court cases

Question 1

cohen (principle )

Answer 1

a person is ordinarily resident in the country to which he intends to return from all his wanderings. the country he regards as his real home.

Question 2

kuttel (principle)

Answer 2

a person is ordinarily resident where the person’s principle resident is-where the person is habitually and normally resident

Question 3

Butcher Bros (principle )

Answer 3

The onus is on SARS to determine the amount.

Question 4

people’s stores (principle)

Answer 4

Accrued to = entitled to
include in gross income when entitled to not when you received the money.
accrual =face value not discounted value.

Question 5

Witwatersrand Association of Racing clubs (principle )

Answer 5

an amount accrues to a taxpayer if the taxpayer has no legal obligation to pay over (only moral obligation) to another.

Question 6

Lategan (principle )

Question 7

mooi (principle )

Answer 7

Accrued to = unconditionally entitled to the amount of.

Question 8

Geldenhuys (principle)

Answer 8

the amount is only include in gross income by a taxpayer only if it is received by him on his own behalf, for his own benefit.

Question 9

Pyott Ltd ( principle )

Answer 9

generally deposits are still received and form part of gross income.
A deposit is only treated as not being received if the money is kept separately in a trust account, for the benefit of the customer.

Question 10

Delagoa Bay Cigarette Co Ltd (principle )

Answer 10

The legality of the income is irrelevant. the amount will still be gross income.

Question 10

MP Finance Group CC ( principle )

Answer 10

even though the receipts are illegal, they are still received, and therefore gross income.

Question 11

visser (principle )

Answer 11

income may be described as the product of a person’s wits and energy.

Question 12

Georgy Forest Timber (principle)

Answer 12

all assets are either classified as fixed or floating capital
Floating is consumed in the very process of production, while fixed capital is not. Fixed capital is the structure that enables income to be generated.
The sale of fixed capital gives rise to capital proceeds while the sale of floating capital gives rise to revenue.

Question 13

Pick n Pay Employee share Purchase Trust ( principle )

Answer 13

The scheme of profit making is essential to classify proceeds as revenue in nature.

Question 14

stott (principle )

Answer 14

consider the taxpayer’s dominant intention. The fact that the asset is sold at a profit, does not necessarily indicate a change of intention.

Question 15

John Bell (principle )

Answer 15

The mere decision to sell an asset does not change an intention. A capital asset may be realised at its best advantage.

Question 16

Natal Estate Ltd (principle)

Answer 16

a person may realise his capital asset to his best advantage, yet must be careful to not cross the Rubicon and embark on a scheme of profit making.

Question 17

Nussbuam ( principle )

Answer 17

the secondary purpose could taint the primary purpose of a taxpayer , if taxpayer’s actions become too frequency .

Question 18

WJ Fourine Bleggings (principle)

Answer 18

Compensation for damage of capital assets = capital
compensation for loss of profit /income =income

Question 19

Burgess(principle)

Answer 19

(carrying on a Trade ) A wide interpretation should be given to trade.

Question 20

Nasionale Pers Bpk(principle)

Answer 20

(actually incurred ) if a payment is contingent upon the happening of uncertain future events, the expense and corresponding liability can on be actually incurred once the conditions are met.

Question 21

edgars stores(principle)

Answer 21

an expense can only be deducted once there is an unconditional legal obligation to pay the expense.

Question 22

sub-Nigel Ltd(principle )

Answer 22

( during the year of assessement) An expense must be deducted in the year of assessment that it is incurred, even if it will only produce income in future years.

Question 23

Joffe & Co(principle)

Answer 23

(in the production of income ) If something is not an inevitable concomitant of the business
operations it is not deductible

Question 24

Provider (principle )

Answer 24

Expenditure incurred to induce the employees to enter and
remain in the service of the taxpayer may qualify as a deduction
since the purpose is to produce current or future income.
Amounts paid in terms of a service package (employment
contract) are deductible.

