Glossary - Tax

Glossary - Tax Terms

A

  • Accruals Basis: A method of accounting where income and expenses are recorded when they are incurred, regardless of when payment is actually made or received. This approach is commonly used for tax purposes.

  • Assessment: The process by which the tax authorities determine the amount of tax payable by an individual or business. This can include both self-assessment (by the taxpayer) or assessment by the tax authority.

B

  • Business Tax: A tax levied on the income, profits, or sales of businesses. Common types include corporate tax, VAT (Value-Added Tax), and payroll tax.

  • Bonded Warehouse: A secure storage facility where goods are stored before being released into the market. Goods in a bonded warehouse are typically not subject to customs duties or taxes until they are released.

C

  • Capital Gains Tax (CGT): A tax on the profit made from the sale of assets such as property, stocks, or businesses. It applies when the sale price exceeds the original purchase price of the asset.

  • Customs Duty: A tax on goods imported into or exported out of a country, typically levied by the customs department to generate revenue and protect domestic industries.

D

  • Deductions: Allowable expenses or exemptions that reduce taxable income, resulting in lower tax liabilities. These can include business expenses, retirement contributions, and educational expenses.

  • Dividend Tax: A tax levied on dividends paid to shareholders. The rate is typically lower than regular income tax, as dividends are considered a distribution of profits.

E

  • Exemption: A legal exclusion that allows certain types of income, expenses, or individuals to be free from taxes. Common examples include charitable donations and specific retirement contributions.

  • Estate Duty: A tax imposed on the assets of a deceased person's estate. The duty is calculated based on the value of the estate and is typically paid before inheritance is distributed to beneficiaries.

F

  • Franchise Tax: A tax imposed by some states or countries on businesses for the privilege of doing business within that jurisdiction. It is often assessed on a company's net worth or revenue.

  • Fiscal Year: A 12-month period used for financial and tax reporting purposes, which may differ from the calendar year. Businesses use the fiscal year to calculate their income and prepare financial statements.

G

  • Gross Income: The total income of an individual or business before any deductions, taxes, or exemptions are applied.

  • Goods and Services Tax (GST): A consumption tax levied on the sale of goods and services. It is commonly applied at each stage of production or distribution and is often passed on to consumers in the final price of goods and services.

H

  • Holding Company: A company that owns controlling shares in one or more other companies. Holding companies are generally not involved in day-to-day operations but are responsible for managing investments and assets.

  • Honourable Tax Treatment: Refers to tax policies that encourage transparency, ethical behavior, and compliance with tax laws, typically promoted through incentives or deductions.

I

  • Income Tax: A tax imposed by the government on individuals or businesses based on their income. The rate may vary depending on income level and other factors.

  • Import Duty: A tax levied on goods imported into a country. The rate is usually based on the value or quantity of goods being imported.

L

  • Limited Liability Company (LLC): A business structure that combines the liability protection of a corporation with the tax benefits of a partnership. LLC owners (members) are not personally liable for the company's debts.

  • Loss Carryforward: A tax provision that allows businesses to apply a net operating loss from one year to future tax years, thereby reducing taxable income and taxes owed.

M

  • Municipal Tax: A tax levied by local government authorities on property, income, or transactions within a specific municipality or local jurisdiction.

  • Market Value: The price at which an asset would sell in a competitive market. For tax purposes, market value is often used to determine capital gains or losses when selling property or investments.

N

  • Net Income: The total income remaining after all business expenses, taxes, and deductions have been subtracted from gross income. Net income represents a company’s or individual’s true earnings.

  • Non-Resident Taxpayer: An individual or business entity that does not meet the criteria for residency in a given country and is therefore subject to different tax rates and obligations.

O

  • Offset: A tax provision that allows taxpayers to reduce their tax liability by applying credits or deductions against the taxes owed.

  • Overpayment: Occurs when a taxpayer pays more than their tax liability. Overpayments can often be refunded or carried forward to the next tax year.

P

  • Perks Tax (Fringe Benefits Tax): A tax levied on the non-cash portions of an employee’s remuneration package, such as a company car, paid-for holidays, cellphone allowance, and travel allowances.

  • Private Company: A business entity that is not publicly traded and typically owned by a small group of investors. Private companies are not required to disclose financial information publicly.

  • Publicly Traded: A company whose shares are listed on a stock exchange and are available for purchase by the public. Public companies must disclose financial information and adhere to regulations regarding governance and reporting.

R

  • Rebate: A reduction in tax liability granted to a taxpayer, often based on specific criteria such as income, number of dependents, or business-related expenses.

  • Residence-Based Taxation: A tax system where individuals and businesses are taxed based on their residence or place of domicile, regardless of where the income is earned.

S

  • Small and Medium-Sized Enterprise (SME): A business that meets specific criteria, often defined by revenue, assets, or number of employees. In South Africa, SMEs may have a turnover of less than R14-million, depending on their tax classification.

  • Sole Proprietor: An individual who owns and operates a business alone. Income from the business is treated as personal income, and the proprietor is personally responsible for any debts or obligations.

T

  • Tax Deduction: An expense that can be subtracted from an individual's or business’s taxable income, lowering the amount of tax owed.

  • Transfer Pricing: The pricing of goods, services, or intangible assets sold between divisions of the same company or related businesses. Tax authorities may scrutinize transfer prices to ensure fairness and proper taxation.

U

  • Underreporting: The act of reporting less income or fewer expenses than is actually the case, often done to reduce tax liability. Underreporting is illegal and can result in penalties and interest.

  • Uniform Tax Code: A standardized set of tax rules and regulations designed to streamline tax collection and compliance for both businesses and individuals.

V

  • Value-Added Tax (VAT): A consumption tax levied on goods and services at each stage of production or distribution. VAT is typically added to the price of goods sold to consumers.

  • Voluntary Disclosure: A process where taxpayers voluntarily report unreported income or pay taxes owed, often in exchange for reduced penalties.

W

  • Withholding Tax: A tax withheld from an employee's paycheck or business income and remitted directly to the tax authorities. It is typically used for income tax and other payroll-related taxes.

  • Write-Off: An expense that is deducted from a taxpayer's income, reducing the taxable amount. Common examples include bad debts or the depreciation of business assets.

XYZ

  • Xenotransplantation Tax: A tax policy that applies to the sale or importation of genetically modified biological materials or tissues, including human-to-animal tissue transplants for research purposes.

  • Yield: The return on an investment, often expressed as a percentage. In the context of tax, it can refer to the revenue generated by a tax rate or policy.

Drop us a message if we missed a word or if you need more information on specific tax terms!