Page 398 - SAIT Compendium 2016 Volume2

IN 29 (2) Income Tax acT: InTeRPReTaTIon noTes IN 29 (2)
Result:
Step 1
Determine the values of symbols "B" and "C"
"B" = Taxable income = R620 000 − R120 000
= R500 000
"C" = Excess of current farming income over average farming income
(R400 000 − R304 000) = R96 000
Step 2
Determine the value of "D"
The maximum deduction on contributions to an RAF is 15% × R620 000 = R93 000, but limited to the actual contributions of R90 000. Thus—
15% × R120 000 (Pension)
15% × R400 000 (Farming income) 15% × R100 000 (Taxable interest)
Limited to actual contributions of
"D" in the example is determined as follows:
15% × R304 000 (Average taxable farming income) 15% × R100 000 (Interest)
15% × R120 000 (Pension)
R
18 000 60 000 15 000 93 000
R90 000
R
45 600 15 000 18 000 78 600
The portion of contributions affected by the formula is therefore equal to R90 000 (allowable contributions) less R78 600. Symbol "D" is, therefore, equal to R11 400. In other words, although R90 000 will indeed be allowed as a deduction on RAF contributions, for purposes of the rating formula, R11 400 will be added back, as this is regarded as the excess contributions.
Step 3
Determine the rating amount
B + D − C = R500000 + R11400 − R96000
= R415 400
Step 4
Determine the normal tax payable on the rating amount
A = Normal tax before any rebate calculated on B + D − C
= R80 100 + [(R415 400 − R346 000) × 35%] = R80 100 + R24 290
= R104 390
Note: Assume the tax rates and rebates applicable to the 2013 year of assessment apply Step 5
Calculate “Y”, amount of normal tax, in the formula
Y = [____A____]× B B +D – C
Y=[_R_1_04__3_9_0]×R500000 R415 400
= R125 649,95
390 saIT comPendIum oF Tax LegIsLaTIon VoLume 2