Gross Income

2023
Who’s talking?

Prof Teresa Pidduck

BBusCom (Acc)
BCom (Hons)
CA(SA)
MCom (cum laude)
PHD (Taxation)

Gross Income 2023

Topics
Silke Chapter 3

 Objectives - ClickUP

 Gross income (S1) (pg 37-47)

 Resident vs non-resident (S1) (pg 27-36)

 Source

 Capital vs revenue (pg 47-57)

Gross Income 2023

Learning Outcomes Document (ClickUP)

Gross Income 2021

Normal Tax Liability Framework?
GrossRevenue/
Sales/ Income (S1)
Services Rendered XXX
XXX
Add Special
Other income Inclusions (S1) XXX
XXX
Less Exempt Income (S10 and 10A ITA)
Discounts/Other (XXX)
(XXX)
Income
Total Revenue XXX
XXX
Less Deductions and allowances (S11-19 and 23g) (XXX) Co
Expenses (XXX) mp
Taxable Income
Net Income/Profit
XXX
XXX X2 any
7%
Individual
X tax tables
Gross Income 2023 Less rebates
Normal Tax Liability Framework
Gross income (as defined in section 1 of the Income Tax Act) LA2 xxx

Add: Special inclusions (as defined in section 1 of the Income Tax LA2 xxx
Act) LA 6
Less: Exempt income (sections 10 and 10A of the Income Tax Act) LA2 (xxx)

Equals Income (as defined in section 1) xxx

Less: General Deductions and allowances (section 11; subject LA3 (xxx)
section 23(m))
Less: Special deductions LA3&5 (xxx)
Less: Assessed loss (section 20) LA3 (xxx)
Add: Taxable capital gain (section 26A) LA4 xxx
Equals: Taxable income (as defined in section 1) XXX
Gross Income: 2020
Normal Tax Liability Framework (natural person)
Taxable income XXX

Normal Tax calculated based on the tax tables LA1 xxx

Less: Annual rebates (for individuals) LA1 (xxx)
Less: Section 6A & 6B medical fees credit (for LA5 (xx)
individuals)
Equals: Net normal tax payable for the year xxx
Less: PAYE and provisional tax LA7 (xxx)
LA8
Equals: Normal tax due by or to the taxpayer xxx
Gross Income: 2020
Normal Tax Liability Framework (company)

Taxable income XXX

Equals: Normal tax calculated at 27% xxx

Less: Provisional tax (xx)

Equals: Normal tax due by or to the taxpayer xxx

Gross Income 2023

 d e fi ne d?
Gross income e s e te rms
Are th e y m e an?
h at d o th
W
Gross income, in relation to any year or period of assessment, means-
 (i) in the case of any resident, the total amount, in cash or
otherwise, received by or accrued to or in favour of such
resident; or
 (ii) in the case of any person other than a resident, the total
amount, in cash or otherwise, received by or accrued to or in
favour of such person from a source within the Republic,

during such year or period of assessment, excluding receipts or

accruals of a capital nature …”
Gross Income 2023
Gross Income components
 The total amount,

 In cash or otherwise,

 Received by or accrued to or in favour

of such person

 From a source within or deemed to be

within the Republic, (non-resident only)

 Excluding receipts or accruals of a

capital nature.

Year of assessment? Section 5(1)

Gross Income 2023
Gross income example
Silke 2017 (adapted)

 Mr X a South African resident, sold his motor car which he used for private purposes
for several years. He purchased the vehicle for R200 000 in 2010 and sold and delivered
it to the buyer for R225 000 in the current year of assessment.

 Should this be included in his gross income?

 Suppose that in the same year he also received rent for the amount of R200 000 in
respect of a flat that he owns in New York.

 Should this be included in his income?

Gross Income 2023

 d e fi ne d?
Gross income e s e te rms
Are th e y m e an?
h at d o th
W
Gross income, in relation to any year or period of assessment, means-
 (i) in the case of any resident, the total amount, in cash or
otherwise, received by or accrued to or in favour of such
resident; or
 (ii) in the case of any person other than a resident, the total
amount, in cash or otherwise, received by or accrued to or in
favour of such person from a source within the Republic,

during such year or period of assessment, excluding receipts or

accruals of a capital nature …”
Gross Income 2023
Gross Income components
 The total amount,

 In cash or otherwise,

 Received by or accrued to or in favour

of such person

 From a source within or deemed to be

within the Republic, (non-resident only)

 Excluding receipts or accruals of a

capital nature.

Year of assessment? Section 5(1)

Gross Income 2023
Total amount in cash or otherwise
 CIR v Butcher Bros (Pty) Ltd
 Amount onus = Commissioner
 Must have ascertainable money value

 CSARS v Brummeria Renaissance (Pty) Ltd

 Ascertainable money value

 CIR v Lategan
 Corporeal or incorporeal = not only cash

 CIR v Peoples Stores (Walvis Bay) (Pty)Ltd

’s 37-38
Silke pg
 Every form of property incl debts and rights
of action
Gross Income 2023
Example 1: “amount in cash or otherwise”
In return for goods sold and delivered, JC is granted the
right to occupy his client’s holiday flat in Cape Town free
of charge for two weeks.

