TAX3761: SOUTH AFRICAN TAXATION OF BUSINESS ACTIVITIES AND INDIVIDUALS -
DISTINCTION EXAMINATION PACK 2026
SECTION A: GROSS INCOME AND SPECIAL INCLUSIONS (QUESTIONS 1-35)
1. What is the fundamental principle of the South African residence-based tax system
regarding gross income?
A) Only income from South African sources is taxed for all taxpayers
B) Residents are taxed on worldwide income while non-residents are taxed on South
African source income
C) All income is taxed regardless of source or residence status
D) Only income physically received in South Africa is taxable
Correct Answer: B
Rationale: South Africa operates a residence-based tax system where residents are taxed
on their worldwide income (regardless of source), while non-residents are taxed only on
income from a South African source . This distinguishes South Africa from purely source-
based tax systems. The residence status determines the scope of taxable income.
2. The phrase "received by or accrued to" in the gross income definition means:
A) Income is taxable only when physically received in cash
B) Income must be both received and accrued before taxation
C) Income is taxable at the earlier of receipt or when an unconditional right to the amount
arises
D) Income is taxable only when the taxpayer has a court order for payment
Correct Answer: C
Rationale: "Received by" means received on behalf of oneself (not as agent), while
"accrued to" means the taxpayer has an unconditional right to the amount. The amount is
,included at the earlier of receipt or accrual . This ensures income is taxed when the
taxpayer becomes entitled to it, even if not yet physically received.
3. Which of the following is a specific inclusion in gross income under the Income Tax
Act?
A) Capital gains from share disposals
B) Amounts received for restraint of trade
C) Inherited property
D) Loan proceeds from a bank
Correct Answer: B
Rationale: Amounts received for restraint of trade are specifically included in gross income
under the Act . Capital gains are dealt with under the Capital Gains Tax regime and are not
part of gross income. Inherited property and loan proceeds are generally capital in nature
or do not constitute income.
4. When does an amount "accrue" to a taxpayer for income tax purposes?
A) When the taxpayer expects to receive the amount in future
B) When the taxpayer has an unconditional right to the amount
C) When the taxpayer receives a written invoice
D) When the taxpayer negotiates a contract
Correct Answer: B
Rationale: An amount accrues when the taxpayer has an unconditional right to the
amount. The mere expectation of income is insufficient for accrual . This legal concept
ensures that income is taxed when entitlement is established, not merely anticipated.
5. For a non-resident, the "source" of income is determined by:
A) The taxpayer's country of residence
B) Where the taxpayer banks the income
C) The cause of the income - where services are rendered, property situated, or business
activity takes place
D) The nationality of the taxpayer
Correct Answer: C
Rationale: The source of income for a non-resident is determined by the originating cause -
where services are rendered, where property is situated, or where business activity takes
place . This determines whether South Africa has taxing rights over the income.
6. The definition of "connected person" is relevant in tax law primarily to:
A) Determine who can claim the primary rebate
B) Ensure transactions occur at arm's length between related parties
,C) Calculate employee tax deductions
D) Determine VAT registration requirements
Correct Answer: B
Rationale: The connected person definition scrutinises transactions to ensure they occur
at arm's length between related parties . This prevents tax avoidance through artificial
pricing arrangements between related persons such as relatives, trusts, companies,
partnerships, and members with significant control.
7. Which of the following amounts is NOT specifically included in gross income?
A) Annuities received
B) Lease premiums received
C) Lump sums from retirement funds
D) Proceeds from a life insurance policy on the taxpayer's own life
Correct Answer: D
Rationale: Specific inclusions in gross income include annuities, lease premiums, and
lump sums from retirement funds . However, proceeds from a life insurance policy on the
taxpayer's own life are generally not included in gross income as they are typically capital in
nature, unless the policy was held for investment purposes.
8. The negative test in determining whether an amount is gross income checks:
A) Whether the amount is received from a South African resident
B) Whether the amount is specifically excluded from gross income
C) Whether the amount is of a capital nature
D) Whether the amount exceeds R100,000
Correct Answer: C
Rationale: The negative test checks whether the amount is specifically of a capital nature .
If an amount is capital in nature, it falls outside the gross income definition. This is
fundamental to distinguishing between revenue and capital receipts in tax law.
