TAXATION 300– 2024
GROSS INCOME
OUTLINE:
REFERENCES
TAX 2 is ASSUMED KNOWLEDGE – especially case law Income Tax Act Haupt
WHERE TO FIND INFO Chapter 1& 2
1. Introduction 1.1, 1.2.1, 1.2.2, 1.2.3
1.3, 1.5, 1.6, 1.7, 1.8
2. Definitions Section 1 2.1, 2.1.1
Gross income
Income
Taxable income
Year of assessment 2.1.2
Resident 2.5 , 2.6
Person
3. Breakdown of gross income definition CASE LAW 2.1
Total amount – cash or otherwise 2.2 , 2.3
Received or accrued s24M 2.4
Year of assessment 2.1.2
“Not” capital of nature (TAX 2 assumed knowledge) 2.7, 2.9
4. Onus of proof S 102 – Tax 2.7.10
Administration Act
5. Determination of taxable income in foreign currency S25D(1) and (3) CHAPTER 19
19.5.1, 19.5.2, 19.5.3
ONLY companies &
individuals,
functional currency bullet 1
Leave out the following:
1.9 Exchange control
2.4.6 - s24N,
2.8 Capital profit on shares
1
Any reference to headquarter co and permanent establishment
Leave until SEM 2
1.3.3 PAYE and Provisional Tax
1.4 Estate Duty
OBJECTIVES:
You must be able to:
Discuss the gross income definition with reference to case law and the Income Tax Act.
Calculate gross income for a person
Use the tax tables in calculations
CASE LAW:
Please do not underestimate case law. It is very important and comes up frequently in the ITC. Case Law is
assumed knowledge for 3rd year and Honours, and will not be lectured again!!!
Cohen v CIR - Source
CIR v Kuttel – Source
CSARS v Brummeria – amount
Butcher Brothers (Pty) Ltd vs CIR – amount
CIR v Lategan – amount, accrued
CIR v Lever Bros and Unilever Ltd - Source
Geldenhuys v CIR – received by
MP Finance Group CC (In Liquidation) v CSARS - received by, legality of business of income
Pyott Ltd v CIR - received by
ITC 24510 – received by – Vouchers + VAT
CIR v People Stores (Walvis Bay) (Pty) Ltd – accrued to
CIR v Witwatersrand Association of racing clubs – accrued to
Mooi v SIR – accrued to
SARS v Capstone 556 (Pty)Ltd – Intention of company
CIR v Pick & Pay Employee share purchase trust - capital nature – Scheme of profit making
CIR v Stott – capital nature – mixed/dual intention
CIR v Nel– capital nature – mixed/dual intention
Natal Estates Ltd v SIR – capital in nature – change in intention
CIR v Nussbaum - capital in nature – change in intention
Berea West Estates (Pty) Ltd v SIR - capital in nature – change in intention
CSARS v Founders Hill - capital in nature – change in intention (opposite of Berea West)
John Bell v SIR – change in intention
CIR v Visser – capital in nature – nature of asset
CIR v Nel - capital in nature – nature of asset
CIR v George Forrest Timber - capital in nature – fixed vs floating, change in intention
WJ Fourie Beleggings v C:SARS – damages & compensation
Stellenbosch Farmers Winery Ltd v C:SARS - damages & compensation
Delagoa Bay Cigarette Co Ltd – legality of business of income
2
STUDY METHOD:
Revise the names and principles of all court cases, and ensure that you know them well. In a test situation you
will be given a scenario where you must be able to relate the scenario to a court case and a specific principle. You
can then use that to “solve” the required based on your application of the relevant principle.
In a theory question you will get one mark for stating the correct case name & one mark for the correlating
principle from the case. Then the most marks will lie with applying that principle in solving the required.
Follow the IPAC approach when answering case law and discussion questions linked to case law – Identify
issue, principle + case to solve the issue, Apply information from the question to the issue, Conclude on issue
identified
BACKGROUND
Framework for computation of normal tax
GROSS income Section 1 XXX
Less
EXEMPT income Section 10 (XX)
INCOME XXX
Less
Allowable deductions Section 11 -19 & (XX)
23
Less
Allowable allowances Section 11 -19 & (XX)
23
Add
Taxable capital gains Section 26A XX
TAXABLE INCOME / XXX
(loss)
The starting point of any INCOME TAX calculation is Gross Income (hereafter “GI”). When a person does not have
GI such person will not pay tax; therefore the GI definition is central to the whole of the Income Tax Act
(hereafter the Act).
1. Study the definition of Gross income in Section 1 of the Act, also refer to relevant case law applicable to
each leg of the definition and ensure that you will be able to discuss, and apply it in theory based
questions.
2. There is a very big difference between gross income and income. Please ensure you understand the
difference. This becomes important in terms of theory as well as calculations.
1. Total amount
Amount:
Everything that can be measured in a money value (thus if it is not money, if it can be measured in money
value it will constitute amount). The Commissioner has to establish the amount (if not available).
2. Cash or otherwise
Or otherwise
3
As long as the amount has a money value AND can be converted into money = GI
If the receipt is not a money form value at the DATE OF RECEIPT normally Market value
3. Received or accrued …. a person
Relates to timing of receipt – establish tax year in which gross income arises
EITHER receipt OR accrual – NOT TWICE – thus whatever happens FIRST (earlier of receipt or accrual).
Disposal subsequent to receipt or accrual is IRRELEVENT, thus does not matter what the person does
with the gross income; he will be taxable at the earlier of receipt or accrual.
RECEIVED
Received on OWN behalf and for OWN benefit.
ACCRUED
Unconditionally entitled to – thus all the conditions must be met.
4. From worldwide receipts (in case of resident), or from South African source
(in case of non-resident)
RESIDENT
Defined in section 1 of the Act
Ordinarily resident – true home in SA
Physical presence – days test (91 days in current, and 91 days in each of five preceding years of
assessment and total of 915 days in preceding 5 years)
5. NOT of a capital nature
Specifically excluded from gross income – therefore not subject to normal tax BUT subject to CAPITAL
GAINS TAX (done later in first semester)
Receipts or accruals can EITHER be capital or revenue in nature (no halfway house)
To distinguish between capital and revenue – TREE and FRUIT principle. TREE produces FRUIT!
ALL 5 the above must be present before an amount will be seen as gross income.
Study the definition of Person in Section 1 of the Act (ensure that you will be able to identify who falls under
the definition of person).
4
AMOUNT
Cash/Other
Brummeria
Butcher Brothers
GROSS
RECEIVED
Geldenhuys
INCOME
MP Finance ACCRUED
Damages and People’s Stores
Pyott compensation
ITC 24510 Witwatersrand Racing
Fourie Beleggings Lategan
LEGAL/NOT Stellenbosch Farmers
Delagoa Bay Mooi
Winery
MP Finance
NOT CAPITAL
Intention
Capstone 556
Profit making
Pick & Pay
Mixed intention
Stott, Nel
Change in Intention
Nussbaum, Natal, Founders Hill, John Bell
Asset Nature
Visser, George Forest Timber, Nel
