ETXN2624 LU1 Introduction to Key Concepts in Tax PDF

ETXN2624 UNIT 1: INTRODUCTION TO KEY CONCEPTS IN TAX +27 (0)51 401 0000 e-mail www.ufs.ac.za 1 INTRODUCTION TO KEY CONCEPTS IN TAX 2 ...

ETXN2624 UNIT 1: INTRODUCTION TO KEY CONCEPTS IN TAX +27 (0)51 401 0000 e-mail www.ufs.ac.za 1 INTRODUCTION TO KEY CONCEPTS IN TAX 2  Student Government (National, Provincial & Local) →Obtain a Qualification→Money →Provide Services→Money (Fees, Books, Stationery, Toiletry…) (Education, Roads, Health….) Bursaries/Parents Treasury Donors/Employment or Business SARS Donations/Salaries or Profits Taxation National Budget 4 National Budget 5 National Budget 6 7  LEARNING OUTCOMES Define the following terms: – Taxation; SARS; National Budget; Fiscal Year; Person; Natural Person; Year of Assessment; Assessment Return; Tax season; Direct Tax; Indirect Tax. Explain the difference between National Treasury and SARS. List at least five different types of taxes in South Africa. Discuss the three most common factors used to classify taxes and for each of the factors, describe the different tax classifications and provide an example of each one. Discuss the two main purposes of the National Budget. 8  CORE CONCEPTS National Taxation SARS Fiscal Year Budget Natural Year of Person Assessment Person Assessment Return Tax Season Direct Tax Indirect Tax 9  CORE CONCEPTS Taxation  Taxation refers to the practice of a government collecting money from its citizens to pay for public services. SARS  The South African Revenue Service (SARS) is the revenue service (tax-collecting agency) of the South African government. It was established by legislation to collect revenue and ensure compliance with tax law. 10  CORE CONCEPTS National Budget  The projected revenue and expenditure that flows through the National Revenue Fund. It does not include spending by provinces or local government from their own revenues. February each year, the Minister of Finance announces the government’s spending, tax, and borrowing plans for the next three years, which the government calls the National Budget. Fiscal Year  The accounting year of the South African government (i.e. National and Provincial Departments excluding Municipalities) which runs from 1 April to 31 March of every year. 11  CORE CONCEPTS Person A person for normal tax purposes include the following: a natural person; a company or close corporation; a trust; the estate of a deceased person; and an insolvent estate. Natural Person  A natural person is a resident for income tax purposes. A living, breathing human being regarded as an individual. 12  CORE CONCEPTS Assessment  The determination of the amount of a tax liability or a tax refund. Year of Assessment (y.o.a) Normal tax is calculated on an annual basis, and it covers what is known as the ‘year of assessment’.  Natural person: from 1 March until the last day of February of the next year.  Trust and a deceased or insolvent estate: from 1 March until the last day of February of the next year.  Company or a close corporation: the financial year end of the company or close corporation. 13  CORE CONCEPTS Return A form, declaration, document or other manner of submitting information to SARS.  A natural person’s normal tax return in South Africa is known as an ITR12.  A company or close corporation’s normal tax return in South Africa is known as an IT14. Tax Season  The tax season is the period during which taxpayers submit their tax returns to SARS (usually July to November for natural person). 14  CORE CONCEPTS Direct Tax  The person on whom the tax is levied and the person who pays the tax, is the same person. Normal tax (including capital gains tax) is an example of a direct tax. Indirect Tax  The seller bears the impact of the tax, while the final consumer ultimately pays the tax. VAT is an example of an indirect tax as it is imposed on the consumption of goods and services in South Africa 15  DIFFERENT TYPES OF TAXES ADMINISTERED BY SARS Examples of the different types of taxes in South Africa are as follows (please note that this list is not exhaustive):  Normal tax (including capital gains tax)  Donations tax  Dividends tax  Withholding taxes for non-residents  Value-Added Tax (VAT)  Excise and customs duties  Transfer Duty  Securities Transfer Tax  Estate Duty  Fuel Levy, etc.  DIFFERENT TYPES OF TAXES ADMINISTERED BY SARS Indirect tax VAT Direct tax An indirect tax (“tax on (“tax on persons”) based on transactions”) consumption in the economy(taxed Normal Income Tax at transaction (scale): date) Tax on income Dividends earned, for example, tax Donations normal tax on a Tax Transfer duty Withholding salary earned during Based on is a tax levied tax on the y.o.a donation of on the value of shareholders Including money and any property receiving Capital Gains Tax assets. acquired by any dividends. On assets: person by way disposed, donated, of a transaction death or in any other way. http://www.sars.gov.za 17  CLASSIFICATION OF TAXES Taxes can be classified in a number of ways. The following three factors are the most common classification methods: Based on WHAT is the various taxes are levied on: Income Tax on income earned, for example, normal tax on a salary. Taxes on the sale or use of goods or services, for example VAT Consumption and customs duty on goods imported into South Africa. Taxes on the transfer of ownership of assets, for example, Wealth donations tax and estate duty. Taxes that are levied on specific business transactions, for Other example transfer duty on the transfer of fixed property in South Africa. In ETXN2624 our focus will be on the tax levied on ‘income’.  