TAXN5112: Taxation 1B Exam Pack — Varsity College BCom Accounting Support Material

This exam pack provides comprehensive, exam-focused notes for TAXN5112: Taxation 1B as typically offered in South African BCom Accounting programmes, including Varsity College, UNISA (TAX2601 / TAX2602 equivalents) and similar modules at CUT, NWU and UJ. It is written as intensive revision material for students preparing for semester and final assessments. The focus is on the South African Income Tax Act (as applied at NQF6 level), with worked examples, exam tips and keyword-rich coverage aligned to common search queries such as “TAXN5112 exam notes PDF”, “UNISA TAX2601 study guide” and “Varsity College BCom Accounting Taxation 1B past paper-style questions”.

1. Orientation to TAXN5112 / Taxation 1B in South African Universities

1.1 Where TAXN5112 Fits in the BCom Accounting Curriculum

Across South African institutions, an introductory income tax module at second-year level typically carries titles and codes such as:

Varsity College: TAXN5112 — Taxation 1B (BCom Accounting; BCom Financial Management)
UNISA: TAX2601 — Principles of Taxation; TAX2602 — Taxation of Individuals
Central University of Technology (CUT): TAX20AB — Taxation II; ACCS20BT combinations
North-West University (NWU): TAXP 211 — Principles of Taxation
University of Johannesburg (UJ): TAX2A1 / TAX2B1 — Taxation 2A / 2B

Although the codes differ, the core content tested is broadly similar, because it is anchored in the Income Tax Act 58 of 1962, the Tax Administration Act 28 of 2011, and relevant SARS practice.

TAXN5112 usually builds on a first module such as:

TAXN5111 (Taxation 1A) or
ACCN1111 / FINN1111 (Introductory accounting for tax purposes)

At this stage, students are expected to:

Apply basic accounting knowledge
Perform detailed tax computations for individuals and smaller entities
Understand and apply the concepts of gross income, exemptions, deductions, assessed losses, capital gains tax (CGT) and tax rebates

1.2 Typical Exam Structure and Weighting

While exact formats differ by institution and year, a common TAXN5112 / Taxation 1B exam pattern includes:

Duration: 2–3 hours
Marks: 100 marks (converted to 60% or 70% exam weight in final course mark)
Question structure:
- Q1 (25–30 marks) – Comprehensive individual tax computation: normal tax liability, medical credits, retirement fund contributions
- Q2 (20–25 marks) – Capital gains tax on disposal of assets, including primary residence, personal-use assets
- Q3 (15–20 marks) – Allowable and disallowed deductions; wear-and-tear; fringe benefits; travel allowance
- Q4 (15–20 marks) – Short theory questions: definitions (gross income, resident, trade); case law; SARS administration
- Q5 (5–10 marks) – VAT basics or brief scenario-based questions (depending on syllabus version)

Varsity College tests closely mirror UNISA and SAICA competency frameworks, so these notes are also useful for students searching for:

“TAX2601 exam pack”
“UNISA taxation of individuals exam tips”
“Varsity College BCom Accounting Taxation 1B summary”

1.3 Essential Exam Skills and Mindset

Students often underestimate technique in Taxation 1B. Beyond knowing the law, you must:

Lay out workings clearly
- Use pro-formas for taxable income and normal tax computations.
- Show all add-backs, deductions and exemptions separately.
- Indicate references (e.g. “s1 gross income”, “par 2 2nd Sch fringe benefit”).
Apply stepwise logic
Examiners want to see the process:
- Identify the type of income (employment, investment, business, capital).
- Check if it falls into gross income.
- Consider special inclusions and exemptions.
- Decide whether any deductions apply.
- Consider capital vs revenue nature.
Use the correct tax year
Answers must use the effective tax rates and rebates for the exam’s tax year (usually specified in the exam paper or formula sheet, e.g. 2024 year of assessment). Mixing years loses easy marks.
Manage time aggressively
For a 3-hour, 100-mark paper:
- You have about 1.8 minutes/mark.
- A 30-mark question should get about 55 minutes.
- Do not over-work one question at the expense of others.
Show partial knowledge
Even if you are unsure of a rule, make a reasonable assumption and proceed. Examiners often award method marks based on correct structure, even if a detail is incorrect.

2. Residents, Gross Income and Exemptions (Core Individual Tax Concepts)

This section covers the heart of TAXN5112 and UNISA TAX2601 content: residency, gross income, exemptions and basic inclusions.

2.1 Tax Residence: Physical Presence and Ordinary Residence

South African normal tax is residence-based. A resident is taxed on worldwide income (with certain foreign tax credits), while a non-resident is taxed only on South African source income (like SA rental, SA employment performed in SA, SA immovable property).

