Taxation 399
Chapter 3 – Gross Income (Revision of Taxation 298)
• Gross income → specific inclusions take preference over the general definition
• Resident → WWI
• Non-resident → RSA income
• S1(1) → total amount, in cash or otherwise, received by or accrued to or in favour
of such TP, during such year or period of assessment excluding receipts or
accruals of a capital nature
If accounting and tax treatment is the same, then no adjustment in the framework!
(when working from Profit Before Tax to Taxable Income)
Resident and Non-Resident
1. Ordinarily resident in RSA
• Cohen v CIR
o Country to which a person will naturally & as a matter of course return to
o Usual/ principle residence
o Physical absence is not decisive
• CIR v Kuttel
o Place where person normally resides apart from occasional/ temporary
absences (‘real home’)
• Natural person emigrates on 1 October 2024
o Resident: 1/3/2024 → 30/9/2024 (on WWI)
o Non-resident: 1/10/2024 → 28/2/2025 (on income from source within SA)
o Emigration does not result in broken period of assessment
o Apportion the s6(2) rebate & Integration with s9H
2. Physically present in RSA
• Physically present in RSA for a period or periods:
o Exceeding 91 days in aggregate during current YoA; AND
o Exceeding 91 days in aggregate during each of the 5 preceding YoAs; AND
o Exceeding 915 days in aggregate during the 5 preceding YoAs
3. Residence tests – other than natural persons
• Incorporated, established or formed in RSA; OR
• Effectively managed in RSA
4. Double taxation agreements (DTAs)
• If a DTA deems a person to be exclusively a resident of another company → not a
resident of RSA even if requirements of residence are met
,Amount in cash or otherwise
• Lategan
o ’Amount’ includes not only money, but also every form of property
earned by the taxpayer which has money value, even the right to receive
payment.
• Butcher Bros
o Amounts accruing must have an ascertainable monetary value.
• Brummeria
o The right to retain and use loan capital interest free has an
ascertainable monetary value.
o The fact that a right cannot be transferred or turned into money, does not
mean that it does not have a monetary value.
o The test to determine whether a right has a monetary value is
objective and not subjective.
Received by
• Geldenhuys
o An amount is only received by the taxpayer, if it is received on his own
behalf and for his own benefit.
• Pyott
o Deposits are amounts received and should be included in gross income
unless they are deposited into a separate trust account specifically for
deposits received.
• Delagoa Bay Cigarette Co
o Illegal receipts would also constitute gross income – the legality of
income is irrelevant to the question of the liability of that income for tax
purposes.
• MP Finance Group
o Illegal receipts would also constitute gross income – if such taxpayer has
intended to receive the amount for his or her own benefit.
• IT 1981
o Gift card receipts are not “received by” the gift card issuer for its own
benefit, but are to be held for the gift card bearer.
o The receipt is included in gross income once the gift card is redeemed or
if not redeemed when it expires.
,Accrued to
• People’s Stores
o ‘Accrued’ means ’entitled to’ payment; not ’due and payable’.
• Mooi
o Meaning of ‘accrued’ is extended to ‘unconditionally entitled to’
payment.
• Witwatersrand Association of Racing Clubs
o Disposal of income after receipt or accrual would not affect gross
income: where amounts have been received in favour of and on behalf of
a person, that person must be taxed even though he may have an
obligation to pay it over to some other person.
• Lategan
o ‘Accrued to’ means “that to which the taxpayer has become entitled”
o An amount accrues to a taxpayer in the year of assessment in which he
acquires the right to claim payment in the future and not in the year in
which he eventually is entitled to claim payment. I.e. accrual takes place
then the taxpayer becomes unconditionally entitled to the amount.
Receipts and accruals of a capital nature
• Gross income excludes capital amount
• Burden of proof = taxpayer s102 of Tax Administration Act
• Most important test = intention of the taxpayer + evidence
• Other factors:
o Item can only be income OR capital and NOT both → Apportionment
sometimes necessary
o Intention of company
o May realise an asset to best advantage – selling alone does not indicate
change in intention
o Crossing the rubicon
o Cancellation of contract
Nature of the asset
• Visser
o “Income” is the “fruit” produced by “capital” (the “tree”).
o “Capital” is the “tree” which is the income-producing asset
• George Forrest Timber
o The sale of fixed capital assets is of a capital nature and the sale of
floating assets (like trading stock) is of a revenue nature.
, Intention of a company
• The intention of a company is determined with reference to the intention of the
directors of the company.
• Elandsheuwel Farming
o The intention of the taxpayer, at the time of acquiring the asset, during
the time the asset was held and at the time of its sale, is of great
importance.
o Speculation = not of a capital nature
o Investment = of a capital nature
o Intention of shareholders should be attributed to company (only in certain
circumstances).
• Capstone 556
o The intention may, in certain instances, be established by reference to
persons other than the board of directors to whom authority may have
been delegated.
Business conducted with profit-making purpose
• Pick ‘n Pay
o Where the taxpayer participates in a scheme of profit-making the
proceeds will be deemed to be revenue of nature (not of a capital
nature).
Selling asset to best advantage
• Stott
o The intention of the TP at date of acquisition is crucial, unless intention of
TP changed prior to sale.
o Every TP is entitled to realise such asset to his best advantage without
it being considered a change in intention.
Realisation of a capital asset
• Nel
o An asset acquired with intention to own it as an investment will remain
capital in nature where the disposal of it occurs due to unusual/special
circumstances.
• Richmond Estates
o The mere sale of a property does not indicate a change in intention.
Something more is needed to indicate a change in intention.
