TAX2601 Assignment 1
(COMPLETE ANSWERS)
Semester 1 2025 - DUE 7
April 2025
,TAX2601 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2025 - DUE 7 April
2025
Mr Xhumalo lives in Gqeberha, South Africa. He
manufactures and sells various grass baskets and
placemats from a street stall. Due to the high
demand for his products, he concluded a sales
agreement with a well-known houseware retailer in
South Africa. In terms of the agreement, the
retailer will purchase R25 000 worth of products
from Mr Xhumalo on 15 February 2025 on credit.
The goods must be manufactured and delivered by
15 March 2025, with payment scheduled for 31
March 2025. The agreement clearly states that Mr
Xhumalo will only become entitled to payment
once he has delivered the goods. Mr Xhumalo’s
accountant is uncertain in which year of
assessment the R25 000 must be declared for tax
purposes and contacted you for advice. REQUIRED
MARKS Discuss whether the R25 000 of the sale
will constitute gross income in the hands of Mr
Xhumalo for the 2025 year of assessment. Note: •
You can support the main issue in the question
with relevant case law from the module's
prescribed case law. 12
Gross income definition (section 1 of the Income Tax Act):
"Total amount, in cash or otherwise, received by
or accrued to a resident in a year of
assessment..."
Accrual principle: Income is included in gross income when it becomes due
and payable, not necessarily when payment is received.
Case Law to Use:
Lategan v CIR (1926):
, Income accrues when the taxpayer has a vested right to it, even if
payment is not yet received.
“Due and payable” means the taxpayer has a legal right to the amount.
Mooi v SIR:
Income must be unconditionally due for accrual.
If there is a condition that must be fulfilled first (like delivery), accrual
happens only after that condition is met.
Apply to Mr Xhumalo:
The agreement states Mr Xhumalo will only become entitled to payment
once the goods are delivered.
Delivery is scheduled by 15 March 2025, which falls in the 2026 year of
assessment (1 March 2025 – 28 February 2026).
QUESTION 2 (12 marks, 14 minutes) Hlumelela
(Pty) Ltd is not a small business corporation as
defined in the Income Tax Act. The company’s year
of assessment ends on 31 March, and its records
reflect the following: Year of assessment Taxable
income Date of assessment 2025 R1 784 432
(Estimated – not yet assessed) 2024 R1 354 980
15 September 2024 2023 R1 200 000 4 April 2023
REQUIRED MARKS (a) Calculate the first and
second provisional tax payments for Hlumelela
(Pty) Ltd for its 2025 year of assessment to ensure
that the company does not incur any
underestimation penalties. Note: • Provide a
reason for all the amounts used, explaining
whether they may be used as the basic amount,
and specify any adjustments made (if any)
calculating the basic amount. • Clearly indicate on
which date the payments must be made. 9
To avoid penalties, a company must base payments on the “basic amount” unless an
accurate estimate is used.
(COMPLETE ANSWERS)
Semester 1 2025 - DUE 7
April 2025
,TAX2601 Assignment 1 (COMPLETE
ANSWERS) Semester 1 2025 - DUE 7 April
2025
Mr Xhumalo lives in Gqeberha, South Africa. He
manufactures and sells various grass baskets and
placemats from a street stall. Due to the high
demand for his products, he concluded a sales
agreement with a well-known houseware retailer in
South Africa. In terms of the agreement, the
retailer will purchase R25 000 worth of products
from Mr Xhumalo on 15 February 2025 on credit.
The goods must be manufactured and delivered by
15 March 2025, with payment scheduled for 31
March 2025. The agreement clearly states that Mr
Xhumalo will only become entitled to payment
once he has delivered the goods. Mr Xhumalo’s
accountant is uncertain in which year of
assessment the R25 000 must be declared for tax
purposes and contacted you for advice. REQUIRED
MARKS Discuss whether the R25 000 of the sale
will constitute gross income in the hands of Mr
Xhumalo for the 2025 year of assessment. Note: •
You can support the main issue in the question
with relevant case law from the module's
prescribed case law. 12
Gross income definition (section 1 of the Income Tax Act):
"Total amount, in cash or otherwise, received by
or accrued to a resident in a year of
assessment..."
Accrual principle: Income is included in gross income when it becomes due
and payable, not necessarily when payment is received.
Case Law to Use:
Lategan v CIR (1926):
, Income accrues when the taxpayer has a vested right to it, even if
payment is not yet received.
“Due and payable” means the taxpayer has a legal right to the amount.
Mooi v SIR:
Income must be unconditionally due for accrual.
If there is a condition that must be fulfilled first (like delivery), accrual
happens only after that condition is met.
Apply to Mr Xhumalo:
The agreement states Mr Xhumalo will only become entitled to payment
once the goods are delivered.
Delivery is scheduled by 15 March 2025, which falls in the 2026 year of
assessment (1 March 2025 – 28 February 2026).
QUESTION 2 (12 marks, 14 minutes) Hlumelela
(Pty) Ltd is not a small business corporation as
defined in the Income Tax Act. The company’s year
of assessment ends on 31 March, and its records
reflect the following: Year of assessment Taxable
income Date of assessment 2025 R1 784 432
(Estimated – not yet assessed) 2024 R1 354 980
15 September 2024 2023 R1 200 000 4 April 2023
REQUIRED MARKS (a) Calculate the first and
second provisional tax payments for Hlumelela
(Pty) Ltd for its 2025 year of assessment to ensure
that the company does not incur any
underestimation penalties. Note: • Provide a
reason for all the amounts used, explaining
whether they may be used as the basic amount,
and specify any adjustments made (if any)
calculating the basic amount. • Clearly indicate on
which date the payments must be made. 9
To avoid penalties, a company must base payments on the “basic amount” unless an
accurate estimate is used.