The Income Tax Act s1 defines “resident” in terms of:

Ordinary residence test
- Where a person’s real home is; where they ordinarily live when not elsewhere.
- Factors:
  - Where family resides
  - Duration and regularity of stays in SA
  - Location of permanent home, assets, bank accounts
- Case law: CIR v Kuttel, Cohen v CIR.
Physical presence test (if not ordinarily resident)
Individual is resident if all three are met:
- Present in SA > 91 days in the current year of assessment;
- Present in SA > 91 days in each of the preceding five years;
- Present in SA for > 915 days in total during those five preceding years.
If all are satisfied, the person becomes a resident from the first day of the sixth year.
If later absent from SA for > 330 consecutive days, they cease to be a resident from the day they left.

Exam link (TAXN5112 / TAX2601 / CUT TAX20AB): Questions will ask you to determine whether an individual is a resident. Marks are typically awarded for:

Stating both ordinary residence and physical presence tests
Applying the numeric day thresholds correctly
Concluding explicitly whether the person is a resident or non-resident, with reasons

2.2 Gross Income: Statutory Definition and Practical Interpretation

Gross income (s1) for a resident is:

“The total amount, in cash or otherwise, received by or accrued to or in favour of such resident during the year of assessment, excluding amounts of a capital nature, but including special inclusions…”

Key elements:

“Amount” includes money, assets, services – anything measurable in rands.
“Received by” – received by the taxpayer on his/her own behalf (not as agent).
“Accrued to” – unconditional right to an amount (even if not yet received).
“During the year of assessment” – 1 March to end-Feb (e.g. 1 March 2023 – 29 Feb 2024).
“Excluding amounts of a capital nature” – income vs capital distinction.
“Special inclusions” – e.g. certain recoupments, lump sums, fringe benefits.

Examples of items typically included in gross income:

Salary, bonuses, overtime, commissions
Allowances (travel, subsistence, housing)
Fringe benefits (use of a company car, employer-provided housing, interest-free loans)
Rental income, interest, foreign interest (subject to exemptions)
Business income and professional fees
Annuities, certain lump sums from pension/provident funds (portion taxable)

2.3 Capital vs Revenue: Why It Matters

A central skill in TAXN5112 / UNISA TAX2601 is distinguishing capital receipts (generally excluded from gross income but may trigger CGT) from revenue receipts (fully taxable as gross income).

Factors indicating revenue nature:

Intention to resell for profit
Frequent, continuous buying and selling (trading activity)
Link to taxpayer’s business
Profits form part of normal operations

Factors for capital nature:

Once-off, non-recurring transactions
Long-term investment or ownership
Asset used to produce income (e.g. factory building) and only later sold
Received as a return of investment, not for services

Example:

A Varsity College lecturer sells his family home after 10 years — proceeds likely capital; sale enters CGT calculation.
Same lecturer regularly buys and sells small plots of land for quick profit — likely revenue; profits are fully taxable as gross income.

Examiners often set borderline scenarios, testing your ability to justify your conclusion with intention, frequency and nature of activity. Marks are awarded for reasoning, not only the final answer.

2.4 Common Exemptions (s10) Tested in TAXN5112 / TAX2601

Some amounts are fully or partially exempt from normal tax:

Interest exemption (individuals) — s10(1)(i) (as per specific tax year; example using typical older exam frameworks):
- For exam purposes, often:
  - R23 800 per year for individuals < 65
  - R34 500 per year for individuals ≥ 65
- Applies to South African interest. Foreign interest is generally not exempt, but check exam year guidance.
Dividends from SA companies
- Generally exempt from normal tax in the hands of individuals [s10(1)(k)] because dividends tax is levied at company/shareholder level.
- So exam answers: include dividends in the statement but mark “exempt s10(1)(k)”.
Lump sum benefits from pension/provident funds on retirement or death
- Subject to special lump sum tables, not taxed at normal marginal rates.
- Exam answers typically state “taxed per retirement lump sum table” (if required).
Amount received for personal injury, sickness or death (e.g. damages)
- Exempt under s10(1)(g) (for certain qualifying amounts).
Scholarships/bursaries to employees’ relatives (s10(1)(q))
- Partially exempt if thresholds and qualifying criteria are met.
Certain foreign employment income (s10(1)(o)(ii))
- Up to an annual cap (historically R1.25 million, but exam rules specify; check notes). Conditions apply:
  - Employee must be outside SA >183 days in any 12-month period, including continuous >60 days.

In exams, you must:

Identify the exemption;
Quote the section (where possible, e.g. “s10(1)(i) interest exemption”);
Apply the correct limit and show any excess interest as taxable.

