TAX 3702 ASSIGNMENT 3 OF 2021
PLEASE NOTE THERE IS A HIGH RISK OF PLAGARISM ON THIS MODULE USE THIS DOCUMENT AS REFERENCE.
Question 1
For a receipt to be included in gross income it must either comply with all the requirements of the general
definition of “gross income”. That is:
• the total amount in cash or otherwise
• received by or accrued to a taxpayer
• during the year of assessment
• which is not of a capital nature.
The amount may also be part of gross income through the special inclusions as paragraph (a) to (n) of the gross
income definition.
(i) Amount in to be included in Mrs. Kane’s gross income in terms of sales
• The amount of R60 000 was collected from customers during the 2021 year of assessment
• The amount is not if capital in nature
• The element of whether the amount was received for Mrs. Kane benefit need to be discussed.
Geldenhuys case law states the amount is deemed to be received by the taxpayer if “received for
taxpayers’ own behalf and for taxpayers’ own benefit’. The R 60 000 in full is not received for Mrs. Kane
own behalf and own benefit as the contract stipulates that 80% should be paid over to Herbalife as per
contract stipulations.
• Therefore, the amount to be included I Mrs. Kane gross income in respect of sales is R 60 000- R 8000)
*20% = R 10 400
• In addition this an amount of R8000 *20% less (R 8000 *2%) = R 1440 should be included as Mrs. Kane
sales
(ii) Amount to be included in Mrs. Kane’s gross income in terms of the deposit
• An amount of R12 000 for deposit form a customer to secure a large order was received by Mrs Kane
during 2021 year of assessment.
• The crux of the matter lies on whether this amount had accrued to Mrs Kane.
• The amount of R12 000 was received from the client, therefore Mrs Kane should include the R 12
000*20% in her gross income. The 80% portion that was not paid to HerbLife by 28 Feb 2021 is not
received on her own behalf and benefit, therefore that amount should not form part of her gross income.
(iii) Amount to be included in Mrs Kane’s gross income in terms of the refund arrangement
• The refund amount equivalent to 2% of sales of R 8000 will be excluded from Mrs
Kane gross income.
• The amount is received with the condition of being repaid to the customer
therefore not received for Mrs Kane own benefit.
,Question 2
Part a
• An amount is deductible in the calculation taxable income as per either special deductions
available or it not as per the general deduction formula s11(a) read with s23(g)
• There is no special deduction available for advertising costs and therefore the general deduction
formula must be considered.
• For an amount to be deductible as a general deduction it must comply with s11(a) and s23(g) of
the Income Tax Act.
• The R4210 paid meets the following elements of s11(a):
• The saniters were purchased to be used in the nail salon therefore meets the definition of
carrying on trade
• It is a voluntary payment (expenditure)
• The amount of R 4 210 has been paid therefore actually incurred
• For purchase of sanitizers needed for clients on entry to her salon as required by Covid-19
regulations therefore incurred in the production of income. The expenditure is closely
connected to income earning operations.
• R 4210 relates to the cost of saniters for the period 1 June 202 to 28 February 2021, that falls
within the current year of assessment.
• The R 4 210 doe does not create an enduring benefit because it relates to income earning
operations.
• The onus lies with Rochelle in terms of section 102 of the Administration Act to prove to the
Commissioner whether the amount of R 4210 is deductible or not.
• The R 4210 paid for saniters meets of the requirements of s11(a) therefore it is deductible.
Question 2: part b
• Provisional tax is paid by individuals who earn income other than a salary form employer.
• Rochelle got retrenched after 01 June 2020, and she opened a nail salon business, therefore she
is earning income not from the employer.
• She has to register as a provisional taxpayer as she need to declare the salon income to SARS
, Part C
Calculation of second provisional tax payment
Calculation Taxable income
Minimum amount
Use 90% of actual taxable income 90% * (366 245- 4210) 325 832
Normal tax as per tables (R325 832-321 600) *31% ) +67144 68 456
Less: Primary rebate (14 958)
Less: Medical schemes fees tax credit ( R 319)*12 (3 828)
Additional medical expenses - not -
allowed
Net normal tax 49 670
Less, First provisional tax payment -
Second provisional tax payment 49 670
Question 3.
