Question

Billy Khumalo is a 66-year-old South African resident who received the following income for the period 1 March 2022 to 28 February 2023: - A monthly annuity of R22 500 from Golden investment insurers. The capital portion that is calculated in terms of section 10 A amounts to R. 100 per monthly annuity. - Dividends of R11 000 for shares held in an American company. - Dividends of R28 000 for shares held in a South African company. - Interest income of R63 000 eamed on a fixed deposit acoount held at a South African bank. The fixed deposit account does not qualify as a tax-free investment. - R9 000 which Billy Khumalo won at the Sun City casino. He visited the Sun Cily. resort for a week while on holiday and decided one evening to gamble for the fun of it. REQUIRED: Calculate Billy Khumalo's income for the 2023 year of assessment. Include the applicable section of the Income Tax Act as part of your answer and show all calculations, If an amount is excluded, state this fact and provide a brief reason

Answer 1

To calculate Billy Khumalo's taxable income for the 2023 year of assessment, one must include the taxable portion of his annuity income (R266,400), add the foreign dividend income of R11,000 pending foreign tax credits, and the interest income (R63,000), while excluding the non-taxable South African dividends (R28,000) and gambling winnings (R9,000).

Step-by-step explanation:

To calculate Billy Khumalo's income for the 2023 year of assessment, we need to consider various types of income and their tax implications under the South African Income Tax Act.

• Annuity income: Billy receives a monthly annuity of R22,500. According to section 10A, the capital portion of R100 per month is not taxable. Therefore, the taxable annuity income is (R22,500 - R100) x 12 months = R266,400.
• Dividend income: Dividends from a South African company (R28,000) are typically exempt from income tax due to the Dividends Tax already paid by the company. However, foreign dividends (R11,000) from the American company are subject to tax, minus any foreign tax credits.
• Interest income: The R63,000 earned on the fixed deposit is fully taxable as it does not qualify as a tax-free investment.
• Gambling winnings: The R9,000 won at the casino is not taxable, as gambling winnings are generally excluded from gross income unless they are derived from carrying on a trade (such as professional gambling).

The taxable income for Billy Khumalo for the 2023 year of assessment, therefore, is the total of the taxable annuity (R266,400), the foreign dividends (subject to foreign tax credits), and the interest income (R63,000).