Taxation

ACCESS FOR SUCCESS IN

ACCOUNTING

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

TUTORIAL QUESTIONS

Copyright © 2023
REGENT BUSINESS SCHOOL
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ACCESS FOR SUCCESS IN ACCOUNTING

Taxation

Tutorial questions
The tutorial questions are from the prescribed books:
Solutions that are not contained in the above books will be provided on Moodle.

Graded Questions on Questions on SA Tax 2023 (Parsons)

Focus area Income Tax in South Africa ([S] indicated below means the solution
2023 (Mitchell) is found in the book)
Residence and Source 3.1, 3.2 1.2, 1.3, 1.4

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Taxation

GRADED QUESTIONS - SUGGESTED SOLUTION TO EXERCISE 3.1

1 Page only
Robyn Redbreast
The term ‘ordinarily resident’ is not defined in the Income Tax Act. Its meaning has, however, been examined in numerous cases.
The factors a court considers when deciding whether a taxpayer is ordinarily resident include, amongst other things, the following:
The degree of continuity.
The mode of life of the taxpayer.
His ‘physical presence’ – although this is not essential.
His intention of being in a country. In this regard the courts have held that his ‘domicile’ (in the legal sense) is irrelevant, but
his intention of being in a country is.
The facts surrounding the matter.
Two cases from the Appellate Division of the Supreme Court (now the Supreme Court of Appeal) dealt with the meaning of the
term ‘ordinarily resident’. These cases were

• Cohen v CIR (1946 AD 174, 13 SATC 362), and

• CIR v Kuttel (1992 (3) SA 242 (A), 54 SATC 298).
In Cohen v CIR it was held that a person is ‘ordinarily resident’ in the country to which he would naturally, and as a matter of
course, return from his wanderings. As contrasted with other lands it might be called his usual or principal residence and would
be described more aptly than other countries as his real home.
In CIR v Kuttel it was held that a person is ‘ordinarily resident’ where he has his usual or principal residence, that is, what may be
described as his real home.
In the light of the above two judgments, it follows that Robyn Redbreast is not ordinarily resident in South Africa since her real
home is not in South Africa.

**2023**

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Taxation

GRADED QUESTIONS - SUGGESTED SOLUTION TO EXERCISE 3.2

Page 1 of 2 pages
John-Bee Sloop
A natural person is a resident of the Republic if he was physically present in South Africa for a period or periods exceeding
91 days in aggregate during the 2023 year of assessment, and
91 days in aggregate during each of the five years of assessment preceding the 2023 year of assessment, and
915 days in aggregate during the five preceding years of assessment.
First requirement
The person must be physically present in South Africa for more than 91 days in the 2023 year of assessment. These days in
South Africa need not be continuous.
Second requirement
The person must be physically present in South Africa for more than 91 days in each of the five previous years of assessment.
These days in South Africa need not be continuous.
Third requirement
The person must be physically present in South Africa for more than 915 full days in total during the five previous years of
assessment. The 915 full days of physical presence need not be continuous. It should be noted that the 915-day period applies
to the preceding five years of assessment and not to the 2023 year of assessment. It will, therefore, be necessary to keep detailed
records of physical presence in South Africa.
Fourth requirement
The person must not be a person who was continuously absent from South Africa for a period of at least 330 days. A person
who is a resident under the physical presence test is deemed not to be a resident if he is physically outside South Africa for a
continuous period of at least 330 full days immediately after the day that he ceased to be physically present in South Africa.
He will be deemed not to have been a resident from the day that he ceased to be physically present in South Africa.
The period of 330 days must be continuous. Because this concession applies only to a person who has met the physical presence
test, he must have been physically present in South Africa for more than 91 days in the 2023 year of assessment. It follows
that the period of 330 days will cover two years of assessment,
the first, being the year of assessment in which the person was last considered to be a resident under the physical presence test,
and
the second, being the following year of assessment.
The concession applies from the commencement of the 330-day period, so that the qualifying person will be a resident for part
of the first year of assessment and a non-resident for the remainder of the first year.
It is only after the 330-day period has been fulfilled that the person will be deemed not to be a resident.
Part days
A day will include a part of a day for the purposes of the determination of the days of physical presence in South Africa. This
means that the days of arrival in and departure from South Africa will count as days of being physically present in South
Africa.
Summary
The physical presence test deems a person to be a resident if he was present in South Africa for a total period of more than
91 days in the 2023, and
91 days in each of the preceding five years of assessment, and
a total period of more than 915 days during the preceding five years of assessment.
John-Bee Sloop
In the 2023 year of assessment John-Bee Sloop will be in South Africa for 240 days if he works on the contract in South Africa.
In the 2022 year of assessment he was in South Africa for 215 days (1 March 2021 to 31 October 2021).
In the 2021 year of assessment he was in South Africa for 365 days (1 March 2020 to 28 February 2021).
In the 2020 year of assessment he was in South Africa for 366 days (1 March 2019 to 29 February 2020).
In the 2019 year of assessment he was in South Africa for 365 days.
In the 2018 year of assessment he was in South Africa for 365 days.
John-Bee Sloop was physically present in South Africa for more than 91 days in each of the five previous years of assessment
and for more than 915 days during the five previous years of assessment. Therefore if he spends more than 91 days in South
Africa in the 2023 year of assessment he will be a resident of the Republic as defined.