2.5 Source of Income: Residents vs Non-Residents

Although residents are taxed on worldwide income, the source is still important for:

Non-residents (taxed only on SA-source income)
Application of DTA (double tax agreements)
Determining capital gains tax on immovable property in SA

General principles:

Employment income – where services are rendered.
Rental income – where the property is situated.
Interest – where the debtor resides or the funds are utilized.
Business income – where business operations are mainly carried out.

Exam-style scenario:
A CUT BCom Accounting student works remotely from Bloemfontein for a UK company, receiving salary in pounds. As a South African tax resident, her foreign salary is fully taxable in SA (subject to potential s10(1)(o)(ii) relief if physically abroad and conditions met). The source is foreign, but residence-based taxation applies.

3. Determining Taxable Income and Normal Tax Liability (Individuals)

This section addresses the bread-and-butter computation for TAXN5112, UNISA TAX2602, and similar modules: calculating taxable income and normal tax for an individual.

3.1 Standard Pro-Forma for Individuals

Examiners expect a consistent structure:

Gross income (s1)
Less: Exempt income (s10)
= Income
Less: Deductions (s11, s23)
= Taxable income before capital gains
Plus: Taxable capital gain (par 10, Eighth Schedule)
= Taxable income

Normal tax on taxable income (per tax tables)
Less: Primary rebate
Less: Secondary / tertiary rebates (if applicable)
Less: Medical scheme fees tax credit (s6A)
Less: Additional medical tax credits (s6B)
= Net normal tax liability

Using this structure in Varsity College TAXN5112 or UNISA TAX2602 exams earns method marks even if miscalculations occur.

3.2 Common Inclusions in Gross Income

For individuals:

Remuneration:
- Salary
- 13th cheque / bonus
- Commission
- Overtime
Allowances and fringe benefits:
- Travel allowance (80% or 20% inclusion in PAYE; full in gross income; deduction for business travel)
- Subsistence allowance (subject to deemed amounts)
- Employer-provided housing
- Company car use
- Employer contributions to retirement funds (taxable fringe benefit under par 2A of 7th Schedule)
Investment income:
- Interest (SA and foreign)
- Rental income
- Dividends (note: exempt for individuals, but still show them)
Business/professional income:
- Sole proprietor profits
- Professional fees

The exam trick: always include all potential income items first, then deduct exemptions. Do not exclude items from the outset unless the question explicitly states “amounts are exempt”.

3.3 Deductions from Income: General and Specific

General deduction formula (s11(a) read with s23(g)):

Expenditure and losses actually incurred
In the production of income
Not of a capital nature
Laid out for the purposes of trade
Not specifically prohibited by other sections

Examples for individual taxpayers carrying on a trade (e.g. side business, rental property):

Rent of business premises
Wages and salaries of staff (not the owner’s own salary)
Business telephone, internet, advertising
Repairs and maintenance (revenue, not capital improvements)
Stationery, small tools under de minimis rules
Bad debts and doubtful debts allowance (if trading on credit, subject to s11(j))

Specific deductions (common exam focus):

Retirement fund contributions (s11F)
- Deductible up to 27.5% of the greater of remuneration or taxable income (before deduction), capped at R350 000 per year of assessment.
- Excess contributions carried forward, may be used in future years or against lump sums/withdrawals.
Medical expenses (via tax credits rather than deductions)
- Discussed more fully in §3.5.
Wear-and-tear / Depreciation (s11(e))
- Deduction for the cost of movable assets used in trade (e.g. computers, machinery, vehicles).
- Based on SARS-prescribed write-off periods (e.g. computers 3 years, vehicles 5 years).
Home office expenses
- Strictly controlled; exam often provides an explicit scenario:
  - Taxpayer must regularly and exclusively use a part of the home for trade.
  - For employees, conditions in s23(b) and s23(m) apply.
Rental property expenses
- Interest on bond (capital portion not deductible)
- Rates and taxes
- Repairs (not improvements)
- Agent’s commission
- Insurance

Prohibited deductions (s23):

Private/domestic expenses (e.g. groceries, private motor car costs not apportioned for business)
Fines and penalties (e.g. traffic fines)
Capital payments (e.g. purchase price of property, improvements)

3.4 Retirement Fund Contributions: Detailed Example

Exam-style example (Varsity College TAXN5112 / UNISA TAX2602):

Thabo (age 40) earns:

Salary: R480 000
Bonus: R60 000
Rental profit (after allowable deductions): R40 000

He contributes:

R80 000 to an approved pension fund
R50 000 to a retirement annuity (RA) fund

Step 1: Determine basis for 27.5%:

Remuneration = salary + bonus = R540 000
Taxable income before retirement contributions = (salary + bonus + rental profit) = R580 000

Greater of the two = R580 000

27.5% of R580 000 = R159 500
Cap = R350 000 (not binding here)

Total contributions = R80 000 + R50 000 = R130 000
→ Deductible amount = R130 000 (fully within 27.5% limit)

In your computation:

Show “Less: Retirement fund contributions (s11F) — R130 000”
If contributions exceeded 27.5% or R350 000, state the allowable deduction and carry forward the excess.