The holiday flat is normally let to the public at a rate of

R5 000 a week. JC cannot make use of the benefit at the
time it is made available and does not have the right to
grant the benefit to a third party in return for cash.

Advise the client…so state arguments for both sides, then

advise which is more likely, based on balance of facts

Gross Income 2023

Example 2: “amount in cash or otherwise”
Investors in residential units paid the
developer of the units for life-long rights
in units, not in cash, but by granting
interest-free loans to the developer.

This means that these are loans, which

will be repaid. Does the developer
receive an “amount” in respect of each
unit supplied?

Gross Income 2023

Example 3: “amount in cash or otherwise”
Sheila owns a furniture shop in Durban.
During the current year of assessment she sold a
bedroom set for R5 000 to a client.
The client paid R4 000 in cash and Sheila accepted
a second-hand bedroom set as a trade in for the
balance of R1 000.
Had she sold this bedroom set to another client
immediately, she would have received R1 500 for it.
On what amount will Sheila be taxed for the “R5 000”
sale?

Gross Income 2023

Gross Income components
 The total amount,

 In cash or otherwise,

 Received by or accrued to or in favour

of such person

 From a source within or deemed to be

within the Republic, (non-resident only)

 Excluding receipts or accruals of a

capital nature.

Year of assessment? Section 5(1)

Gross Income 2023
 Received by or accrued to
 CIR v Witwatersrand Association of Racing Clubs
 Once received he is taxed (obligation?)
 CIR v Peoples Stores (Walvis Bay) (Pty) Ltd
 Accrued = entitled to
 Complexity in valuation
 Does not need to be due and payable to be accrued
 CIR v Lategan
 means “become entitled to”
 Mooi v SIR
 become “unconditionally entitled to”
 Geldenhuys v CIR
 own behalf and for his own benefit
 MP Finance Group CC (in liquidation) v C:SARS and CIR v Delagoa Bay Cigarette Co Ltd
 Legality does not affect taxability
 Pyott Ltd v CIR
g ’s 39-46
Silke p
 Deposit included in gross income – separate account used
Example 4: “received by”
 Jakes (an attorney) receives R250 000
rental income per month on behalf of his
client Billy Rental.
 Billy owns two warehouses which he leases
to businesses. Jakes receives these rental
amounts on a monthly basis and pays it
over to Billy.
 What should be included in Jakes GI?

Gross Income 2023

Example 5: “received by”
Grace operates a bed and breakfast
establishment in Pretoria.

She received a deposit of R10 000 on

1 February 2023 to reserve accommodation
for a group of German tourists who will visit
Pretoria during April 2023.

Gross Income 2023

Example 6: “accrued to”
Starling Ltd is trading as a structural engineering firm
specializing in the construction of large bird cages.
On 14 February 2023, two weeks before the end of the
year of assessment, they completed bird cages for Bird-
Viewers-club.
95% of the contract price is, in terms of the agreement,
payable on completion of the bird cages.
5% of the contract price will be retained until a final
certificate is issued by the engineers six months after
completion of the bird cages.
The total contract price was R100 000.
Gross Income 2023
Gross Income components
 The total amount,

 In cash or otherwise,

 Received by or accrued to or in favour

of such person

 From a source within or deemed to be

within the Republic, (non-resident only)

 Excluding receipts or accruals of a

capital nature.

Year of assessment? Section 5(1)

Gross Income 2023
Source
 Not defined in the Income Tax Act No. 58 of 1962
 Case Law:
 Source is not a legal concept but something which the practical man would regard as
the real source of income (Liquidator Rhodesia metals Ltd v COT)
 “the source of receipts received as income is not the quarter whence they come, but the
originating cause..” (CIR v Lever Brothers and Unilever Ltd)
 Two factors:
 The originating cause of the income; and
 The location of the originating cause
 Dominant cause – CIR v Black

Gross Income 2023

Source example
Question 1: Mr A receives R1 000 for the transporting of goods in Johannesburg.

a) What is the originating cause of the income?

b) Where is the location of the originating cause?

Question 2: Mr B transports goods from Cape Town to Germany for R1 000.

c) What is the originating cause of the income? (business or contract?)

d) Where is the location of the originating cause?

Gross Income 2023

Source (Section 9)
 Dividends S9(2)(a) – dividends by SA companies

 Interest S9(2)(b)– if paid by a resident or earned by investments in SA

 Royalties and knowledge S9(2)(c-f)– if incurred by resident/used in SA

 Holders of public office S9(2)(g) – public office is SA source

 Government employer S9(2)(h) – government employer is SA source

 Pensions & annuities S9(2)(i) – place where services rendered (pro-rata)

 Immovable property S9(2)(j) – place where situated

 Movable property S9(2)(k)– if disposed by a resident or situated in SA

If not from SA source, still consider section 9(4).
Gross Income 2023
Source (Case law)
 Section 9 does not deal with rental, service income or business income:

 Rent – Where is the asset located (COT v British United Shoe

Machinery), unless the business operations are dominant in relation to the
asset

 Services – where the service is rendered (CIR v Lever Bros and Unilever)

 Business income – Where the business is carried on/capital employed

(excl section 9 sale of goods, interest, royalties, dividends)

Gross Income 2023

Gross Income components
 The total amount,

 In cash or otherwise,

 Received by or accrued to or in favour

of such person

 From a source within or deemed to be

within the Republic, (non-resident only)

 Excluding receipts or accruals of a

capital nature.

