, not a separate tax. It applies when a disposal of an asset takes place and a capital gain or loss arises.

Basic CGT steps:

Determine disposal (sale, donation, scrapping, deemed disposals).
Calculate proceeds (amount received or accrued).
Determine base cost (acquisition cost + qualifying costs).
Capital gain/loss = Proceeds – Base cost.
Sum all gains and losses for the year to get aggregate capital gain or loss.
Apply annual exclusion (for individuals and special trusts).
Remaining amount = net capital gain.
Multiply by inclusion rate to get taxable capital gain.
Add taxable capital gain to taxable income and tax at normal rates.

4.2 Key CGT Definitions and Concepts

4.2.1 Asset

Broadly defined; includes:
- Property of any kind (tangible or intangible).
- Rights or interests in property (e.g. shares, trademarks).
Excludes certain assets from CGT scope (e.g. personal-use items under a threshold, some foreign currency for individuals).

4.2.2 Disposal

Includes:

Sale, exchange, donation, expropriation.
Granting, renewing or extending a right in an asset.
Loss, destruction, or abandonment in certain cases.

Deemed disposals:

Death of a taxpayer (assets deemed disposed at market value, with various roll-overs).
Emigration (ceasing to be resident – deemed disposal of most worldwide assets at market value).

Exam relevance:
Wits BAccSc and UNISA TAX4861 often test emigration and death scenarios as integrated assessment questions combining CGT, estate planning, and residence rules.

4.3 Base Cost and Proceeds

Proceeds:

Amount received or accrued on disposal, excluding VAT if registered and VAT is accounted for separately.
If disposed by donation or at a price below market value, the market value may be deemed as proceeds.

Base cost:

Original acquisition cost.
Plus costs directly related to acquisition, improvement, or disposal:
- Transfer duty, legal fees, commission, broker’s fees.
- Costs of improvements or enhancements to the asset.

Example:

Sipho bought a rental property for R600 000, paying:
- Transfer duty: R20 000
- Legal fees: R10 000
He later built an additional room, costing R70 000.

Base cost:

Purchase price                            600 000
Transfer duty                              20 000
Legal fees                                 10 000
Improvement (new room)                     70 000

Total base cost                           700 000

If he sells the property for R900 000 (ignoring selling costs), capital gain = R900 000 – R700 000 = R200 000.

4.4 Individual vs Corporate CGT – Inclusion Rates

CGT is “blended” into normal tax via inclusion rates:

Individuals and special trusts:
- Only a portion (e.g. 40%) of the net capital gain is included in taxable income.
Companies and other trusts:
- Higher inclusion rate (e.g. 80%).

Suppose current inclusion rates are:

Taxpayer	Inclusion Rate
Individual	40%
Company	80%
Trust (ordinary)	80%
Special trust (Type A/B)	40%

(Always check the exact rates in the tax tables provided in your TAXA2003 or UNISA TAX3701 exam.)

Annual exclusion for individuals:

Individuals and special trusts receive an annual exclusion (e.g. R40 000).
In year of death, a higher exclusion applies (e.g. R300 000).

Companies and ordinary trusts do not enjoy an annual exclusion.

4.5 CGT Example – Individual

Scenario:

For the 2026 year of assessment, Ayanda (individual, Wits BAccSc student) has the following disposals:

Listed shares:
- Proceeds: R150 000
- Base cost: R90 000
Personal-use car (not used for business):
- Proceeds: R80 000
- Base cost: R100 000
Investment plot of land:
- Proceeds: R400 000
- Base cost: R250 000

Assume annual exclusion of R40 000 and inclusion rate of 40% for individuals.

Step 1: Calculate capital gains/losses

Listed shares:
- Gain: R150 000 – R90 000 = R60 000
Personal-use car:
- Personal-use assets for individuals may be excluded from CGT on disposal.
- Result: Ignore gain/loss on this car.
Plot of land:
- Gain: R400 000 – R250 000 = R150 000

Step 2: Aggregate capital gain

Shares gain                    60 000
Land gain                     150 000

Aggregate capital gain        210 000

Step 3: Annual exclusion

Less annual exclusion: R40 000

Net capital gain              170 000

Step 4: Taxable capital gain

Inclusion rate: 40% of R170 000 = R68 000

This R68 000 is added to Ayanda’s taxable income and taxed at normal individual rates.