Question 25

Golden dumps (principle )

Answer 25

Where an obligation to pay an amount is in dispute, the
expense can only be actually incurred when the dispute is
settled with regards to the obligation and the amount thereof

Question 26

New state area (principle)

Answer 26

Cost of establishing/ improving/adding income earning plant
(fixed capital) is capital in nature and therefore not deductible
vs.
Cost of performing income-earning operations (floating capital)
which is revenue in nature and therefore deductible

Question 27

Rand Mines (principle )

Answer 27

Expenditure incurred to obtain an income earning right or
structure will be capital in nature
Cost incurred to create a capital structure = capital
Cost incurred to work the capital structure = revenue

Question 28

Mobile telephone Networks holding (principle )

Answer 28

Incurring audit fees is necessarily attached to the
performance of the taxpayer’s income earning
operations i.e. Audit fees are incurred in the
production of income.
Where a there is a split between producing income
versus exempt income (thus where audit fees are
incurred for a dual purpose), apportionment has to
take place.
Apportioning audit fees based on time spent on areas
generating exempt versus non-exempt income is not
necessarily correct. Apportionment will depend on the
facts of each case

Question 29

Nel (principle)

Answer 29

Kruger Rand normally seen as capital in nature, unless
in trade to buy and sell.
Kruger Rand is a unique asset. Consider a
taxpayers reasons for selling Kruger Rands

Question 30

Port Elizabeth Electric Tramway(principle)

Answer 30

1. Link between expense and production of income:
   * What is the purpose of the expense?
   * How closely connected is that expense to
   the production of income?

Question 31

An American parent company with operations in
South Africa was obliged to ensure that South
African subsidiary companies (the taxpayer)
complied with the Sullivan Code i.e. social
responsibility expenses were incurred by the
taxpayer in terms of this code. The taxpayer
incurred this social responsibility expenditure and
claimed it as a deduction under section 11(a).

Answer 31

Warner Lambert SA (Pty) Ltd

Question 32

A mine management company incurred an
expense to acquire a contract to manage a mine
in the same group of companies. SARS
disallowed the deduction

Answer 32

Rand mines

Question 33

A taxpayer was required to install a new
sewerage system on its premises as well as on and outside its property. The system was
installed at the cost of the local authority but the
taxpayer had to repay the cost in monthly
instalments (relating to the system on the
premises and the system outside). The
Commissioner disallowed the deduction of both
amounts.

Answer 33

New State Area Ltd

Question 34

Mobile Telephone Networks Holdings (Pty) Ltd
incurred expenditure in respect of an audit
performed. The auditors spent 94% of its time on the audit of interest income and 6% of its time of
auditing the exempt dividend income
Furthermore, expenditure was incurred in respect
of training fees to train staff on learning the new
computerised accounting system. The system
was only used in respect of interest income.

Answer 34

Mobile Telephone Network Holdings (Pty) Ltd

Question 35

The taxpayer had introduced two schemes for the
benefit of its employees: a life assurance scheme
and a service bonus. The amount of the bonus
or benefit varied in line with the length of the
employee’s service. The taxpayer sought to
deduct both amounts.

Answer 35

Provider

Question 36

A company carried on a concrete engineering
business. A concrete hood, which the company
was supervising, collapsed; killing a workman. It
was determined in the court case that the
company was negligent and had to pay damages
to the workman’s deceased widow. The
Commissioner disallowed the company’s claim
for compensation and the legal costs incurred

Answer 36

Joffe and Co

Question 37

A driver employed by the taxpayer died as a
result of injuries sustained from an accident that
occurred while working. The taxpayer had to pay
damages to the widow of the employee. The
taxpayer also incurred legal costs resisting the
claim. The commissioner disallowed both
deductions

Answer 37

Port Elizabeth Electric Tramway

Question 38

The taxpayer and a former employee were
involved in a 4 year dispute over the delivery of
shares promised by the taxpayer. The taxpayer
claimed the cost of the shares as a deduction

Answer 38

Golden Dumps (Pty) Ltd

Question 39

The taxpayer leased premises to conduct its
business. There was a basic monthly rental and
an annual rental based on turnover. The taxpayer
estimated the annual amount and claimed it as
deduction.

Answer 39

Edgars Stores

Question 40

The taxpayer claimed a provision for bonuses as
a deduction. The amount was only payable at a
future date. The provision was raised for the
liability as a result of the employees working for a
full year and becoming entitled to their bonus.

