LML4804 Assignment 1 Semester 2 2024 | Due 26 August 2024
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Course
Income Tax Law (LML4804)
Institution
University Of South Africa (Unisa)
Book
Silke: South African Income Tax ...
LML4804 Assignment 1 Semester 2 2024 | Due 26 August 2024. All questions were answered with references. Question 1
Freedom Movement Party (FMP) is a newly established political party which was registered to contest
2024 National and Provisional elections. It concluded a contract with Green Print ...
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Question 1
Freedom Movement Party (FMP) is a newly established political party which was registered to contest
2024 National and Provisional elections. It concluded a contract with Green Print Media House (Pty)
Ltd (GP Media House). In terms of the contract, GP Media House had to print 3000 3D posters on
behalf of FMP depicting the image of its leader for its campaign. GP Media House was also expected
to air FMP political advertisements through its media partners on radio stations and television. On
April 2024, FMP paid a deposit of R150 000 and undertook to pay the remainder amount on 30 June
2024. After the conclusion of national elections, FMP reviewed its performance on the national
elections and noted that it did not accumulate enough votes it hoped for. A report from the external
service provider appointed by FMP to investigate its poor performance, concluded that FMP did not
reach large audience. On August 2024, FMP wrote a letter to GP Media House notifying the company
that it will no longer pay the outstanding amount to GP Media House and it also considered its options
to sue the company for its failure to honour the contractual obligations between the parties. As part of
the contractual obligation between the parties, FMP learned that GP Media house failed to air its
political adverts on radio station and television according to the agreed dates. It transpired that FMP
political advert was only aired on radio station and television a day prior the date of the national
elections. GP Media House referred the matter to court to demand the outstanding amount owed by
FMP. The matter was set down for hearing for 05 October 2024.
1.1. With reference to tax law and case decision, discuss whether the deposit paid and the
outstanding amount still owed by FMP will be included in the Gross Income of GP Media House.
Gross income is a fundamental concept in tax law, serving as the starting point for determining the
taxable income of a taxpayer. According to Section 1 of the Income Tax Act, gross income refers to
the total amount, in cash or otherwise, received by or accrued to a taxpayer during a particular year
of assessment, excluding amounts that are of a capital nature. The definition is broad, encompassing
not just actual receipts but also amounts that accrue to the taxpayer, meaning they become entitled to
those amounts even if they have not physically received them.
Application to the Scenario
In the scenario involving Freedom Movement Party (FMP) and Green Print Media House (GP Media
House), the key issue is whether the amounts paid and owed under the contract will be included in
the gross income of GP Media House for tax purposes.
The Deposit Paid: The deposit of R150,000 paid by FMP to GP Media House would be
considered part of the gross income of GP Media House. This is because, under Section 1 of
the Income Tax Act, gross income includes amounts "received by" the taxpayer. Since GP
Media House received the deposit in April 2024, it would be included in its gross income for
that tax year, regardless of whether the services were fully rendered or if there were any
disputes about the contract later.
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