TB - Unit 3

Question 1

What is the starting point for calculating a person’s taxable income?

Answer 1

Determine gross income

Question 2

What is the definition of ‘gross income’ ito a resident?

Answer 2

An amount, in cash or otherwise
that is received by or accrued to or in favour of such resident
during a year or period of assessment
excluding receipts or accruals that are of a capital nature

Question 3

What is the definition of ‘gross income’ ito a non-resident?

Answer 3

An amount, in cash or otherwise
that is received by or accrued to or in favour of such resident
during a year or period of assessment
from a source within South Africa
excluding receipts or accruals that are of a capital nature

Question 4

What exclusion as resident does the definition of ‘resident’ provide?

Answer 4

A person is not a resident if that person is deemed to be exclusively a resident of another country ito a double tax agreement

Question 5

When is a person a resident?

Answer 5

If he/she is either ordinarily resident in the RSA or meets the requirements of the physical presence test

Question 6

Is ordinarily resident defined? If not, what case is provides a definition?

Answer 6

N - Cohen v CIR

Question 7

What 3 important principles did the court establish in Cohen v CIR?

Answer 7

1. A person’s ordinary residence would be the country to which he would naturally return from his wanderings
2. One should not only consider the person’s actions during the YOA, but also his/her mode of life
3. Physical absence during the full YOA is not decisive

Question 8

According to SARS, what kind of question of the one about ordinarily resident?

Answer 8

One of fact - each case must be decided on its own merits

Question 9

Name 3 factors that may indicate ordinarily resident

Answer 9

• Most fixed and settled place of residence
• Nationality
• Location of personal belongings

Question 10

When does a person cease to be ordinarily resident?

Answer 10

From the day he/she emigrates.

Will be treated as ordinarily resident up to the DAY BEFORE emigrating.

Question 11

When does the physical presence test apply?

Answer 11

When a person who is not ordinarily resident in the RSA AT ANY TIME during the YOA, but is physically present in the Republic for a period or periods … [times]

Question 12

When does residency ito the physical presence test begin?

Answer 12

It is with effect from the first day of the relevant YOA (that is, the 6th year) during which all the requirements of the physical presence test are met.

Question 13

When does residency ito the physical presence test end?

Answer 13

Will cease from the day that he/she ceases to be physically present in SA if the person remains physically outside SA for a continuous period of 330 full days from this date.

Question 14

To determine residency of estates/trusts what is crucial?

Answer 14

The place where the assets of the entity are effectively managed

Question 15

Should only cash items be included in a person’s gross income?

Answer 15

No, non-cash items should also be included.

Question 16

What is the locus classicus where the court determined that ‘amount’ should include the value of every form of property earned?

Answer 16

Lategan v CIR (wine farmer)

Question 17

What did the court decide in CIR v Butcher Brothers?

Answer 17

• Did building a theater (which increased the value) as payment for lease constitute an amount which accrued to the TP?
• No amount was received or accrued to the taxpayer by the end of the YOA, because the improvements did not have an ascertainable money value at the time
• The Act was later amended to indicate that improvements were to be included in GI

Question 18

CSARS v Brummeria Renaissance

Answer 18

• Investors in retirement village did not compensate the TP (developer) in cash for the construction; they granted interest-free loans to the TP as consideration for the acquisition of the life-interests in the units.
• Court held that the right to use the loan capital interest-free was aright that had a ascertainable monetary value.
• The test that should be applied to demonstrate whether a right has a monetary value is therefore an objective one

Question 19

Does the fact that the value of an asset increased mean that it should be included in the owner’s GI?

Answer 19

No - until the asset is sold, the increased value is not received by or accrued to the owner

Question 20

What case deals with the meaning of ‘received by’?

Answer 20

Gelenhuys v CIR

Question 21

Does an amount received by a TP obo another person constitute GI?

Answer 21

No - Geldenhuys v CIR

Question 22

What did the court decide in Pyott v CIR?

Answer 22

That the amount that the TP received for the sale of the containers should be included in its GI at its face value because it was an amount of cash received by the taxpayer

• The proceeds from the sale of the tin containers were not in any way ‘trust moneys’
• Even a deposit received could qualify as GI if the TP receives the amount on its own behalf and for its own benefit

Question 23

Is it material whether a business carried on by the TP is legal or illegal for the purpose of determining whether its income should be subject to tax?

Answer 23

No - CIR v Delagoa Bay Cigarette Co.

Question 24

What did the court decide in MP Finance Group v CSARS?

Answer 24

• Illegal pyramid scheme
• Throughout the tax years, the operators knew it was insolvent
• An illegal contract is not without all legal consequences; it can have fiscal consequences
• The TP ‘received’ the deposits within the meaning of the definition of ‘gross income’ because the deposits were accepted with the intention of retaining them for the TP’s own benefit

Question 25

What does ‘accrued to’ mean?

Answer 25

That the TP became ENTITLED to an amount.

- At the time that a TP obtains a vested right to a future payment, the amount accrues to the TP

Question 26

Which case deals with ‘accrued to’?

Answer 26

CIR v People’s Stores

Question 27

What did the court decide in People’s Stores case?

Answer 27

• Retailer sold goods to its customers for cash and on credit
• Court had to decide whether the installments not yet payable and outstanding at the end of a particular YOA, accrued to the taxpayer and should be included in GI
• Court applied Lategan
• Held that an amount does not have to be DUE and PAYABLE for it to accrue.
• Since the TP acquired a right, the right vested in the TP in the YOA
• Since the right can be turned into money, the right qualifies as an ‘amount’