In exam answers (Wits TAXA2003 / UNISA TAX2601), show the CGT section separately and then carry the taxable capital gain into the taxable income computation.

4.6 CGT Example – Company

Scenario:

Braamfontein Tutors (Pty) Ltd, a small tutorial company started by Wits BAccSc graduates, sells an office building:

Proceeds: R2 000 000
Base cost: R1 300 000
The company also sells some old office equipment:
- Proceeds: R30 000
- Tax value (after allowances): R20 000
- For CGT, base cost = original cost less allowances (assume R60 000 original; R40 000 allowances already claimed).

Assume corporate CGT inclusion rate of 80%.

Office building:

Capital gain: R2 000 000 – R1 300 000 = R700 000

Office equipment:

For CGT:
- Base cost: R60 000 (initial) + qualifying costs – allowances already claimed (R40 000) = R20 000.
- Capital gain: R30 000 – R20 000 = R10 000.

Aggregate capital gain:

Building gain                 700 000
Equipment gain                 10 000

Aggregate capital gain        710 000

Companies have no annual exclusion.

Net capital gain = R710 000

Taxable capital gain at 80% inclusion = R568 000

This R568 000 is added to Braamfontein Tutors (Pty) Ltd’s taxable income and taxed at corporate tax rate (e.g. 27% – check latest).

4.7 Corporate Taxation Fundamentals (Wits BAccSc & UNISA TAX3701)

Corporate taxation is a core BAccSc topic and appears heavily in TAXA2003, ACCN2005, and UNISA TAX3701.

4.7.1 Corporate tax rate and base

Standard corporate tax rate for resident companies (e.g. around 27% – confirm for the relevant year).
Companies are taxed on taxable income, computed similarly to individuals but with differences:
- No rebates like individuals (e.g. primary, secondary, tertiary rebates).
- No medical or retirement contribution credits directly; these affect employees individually.
- No interest exemption or annual CGT exclusion.

4.7.2 Common corporate income and deductions

Income:

Trading profits (sales less cost of sales).
Rental income, interest, royalties.
Some exempt items (e.g. local dividends for companies).

Deductions:

Operating expenses under s11(a).
Capital allowances (s11(e), 12C, etc.).
Assessed losses brought forward (subject to limitations).

4.7.3 Assessed losses

If a company’s deductions exceed income, a tax loss (assessed loss) arises.
Can be carried forward and set off against future taxable income, subject to anti-avoidance rules and potential ring-fencing changes.

Example (corporate taxable income):

Braamfontein Tutors (Pty) Ltd for the year ended 30 June 2026:

Sales revenue: R3 000 000
Cost of sales: R1 200 000
Operating expenses (salaries, rent, etc.): R1 000 000
Wear-and-tear allowances: R80 000
Taxable capital gain (from CGT calc earlier): R568 000
Local dividends received from JSE-listed company: R50 000 (exempt).

Taxable income computation:

Sales revenue                                    3 000 000
Less: Cost of sales                             (1 200 000)

Gross profit                                     1 800 000
Add: Other income
  Local dividends (exempt)                            50 000

Total income                                     1 850 000
Less: Exempt income (dividends)                   (50 000)

Income                                           1 800 000
Less: Operating expenses                        (1 000 000)
Less: Wear-and-tear                               (80 000)

Income before capital gains                        720 000
Add: Taxable capital gain                          568 000

Taxable income                                   1 288 000

If the corporate tax rate is 27%:

Normal tax = 27% of R1 288 000 = R347 760

This type of integrated computation is typical of higher-level BAccSc assessments at Wits and advanced modules like UNISA TAX3703 and CUT TAXP3015.

5. VAT, PAYE, Provisional Tax and Exam Strategy for Wits BAccSc (TAXA2003 / ACCN2005)

5.1 Value-Added Tax (VAT) Fundamentals

Although VAT is examined more fully in specialized modules (e.g. Wits ACCN3005, UNISA TAX3704), TAXA2003 and ACCN2005 require solid understanding of core VAT principles.

