Make sure you really know what goes into your gross income so SARS can tax you on the right amounts
It's often quite difficult to decide what you should include in your gross income as revenue and what you should include in your capital gains as capital.
What you earn, make or receive during the year can lead to severe tax consequences if you don't get it right.
This is simply because SARS taxes income of a revenue nature very differently to that of a capital nature.
But, if you understand the basic principles, and how SARS applies its laws and logic to determine how to tax your gross income it'll will help your future tax plans and declarations.
You need to know the difference between gross income, revenue and capital
If you don't', you'll face severe tax consequences. One consequence will be SARS taxing you at the wrong tax rate. This in turn will result in penalties, interest and possibly an audit by SARS.
But you don't have to worry too much.
I'm going to show you the difference between the three, so you'll always know what to include as gross income.
The key difference between gross income, capital and revenue
What is gross income?
Gross income is the basis to calculate the normal tax payable. It's the money you earn before you take off any deductions and exclude any exempt income.
But be careful, you must receive or accrue an amount before you can include it in your gross income. This doesn't just include money, but also the value of every type of property or asset you have, which has a monetary value, and is not capital in nature.
What is revenue?
Revenue (or turnover) is income your company receives from its normal business activities. It's usually from the sale of goods and services to customers.
What is capital?
Capital is money you use to buy items you need to make your products or to provide your services to your clients.
Now all you have to do is, determine if an amount falls within your gross income.
There are 13 ways to determine if an amount falls within your gross income. In the Practical Tax Loose Leaf you'll find everything you need to make sure you can include an amount as gross income.
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