Page 332 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
Annexure B – Additional examples in respect of natural persons
Example 1 – Persons married in community of property receiving foreign dividends
Facts:
A South African couple is married in community of property. Both are residents and 40 years of age. The couple owns 5% of the equity share capital of a company in Country F. The wife is the registered owner of the shares. On 20 February 2015 the company declared a dividend of $120 000 (amount before withholding tax) of which the South African couple’s share amounted to $6 000. The withholding tax payable in respect of the couple’s share of the dividend amounted to $600.
The couple elected to translate the income derived from foreign dividends to rand by using the average exchange rate method of translation as provided for under section 25D(3). The average exchange rate for the 2015 year of assessment ending on 28 February 2015 was $1 : R10. The couple incurred interest of R10 000 in respect of the dividend received. During the 2015 year of assessment the wife also received a salary of R100 000 from which an amount of R5 272 was withheld in respect of PAYE. In addition the couple earned interest income amounting to R62 000 on a joint investment in a South African bank.
Result:
Appropriation of foreign dividends and withholding taxes for purposes of sections 7(2A) and 7(2B)
Total (100%) Wife (50%) Husband (50%)
Foreign dividends included in gross income [($6 000 / $1) × R10]
Withholding tax [($600 / $1) × R10]
60 000 6 000
30 000 3 000
30 000 3 000
R
30 000 (18 750) 11 250
1. Tax calculation for the wife
1.1 Taxable income derived from foreign dividends (foreign sources)
Foreign dividends included in gross income
Less: Section 10B(3) exemption [R30 000 × 25 / 40] Taxable income derived from foreign dividends
Note:
RRR
The wife’s portion of the interest expense incurred in the production of foreign dividends is not deductible as a result of the prohibition under section 23(q).
1.2 Taxable income derived from South African sources
Remuneration income
Local interest income [R62 000 / 2]
Less:
Section 10(1)(i) interest exemption
Taxable income derived from South African sources
1.3 Total taxable income derived from all sources
Taxable income derived from foreign sources Taxable income derived from South African sources Total
1.4 Tax calculation for the wife on R118 450
(a) Calculation of normal tax payable before rebates
Normal tax payable: (Rates of tax – 2015 year of assessment)
R118 450 × 18%
(a) Calculation of the section 6quat rebate
Amount of foreign taxes that quali es for the rebate
Limited to:
Calculation of the limitation:
Taxable income derived from all foreign sources _______________________________________ × Normal tax payable
Total taxable income derived from all sources
_R__1_1_2__5_0_×R21321 R118 450
= R2 025
RR 100 000
31 000 (23 800)
7 200
107 200
R
11 250
107 200
118 450
R 21 321
R 3 000 2 025
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saIT comPendIum oF Tax LegIsLaTIon VoLume 2