5.1.1 VAT basics:

Governed by VAT Act 89 of 1991.
Multi-stage consumption tax; ultimately borne by final consumer.
Standard VAT rate (e.g. 15% – confirm for exam year).
Vendors charge output VAT on taxable supplies and claim input VAT on business purchases.

5.1.2 VAT registration:

Compulsory registration if taxable supplies exceed the VAT threshold in any 12-month period (e.g. R1 million).
Voluntary registration possible for lower turnover if certain conditions met.

5.1.3 Taxable, zero-rated and exempt supplies:

Standard-rated (15%): most goods and services.
Zero-rated (0%): exports, certain basic foodstuffs, fuel levy items (check current list).
Exempt: financial services, residential rentals, certain educational services.

Example:

Braamfontein Tutors (Pty) Ltd provides education services. Determining if they provide exempt educational services (e.g. recognised educational institution) vs taxable services (e.g. private tutoring) is critical.

For exam purposes:

Identify supply type (standard/zero/exempt).
Calculate output VAT and input VAT accordingly.
Exempt supplies generally do not allow input VAT deduction.

5.2 VAT Calculation Example

Scenario:

Braamfontein Tutors (Pty) Ltd (registered VAT vendor) for VAT period:

Charge R230 000 for taxable tutoring services (standard-rated).
Buy teaching materials from suppliers (VAT included) for R46 000.
Pay rental on premises (VAT included) of R69 000.

Assume VAT rate is 15%.

Step 1: Determine Output VAT

Output VAT on taxable supplies:

Output VAT = 15/115 × R230 000 = R30 000
(Alternatively, R230 000 ÷ 1.15 = R200 000 net + R30 000 VAT)

Step 2: Determine Input VAT

Teaching materials (VAT-inclusive R46 000):

Input VAT = 15/115 × R46 000 = R6 000

Rental (VAT-inclusive R69 000):

Input VAT = 15/115 × R69 000 = R9 000

Total input VAT = R6 000 + R9 000 = R15 000

Step 3: VAT payable/refundable

VAT payable to SARS = Output VAT – Input VAT
= R30 000 – R15 000 = R15 000

This classic VAT computation style appears across Wits BAccSc, UNISA FAC2601, TAX3704, and CUT TAXP2015 modules.

5.3 PAYE and Employees’ Tax

PAYE (Pay-As-You-Earn) is a system of withholding tax on employees’ remuneration, administered under the Fourth Schedule to the Income Tax Act.

Key points for BAccSc:

Employers deduct PAYE from remuneration (salary, wages, bonuses, taxable benefits).
PAYE is calculated using SARS tax tables and considers rebates, contributions, etc.
Employers issue IRP5 certificates to employees showing total remuneration and PAYE withheld.

Exam-style requirement:

Distinguish between gross salary and net salary.
Identify which items are subject to PAYE (e.g. cash salary, taxable fringe benefits) vs exempt or not remuneration.
Understand that PAYE is a prepayment of the employee’s income tax liability, not a separate tax.

Example (individual payroll):

Naledi’s monthly package:

Basic salary: R25 000
Travel allowance: R6 000 (assume 80% deemed private use for PAYE purposes)
Medical scheme contribution (employer portion): R3 000 (subject to specific tax credit rules, not fully exempt)

For PAYE calculation in an exam:

Determine taxable remuneration:
- Full basic salary: R25 000
- 80% of travel allowance: 0.8 × R6 000 = R4 800
- Other benefits – depends on fringe benefit rules.

Total monthly taxable remuneration used for PAYE tables: R29 800 (ignoring medical scheme credits for simplicity here).

5.4 Provisional Tax (Individuals and Companies)

Provisional tax is a mechanism to spread tax payments through the year, targeting taxpayers who do not have sufficient PAYE withheld (e.g. business owners, investors).

Key features:

Applies to:
- Companies (generally all).
- Individuals with significant non-salary income above thresholds (e.g. business income, rental, investment income).
Involves two compulsory provisional payments (and one voluntary third payment):
1. First provisional payment: 6 months into the year.
2. Second provisional payment: end of the year of assessment.
3. Third voluntary payment: within 6 months after year-end for individuals (to reduce interest).