3.5 Medical Tax Credits (s6A and s6B)

Medical costs are not deductions from income; they translate into tax credits that reduce the tax liability.

Two main types:

Medical scheme fees tax credit (MTC; s6A)
Fixed monthly amounts per beneficiary (per tax year; e.g. for an older exam year):
- R364 for the taxpayer
- R364 for the first dependent
- R246 for each additional dependent
Example (12 months membership; 3 beneficiaries):
- Taxpayer: R364 × 12 = R4 368
- First dependent: R364 × 12 = R4 368
- Second dependent: R246 × 12 = R2 952
- Total MTC = R11 688
This is deducted directly from the normal tax.
Additional medical expenses tax credit (AMTC; s6B)
Computed differently for:
- Taxpayers under 65 and not disabled
- Taxpayers 65 or over, or with a disability / disabled dependent
For under 65, non-disabled (typical rule used in many exam packs):
- Out-of-pocket medical expenses + excess medical aid contributions (i.e. contributions minus 4 × MTC)
- Less 7.5% of taxable income (or as per current threshold guidelines)
- 25% of the resulting amount is the AMTC

Examiners often provide:

Total medical aid contributions
Total qualifying medical expenses paid from own pocket
Number of beneficiaries
Taxpayer age and disability status

Your job is to:

Compute MTC (s6A).
Determine if additional credit under s6B applies and calculate correctly.
Deduct both credits from normal tax at the end.

3.6 Capital Gains Tax (CGT) for Individuals

Although CGT could fill a full section, for taxable income computation the key is:

Calculate capital gain or loss per asset.
Aggregate to net capital gain or loss.
Apply annual exclusion (for individuals, often R40 000 in exam frameworks).
Apply inclusion rate (e.g. 40% for individuals).
Result = taxable capital gain added to taxable income.

Basic pro-forma per asset:

Proceeds (selling price, net of allowable disposal costs)
Less: Base cost (purchase price + acquisition costs + improvements)
= Capital gain / (loss)

Annual exclusion example (individual):

Net capital gains across assets: R95 000
Less: Annual exclusion R40 000
= R55 000
Taxable capital gain (40% inclusion): R55 000 × 40% = R22 000

This R22 000 is added to taxable income.

3.7 Putting It Together: Full Individual Computation Example

Scenario (aligned to TAXN5112 / UNISA TAX2602 level):

Zanele (age 30, non-disabled), a resident of SA, for the 2024 year of assessment:

Salary: R360 000
13th cheque: R30 000
Interest from SA bank: R25 000
Dividends from JSE-listed SA company: R14 000
Rental income from flat in Durban:
- Gross rental: R120 000
- Rates and levies: R18 000
- Repairs: R12 000
- Bond interest: R40 000
Retirement annuity contributions: R50 000
Medical aid contributions (for herself only): R24 000 for the year
Out-of-pocket medical expenses: R6 000
Sold listed shares:
- Proceeds: R80 000
- Base cost: R50 000

Assume for the exam:

Interest exemption: R23 800 (under 65)
Annual CGT exclusion: R40 000
Inclusion rate for individuals: 40%
Use normal tax table (not reproduced here; in exam you would have the table).

Step 1: Gross income

Salary: R360 000
13th cheque: R30 000
Interest (SA): R25 000
Dividends (SA): R14 000 (but exempt; still show)
Rental:
- Gross R120 000
- Expenses R18 000 + R12 000 + R40 000 = R70 000
- Net rental profit: R50 000

Gross income total (before exemptions):

= 360 000 + 30 000 + 25 000 + 14 000 + 50 000
= R479 000

Step 2: Less exempt income

Dividends: R14 000 (s10(1)(k))
Interest exemption:
- Interest received: R25 000
- Exemption: R23 800
- Taxable interest = R1 200

So in computation:

Gross income                                  R479 000
Less: Exempt income:
  Dividends (SA) [s10(1)(k)]                   (14 000)
  Interest exemption [s10(1)(i)]               (23 800)
= Income                                       R441 200

But note that the taxable portion of interest (R1 200) must remain in income. Another way is:

Include only taxable interest in gross income:
Interest: R1 200
Dividends: show separately as exempt

Both methods work if clearly disclosed.

