Notes of a Third year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Taxation by using this notes. If you are struggling with TAX use this notes, and you could also get yo...
1. To what component of gross income does it
relate?
2. Name of court case
3. Principle studied
4. Application of principle on given scenario
5. Conclusion
NEW!
Berea West Estates Remember the following statement before starting the
question:
Founders Hill
The burden of proof rests upon the taxpayer to prove
that an amount should be included in gross income (e.g. is
received by taxpayer/is capital in nature) per section 102 of
the Tax Administration Act.
, Name of court case Story (helps to identify the court case in test) Principle
Butcher Bros Taxpayer (lessor) leased piece of land to cinema company
Important concept example 2.3 page 39 SANP
(lessee).
There must be an Lessee to build building on land; and @ end of the contract the
amount building would become property of the lessor.
Should this building that the lessor WILL receive be included in
gross income? The onus is on the Commissioner (SARS)
to determine the ‘amount’
Rights that accrue to lessor amount accrued to the lessor
Total amount in cash or otherwise
There is no certain amount in money value to be included in the
year of assessment in which the building was completed.
Lategan Important concept page 38 SANP
Paragraph under Butcher Bros
Meaning of ‘accrued’
Taxpayer (wine farmer) sold wine to company. Received half of ‘Accrued’ refers to the amount ‘to which
payment before end of his year of assessment and received other the taxpayer has become entitled to’
half of payment after the end of his year of assessment.
Total amount of wine that was sold should be included in
gross income of that year. (does not matter when received)
Brummeria Taxpayers (developers) got interest-free loans from future
occupants to finance units in a retirement village. Lenders then
There must be an required a lifelong right to occupy a unit.
amount in cash OR
OTHERWISE Developers retain ownership of the units. When lender dies –
developer needs to pay back the loan.
The right to an interest free loan is
Receipt of loan is not included in gross income. - An amount
- And this right has value in money
Right to receive loan capital without paying interest and providing
lender with “life-right” is included in gross income.
, Name of court case Story (helps to identify court case in test) Principle
Geldenhuys Taxpayer had usufructuary interest in sheep – she only enjoyed An amount is only received by the taxpayer,
income from sheep and her children were the owners of the sheep. if it is received
Meaning of ‘received’ • On his own behalf
Children then SOLD the sheep and the proceeds deposited in And
taxpayer’s account. • For his own benefit
Should this amount be included in taxpayer’s gross income?
Amount belongs to children and not to taxpayer. Not included in gross See example 2.4 page 41 SANP
income.
Delagoa Bay Cigarette Taxpayer (cigarette company) sold packets of cigarettes with coupons.
Legality of income
Co Two-thirds of revenue was set aside for prize fund and distributions to
customers were made.
Illegal receipts are included in gross
Amount must be It was stopped as it was considered lottery and illegal.
income
received or accrued
Taxpayer argued that prizes paid was in the production of income and
Received by
The legality of income if irrelevant to the
should not be taxed.
question of the liability of that income for tax
purposes
Income was earned and it should be taxable.
MP Finance Pyramid scheme operated An amount has only been received by the
taxpayer
Meaning of ‘received’ Investors made deposits; when scheme collapsed all deposits were
refunded. If such taxpayer has intended to receive the
amount for his or her own benefit
Taxpayer contended that no deposits were “received” and they are not
subject to tax. Legality of income
But money was received for the taxpayer’s own benefit thus included Illegal receipts are included in gross
in gross income. income
See example 2.5 page 43 SANP • If such taxpayer has intended to
receive the amount for his or her
own benefit
Pyott Biscuits was sold in tin containers and if returned a refundable deposit
was given back. Deposits are amounts received – thus
included in gross income
Meaning of ‘received’
Total amount of containers should be included in gross income of
taxpayer. UNLESS deposited into specific trust
See example 2.9 page 49 SANP account for deposits received
, Name of court case Story (helps to identify court case in test) Principle
People’s Stores Taxpayer (clothing store) sold clothes and shoes on cash and credit.
If sold on credit client has 6 months to pay. Accrued means ‘entitled to’ which is not the
Meaning of ‘accrued’ same as ‘due and payable’
BUT the full amount of the item sold should be taxed even though it
is not payable in that specific year of assessment. If the amount is NOT payable and
outstanding @ end of year of assessment, it
still accrues to the taxpayer and should be
See example 2.6 page 45 SANP included in the taxpayer’s gross income in
THAT year of assessment.
The present value should be used of all instalments not yet paid
Mooi Taxpayer had option to buy shares if he fulfilled some conditions. He
bought shares 3 years later @ option price. (which was less than market
Meaning of ‘accrued’ value of the shares) Meaning of ‘accrued’ is extended to
Or accrued to
• ‘unconditionally entitled to’
SARS included the difference between the market value and option
payment
price paid for the shares in his gross income for that year AS this
amount accrued to him for services rendered.
NO ACCRUAL UNTIL CONDITIONS ARE
FULFILLED
The taxpayer argued that the only thing accrued to him was the right
(option to buy) 3 years before. Until he fulfilled the conditions – he was
not entitled to any right of option. See example 2.7 page 46 SANP
THUS, NO ACCRUAL UNTIL CONDITIONS FULFILLED
Section 8C now allows these amounts to be taxed
Witwatersrand Taxpayer (racing club) organised a race meeting and all proceeds
Association of Racing were to be divided between two charities.
Clubs ‘Accrued’ refers to amounts accrued to or in
All proceeds received was included in the taxpayer’s (racing club) favour of the taxpayer
Meaning of ‘accrued’ • Once the taxpayer becomes entitled
gross income for that year. (because racing club acts as principal)
to the amount as principal it
If charities acted as principals they would’ve been taxed. becomes gross income in his hands
even though he may have an
obligation to pay it over to some other
See example 2.10 page 50 SANP person
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