CLASSIFICATION OF TAXES Three main categories of a Tax System: Tax is levied at a fixed rate on the amount of income earned, for example, companies in Proportional South Africa are subject to normal tax at the fixed rate of 27%, irrespective of the level of taxable income of the company. The rate that is used to calculate the amount of tax is determined by the person’s taxable Progressive income. The higher a person’s taxable income, the more tax that person will pay, for example, normal tax levied on natural persons in South Africa. The tax rate decreases with the increase of a Regressive person’s taxable income. No such form of tax exists currently in South Africa. 19  TAX RATE 2 Taxable income (R) Rates of tax (R) 1 – 237 100 18% of taxable income 237 101 – 370 500 42 678 + 26% of taxable income above 237 100 370 501 – 512 800 77 362 + 31% of taxable income above 370 500 512 801 – 673 000 121 475 + 36% of taxable income above 512 800 673 001 – 857 900 179 147 + 39% of taxable income above 673 000 857 901 – 1 817 000 251 258 + 41% of taxable income above 857 900 1 817 001 and above 644 489 + 45% of taxable income above 1 817 000 20  CLASSIFICATION OF TAXES What the Tax is Method used to Who must pay tax Levied on calculate tax Income Proportional Direct Consumption Progressive Indirect Wealth Regressive Other Income is progressive and also a direct tax Consumption is progressive and also an indirect tax 21  Tax Returns Tax Return Applies to:  Natural persons who earn remuneration (if less than 65 years gross income should be more than R95 750 if more than 65 years but less than 75 years gross income should be more than R148 217 and if more than 75 years gross income should be more than R165 689);  Naturals persons with their own business;  Companies;  Trusts  Natural persons with capital gains or losses > R40 000;  Non-residents who receive income from a South African source;  Persons given notice by SARS;  If you are someone’s / entity’s representative taxpayer. 22  Registering as a taxpayer  To register for a tax number, an individual must go into SARS branch with FICA documents such as ID document, Proof of address and three months bank statement.  Alternatively, you can register online, please refer to the following link: https://secure.sarsefiling.co.za/app/register  If you have a tax number – you have to submit annual tax returns (between July and November) For the 2023 year of assessment, the following individuals did not have to submit tax returns if income consisted solely of any one or more of the following:  remuneration not exceeding R500 000 from a single source (i.e. one employer for the full tax year), and employees’ tax was withheld in respect of that remuneration;  no other form of income (e.g., car allowance, business income and rental income, taxable interest or income from another job);  Interest (excluding interest from a tax-free investment) from South African source does not exceed R23 800 (for natural persons below the age of 65 years) and R34 500 (for natural persons older than the age of 65 years).  Amounts received or accrued from a tax-free investment. 23  Registering as a taxpayer The following individuals were required to submit a tax return for the 2023 year of assessment if they were:  residents that carried on any trade (that is other than solely as an employee);  non-residents that carried on any trade (other than solely as an employee) in the Republic; and  any natural persons who is:  residents and had capital gains or losses exceeding R40 000;  non-residents that derived any capital gain or loss from the disposal of any asset to which the Eighth Schedule of the Income Tax Act applies;  residents and held foreign currency or owned assets outside of South Africa which had a value of more than R250 000 at any stage during the year;  residents to whom any income or capital gains from funds in foreign currency or assets outside the Republic could be attributed in terms of the Income Tax Act;  residents in respect of gross income that exceeds R95 750 (if under 65 years), R148 217 (if 65 years but not older than 75 years) or R165 689 (if older than 75 years);  Non-resident taxpayers whose gross income included interest from a source in South Africa, which was not exempt under section 10(1)(h) of the Income Tax Act.; or  issued with a tax return or requested by SARS to file a return (irrespective of the amount or nature of the income). 24  Annual submission of tax returns  Annual submission of the tax returns can be done manually at SARS branch or online via E- filing  E-filing is already populated – your responsibility is to confirm if its correct.  Supporting documentation: IRP5 Medical certificates Pension/Provident and Retirement annuity certificates Banking details Travel logbook Tax certificates relating to investment income Information relating to capital gains Financial statements (if applicable) Any other documentation relating to income/deductions included on your IRP5 25  HOMEWORK HOMWORK ACTIVITY MATERIAL COMMENT/NOTE Preparation: Learning Unit 2 Module Workbook AND Prepare after mastering LU 1 and after A Student's Approach to working through the Homework Taxation in South Africa Question 1 2024 (SATSA) Question 1 Blackboard Attempt after working through the slides Now that you know you have been introduced to Key Concepts in Taxation, the next unit will introduce you to Tax Framework, Tax Tables and Rebates. 26 ANY QUESTIONS? Consult with myself, my tax colleagues or your tutor; or Note your questions down for the next F2F and/or BB Collaboration Session on Thursday. 27 THANK YOU 28