Legality or otherwise of the business production of income

Question 2

Facts:
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 2

Delagoa Bay Cigarette Co Ltd

Issue:
Whether the portion of its sales set aside to pay prizes were in fact gross income as lottery was illegal?

Principle:
The legality of income is irrelevant. The amounts will still be gross income.

Question 3

Facts:
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 3

MP Finance Group CC (in liquidation)

Issue:
Is an illegal receipt by a TP taxable since it was received by him, even though he wasn’t meant to receive it for his benefit?

Principle:
Even though the receipts are illegal, they are still received, and therefore gross income.