Chapter 3 – Gross Income (Revision of Taxation 298)
• Gross income → specific inclusions take preference over the general definition
• Resident → WWI
• Non-resident → RSA income
• S1(1) → total amount, in cash or otherwise, received by or accrued to or in favour
of such TP, during such year or period of assessment excluding receipts or
accruals of a capital nature
If accounting and tax treatment is the same, then no adjustment in the framework!
(when working from Profit Before Tax to Taxable Income)
Resident and Non-Resident
1. Ordinarily resident in RSA
• Cohen v CIR
o Country to which a person will naturally & as a matter of course return to
o Usual/ principle residence
o Physical absence is not decisive
• CIR v Kuttel
o Place where person normally resides apart from occasional/ temporary
absences (‘real home’)
• Natural person emigrates on 1 October 2024
o Resident: 1/3/2024 → 30/9/2024 (on WWI)
o Non-resident: 1/10/2024 → 28/2/2025 (on income from source within SA)
o Emigration does not result in broken period of assessment
o Apportion the s6(2) rebate & Integration with s9H
2. Physically present in RSA
• Physically present in RSA for a period or periods:
o Exceeding 91 days in aggregate during current YoA; AND
o Exceeding 91 days in aggregate during each of the 5 preceding YoAs; AND
o Exceeding 915 days in aggregate during the 5 preceding YoAs
3. Residence tests – other than natural persons
• Incorporated, established or formed in RSA; OR
• Effectively managed in RSA
4. Double taxation agreements (DTAs)
• If a DTA deems a person to be exclusively a resident of another company → not a
resident of RSA even if requirements of residence are met
,Amount in cash or otherwise
• Lategan
o ’Amount’ includes not only money, but also every form of property
earned by the taxpayer which has money value, even the right to receive
payment.
• Butcher Bros
o Amounts accruing must have an ascertainable monetary value.
• Brummeria
o The right to retain and use loan capital interest free has an
ascertainable monetary value.
o The fact that a right cannot be transferred or turned into money, does not
mean that it does not have a monetary value.
o The test to determine whether a right has a monetary value is
objective and not subjective.
Received by
• Geldenhuys
o An amount is only received by the taxpayer, if it is received on his own
behalf and for his own benefit.
• Pyott
o Deposits are amounts received and should be included in gross income
unless they are deposited into a separate trust account specifically for
deposits received.
• Delagoa Bay Cigarette Co
o Illegal receipts would also constitute gross income – the legality of
income is irrelevant to the question of the liability of that income for tax
purposes.
• MP Finance Group
o Illegal receipts would also constitute gross income – if such taxpayer has
intended to receive the amount for his or her own benefit.
• IT 1981
o Gift card receipts are not “received by” the gift card issuer for its own
benefit, but are to be held for the gift card bearer.
o The receipt is included in gross income once the gift card is redeemed or
if not redeemed when it expires.
,Accrued to
• People’s Stores
o ‘Accrued’ means ’entitled to’ payment; not ’due and payable’.
• Mooi
o Meaning of ‘accrued’ is extended to ‘unconditionally entitled to’
payment.
• Witwatersrand Association of Racing Clubs
o Disposal of income after receipt or accrual would not affect gross
income: where amounts have been received in favour of and on behalf of
a person, that person must be taxed even though he may have an
obligation to pay it over to some other person.
• Lategan
o ‘Accrued to’ means “that to which the taxpayer has become entitled”
o An amount accrues to a taxpayer in the year of assessment in which he
acquires the right to claim payment in the future and not in the year in
which he eventually is entitled to claim payment. I.e. accrual takes place
then the taxpayer becomes unconditionally entitled to the amount.
Receipts and accruals of a capital nature
• Gross income excludes capital amount
• Burden of proof = taxpayer s102 of Tax Administration Act
• Most important test = intention of the taxpayer + evidence
• Other factors:
o Item can only be income OR capital and NOT both → Apportionment
sometimes necessary
o Intention of company
o May realise an asset to best advantage – selling alone does not indicate
change in intention
o Crossing the rubicon
o Cancellation of contract
Nature of the asset
• Visser
o “Income” is the “fruit” produced by “capital” (the “tree”).
o “Capital” is the “tree” which is the income-producing asset
• George Forrest Timber
o The sale of fixed capital assets is of a capital nature and the sale of
floating assets (like trading stock) is of a revenue nature.
, Intention of a company
• The intention of a company is determined with reference to the intention of the
directors of the company.
• Elandsheuwel Farming
o The intention of the taxpayer, at the time of acquiring the asset, during
the time the asset was held and at the time of its sale, is of great
importance.
o Speculation = not of a capital nature
o Investment = of a capital nature
o Intention of shareholders should be attributed to company (only in certain
circumstances).
• Capstone 556
o The intention may, in certain instances, be established by reference to
persons other than the board of directors to whom authority may have
been delegated.
Business conducted with profit-making purpose
• Pick ‘n Pay
o Where the taxpayer participates in a scheme of profit-making the
proceeds will be deemed to be revenue of nature (not of a capital
nature).
Selling asset to best advantage
• Stott
o The intention of the TP at date of acquisition is crucial, unless intention of
TP changed prior to sale.
o Every TP is entitled to realise such asset to his best advantage without
it being considered a change in intention.
Realisation of a capital asset
• Nel
o An asset acquired with intention to own it as an investment will remain
capital in nature where the disposal of it occurs due to unusual/special
circumstances.
• Richmond Estates
o The mere sale of a property does not indicate a change in intention.
Something more is needed to indicate a change in intention.
