Student’s name Tony Nhlawuleko Sithole

Student number 202101821

Name of campus Braamfontein

Year of Study 2023 Semester 2

Programme BCom Accounting

Module name Taxation 3B

Lecturer Mr Temptation Jaravani

Due date 29 September 2023

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Contents
Introduction……………………………………………………………………………………………………………………………………….3

Question 1……………………………………………………………………………………………………………………………………….3

Question 2……………………………………………………………………………………………………………………………………….4

Question 3……………………………………………………………………………………………………………………………………….5

Conclusion……………………………………………………………………………………………………………………………………….5

Bibliography ............................................................................................................................................ 6

DECLARATION BY STUDENT
I, the undersigned declare that:
• I have retained a copy of this assessment.
• I understand what plagiarism is and are aware of the Damelin’s policy in this regard.
• The work hereby submitted is my original work, gathered and utilised to fulfil the
requirements of this assignment except for source material explicitly acknowledged.
• I have not used work previously produced by another student or any other persons to
hand in as my own.
• I have not allowed, and will not allow anyone to copy my work with the intention of
passing it off as their own work.
Signature of Student: Sithole Tony Date: 22
September 2023

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Introduction.
According to (SARS, 2012), the use of section 22(8) considers an amount to be
included in income when trading stock is applied, distributed or disposed of in certain
circumstances, if not by sale at market value in the normal course of business. The
amount to be included can be at cost, written down value or market value and it
depends on the way in which the trading stock has been applied, distributed or
disposed.

In this assignment, we are going to discuss the applications of trading stock and the
effect on the tax treatment in different circumstances while highlighting the importance
of section 22(8) in handling trading stock applications, disposals, and distributions.

Question 1
When trading stock is taken for private use or consumption it means that it will not be
sold in the ordinary course of business. Therefore, Mr X would not have received any
income from the cases of juice. When trading stock is utilized for a taxpayer's private
or domestic use or consumption as contemplated in section 22(8)(a), section 22(8)(A)
allows for a deemed inclusion in income. Thus, the income tax treatment of the
taxpayer will be significantly different if they took stock for their own private use.

The cases taken by X from his trading stock have been applied for his private or
domestic consumption. In light of this, Section 22(8) allows for a presumed inclusion
in the taxpayer's income. In this case the cost price of the bottles of juice have been
taken into account. The taxpayer is considered to have recouped the cost price of each
bottle of juice and not its market value according to section 22(8)(A) read with section
22(8)(a).

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Question 2

According to (SARS, 2012), the market value of trading stock distributed in specie to
any shareholder on or after June 21, 1993, must be included by the company in its
income. There is no definition of the word “distribution” in the act so for the purposes
of section 22(8), it must be assigned its common law definition. Steyn CJ used the
word "distribute" as the definition of a "dividend" in CIR v. Legal & General Assurance
Society Ltd. 9 as the broader sense of "apportion, allocate, or administer toward.

Steyn CJ stated that the term must be defined while mentioning its key context. Thus,
it was proposed that a distribution means something that has been given to a
shareholder without an exchange for a consideration for it and without requiring it to
be paid back. For example, the return of capital and payment of a dividend can be
regarded as a distribution. Therefore, a disposal of trading stock for an amount of
consideration can not be regarded as a distribution of any kind.

Additionally, Section 22(8)(b)(ii) applies to the sale of trading stock to a shareholder

for less than its market value.

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Question 3

The demonstration computers qualify as trading stock under section 1(1)'s definition
of "trading stock" in accordance with paragraph (a)(ii), as any revenues from their sale
will be included in the company's gross income under paragraph (jA). When the
demonstration computers are applied as capital assets, section 22(8)(b)(iv) considers
the market value of the computers to be a part of the company’s income when they
serve as capital assets.

However, this deemed inclusion for assets described in paragraph (jA) is prevented by
paragraph (d) of the proviso to section 22(8). Despite the computers function as capital
assets, the computers continue to be trading stock under the definition of “trading
stock”. As a result, there won't be any deemed inclusion under section 22(8)(b)(v)
(assets held as trading stock that are no longer held as trading stock) in the company's
income.

Once the employees purchase the display computers, any consideration that
the company receives or accrues to it from selling its demo PCs to its staff on or after
December 12, 2001, is included in its gross income according to paragraph (jA). In
order to comply with paragraph (jA), the business must only include the market value
of the demonstration PCs in its gross income when such devices are finally sold to its
employees and not while they are utilised as capital assets.

Conclusion

In conclusion, Section 22(8) provisions provide different ways to handle the application
of trading stock in various circumstances where trading stock has been applied,
distributed, or disposed of. It was found that the tax treatment and the amount of
inclusion of the trading stock applied depends on the specific circumstances in which
it was handled.

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Bibliography
SARS, 2012. SARS. [Online]
Available at: https://www.sars.gov.za/wp-content/uploads/Legal/Notes/LAPD-IntR-IN-2012-65-
Trading-Stock-Inclusion-Distributed-Disposed.pdf
[Accessed 22 September 2023].

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