Page 317 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
The use of taxable income is considered to be appropriate because South Africa levies income tax on taxable income, not on ‘income’ as de ned in section 1(1). Accordingly, a ratio which is based on taxable income of the relevant service income concerned to total taxable income achieves the objective of restricting the rebate to that part of the normal tax which is attributable to the South African-source service income. As mentioned in 4.9.8, South Africa does not levy normal tax on income and accordingly basing the apportionment on ‘income’ as de ned or gross income is not appropriate.
In the case of Commissioner for Inland Revenue v Estate late Bulman* the Appellate Division, in considering a similar calculation required to be made for purposes of the proviso to the First Schedule to the Estate Duty Act, 1955, held that the pro rata method was to be used. It is considered that the reasoning adopted by the court in that case supports the pro rata approach under section 6quin. As discussed in 7.3.1 the calculation may be performed per service contract per country within a year of assessment. This means that a separate calculation of the normal tax attributable to the taxable income derived from each service contract per country covered by that contract is required in order to calculate the section 6quin rebate.
The amount of normal tax which is attributable to the South African-source service income per contract per country is equal to:
Taxable income per service contract falling under s6quin per country ________________________________________________________ × Normal tax payable
Taxable income derived from all sources
Section 6quin(1) only applies to South African-source amounts of service income on which a foreign government has levied a tax payable on income (see 4.3.1 for detail). Accordingly, the amounts of taxable income included in Taxable income per service contract falling under s6quin per country in the formula above are only those amounts which were received or accrued and which were subject to foreign tax. In the event that a particular amount was not subject to foreign tax it will not be included. The taxable income of both the numerator and the denominator are determined according to the Act.
In calculating taxable income per service contract, the same principles as discussed under 4.5, 4.5.1 and 4.5.2, which are used in calculating taxable income for purposes of determining the section 6quat(1B)(a) limitation, are relevant. For example, determining whether an expense relates, in this case, to the South African-source service income and whether a general expense should be apportioned to the South African-source service income.
Normal tax is the South African tax calculated on total taxable income before the deduction of any rebates contemplated in sections 6, 6A, 6B, 6quat(1) and 6quin.
* 1987 (1) SA 659(A), 49 SATC 1.
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