PLEASE NOTE THERE IS A HIGH RISK OF PLAGARISM ON THIS MODULE USE THIS DOCUMENT AS REFERENCE.
Question 1
For a receipt to be included in gross income it must either comply with all the requirements of the general
definition of “gross income”. That is:
• the total amount in cash or otherwise
• received by or accrued to a taxpayer
• during the year of assessment
• which is not of a capital nature.
The amount may also be part of gross income through the special inclusions as paragraph (a) to (n) of the gross
income definition.
(i) Amount in to be included in Mrs. Kane’s gross income in terms of sales
• The amount of R60 000 was collected from customers during the 2021 year of assessment
• The amount is not if capital in nature
• The element of whether the amount was received for Mrs. Kane benefit need to be discussed.
Geldenhuys case law states the amount is deemed to be received by the taxpayer if “received for
taxpayers’ own behalf and for taxpayers’ own benefit’. The R 60 000 in full is not received for Mrs. Kane
own behalf and own benefit as the contract stipulates that 80% should be paid over to Herbalife as per
contract stipulations.
• Therefore, the amount to be included I Mrs. Kane gross income in respect of sales is R 60 000- R 8000)
*20% = R 10 400
• In addition this an amount of R8000 *20% less (R 8000 *2%) = R 1440 should be included as Mrs. Kane
sales
(ii) Amount to be included in Mrs. Kane’s gross income in terms of the deposit
• An amount of R12 000 for deposit form a customer to secure a large order was received by Mrs Kane
during 2021 year of assessment.
• The crux of the matter lies on whether this amount had accrued to Mrs Kane.
• The amount of R12 000 was received from the client, therefore Mrs Kane should include the R 12
000*20% in her gross income. The 80% portion that was not paid to HerbLife by 28 Feb 2021 is not
received on her own behalf and benefit, therefore that amount should not form part of her gross income.
(iii) Amount to be included in Mrs Kane’s gross income in terms of the refund arrangement
• The refund amount equivalent to 2% of sales of R 8000 will be excluded from Mrs
Kane gross income.
• The amount is received with the condition of being repaid to the customer
therefore not received for Mrs Kane own benefit.
,Question 2
Part a
• An amount is deductible in the calculation taxable income as per either special deductions
available or it not as per the general deduction formula s11(a) read with s23(g)
• There is no special deduction available for advertising costs and therefore the general deduction
formula must be considered.
• For an amount to be deductible as a general deduction it must comply with s11(a) and s23(g) of
the Income Tax Act.
• The R4210 paid meets the following elements of s11(a):
• The saniters were purchased to be used in the nail salon therefore meets the definition of
carrying on trade
• It is a voluntary payment (expenditure)
• The amount of R 4 210 has been paid therefore actually incurred
• For purchase of sanitizers needed for clients on entry to her salon as required by Covid-19
regulations therefore incurred in the production of income. The expenditure is closely
connected to income earning operations.
• R 4210 relates to the cost of saniters for the period 1 June 202 to 28 February 2021, that falls
within the current year of assessment.
• The R 4 210 doe does not create an enduring benefit because it relates to income earning
operations.
• The onus lies with Rochelle in terms of section 102 of the Administration Act to prove to the
Commissioner whether the amount of R 4210 is deductible or not.
• The R 4210 paid for saniters meets of the requirements of s11(a) therefore it is deductible.
Question 2: part b
• Provisional tax is paid by individuals who earn income other than a salary form employer.
• Rochelle got retrenched after 01 June 2020, and she opened a nail salon business, therefore she
is earning income not from the employer.
• She has to register as a provisional taxpayer as she need to declare the salon income to SARS
, Part C
Calculation of second provisional tax payment
Calculation Taxable income
Minimum amount
Use 90% of actual taxable income 90% * (366 245- 4210) 325 832
Normal tax as per tables (R325 832-321 600) *31% ) +67144 68 456
Less: Primary rebate (14 958)
Less: Medical schemes fees tax credit ( R 319)*12 (3 828)
Additional medical expenses - not -
allowed
Net normal tax 49 670
Less, First provisional tax payment -
Second provisional tax payment 49 670
Question 3.
