Unit 3 - 2

Question 1

What are the facts of the Geldenhuys case? (2)

Answer 1

The TP was a usufructory of sheep and sold obo the bare dominium holder.
SARS included the proceeds of sale in the TP’s Gross Income.

Question 2

What did the court decide in the Geldenhuys case?

Answer 2

The court decided that a Benefit = on own behalf + for own benefit.
As a usufructory SARS may not determine it as the whole amount of the sold sheep - rather only that part which the TB owns (i.e. the wool).
[Same applies to attorney’s trust account - it is not for their benefit]

Question 3

What did the court consider in the Pyott case?

Answer 3

Entitlement. The court determined that the biscuit tin returns cannot be offset from income. The total amount must be taxed.

Question 4

What did the court decide in Delagoa Bay Cigarette?

Answer 4

Court held that the source of income (whether legal or illegal) was immaterial.
Used the Objective approach.

Question 5

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

Answer 5

That the TP INTENDED to personnaly BENEFIT from the deposits.
The court used the Subjective approach.

Question 6

What is the tax position on illegal income?

Answer 6

Illegal income is taxed and no deductions are allowed.

Question 7

What does ‘received by’ mean?

Answer 7

You have control of it now (physically)

Question 8

What does ‘accrued to’ mean? (informal)

Answer 8

You have received the right to receive at a future date (usually by way of contract)

Question 9

How does one determine in which YOA income should be declared ito ‘received by’ and ‘accrued to’?

Answer 9

Whichever of these two occurs (first) will mean that it must be declared in that YOA

Question 10

What does the Subjective approach mean?

Answer 10

The taxpayer’s thoughts on the matter

Question 11

What does the Objective approach mean?

Answer 11

If reasons of taxpayer’s actions are irrelevant

Question 12

Which element is crucial in determining the true nature of a transaction?

Answer 12

Intention. This is especially important in tax avoidance cases.

Question 13

What does ‘accrued to’ mean? (formal)

Answer 13

Something you have not received
But you have some sort of RIGHT to receive a benefit in terms thereof at a later stage
More than a mere hope to receive (not a spes)

Question 14

What was the courts decision in Lategan?

Answer 14

[Wine farmer delivered wine, but was paid in future installments] Tax liability for full amount vested.

Question 15

What happened in the Delfos case?

Answer 15

The judges were split 2-2. 2 agreed with Lategan, 2 stated that entitlement = due AND payable

Question 16

What happened in the People’s Store case?

Answer 16

The court provided clarity (after Lategan & Delfos). The court established that
Accrued to = entitled to
The court followed Lategan

Question 17

What is irrelevant for purposes of accrual?

Answer 17

Physical receipt/enforceability

Question 18

What did the court in Orchberg + Mooi decide?

Answer 18

Accrual MUST be unconditional (or accrual hasn’t taken place)

Question 19

Why are future payments problematic? (2)

Answer 19

• Inflation: (face value v present value) & different tax rates
• Accrual rule: When a person becomes entitled to an amount during a YOA, and the amount is payable on a date after the YOA, the FACE VALUE is deemed to accrue

Question 20

What did the court decide in Witwatersrand Association of Racing Clubs?

Answer 20

Differentiate between:

• Sale of proceeds after accrual, and
• Sale of right to income which will accrue in future

Question 21

What is applicable to interest paid by SARS? (5)

Answer 21

Interest payable and dye by SARS 
Accrued when paid (when payment received) 
Overriding general rule 
Section 7E of ITA 
Since 1 March 2018

Question 22

What is excluded from Gross Income?

Answer 22

Anything of a Capital nature