Taxation

ACCESS FOR SUCCESS IN

CHAPTER ONE –
THE INCOME TAX MODEL
Unit 3 – Gross Income: Residence and Source

CONCEPT QUESTIONS

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REGENT BUSINESS SCHOOL
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Concept Question 1
Is the following statement true or false:
It is irrelevant whether a taxpayer is considered to be a resident or non-resident,
as only income generated in South Africa is subject to income tax in terms of
South Africa’s tax legislation.

Suggested Solution 1 False

The determination of the residence of a taxpayer is important, as the definition of “gross income”
differs depending on whether the taxpayer is considered to be a resident or a non-resident. This then
determines the basis on which a person is taxed –

• A “resident” is taxed on the residence basis of taxation, which means they are taxed on
worldwide receipts or accruals, irrespective of the source.
• Non–residents, are taxed on a source basis of taxation, which means they are only taxed on
their receipts or accruals that are from a source within the Republic.

Concept Question 2
Which of the following statement/s is/are correct?
a. A natural person may be considered to be ordinarily resident in more than
one country at the same time
b. If a natural person is ordinarily resident in the Republic during the 2023
year of assessment, the physical presence test is not applicable to him
during that year of assessment
c. A natural person is considered to be a resident of the Republic either by
being ‘ordinarily resident’ or by having a ‘permanent establishment’ in the
Republic
d. A natural person is considered to a resident of the Republic either by
being ‘ordinarily resident’ or by meeting the physical presence test
e. a, b and d are all correct
f. b and d are correct

Suggested Solution 2 Correct option: f

• A person cannot be ‘ordinarily resident’ in more than one country at the same time (refer Cohen
v CIR).
• A natural person can be considered to a resident of the Republic either by being ‘ordinarily
resident’ in the Republic or by meeting the physical presence test.
• The physical presence test can only be applied to a person who is not ordinarily resident in the
Republic at any time during the relevant year of assessment.

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Concept Question 3
Otrina Nkosi was born in South Africa and resided and worked in Johannesburg.
For various reasons, Otrina felt that Australia could offer her better prospects
and decided to emigrate permanently. She began all the necessary applications
and on 1 February 2023, Otrina formally exited the Republic and immigrated to
Australia.
Is the statement below True or False:
Otrina will be taxed in South Africa on her worldwide receipts and accruals from
1 March 2022 up to 28 February 2023.

Suggested Solution 3 False

Otrina ceased to be a resident on 1 February 2023 (the date of emigration) and will therefore be taxed
as a resident (on her worldwide receipts and accruals) until 31 January 2023 and as a non-resident
(only on receipts and accruals from a South African source) from 1 February 2023 to 28 February 2023.

Concept Question 4
Tiffany Bond is ordinarily resident in Canada. Her employer requires her to
travel to South Africa regularly to undertake work with certain clients. Days
spent in South Africa for recent years of assessment are as follows:
2018: 145 days
2019: 196 days
2020: 221 days
2021: 117 days
2022: 246 days
2023: 98 days
Select the correct statement from the options provided below:
a. The physical presence test does not need to be performed for Tiffany
because she is ordinarily resident in Canada
b. Tiffany will be taxed in South Africa on a source basis for the 2023 year
of assessment
c. Tiffany meets the requirements of the physical presence test for the 2023
year of assessment and is accordingly deemed to be tax resident in
Canada
d. Tiffany meets the requirements of the physical presence test for the 2023
year of assessment and is accordingly deemed to be tax resident in South
Africa
e. Tiffany does not meet the requirements of the physical presence test for
the 2023 year of assessment

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Suggested Solution 4 Correct option: d

A person will meet the PPT for the current YOA if she was physically present in SA for:

• >91 days in aggregate during the current YOA; and

The test can be applied to Tiffany as follows:

➢ During the current year of assessment (2023), she was physically present in SA for >91 days
ie 98 days and
➢ During each of the preceding five years (2018 -2022), she was physically present in SA for
>91 days each and
➢ During the preceding five years (2018 -2022), she was physically present in South Africa for
>915 days in aggregate (total of 925 days in SA from 2018 to 2022).

Therefore, Tiffany meets the physical presence test for the 2023 year of assessment and is deemed to
be a “resident” in SA from 1 March 2022.

Concept Question 5
ABC (Pty) Ltd was incorporated in South Africa in terms of the Companies Act
71 of 2008. The company’s place of effective management is Dubai. Ignore
DTAs.
Which of the following statements is correct?
a. The company is ordinarily resident in Dubai
b. The company is considered tax resident in South Africa
c. The company is taxed in South Africa on a Source Basis

Suggested Solution 5 Correct Option: b

A person other than a natural person (for example a company, close corporation or trust) will be
regarded as a resident in the Republic if it is:

• incorporated in the Republic OR;

Since ABC (Pty) Ltd was incorporated in the Republic, it is considered to be a “resident” as defined in
section 1 of the Income Tax Act. The fact that the place of effective management is outside the Republic
is irrelevant, as only one of the above requirements need to be met.

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Concept Question 6
Harold is considered to be a tax resident in the United Kingdom. The following
amounts were received by or accrued to him for the 2023 year of assessment:
Dividends from South African resident companies – R57 000
Dividends from foreign companies (non-SA residents) – R162 500 (Rand
equivalent)
Select the total amount that should be included in Harold’s gross income
for the 2023 year of assessment:
a. R0
b. R57 000
c. R162 500
d. R219 500

Suggested Solution 6 Correct Option: b

Harold is a non-resident, therefore only income from a source within the Republic should be included
in his gross income. Section 9 of the Income Tax Act contains the source rules for dividend income.

• Dividends of R57 000 from SA resident companies – in terms of s9(2)(a), this is considered to
be from a source within the Republic.
• Dividends of R162 500 – in terms of s9(4)(a), this is considered to be from a source outside
the Republic.

Therefore, only the R57 000 should be included in Harold’s gross income for the 2023 year of
assessment.

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Concept Question 7
Sandra Lewis is a resident of the USA. She has never been to South Africa.
She owns a number of rent-producing properties around the world. Details of
the properties and the rentals accrued for the 2023 year of assessment are as
follows:
Property 1 – situated in USA – Rand equivalent of rentals accrued is R135000
Property 2 – situated in London – Rand equivalent of rentals accrued is
R263000
Property 3 – situated in South Africa – R224000 rentals accrued
Property 4 – situated in Spain – Rand equivalent of rentals is R185000

Select the total amount that should be included in Sandra’s gross income
for the 2023 year of assessment:
a. R135 000
b. R320 000
c. R224 000
d. R185 000
e. R544 000

Suggested Solution 7 Correct Option: c

Sandra Lewis is a non-resident, therefore only income from a source within the Republic must be
included in her gross income. Since rental income does not have a source rule contained in the
legislation, reference must be made to case law. In CIR v Lever Brothers & Unilever Ltd, the court
discussed the concept of the originating cause, which is the foundation for establishing the source of a
receipt. This involves that two questions be considered:

• What is the originating cause of the income?

The general guideline for rental income is that the source of the income is normally where the asset is
situated. With regard to Sandra’s properties, in terms of this guideline, only the rental from Property 3
(situated in South Africa) will be regarded to be from a source within the Republic. Accordingly, only
R224 000 will be included in Sandra’s gross income for the 2023 year of assessment, for SA tax
purposes.

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