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Taxation

SUGGESTED SOLUTION TO EXERCISE 3.2

Page 2 of 2 pages
Maha Mumbai
Since Maha Mumbai was not physically present in South Africa for more than 91 days in the 2023 (the current) year of assessment
he is not a resident of the Republic.
Richie Sightscreen
Richie Sightscreen is not ordinarily resident in South Africa.
Richie Sightscreen was physically present in South Africa for 100 days in the 2023 year of assessment, being more than the
required 91 days. He was also physically present in South Africa for more than 91 days in each of the five previous years of
assessment.
In the 2022 year of assessment he was physically present in South Africa for 101 days,
in the 2021 year of assessment he was physically present in South Africa for 270 days,
in the 2020 year of assessment he was physically present in South Africa for 122 days,
in the 2019 year of assessment he was physically present in South Africa for 183 days, and
in the 2018 year of assessment he was physically present in South Africa for 182 days.
In total in the five previous years of assessment Richie Sightscreen was present for 858 days (101 days plus 270 days plus 122 days
plus 183 days plus 182 days) being less than the required 915 days. He is therefore not a resident of the Republic.
Richie Sightscreen will not include in his South African gross income his world-wide receipts and accruals. But he will include
in his South African gross income only his receipts and accruals that come from a South African source.
Only the R290 000 that accrues to Richie Sightscreen from Spitting Snacks (Pty) Limited will be included in his South African
gross income.
Henrietta Ireland
Henrietta Ireland is physically present in South Africa for more than 91 days in the 2023 year of assessment.
Henrietta Ireland was physically present in South Africa for more than 91 days in the 2022 year of assessment (she was
physically present in South Africa for 182 days). In the 2022, 2021, 2020 and 2019 years of assessment she was physically
present in South Africa for 182 days (for more than 91 days) each year.
But in total in the five previous years of assessment (the 2022, 2021, 2020, 2019, and 2018 years of assessment) Henrietta
Ireland was not physically present in South Africa for more than 915 days (she was physically present in South Africa for a
total of 910 days (182 days a year each year for five years)) during these five years of assessment.
For the 2023 year of assessment, Henrietta Ireland is therefore not a resident of the Republic.

**2023**

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Taxation

QSAT - CHAPTER 1 : GROSS INCOME

SOLUTION 1.2

PART A - Gris-Gris
A company is a 'resident' as defined in section 1 if it is incorporated, established or formed in South Africa or has its (1)
place of effective management in South Africa.

Place of 'effective management' is not defined in the Act.