Answer 40

Nasionale Pers Bpk

Question 41

The taxpayer borrowed money from the bank and
invested in a short term investment company as
part of a scheme. He wanted to deduct the losses
from the scheme.

Answer 41

burgess

Question 42

A taxpayer company paid insurance premiums on
a loss of profits insurance policy. The insurance
policy will only pay out in future, if certain events
took place.

Answer 42

Sub-Nigel

Question 43

A company had an illegal pyramid scheme
where they promised investors fantastic
returns with no intention of doing just that.
They classified the money received as
deposits (loans) and used it for their own
purpose

Answer 43

MP finance

Question 44

The company ran an illegal lottery. It set aside
a certain portion of its income from the sale of
cigarettes in order to pay prizes to people who
held winning numbers, obtained from coupons
in the cigarette packets

Answer 44

Delagoa Bay Cigarette Co Ltd

Question 45

A CC leased premises from which it operated
as a hotel. It had been paid compensation for
the loss of a contract it had with another entity
to provide meals and accommodation to
students.

Answer 45

WJ Fourie Beleggings

Question 46

A taxpayer held shares during his lifetime for
investment purposes. After retirement he sold
the shares over a three year period; some
shares were held for a long period and others
for a shorter period. The taxpayer sold shares
each time the dividend yield dropped

Answer 46

Nussbaum

Question 47

The taxpayer held a piece of land for many
years as a capital asset. Before selling the
land, town planners, consulting engineers and
professional advisors were approached to
develop and sub-divide the land.

Answer 47

Natal Estate Ltd

Question 48

The taxpayer operated a textile business from
premises that it owned. After the business
relocated to other premises, the directors of
the company decided to sell the original
premises. In view of the fact that the property
market was not performing well at that point in
time, the directors decided to wait until the market had improved. In the meantime, the
property was rented out (for a period of 11
yeas) and thereafter, once the market had
improved, the property was realised at a profit

Answer 48

John Bell

Question 49

The taxpayer, Stott, was an architect and
surveyor. He purchased a few properties as
an investment over a period of 20 years. One
of the properties, a piece of coastal land of
nearly 54 acres, was acquired by the taxpayer
with the intention of building a seaside
residence thereon, which he did. Because the
property was enormous, the taxpayer
subdivided it into two parts and retained only
the part on which the residence stood. He
subdivided the other part into lots and sold it
piecemeal.

Answer 49

Stott

Question 50

The company established a trust to purchase
shares and administer them for the benefit of
the employees. This trust was also compelled
to repurchase shares from employees who
were required to forfeit their holdings.

Answer 50

Pick n Pay
Employee Share
Purchase Trust

Question 51

The taxpayer company carried on a business
as timber merchants and sawyers. It acquired
about 6oo morgen of natural forest for the
purpose of its business. The nature of the
trees in the forest was such that they did not
renew themselves, and for practical purposes
the value of the land without the timber was
negligible. In the course of its business the
company felled a quantity of timber each year
which was sawn up in the mill and sold as part
of its trading stock

Answer 51

George Forest Timber

Question 52

The taxpayer (an influential businessman in
the area) acquired mining options for a period
of two years over certain farm properties. The
options, however, lapsed – at which time he
still did not start with any search for mineral
deposits. Later, a third party negotiated with
and offered the taxpayer an interest in a
company to be formed if he would assist him
to acquire the previously lapsed options from
the farmers again.

Answer 52

Visser

Question 53

A widow inherited the right of use of a farm
(usufruct) while her children received the right
of ownership (bare dominium). She later
decided to give up farming and sold the sheep
on the property with her children’s consent

Answer 53

Geldenhuys

Question 54

A race event was held and resulted in
proceeds that the taxpayer divided between
two charities. The taxpayer argued that the
proceeds did not accrue to them, but to the
charities.

Answer 54

Witwatersrand
Association of
Racing clubs

Question 55

A clothing retailer sold on credit.

Answer 55

People’s store

Question 56

The taxpayer owned land, leased it to a
company for 50 years with a renewal option of
49 years. In terms of the lease agreement the
lessee was obliged to effect improvements.
The ownership of the improvements would
pass to the lessor upon termination or renewal.

Answer 56

Butcher Bros