For clarity, rework:

Gross income (taxable elements only):

Salary: R360 000
13th cheque: R30 000
Taxable interest: R1 200
Rental profit: R50 000

Gross income = R441 200

Step 3: Deductions

Retirement annuity contributions (s11F):

Remuneration = R390 000
Taxable income before RA = R441 200 (+ CGT portion later)
27.5% of greater of remuneration or taxable income (before RA) – still to be confirmed once CGT added. For exam simplicity at this stage, assume RA is below limit.

Compute CGT first to avoid circularity.

Step 4: Capital gains

Proceeds: R80 000
Base cost: R50 000
Capital gain: R30 000

Annual exclusion: R40 000
Since gain (R30 000) < exclusion (R40 000), net capital gain = R0.

→ No taxable capital gain.

Hence RA 27.5% limit is based on taxable income before RA = R441 200.

27.5% of R441 200 = R121 330
RA contributed: R50 000
→ Allowable deduction: R50 000 (fully allowed).

Taxable income:

Income (gross income)                         R441 200
Less: Deductions:
  Retirement annuity (s11F)                    (50 000)
= Taxable income                              R391 200

Step 5: Normal tax

Use tax tables (assume for this walkthrough the tax table leads to a pre-credit tax amount, say, R87 000 based on the brackets).

Step 6: Medical tax credits

Medical scheme fees (contributions): R24 000 for 12 months, 1 beneficiary (Zanele only).

MTC (s6A):
R364 per month × 12 = R4 368
Additional medical tax credit (s6B):
For under 65 and non-disabled, formula (simplified, exam style):
- Excess contributions:
  - Actual contributions: R24 000
  - 4 × MTC: 4 × 4 368 = R17 472
  - Excess = 24 000 – 17 472 = R6 528
- Qualifying out-of-pocket: R6 000
Total for s6B = R6 528 + R6 000 = R12 528

7.5% of taxable income: 0.075 × 391 200 = R29 340

Since R12 528 < R29 340, no s6B additional credit.

Total credits:

MTC: R4 368
AMTC: R0

So net tax:

Normal tax (per tables)                        R87 000
Less: Medical scheme fees tax credit (s6A)      (4 368)
= Net normal tax liability                     R82 632

This is the type of comprehensive computation expected in TAXN5112 and UNISA TAX2602 final exams.

4. Employment Income, Allowances, Fringe Benefits and Business Income

A significant portion of TAXN5112 / UNISA TAX2602 / CUT TAX20AB assesses your ability to deal with employment-related income and benefits, including what is commonly tested in:

“TAXN5112 fringe benefits exam questions”
“TAX2602 travel allowance study notes”

4.1 Employment Income and Source Codes (Contextual Knowledge)

While source codes (e.g. 3601 salary, 3701 travel allowance) are more payroll-specific, understanding typical payslip components helps:

Basic salary
Bonus / 13th cheque
Commission
Overtime
Travel allowance
Subsistence allowance
Fringe benefits (company car, housing, low-interest loans)
Employer pension/provident/RA contributions (taxable fringe benefit, but may be deductible as retirement contributions)

In exam questions, all amounts will usually be given as annual totals. You need to classify each into:

Gross income (taxable in full)
Fringe benefits (taxable values via 7th Schedule rules)
Allowances (with partial taxable / deductible components)

4.2 Travel Allowances

A travel allowance (usually code 3701 on IRP5) is granted to cover business travel costs. Rules:

The full allowance is included in gross income.
For PAYE purposes, 80% (or 20% if employer reasonably expects most travel is business) is subject to monthly PAYE withholding.
For year-end tax, actual business travel expenses or deemed rates can be claimed as a deduction.

Exam expectation:

Include the full allowance in gross income.
Compute deductible travel costs based on:
- Actual logbook (total km; business km; private km)
- Actual expenses or SARS deemed cost per km (given in question or formula sheet).
Apportion costs for business vs private travel.
Deduct from allowance; excess allowance is taxable.

Example:

Sipho receives a travel allowance of R96 000 per year and uses his own vehicle:

Total km for the year: 30 000 km
Business km: 18 000 km
Actual running expenses (fuel, maintenance, insurance): R60 000
Cost of vehicle: R300 000; write-off 5 years ⇒ R60 000 depreciation

Total cost: R60 000 (running) + R60 000 (depreciation) = R120 000

Business proportion: 18 000 / 30 000 = 60%
Business expenses: 60% × R120 000 = R72 000

Tax computation:

Include travel allowance in gross income: R96 000
Deduct business travel expenses: R72 000
Net taxable portion: R24 000

Show this clearly in exam workings.

4.3 Subsistence Allowances

Subsistence allowances (e.g. code 3714) are paid to employees to cover meals and incidentals while travelling away from their usual place of work.

