Summary
Summary Gross income and special inclusions
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The elements of gross income.
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NB notesGross Income
Introduction
Definition of gross income (from Act)*****
• For any Residents- the total amount in cash or otherwise
received by or accrued to in favor of such residents, during
such year or period of assessment; excluding receipts or
accruals of a capital nature
• In the case of Nonresidents- the total amount in cash or
otherwise received by or accrued to in favor of such
persons from source within the Republic, during such year
or period of assessment; excluding receipts or accruals of a
capital nature
Important aspects
* All of the requirements must be met
* The terms in each element are not defined- courts have been called upon to interpret their meaning
* Gross income is the starting point of taxable income
* If a taxpayer does not earn any gross income, he will not be liable for tax in the Republic
Court cases key:
• CIR- Commissioner for Inland Revenue
• SIR- Secretary for Inland Revenue
• COT- Commissioner of Taxes
Elements of Gross Income Definition)
Total amount in cash or otherwise
General
• There must be an amount received/accrued
• Amount is cash/property/assets- value of non-cash items included (Lategan)
• The word amount must be given a wider meaning and must include not only money, but the value of every form of
property earned by the taxpayer, whether corporeal or incorporeal (tangible or intangible), which has a money value.
(Lategan)
• Entire gross amount must be included (e.g. including the commission paid to an agent)
• If the asset does not have an ascertainable money value or cannot be turned into money- not included in gross income
(Butcher Bros)
• Onus of establishing the amount is on the Commissioner (Butcher Bros)
• If not cash- market value (face amount) of the asset received on date of receipt or accrual must be included in gross
income (amendment to Lategan)
• An interest free loan received is a taxable benefit that does have an ascertainable monetary value (Brummeria
Renaissance)
- Receipt still may have value even if it cannot be turned into money- like interest free loan
- value of the benefit= interest that would have been paid at a market related interest rate less the interest actually
paid
- Only when there is quid pro quo- something sold in exchange for the loan
Court cases
• CSARS v Brummeria Renaissance (Pty) Ltd, (2007 SCA 99 (RSA))
• CIR v Butcher Bros (Pty) Ltd, 1945 AD 301, 13 SATC 21
• CIR v Lategan 1926 CPD 203, 2 SATC 16
, NB notes
Received by or accrued to, in favour of such resident
General
• Taxed on earlier of receipt or accrual*** (State in conclusion)
• Thus, timing difference for tax and accounting- will be taxed on income received in advance
• Must be received/accrued in relevant year of assessment
• Commissioner cannot tax the taxpayer at both receipt and accrual (if dates are different)
• An amount “accrued to” a taxpayer is the amount to which a taxpayer “had become entitled to”. (People’s Stores)
Meaning of Received by
• An amount must be received by a person on his own behalf and for his own benefit for it to be included in gross income
(Geldenhuys)
• Income received on behalf of others not included in GI (Geldenhuys)
• Deposits received (Pyott)
- Monies obtained as a deposit is still included in gross income if it is received for one’s own behalf and own benefit
- Only if placed in separate trust account (where taxpayer is not the beneficial owner), outside of taxpayer’s control,
would it not be included in gross income.
• Illegal business receipts- source of income (legal or illegal)- not important; will be included in GI (Delagoa Bay); (MP
Finance)
• If the taxpayer has the mere intention of utilising deposits or funds for their own benefit, regardless of legal nature, the
monies will be included in GI (MP Finance)
Meaning of Accrued to
• Accrue to means to become entitled to an amount
• When you have become entitled to an amount, it has accrued to you and therefore it should be included in your gross
income, even though you may not have received it yet (Lategan)
• Any non-capital right acquired during the year forms part of “gross income”, no matter whether it is immediately
enforceable or not (People’s Stores)
• Amount does not have to be due and payable to the taxpayer for it to accrue, if the right has vested in the year of
assessment (People’s Stores)
• On the date of a credit sale the taxpayer acquires a right to a future payment which has a value. As a result, the total
value of the proceeds accrued are included in gross income in the year in which the transaction takes place (People’s
Stores)
• Once an amount has been beneficially received by or accrued to a taxpayer, he is taxed on such amount even though
he may have an obligation to pay it over to some other person (Witwatersrand)- relates to “in favour of”
• If amounts are due to be paid over to charities- rights must be ceded before receipt of proceeds to avoid it being included
in GI (Witwatersrand)
• Thus, the disposal of income after accrual does not affect the GI
• The taxpayer must be unconditionally entitled to an amount before it will be included in gross income (Mooi)
• Thus only accrues to taxpayer once all conditions of an agreement have been met (Mooi)
• Cession of income in respect of an asset where the cedent retains ownership of the asset (cedes rental income of
property)- GI will accrue to the cessionary
• Unconditionally entitled to does not apply to received amounts- will be included even though there might be a
possibility of having to repay
• Only requirement for received amount: “On own behalf and for own benefit” (Geldenhuys)
• Securities sold cum income rights (shares with dividends)- if income has already accrued to seller before sale, it is taxable
in his hands
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