As Gris-Gris was formed in Mauritius it will only be a 'resident' if its place of effective management is in South Africa. (1)

In terms of Interpretation Note No. 6 (Issue 2), SARS has indicated that it views the place of effective management as (2)
the place where the 'the company's key management and commercial decisions that are necessary for the conduct of its
business as a whole are in substance made.' In the case of Gris-Gris this could be Mauritius as this is where the
directors meet every six months to decide on the company's strategy.
SARS would likely argue that the place of effective management would be Cape Town. Gris-Gris would therefore be (2)
treated as 'resident' as defined. This could be challenged by the taxpayer in court with reference to the Interpretation
Note No.6 (Issue 2).
(6)
PART B - Iona Ticket
Year of assessment ending 28/2/2022

She is a SA resident up to 9 July 2021 as she is 'ordinarily resident' until then. She is not a resident from 10 July 2021. (1)

Iona therefore ceases to be resident on 10 July 2021. In terms of s9H(2)(b) Iona's year of assessment as a resident (1)
ends on the day immediately before she ceases to be a resident, which is 9 July 2021. In terms of s9H(2)(c) her next
succeeding year of assessment is deemed to have commenced on 10 July 2021.

As she is no longer ordinarily resident, we must consider the physical presence test. As she was not physically present (1)
at all during the period from 10 July 2021 to 28 February 2022, she was not physically present for a period exceeding
91 days in the current year of assessment. She does not meet the physical presence test.

Year of assessment ending 28/2/2023

She is not 'ordinarily resident' in SA. On an application of the physical presence test, she is present in SA for more than (2)
91 days in the 2023 year of assessment. However, as she was not physically present at all in the previous year of
assessment (10 July 2021 to 28 February 2022, since a new year of assessment commences after she ceases to be
ordinarily resident), she was not present in SA for more than 91 days in each of the preceding 5 years of assessment.

Therefore, she does not meet the physical presence test and is not a resident. (1)
(6)
Assuming Iona had emigrated on 1 March 2022
If Iona had emigrated on 1 March, her year of assessment would have ended on 28 February 2022 (both in terms of (2)
s9H(2)(b) and in terms of the normal year of assessment rules).
On an application of the physical presence test, she is present in SA for more than 91 days in the current year of (2)
assessment and has been present in SA for more than 91 days in each of the preceding years and more than 915 days
in aggregate during the preceding 5 years of assessment, therefore she is a resident as defined.
Since she passes the physical presence test for the 2023 year of assessment she is deemed to be a resident from the (2)
first day of that year of assessment i.e. from 1 March 2022 (to 28 February 2023).
(6)

Total (18)

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Taxation

CHAPTER 1 : GROSS INCOME

SOLUTION 1.3

Part A - James Schoeman

The first test of whether James is resident in South Africa is whether he is ordinarily resident in SA. This is true when SA is the (2)
place to which he would 'return from (his) wanderings' (Cohen ) [alternatively, SA is where he is 'habitually and normally
resident' (Kuttel )]
James is ordinarily resident in SA - his family lives here, and he has no fixed place of residence anywhere else. (1)

When a person is ordinarily resident at any point in the year of assessment, the physical presence test is not taken into account. (1)

James could however reduce his taxable income if he were to qualify for a s10(1)(o) exemption. (1)
In order to do so he would have to also structure his work travel so that he would be out of the country for more than 183 days (1)
in total during any 12-month period.
The 60-continuous days requirement and the R1 250 000 limit (effective 1 March 2020) does not apply to James since he is an (1)
officer or crew member of a ship engaged in the international transportation for reward of passengers.
The s10(1)(o) exemption would apply to the remuneration he earned while outside SA in the qualifying 12-month period. (1)
James's plan will not exclude him from the definition of resident, but if structured correctly may entitle him to a s10(1)(o) (1)
exemption in respect of some portion of his salary.
(9)

Part B - Justin Basson

The issue to resolve is whether Justin must determine his gross income for the 2023 year of assessment as a resident or a non- (1)
resident.
SA residents are taxed on their worldwide income, whereas non-residents are taxed on their source income. (1)
A person is ordinarily resident in the place to which they would return from their wanderings (Cohen / Kuttel). (2)
'Resident' is defined in section 1 of the Income Tax Act. A person may be either ordinarily resident or deemed resident by virtue (1)
of the physical presence test.
Based on the Justin's stated intention to return to Namibia, the reason for his stay in South Africa (to study) and the fact that his (1)
family remained in Namibia, he would not be considered ordinarily resident in South Africa.
Justin may however be deemed a resident by virtue of the physical presence test.
Since Justin has been in South Africa for:
more than 91 days in the current year of assessment;
more than 91 in each of the preceding five years of assessment; and
more than 915 days in aggregate in the preceding five years of assessment
he will be considered resident in South Africa for the 2023 year of assessment. (2)
By virtue of the physical presence test a person is deemed to be resident in South Africa for the full year of assessment. (1)

However, a person ceases to be resident in terms of this test if they leave the country and remain absent for at least 330 days. (1)
Justin therefore ceases to be resident on 13 January 2023. In terms of s9H(2)(b) Justin's year of assessment as a resident ends (1)
on the day immediately before he ceases to be a resident, which is 12 January 2023. In terms of s9H(2)(c) his next succeeding
year of assessment is deemed to have commenced on 13 January 2023.