Key points:

Fully included in gross income.
Deduction allowed based on deemed daily amounts provided by SARS or actual expenses (if substantiated).
Examiners usually give:
- Number of days spent away (local or foreign)
- SARS deemed rate for meals and incidental costs per day

You must multiply the number of qualifying days by the relevant deemed daily rate and compare with the allowance.

4.4 Fringe Benefits: 7th Schedule Overview

The Seventh Schedule to the Income Tax Act deals with taxable benefits arising from employment. For TAXN5112 level, focus on:

Use of employer-owned motor vehicle
Employer-provided housing/accommodation
Low-interest or interest-free loans
Free or cheap services or goods

General principle: The cash equivalent of the benefit is included in gross income.

4.4.1 Company Car Benefit

Common exam focus:

An employee is given the right of use of a company car owned by the employer.

Formula (generic; exam will specify current rules):

Monthly fringe benefit typically 3.5% of the vehicle’s determined value (cost to employer including VAT but excluding finance charges).
If employer sells car to employee at reduced price, additional rules apply.
If employee bears fuel and maintenance, the percentage may be reduced; question will specify.

Example:

Employer provides a motor vehicle costing R400 000 (including VAT) to employee for full year. Employer pays all running costs.

Monthly fringe benefit = 3.5% × R400 000 = R14 000
Annual fringe benefit = R14 000 × 12 = R168 000

This amount is included in gross income as a fringe benefit.

If the employee maintains the car at own cost, percentage may reduce (e.g. to 3.25%). Always follow the exact exam instruction.

4.4.2 Employer-Provided Accommodation

Rules vary depending on whether accommodation is owned or rented by employer, and whether in remote areas. Typical formula:

Start with a percentage of employee’s remuneration or market rental value.
Deduct amounts the employee pays for the accommodation.
Special exemptions possible (e.g. accommodation in remote areas).

In exams, the question usually gives a simplified formula — follow it exactly.

4.4.3 Low-Interest Loans

If employer grants employee a low-interest or interest-free loan, the fringe benefit is:

Interest calculated at official rate (given) 
minus interest actually paid by employee

If interest actually paid is lower than interest at official rate, the difference is a taxable fringe benefit.

4.4.4 Other Fringe Benefits

Free/cheap services (e.g. free flights for airline staff)
Sale of assets below market value
Employer contributions to medical schemes and insurance (depending on year and legislative status)

For TAXN5112 / UNISA TAX2602, examiners test your ability to:

Recognise the presence of a fringe benefit
Apply the correct valuation method
Include the resulting value in gross income

4.5 Business Income for Sole Proprietors

Many questions in CUT TAX20AB and Varsity College TAXN5112 include individuals with a small sole proprietorship (e.g. hair salon, online shop).

Key considerations:

Revenue:
- Cash and credit sales
- Fees for services
Cost of sales (for trading businesses):
- Opening stock + purchases – closing stock
- Import duties, carriage inwards
Operating expenses:
- Wages, rent, utilities
- Advertising, bank charges
- Bad debts
Capital vs revenue expenses:
- Purchase of delivery vehicle: capital (deductible via wear-and-tear)
- Minor repairs to shelves: revenue (immediate deduction)
- Major extension to shop: capital (added to base cost of building)
Drawing vs salary:
- Owner’s drawings are not deductible (they are distribution of profit).
- Owner does not receive a deductible “salary” from own sole proprietorship.

Pro-forma:

Business income (sales/fees)                         XX
Less: Cost of sales                                  (XX)
= Gross profit                                       XX
Less: Operating expenses                             (XX)
Add: Other income (e.g. interest, rental)            XX
= Net profit / business income                       XX

This net profit is then included under gross income for the individual taxpayer.

4.6 Common Pitfalls and Exam Tips

Double counting or omission:
- Don’t deduct an expense twice (e.g. bond interest as personal and rental expense).
- Include fringe benefits once only (via 7th Schedule valuation).
Mixing personal and business expenses:
- Petrol for both private and business use must be apportioned.
- Only business-use portion is deductible, unless question gives simplified rule.
Ignoring section references:
- Even at undergraduate level, marking schemes often award 1 mark for correct section reference (e.g. “s11(a)”, “s10(1)(i)”, “para 2 7th Schedule”).
Not showing intermediate steps:
- For travel allowances and company cars, show percentage, base, and duration.
- For fringe benefit loans, show the interest differential calculation.

5. Capital Gains Tax, Assessed Losses, Provisional Tax and SARS Administration

The final major cluster of exam topics for TAXN5112, UNISA TAX2601/TAX2602, CUT TAX20AB, NWU TAXP 211 and UJ TAX2A1 relates to CGT, assessed losses, provisional tax and administrative aspects.