Year of assessment? Section 5(1)

Gross Income 2023
Capital

 Not defined in the Income Tax Act No. 58 of 1962

 Excluded from gross income unless specifically included

 Capital Gains Tax (Eighth Schedule)

 Case Law: Tree vs Fruit (CIR v Visser)

g ’s 47-57
Gross Income 2023
Silke p
Normal Tax Liability Framework
Gross income (as defined in section 1 of the Income Tax Act) LA2 xxx

Add: Special inclusions (as defined in section 1 of the Income Tax LA2 xxx
Act) LA 6
Less: Exempt income (sections 10 and 10A of the Income Tax Act) LA2 (xxx)

Equals Income (as defined in section 1) xxx

Less: General Deductions and allowances (section 11; subject LA3 (xxx)
section 23(m))
Less: Special deductions LA3&5 (xxx)
Less: Assessed loss (section 20) LA3 (xxx)
Add: Taxable capital gain (section 26A) LA4 xxx
Equals: Taxable income (as defined in section 1) XXX
Gross Income: 2020
 ’s 47-57
Capital nature Silke pg

 CIR v Richmond Estates (Pty) Ltd

 intention of a company = formal and informal acts is not
the shareholders but directors
 COT v Levy
 Two motives = dominant prevails
 Elandsheuwel Farming (Edms) Bpk v SBI
 Lifting of corporate veil – new shareholders
 CIR v Pick ‘n Pay Employee Share Purchase Trust
 scheme of profit-making before proceeds become taxable
 CIR v Stott
 may realise a capital asset to his best advantage
 CIR v Nel
 Kruger Rands capital asset
 CIR v Nussbaum
 two purposes are pursued simultaneously

Gross Income 2023

 ’s 47-57
Capital nature Silke pg

 Natal Estates Ltd v SIR

 Although a person may realise his capital asset to
his best advantage,
 he must be careful not to “cross the Rubicon”
 and embark on extensive and elaborate activities to
realise his capital assets which constitute a scheme
of profit making.
 the way in which you dispose = show a change in
intention.

 Berea West Estates v CIR

 realization company ?

Gross Income 2023

 ’s 47-57
Capital nature Silke pg
 John Bell v SIR
 Mere decision to sell capital asset at a profit does
not = revenue in nature. Something more is
required to prove that there was change in
intention
 CSARS v Founders Hill
 Realisation company ?
 CIR v George Forrest Timber Co Ltd
 Floating capital is consumed or disappears in the
very process of production (trading
stock/consumables), while fixed capital does not;
though it produces fresh wealth, it remains intact
(machinery).
Gross Income 2023
 ’s 47-57
Capital Silke pg
 Dominant Intention - date of acquisition and change of intention
 Change of intention
 Length of time held
 Continuity
 Frequency
 Nature of taxpayers business
 Income flow
 Reason for sale
it?
 Finance Ipse dix
 Nature of the asset

Gross Income 2023

 ’s 47-57
Capital (Case law) Silke pg
 Not possible to have neither capital nor revenue – Pyott vs CIR
 Intention & Can realise to best advantage – CIR v Stott
 “Something more” – Natal Estates vs Berea West Estates
 Business sale? Illegal Business?
 Damages and compensation
 Payment for the loss of an asset – capital
 Payment for the loss of income – revenue
 Cancellation of a contract - WJ Fourie Beleggings v CSARS and Stellenbosch
Farmers’ Winery v Commissioner for SA Revenue Service
 Illegal receipts – Cot v G
 Fortuitous gains – generally capital
 Gambling?
 Goodwill – capital (provided not a share of future profits)

Gross Income 2023

Capital example
Mrs Black purchased listed shares in a foreign company for R10 000 on 1 October
2014. On 31 January 2023, she sells the shares for R56 000.

i) What will happen with the R56 000 if this is a receipt that is NOT capital in nature?

ii) What happens with the R56 000 if the receipt gives rise to an accrual that IS capital in
nature?

Gross Income 2023

 a pte r 4
Special inclusions Silke C h

 Why? Capital or non-SA Source

 Special inclusions – paragraph (a) to (n) of the gross income definition

Gross Income 2023

Topics
Silke Chapter 3

 Objectives - ClickUP

 Gross income (S1) (pg 37-47)

 Resident vs non-resident (S1) (pg 27-36)

 Source

 Capital vs revenue (pg 47-57)

Gross Income 2023

Thank You