Page 375 - SAIT Compendium 2016 Volume2

IN 24 (3) Income Tax acT: InTeRPReTaTIon noTes IN 24 (3)
Step 4 – Apply basic exemption to receipts and accruals from trading activities not exempt
The allocation is on a pro rata basis in relation to the total receipts and accruals from trading activities subject to income tax using the following formula:
Receipts and accruals from a trading activity Basic exemption ______________________________________ × ____________
Total receipts and accruals not exempt from income tax 1
Application of formula to bookshop income
_22_7__4_0_0 × _20_0__0_0_0 = R126 333 360 000 1
Application of formula to royalty income
_13_2__6_0_0 × _20_0__0_0_0 = R73 667 360 000 1
Step 5 – Determine receipts and accruals subject to tax (after deduction of basic exemption)
Receipts and accruals from trade
Less: Basic exemption (pro rata) (step 4) Total receipts and accruals from trading activities subject to tax
Bookshop Royalty Total RRR
227 400 (126 333)
101 067
132 600 (73 667)
58 933
360 000 (200 000)
160 000
Note: This step is necessary as the basic exemption applies to receipts and accruals not qualifying for exemption, before calculating allowable deductions. A portion of the expenditure incurred must therefore be allocated to that portion of the receipts and accruals which relate to the basic exemption as it does not qualify under section 23(f), since it will be in the production of exempt income.
Step 6 – Allocate direct expenditure incurred in respect of taxable trading activities to ‘exempt’ and ‘taxable’ total receipts and accruals
Expenditure incurred in the production of taxable total receipts and accruals from trading activities must be apportioned between the ‘exempt’ and ‘taxable’ portions using the following formula:
Total receipts and accruals subject to tax Direct expenditure __________________________________ ×_____________
Total receipts and accruals from a trading activity 1
Application of formula to bookshop income
Calculate (direct) expenditure attributable to taxable portion of bookshop income:
Total receipts and accruals from bookshop subject to tax Direct expenditure _______________________________________ × _____________
Total receipts and accruals from bookshop 1
_10_1__0_6_7 × _48__0_0_0 = R21 333 227 400 1
Direct expenditure attributable to ‘taxable’ portion of bookshop income = R21 333
Step 7 – Determine expenditure attributable to ‘exempt’ portion of bookshop income
Direct expenditure incurred in the production of bookshop income Less: Expenditure attributable to ‘taxable’ portion of bookshop income Expenditure attributable to ‘exempt’ portion of bookshop income
R
48 000 (21 333) 26 667
Step 8 – Calculate taxable portion of receipts and accruals from the bookshop before allowable general
expenditure
Total receipts and accruals (step 2)
Less: Basic exemption (step 4)
Total receipts and accruals subject to tax (step 5)
Less: Allowable expenditure (step 6)
Taxable receipts and accruals before deduction of general expenditure
Step 9 – Calculate general (indirect) expenditure
227 400 (126 333) 101 067 (21 333) 79 734
Expenditure incurred which does not speci cally relate to a particular source of income but which can be attributed to various sources of receipts and accruals, must be apportioned on a pro-rata basis using the following formula:
Speci c source of receipts and accruals General expenditure ____________________________ × ______________
Total receipts and accruals 1
saIT comPendIum oF Tax LegIsLaTIon VoLume 2 367