5.1 Capital Gains Tax (CGT) in More Detail

CGT is governed by the Eighth Schedule to the Income Tax Act.

5.1.1 Key Definitions

Asset – Includes property of any kind and a right or interest in property.
Disposal – Any event where ownership passes or is deemed to pass (sale, donation, death, scrapping).
Base cost – Acquisition cost + certain incidental costs (transfer duty, legal fees, improvement costs).
Proceeds – Amount received or accrued on disposal, less certain allowable costs.
Capital gain – Proceeds > base cost.
Capital loss – Base cost > proceeds.

5.1.2 Steps to Calculate Taxable Capital Gain (Individual)

Identify disposals of assets during the year.
For each asset, compute capital gain or loss:
- Proceeds – base cost.
Aggregate all capital gains and losses.
Apply specific exclusions (e.g. primary residence exclusion, personal-use assets, small business relief if applicable in syllabus).
Apply annual exclusion (individuals, e.g. R40 000).
Deduct any assessed capital loss brought forward.
Apply inclusion rate (e.g. 40%).
Add taxable capital gain to taxable income.

5.1.3 Primary Residence Exclusion (Exam Level)

Many TAXN5112 and UNISA TAX2601 questions feature a primary residence:

A portion of the capital gain on disposal of a primary residence is excluded.
Historically the maximum exclusion: R2 million of the capital gain (or up to R2 million of the proceeds in some rules).
Only applies if:
- The property is used mainly for domestic purposes by the owner as his/her primary residence.
- Land area not exceeding legislated limit (e.g. 2 hectares).

Exam-style simplification:

If capital gain on primary residence = R3 000 000, and primary residence exclusion is R2 000 000:

Capital gain after exclusion: R1 000 000
Apply annual exclusion etc. thereafter.

5.1.4 Personal-Use Assets

Capital gains/losses on personal-use assets (e.g. furniture, household goods, clothes, private motor vehicles not used in trade) are often:

Capital losses – disregarded.
Capital gains – sometimes fully taxable if above exemption thresholds (depending on asset type).

Exam questions will specify whether to disregard a loss; follow given instructions.

5.1.5 Example: CGT Computation

Scenario:

Nomsa disposes of the following assets in the 2024 year:

Primary residence in Pietermaritzburg:
- Proceeds: R3 600 000
- Base cost: R1 200 000
- Qualifies fully as primary residence throughout ownership.
Listed shares:
- Proceeds: R150 000
- Base cost: R80 000
Personal-use car (wholly private):
- Proceeds: R90 000
- Base cost: R140 000

Assumptions for exam year:

Primary residence exclusion: R2 000 000
Annual exclusion: R40 000
Inclusion rate for individuals: 40%

Step 1: Capital gains/losses per asset

Primary residence:
- Gain = 3 600 000 – 1 200 000 = R2 400 000
- Less primary residence exclusion: R2 000 000
- Net gain after exclusion: R400 000
Listed shares:
- Gain = 150 000 – 80 000 = R70 000
Personal-use car:
- Loss = 90 000 – 140 000 = –R50 000
- Personal-use asset loss is disregarded.

Step 2: Aggregate

Total gains (after primary residence exclusion): R400 000 + R70 000 = R470 000

Step 3: Annual exclusion

R470 000 – R40 000 = R430 000

Step 4: Inclusion rate

Taxable capital gain = R430 000 × 40% = R172 000

This R172 000 is added to Nomsa’s taxable income.

Show each layer clearly in exam answers for full marks.

5.2 Assessed Losses

An assessed loss arises where deductible expenses > income for a particular trade or from all non-capital activities in a year.

Basic rules (individuals):

A trade loss (e.g. losses from a side business) can sometimes be set off against other income (e.g. salary), but ring-fencing rules may restrict this for individuals who are not full-time traders.
s20 deals with carrying forward assessed losses to future years.

At Taxation 1B level:

Focus generally on basic carry-forward for simple sole proprietorships.
The loss that cannot be used in the current year becomes an assessed loss carried forward, which can be set off against future taxable income from trade.

Example:

Year 1: Thandi runs a small clothing business as a side hustle:

Business income: R80 000
Business expenses (allowed): R120 000
Loss = R40 000

She has a salary of R200 000. If not ring-fenced by s20A (depending on full rules in syllabus), she may offset the R40 000 trade loss against salary:

Net taxable income from salary + business = R200 000 – 40 000 = R160 000

If restricted, the R40 000 becomes assessed loss carried forward and will be used in Year 2 when the business makes profits.

Exam hint: If the question notes that “ring-fencing rules do not apply” or “assume trade losses can be set off against other income”, follow that instruction; otherwise, consider ring-fencing in your analysis.

