Question 1 :
a) Discussion whether the proceeds of R1200 000 from disposal of rental property will from part of gross income.
An amount will constitute gross income if either it falls within the general definition thereof, or it is covered
by one of the special inclusions in gross income (paragraphs (a) to (n) of the definition). The starting point
will be the general definition of gross income. This part of the definition has requirements that must all be
met before an amount will be covered by it. If any one of these requirements are absent, the amount can
only form part of gross income if listed as a special inclusion therein.
Elements general of gross income are thefore discussed below:
For a resident
Greg is resident in South Africa as he originates fro Mahikeng that is in South Africa.
Total amount in cash or otherwise
An amount of R 1200 000 in cash has been received by Greg .
Received by or accrued to or in favour of
The meaning of the word “received” has been held to be “received by the taxpayer on his own behalf and for his own benefit”
The meaning of the word “accrued” has been held to become “entitled to” and this was further narrowed downed to "unconditionally entitled to"
In Greg situation he received, the proceeds of R1200 000 on his own behalf and for his own benefit given that he does not have an obligation to pay it over to
someone else. This requirement therefore is met.
During current year of Assessment
The amount of R 1200 000 was received by Greg on 31 March 2020 when the University deposited the money into his personal bank account. 31 March 2020 falls
within the current year pf assessment that ends on 28 February 2021.
Not of capital in nature
To determine whether the proceeds are capital or revenue in nature, we need to test his intention using various objective factors and subjective factors.
Subjective factors.
The rental property was held as a "tree "as it was used to generate rental income therefore the proceeds will be deemed to be capital in nature.
We need to study the intention of the Greg throughout the period the asset was held to determine if he has “crossed the Rubicon”, and changed their intention.
Objective factors
Occupation of the taxpayer
Greg is s employed as an administration clerk at the Department of Education. He is not a property developer.
That fact thefore supports his contention that he was merely realising an investment and that the receipts are capital in nature.
The period for which the asset was held
The rental property was originally acquired on 30 November 2014 and it was disposed off on 31 March 2020, that means it was held for a complete 5 years.
This fact therefore supports the fact that the proceeds were capital in nature.
Frequency of transactions
There is no evidence that supports that the taxpayer has undertaken a continuous series of similar transactions in the past. That could support the fact the proceeds
are capital in nature.
However an isolated transaction, can be revenue in nature if there is a profit making scheme involved.
, The manner of disposal
He saw a tender advertisement in the Mahikeng local newspaper and he participated in the tender process that he won and he further converted his rental property
to the requirement of the University as he saw this as a good investment .
The fact that he was actively involved in the tendering process process does not mean that he was engaged in the scheme of profit making , however
it can be understood that he was realising the asset to his best adavantage.
Therefore the proceeds will be capital in nature.
Conclusion.
Based on the discussion above , not all the requirement of gross income have not been met, therefore the proceeds of R 1200 000 will not included in the gross income for
the 2021 year of assessment.
There is no special inclusisons applicable to include this amount into gross income.
NB!! Discussion questions, remember to twist it around to avoid plagiarism, eg the way I put objective factors , change the sequence and some wording however,
avoid changing principles at all costs
b) Discuss, with reference to the gross income definition and case law principles, whether the proceeds of R4 000 000 from the sale of the additional properties are capital in nature or
not and if the proceeds should or should not be included in Greg’s gross income during the 2021 year of assessment
Requirements of gross income definition For an amount to be included in the gross income of Mr. Greg, all the requirements of the general definition of gross income should be met,
and if not all the requirements of gross income are not met, it may be included the gross income under the special inclusions as per paragraph (a-n) of gross income definition
For a resident
Greg is resident in South Africa as he originates fro Mahikeng that is in South Africa.
Total amount in cash or otherwise
The payment was received in the form of cash of R 4 000 000
Received by or accrued to taxpayer
An amount is said to be received by the taxpayer if “received on own behalf and own benefit
An amount of R 4 000 000 was received by Greg as he received this amount from the disposal of thress additional properties, therefore it is for his own behalf and
own behalf
During the current year of assessment
The amount of R 4000 000 was received on 15 September 2020 which falls within the current year of assessment ending 28 February 2021.
Excludes amount of capital in nature
The intention of Greg should be studied from the time he acquired the asset, during the whole period he held it and the time he disposed it
The objective and subjective factors will be discussed to determine whether the receipt of R 4000 000 is capital in nature or not
Objective factors
Period the asset held.
Greg acquired three additional properties on 30 April 2020 and disposed it on 15 September 2020, therefore this proves that the proceeds will be revenue in nature.
a) Discussion whether the proceeds of R1200 000 from disposal of rental property will from part of gross income.