9. For foreign currency translation of income, South African tax law requires:
A) The historical exchange rate at the date of contract signature
B) The spot rate or an average exchange rate as prescribed
C) The forward exchange contract rate where applicable
D) Both B and C are correct
Correct Answer: D
Rationale: Taxpayers may use the spot rate or an average exchange rate as prescribed .
Where a forward exchange contract is applicable, that rate may be used. This provides
flexibility while ensuring consistency in translating foreign currency amounts.
, 10. Alimony and maintenance payments received are treated for tax purposes as:
A) Exempt from normal tax
B) Capital in nature
C) Specifically included in gross income
D) Deductible in the hands of the recipient
Correct Answer: C
Rationale: Alimony and maintenance payments are specific inclusions in gross income
under the Act . This ensures that these recurring payments are taxed as income in the
hands of the recipient, regardless of the nature of the underlying obligation.
11. Amounts recouped under the Income Tax Act are:
A) Exempt from tax
B) Specifically included in gross income
C) Deductible expenses
D) Subject to capital gains tax
Correct Answer: B
Rationale: Amounts recouped are specifically included in gross income . This includes
amounts recovered or recouped on assets for which deductions were previously claimed.
The recoupment mechanism ensures that previous tax benefits are reversed when assets
are disposed of or insurance proceeds are received.
12. Dividends received by a South African resident individual are:
A) Fully taxable as gross income
B) Exempt from income tax under s10(1)(k) but subject to Dividends Tax
C) Only taxable if exceeding R23,800 per year
D) Taxable at the individual's marginal rate
Correct Answer: B
Rationale: Dividends received from South African resident companies are generally
exempt from income tax under s10(1)(k) for individuals . However, they are subject to
Dividends Tax (20%) withheld at source. This creates a separate tax regime for dividends
rather than taxing them as normal income.
13. A South African resident working abroad for 200 days in a 12-month period
qualifies for exemption under s10(1)(o) if:
A) They earn less than R1,000,000 per year
B) They are employed by a South African company
C) They work outside SA for more than 183 days with at least 60 consecutive days
D) They remit all income to South Africa
DISTINCTION EXAMINATION PACK 2026
SECTION A: GROSS INCOME AND SPECIAL INCLUSIONS (QUESTIONS 1-35)
1. What is the fundamental principle of the South African residence-based tax system
regarding gross income?
A) Only income from South African sources is taxed for all taxpayers
B) Residents are taxed on worldwide income while non-residents are taxed on South
African source income
C) All income is taxed regardless of source or residence status
D) Only income physically received in South Africa is taxable
Correct Answer: B
Rationale: South Africa operates a residence-based tax system where residents are taxed
on their worldwide income (regardless of source), while non-residents are taxed only on
income from a South African source . This distinguishes South Africa from purely source-
based tax systems. The residence status determines the scope of taxable income.
2. The phrase "received by or accrued to" in the gross income definition means:
A) Income is taxable only when physically received in cash
B) Income must be both received and accrued before taxation
C) Income is taxable at the earlier of receipt or when an unconditional right to the amount
arises
D) Income is taxable only when the taxpayer has a court order for payment
Correct Answer: C
Rationale: "Received by" means received on behalf of oneself (not as agent), while
"accrued to" means the taxpayer has an unconditional right to the amount. The amount is
,included at the earlier of receipt or accrual . This ensures income is taxed when the
taxpayer becomes entitled to it, even if not yet physically received.
3. Which of the following is a specific inclusion in gross income under the Income Tax
Act?
A) Capital gains from share disposals
B) Amounts received for restraint of trade
C) Inherited property
D) Loan proceeds from a bank
Correct Answer: B
Rationale: Amounts received for restraint of trade are specifically included in gross income
under the Act . Capital gains are dealt with under the Capital Gains Tax regime and are not
part of gross income. Inherited property and loan proceeds are generally capital in nature
or do not constitute income.
