LML4804 Assignment 1 Due 26 August 2024 (Detail Answers)
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Course
Tax Law
Institution
University Of South Africa
Book
Tax Law
QUESTION 01 (Gross Income)
1.1 Gross Income of GP Media House
Background:
GP Media House (GP) entered into a contract with Freedom Movement Party (FMP)
for services including printing posters and airing advertisements.
FMP paid a R150,000 deposit and was to pay the remaining amount by June 30...
, QUESTION 01 (Gross Income)
1.1 Gross Income of GP Media House
Background:
GP Media House (GP) entered into a contract with Freedom Movement Party (FMP)
for services including printing posters and airing advertisements.
FMP paid a R150,000 deposit and was to pay the remaining amount by June 30,
2024.
FMP later decided not to pay the outstanding amount and considered legal action
due to GP's failure to fulfill its obligations.
GP has now referred the matter to court to claim the outstanding amount.
Discussion:
Under South African tax law, specifically the Income Tax Act 58 of 1962, gross
income is defined broadly to include any amount that is received or accrued to the
taxpayer unless specifically exempted. According to section 1 of the Income Tax Act,
gross income includes any amount received by or accrued to a taxpayer in respect of
any services rendered.
Deposit Paid: The deposit of R150,000 paid by FMP is considered part of GP’s gross
income in the year it is received. Deposits are usually treated as income if they are
not refundable or if the services are rendered. The deposit will be included in GP’s
gross income for the period in which it was received.
Outstanding Amount: The remaining amount owed by FMP, which GP is trying to
recover through legal action, is not yet included in GP’s gross income. According to
case law, specifically in C
v NWK Ltd, amounts that are receivable but not yet collected do not form part of
gross income until they are actually received or recoverable under the contractual
agreement. Therefore, GP can include the outstanding amount in gross income only
when it is received or legally enforceable.
In summary, the deposit paid by FMP is included in GP Media House's gross income
for the year it was received. The outstanding amount is not included in gross income
until it is actually received or enforceable.
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