Calculation basis:

Based on estimated taxable income for the year.
SARS may penalise if estimate is unreasonably low compared to actual taxable income (e.g. safe harbour rules like 90% of actual or based on preceding year’s assessment, depending on threshold).

Exam implications (Wits TAXA2003 / UNISA TAX2601):

Understand who is a provisional taxpayer.
Identify due dates and number of payments.
State consequences of underestimation (penalties and interest).

5.5 Integrated Exam Strategy for Wits BAccSc TAXA2003 / ACCN2005

Wits BAccSc taxation questions often require integrated application of all concepts under severe time pressure.

5.5.1 Typical question structure:

Part A: Residence and source determination for individuals.
Part B: Gross income and exemptions (salary, fringe benefits, rental, interest, dividends).
Part C: Deductions (general vs specific, capital allowances).
Part D: CGT on asset disposals.
Part E: VAT or PAYE/provisional tax conceptual questions.
Part F: Computation of taxable income and possibly tax liability.

5.5.2 Answer planning and layout

Markers at Wits, UNISA, and CUT expect structured answers:

Start with formula:
- Taxable income = Gross income – Exempt income – Deductions + Taxable capital gain
Section headings:
- “Gross income – [Taxpayer name]”
- “Deductions – [Taxpayer name]”
- “Capital gains tax computation”
- “Taxable income and tax payable”
Show workings and label sections of the Act where relevant (e.g. s11(a), 10(1)(k), 11(e), s18A, s1 definition of gross income).
State assumptions clearly if required (e.g. “Assume asset used 100% for business”).
Indicate year of assessment at the top of computations.

5.5.3 Common pitfalls and how to avoid them

Mixing capital and revenue:
- Carefully classify receipts and expenses; do not deduct capital expenditure under s11(a).
Ignoring private use proportions:
- For cars, cell phones, internet, always apply correct business vs private portion.
Forgetting exemptions:
- Always check if dividends, some interest, or foreign employment income qualifies for exemption.
Not reconciling CGT with taxable income:
- Remember to add taxable capital gain to taxable income, not the full capital gain.
Not reading the question:
- If asked only for taxable income, do not calculate actual tax payable unless required.
- If the question says ignore VAT, do not bring VAT into the amounts.

5.5.4 Time management and marking allocation

In Wits TAXA2003 and ACCN2005, as well as in UNISA TAX2601/TAX3701 exams:

Marks are often roughly proportional to the number of lines in a model solution.
A 20-mark question should typically involve 20 or more distinct steps or lines.
Allocate time as:
- Total minutes ÷ total marks = minutes per mark.
- Stick to this pace; do not overspend on early questions.

5.5.5 Using past papers (Wits, UNISA, CUT)

Search for and use past papers with keywords like:

“TAXA2003 Wits past paper”
“ACCN2005 Taxation exam”
“UNISA TAX2601 exam solutions”
“CUT TAXP2015 test questions”

Practise under timed conditions. Focus on:

Building speed in identifying gross vs exempt income.
Quickly classifying expenses as deductible vs capital.
Handling CGT computations efficiently.

5.6 Linking BAccSc Taxation to Other SA University Modules

Although these notes are tailored for University of the Witwatersrand BAccSc students in TAXA2003 Taxation and ACCN2005 Accounting and Taxation, the same principles underpin similar courses across South Africa:

UNISA:
- TAX2601 – Taxation of Individuals
- TAX3701 – Taxation: Selected Tax Topics
- TAX3702 – Taxation of Companies and other Entities
- TAX3703 – Tax Planning and Estate Duty
- TAX3704 – Value-Added Tax
Central University of Technology (CUT):
- TAXP2015 – Taxation Principles
- TAXP3015 – Advanced Taxation

Understanding residence, gross income, exemptions, deductions, capital allowances, CGT, VAT, PAYE and provisional tax gives a strong foundation not only for Wits BAccSc exams but also for students moving into honours-level taxation, professional board exams, and SAICA APC-related material in courses like Wits ACCN4005 or UNISA’s postgraduate taxation modules.

This comprehensive guide consolidates the key South African taxation concepts that Wits BAccSc students encounter in TAXA2003 and ACCN2005, mapping directly to the style and depth expected in university exams across South Africa, including UNISA and CUT.