4. When does an amount "accrue" to a taxpayer for income tax purposes?
A) When the taxpayer expects to receive the amount in future
B) When the taxpayer has an unconditional right to the amount
C) When the taxpayer receives a written invoice
D) When the taxpayer negotiates a contract
Correct Answer: B
Rationale: An amount accrues when the taxpayer has an unconditional right to the
amount. The mere expectation of income is insufficient for accrual . This legal concept
ensures that income is taxed when entitlement is established, not merely anticipated.
5. For a non-resident, the "source" of income is determined by:
A) The taxpayer's country of residence
B) Where the taxpayer banks the income
C) The cause of the income - where services are rendered, property situated, or business
activity takes place
D) The nationality of the taxpayer
Correct Answer: C
Rationale: The source of income for a non-resident is determined by the originating cause -
where services are rendered, where property is situated, or where business activity takes
place . This determines whether South Africa has taxing rights over the income.
6. The definition of "connected person" is relevant in tax law primarily to:
A) Determine who can claim the primary rebate
B) Ensure transactions occur at arm's length between related parties
,C) Calculate employee tax deductions
D) Determine VAT registration requirements
Correct Answer: B
Rationale: The connected person definition scrutinises transactions to ensure they occur
at arm's length between related parties . This prevents tax avoidance through artificial
pricing arrangements between related persons such as relatives, trusts, companies,
partnerships, and members with significant control.
7. Which of the following amounts is NOT specifically included in gross income?
A) Annuities received
B) Lease premiums received
C) Lump sums from retirement funds
D) Proceeds from a life insurance policy on the taxpayer's own life
Correct Answer: D
Rationale: Specific inclusions in gross income include annuities, lease premiums, and
lump sums from retirement funds . However, proceeds from a life insurance policy on the
taxpayer's own life are generally not included in gross income as they are typically capital in
nature, unless the policy was held for investment purposes.
8. The negative test in determining whether an amount is gross income checks:
A) Whether the amount is received from a South African resident
B) Whether the amount is specifically excluded from gross income
C) Whether the amount is of a capital nature
D) Whether the amount exceeds R100,000
Correct Answer: C
Rationale: The negative test checks whether the amount is specifically of a capital nature .
If an amount is capital in nature, it falls outside the gross income definition. This is
fundamental to distinguishing between revenue and capital receipts in tax law.
9. For foreign currency translation of income, South African tax law requires:
A) The historical exchange rate at the date of contract signature
B) The spot rate or an average exchange rate as prescribed
C) The forward exchange contract rate where applicable
D) Both B and C are correct
Correct Answer: D
Rationale: Taxpayers may use the spot rate or an average exchange rate as prescribed .
Where a forward exchange contract is applicable, that rate may be used. This provides
flexibility while ensuring consistency in translating foreign currency amounts.
, 10. Alimony and maintenance payments received are treated for tax purposes as:
A) Exempt from normal tax
B) Capital in nature
C) Specifically included in gross income
D) Deductible in the hands of the recipient
Correct Answer: C
Rationale: Alimony and maintenance payments are specific inclusions in gross income
under the Act . This ensures that these recurring payments are taxed as income in the
hands of the recipient, regardless of the nature of the underlying obligation.
11. Amounts recouped under the Income Tax Act are:
A) Exempt from tax
B) Specifically included in gross income
C) Deductible expenses
D) Subject to capital gains tax
Correct Answer: B
Rationale: Amounts recouped are specifically included in gross income . This includes
amounts recovered or recouped on assets for which deductions were previously claimed.
The recoupment mechanism ensures that previous tax benefits are reversed when assets
are disposed of or insurance proceeds are received.
12. Dividends received by a South African resident individual are:
A) Fully taxable as gross income
B) Exempt from income tax under s10(1)(k) but subject to Dividends Tax
C) Only taxable if exceeding R23,800 per year
D) Taxable at the individual's marginal rate
Correct Answer: B
Rationale: Dividends received from South African resident companies are generally
exempt from income tax under s10(1)(k) for individuals . However, they are subject to
Dividends Tax (20%) withheld at source. This creates a separate tax regime for dividends
rather than taxing them as normal income.
13. A South African resident working abroad for 200 days in a 12-month period
qualifies for exemption under s10(1)(o) if:
A) They earn less than R1,000,000 per year
B) They are employed by a South African company
C) They work outside SA for more than 183 days with at least 60 consecutive days
D) They remit all income to South Africa