Justin must therefore include all amounts received up to that date in his South African gross income. The only amount in (1)
question is the R40 000 he received from Great Finances.
After that date he must only include in his gross income amounts from a South African source. (1)
Since neither the amounts he receives for working on the MBS Luxuria or while working in Namibia are from a South African (1)
source they will not be included in his South African gross income.

Part B (2)
A company registered in another country may be subject to income tax in South Africa if either:
it has its place of effective management in South Africa (in which case it will be tax resident in South Africa); or (1)
if it earns gross income from a South African source. (1)
(16)

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Taxation

SOLUTION 1.3 continued

Part C - Brian Wilson

Brian Wilson must include in his gross income, amounts that meet the requirements of the gross income definition. The relevant (1)
issue is whether Brian is resident in South Africa for tax purposes or not.
'Resident' is defined in section 1 of the Income Tax Act. A person may be either ordinarily resident or deemed resident by virtue (1)
of the physical presence test.
A person is ordinarily resident in the place to which they would return from their wanderings (Cohen / Kuttel). (2)
Based on the information provided, Brian is ordinarily resident in the USA. (1)
Although he spent nine months in SA in the current year of assessment, as he normally spends only one month a year in South (1)
Africa he cannot be deemed resident by virtue of the physical presence test, since this requires that he be present for more than
91 days in each of the previous 5 years.
As a result, Brian need only include amounts from an SA source in his gross income. (1)
There are no provisions in s9 dealing with the source of rental income, therefore case law must be applied. According to Lever (2)
Bros & Unileve r, the cause of the income must be identified, and the source will be the location of that cause.
In the case of the rental of fixed property, the cause is the property, and the source is therefore the location of the property. (1)
Brian must therefore include R500 000 rental income in his gross income. (1)
Dividends received from a South African company are from a South African source in terms of s9(2)(a). The source of the (2)
company's income from which the dividend is paid is not a determining factor. Brian must include the full R300 000 dividend in
gross income.
Note: the dividend is not from a REIT and will therefore be exempt i.t.o s10(1)(k). The discussion was however limited to
gross income consequences.
In terms of s9(2)(b), interest is from a South African source if the interest is incurred by a resident or the funds are utilised in (2)
South Africa. In this instance the South African banks incur the interest and the interest is from a source within the Republic.
Brian must therefore include the R25 000 interest income in his gross income.
Note: as Brian has never been in the country for more than 183 days the interest will be fully exempt i.t.o s10(1)(h). As it was
paid by a bank it will be exempt from the withholdings tax on interest i.t.o s50D. The discussion was however limited to
gross income consequences.
(15)
Total (40)

CHAPTER 1 : GROSS INCOME

SOLUTION 1.4

Lucky Matola
In order to establish the source of the income it is necessary to first apply s9. There is, however, no source rule in s9 (2)
for services rendered by an independent contractor, the services not being technical service fees, managerial service
fees and consultancy service fees.

The CIR v Lever Brothers & Unilever Ltd (1946 AD) case established the common law position that the word 'source' (2)
means the originating cause which requires an inquiry into two matters:

1. What is the originating cause of the income; and (1)

2. Where is the originating cause located. (1)

When dealing with services rendered by an independent contractor, the Tax Court has consistently held that the (2)
originating source of income from services rendered, is the services, irrespective of the place where the contract or the
payment is made. The source of the services are therefore the place where the services are rendered.

The place where he met the boxing promoter or the signing of the contract in France is irrelevant. Lucky renders the (1)
services as a boxer in the United States of America and therefore the source of the income is not in the Republic.

Note: However, as Lucky is a resident of the Republic he will have to include his world-wide receipts and accruals in
his 'gross income'.
(9)

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