An amount will constitute gross income if either it falls within the general definition thereof, or it is covered
by one of the special inclusions in gross income (paragraphs (a) to (n) of the definition). The starting point
will be the general definition of gross income. This part of the definition has requirements that must all be
met before an amount will be covered by it. If any one of these requirements are absent, the amount can
only form part of gross income if listed as a special inclusion therein.
Elements general of gross income are thefore discussed below:
For a resident
Greg is resident in South Africa as he originates fro Mahikeng that is in South Africa.
Total amount in cash or otherwise
An amount of R 1200 000 in cash has been received by Greg .
Received by or accrued to or in favour of
The meaning of the word “received” has been held to be “received by the taxpayer on his own behalf and for his own benefit”
The meaning of the word “accrued” has been held to become “entitled to” and this was further narrowed downed to "unconditionally entitled to"
In Greg situation he received, the proceeds of R1200 000 on his own behalf and for his own benefit given that he does not have an obligation to pay it over to
someone else. This requirement therefore is met.
During current year of Assessment
The amount of R 1200 000 was received by Greg on 31 March 2020 when the University deposited the money into his personal bank account. 31 March 2020 falls
within the current year pf assessment that ends on 28 February 2021.
Not of capital in nature
To determine whether the proceeds are capital or revenue in nature, we need to test his intention using various objective factors and subjective factors.
Subjective factors.
The rental property was held as a "tree "as it was used to generate rental income therefore the proceeds will be deemed to be capital in nature.
We need to study the intention of the Greg throughout the period the asset was held to determine if he has “crossed the Rubicon”, and changed their intention.
Objective factors
Occupation of the taxpayer
Greg is s employed as an administration clerk at the Department of Education. He is not a property developer.
That fact thefore supports his contention that he was merely realising an investment and that the receipts are capital in nature.
The period for which the asset was held
The rental property was originally acquired on 30 November 2014 and it was disposed off on 31 March 2020, that means it was held for a complete 5 years.
This fact therefore supports the fact that the proceeds were capital in nature.
Frequency of transactions
There is no evidence that supports that the taxpayer has undertaken a continuous series of similar transactions in the past. That could support the fact the proceeds
are capital in nature.
However an isolated transaction, can be revenue in nature if there is a profit making scheme involved.
, The manner of disposal
He saw a tender advertisement in the Mahikeng local newspaper and he participated in the tender process that he won and he further converted his rental property
to the requirement of the University as he saw this as a good investment .
The fact that he was actively involved in the tendering process process does not mean that he was engaged in the scheme of profit making , however
it can be understood that he was realising the asset to his best adavantage.
Therefore the proceeds will be capital in nature.
Conclusion.
Based on the discussion above , not all the requirement of gross income have not been met, therefore the proceeds of R 1200 000 will not included in the gross income for
the 2021 year of assessment.
There is no special inclusisons applicable to include this amount into gross income.
NB!! Discussion questions, remember to twist it around to avoid plagiarism, eg the way I put objective factors , change the sequence and some wording however,
avoid changing principles at all costs
b) Discuss, with reference to the gross income definition and case law principles, whether the proceeds of R4 000 000 from the sale of the additional properties are capital in nature or
not and if the proceeds should or should not be included in Greg’s gross income during the 2021 year of assessment
Requirements of gross income definition For an amount to be included in the gross income of Mr. Greg, all the requirements of the general definition of gross income should be met,
and if not all the requirements of gross income are not met, it may be included the gross income under the special inclusions as per paragraph (a-n) of gross income definition
For a resident
Greg is resident in South Africa as he originates fro Mahikeng that is in South Africa.
Total amount in cash or otherwise
The payment was received in the form of cash of R 4 000 000
Received by or accrued to taxpayer
An amount is said to be received by the taxpayer if “received on own behalf and own benefit
An amount of R 4 000 000 was received by Greg as he received this amount from the disposal of thress additional properties, therefore it is for his own behalf and
own behalf
During the current year of assessment
The amount of R 4000 000 was received on 15 September 2020 which falls within the current year of assessment ending 28 February 2021.
Excludes amount of capital in nature
The intention of Greg should be studied from the time he acquired the asset, during the whole period he held it and the time he disposed it
The objective and subjective factors will be discussed to determine whether the receipt of R 4000 000 is capital in nature or not
Objective factors
Period the asset held.
Greg acquired three additional properties on 30 April 2020 and disposed it on 15 September 2020, therefore this proves that the proceeds will be revenue in nature.
