14/03 TAX QUIZZ

What are the two main principles guiding the taxation of income?

• Assets and Liabilities

• Residence and Source

• Income and Expenditure

• Profit and Loss

Answer explanation

The taxation of income is primarily guided by the principles of Residence and Source. Residence determines where an individual or entity is taxed based on their location, while Source refers to the origin of the income.

What system of taxation was introduced in South Africa from 1 January 2001?

• Value-added tax system

• Source-based system

• Residence-based system

• Capital gains tax system

Answer explanation

The residence-based system, introduced in South Africa on 1 January 2001, taxes residents on their worldwide income, marking a significant shift from previous tax systems.

According to the Income Tax Act, what does 'gross income' mean for a resident?

• Total income from South Africa only

• Total income from worldwide sources

• Total income from capital gains

• Total income from business activities

Answer explanation

According to the Income Tax Act, 'gross income' for a resident includes total income from worldwide sources, not just South Africa. This means all income earned globally is considered.

What is required for a natural person to be considered a South African resident?

• Ownership of property in South Africa

• Permanent residency status

• Ordinary residence or physical presence

• Employment in South Africa

Answer explanation

A natural person is considered a South African resident if they have ordinary residence or are physically present in the country for a certain period, rather than just owning property or being employed.

What does 'ordinary residence' imply according to case law?

• Habitual and normal residence in a country

• Residence based on business activities

• Temporary residence in South Africa

• Residence based on tax treaties

Answer explanation

'Ordinary residence' refers to a person's habitual and normal residence in a country, indicating a stable and ongoing presence rather than temporary or business-related stays.

Which case established the definition of 'ordinary residence'?

• Cohen v CIR

• Shah v Barnet

• CIR v Kuttel

• Levene v IRC

Answer explanation

The case 'Shah v Barnet' established the definition of 'ordinary residence', clarifying the criteria for determining an individual's residency status for tax purposes.

What is one of the requirements for a person to be 'ordinarily resident' according to SARS?

• Intention to leave South Africa

• Intention to become ordinarily resident

• Permanent employment in South Africa

• Ownership of a business in South Africa

Answer explanation

To be considered 'ordinarily resident' by SARS, a person must have the intention to become ordinarily resident in South Africa, indicating a commitment to reside there permanently.

What is the physical presence test for determining residency?

• Presence for 30 days in a year

• Presence for 91 days in a year

• Presence for 365 days in a year

• Presence for 180 days in a year

Answer explanation

The physical presence test for residency requires an individual to be present in the U.S. for at least 91 days during the year. This is crucial for determining tax residency status.

What does the term 'place of effective management' refer to?

• Where the majority of employees work

• Where the company is registered

• Where key management decisions are made

• Location of the company's headquarters

Answer explanation

The term 'place of effective management' refers to where key management decisions are made, as this location determines the company's operational control and strategic direction, rather than just where employees work or the company is registered.

How is a company deemed a South African resident?

• If it is incorporated in South Africa

• If it has a local bank account

• If it has employees in South Africa

• If it operates a branch in South Africa

Answer explanation

A company is deemed a South African resident if it is incorporated in South Africa. Incorporation establishes legal presence, while having a bank account, employees, or a branch does not automatically confer residency.