5.3 Provisional Tax (Individuals and Small Businesses)

Provisional tax is not a separate tax; it is a system requiring certain taxpayers (mainly those with non-salary income) to pay tax in advance in two or three instalments.

5.3.1 Who Must Register as a Provisional Taxpayer?

Generally:

Any person (individual, trust, company) who receives income not subject to employees’ tax (PAYE) (e.g. self-employed, rental income, interest above exempt amounts) may be required to be provisional taxpayers.
Salaried employees with no significant other income are usually not provisional taxpayers.

Specific exam-style rule:

An individual whose non-remuneration income (other than exempt interest and local dividends) exceeds a threshold (e.g. R30 000 per year) is often required to be a provisional taxpayer, unless SARS indicates otherwise.

5.3.2 Payment Periods

For a taxpayer with a February year-end:

First provisional payment: by 31 August (end of first half of year).
Second provisional payment: by end of February (last day of year).
Third (voluntary) payment: within 7 months after year-end (by end of September) to avoid interest if underestimation occurred.

5.3.3 Estimating Taxable Income

Provisional tax is based on an estimate of taxable income for the year:

For the first payment (August):
- Often based on current year estimate or prior year figures.
For the second payment (February):
- Must be closer to the actual taxable income, with penalties possible for substantial underestimation.

In exam questions, you may be asked to:

Compute provisional tax payments given estimated taxable income and rates.
Discuss penalties and interest for underpayment.

5.4 Basic SARS Administration and Returns

Understanding SARS administration is crucial for both Varsity College TAXN5112 and UNISA/ CUT equivalents.

5.4.1 Registration and Tax Reference Numbers

Individuals receive an income tax reference number when they first register as taxpayers.
Employers register for PAYE, SDL, UIF.
VAT registration becomes relevant when taxable supplies exceed the R1 million compulsory registration threshold (though full VAT is typically covered in another module).

5.4.2 Filing an Income Tax Return (ITR12)

For individuals:

The ITR12 is the standard personal income tax return.
Filing methods: eFiling, MobiApp, or SARS branch (walk-in).
Due dates:
- Non-provisional taxpayers: usually around November of the following year.
- Provisional taxpayers: around January.

Exam questions might ask:

Who must submit returns?
What is the submission deadline?
What are the consequences of late or non-submission?

5.4.3 Assessments and Objections

After submitting a return, SARS issues:

An assessment (ITA34), showing:
- Taxable income
- Tax liability
- PAYE and provisional tax credits
- Final refund or amount due

If the taxpayer disagrees with the assessment:

They may lodge a notice of objection (NOO) within the prescribed period (e.g. 30 business days from assessment date).
If still dissatisfied after SARS responses, they may escalate to appeal and possibly the Tax Board or Tax Court.

These concepts appear in theory questions, e.g. “Explain the process to dispute an assessment”.

5.4.4 Penalties and Interest

SARS can levy:

Administrative non-compliance penalties:
- Late submission of returns
- Failure to register
- Fixed monthly penalties based on taxpayer’s assessed income level
Underestimation penalties for provisional tax:
- If estimates are significantly below actual taxable income, a percentage-based penalty may apply.
Interest:
- On late payment of tax
- On underpaid provisional tax

Exam focus is usually conceptual rather than calculating exact penalty amounts, unless explicitly given in question.

5.5 Integrating Topics in a Single Comprehensive Question

A hallmark of TAXN5112 / UNISA TAX2602 final papers is the integrated question that combines:

Residency
Gross income and exemptions
Deductions and CGT
Medical and retirement contributions
Fringe benefits
Assessed losses or provisional tax concepts

Example integrated scenario (outline only):

A UNISA BCompt student working part-time as a software developer in Johannesburg.
Receives salary, travel allowance, employer contributions to RA, medical aid.
Runs side business from home (web design) generating income and expenses, with assessed loss carried from prior year.
Sells primary residence and shares.
Has foreign interest from an offshore bank account.
Is a provisional taxpayer due to side business income.

You might be required to:

Determine whether he is a resident (easy marks).
Compute taxable income including:
- Employment income (salary, allowances, fringe benefits).
- Business profits/loss and applied assessed losses.
- CGT on primary residence and share disposals.
- Interest exemption.
- Retirement and medical credits.
Calculate normal tax using tax tables and apply tax credits.
Comment briefly on provisional tax obligations or late payment consequences.

This TAXN5112: Taxation 1B Exam Pack is aligned with widely searched South African university modules such as UNISA TAX2601/TAX2602, CUT TAX20AB, NWU TAXP 211 and UJ TAX2A1, and is intended as high-yield support material for Varsity College BCom Accounting students preparing for tests, semester exams, and supplementary assessments in Taxation 1B.