TAX2601 Assignment 1
(COMPLETE ANSWERS)
Semester 1 2025 - DUE 7
April 2025
NO PLAGIARISM
[Pick the date]
[Type the company name]
, Book
Fundamentals of South African Income Tax
TAX2601 Assignment 1 (COMPLETE ANSWERS) Semester 1 2025 - DUE 7
April 2025; 100% TRUSTED Complete, trusted solutions and explanations.
Ensure your success with us...
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
In this case, we need to determine in which year of assessment Mr Xhumalo should declare the
R25,000 from the sale of products for tax purposes. According to South African tax law,
specifically the Income Tax Act, 1962, gross income is defined as "the total amount of
income, including any amount derived from any source". For the sale of goods or services,
the income must generally be recognized in the tax year in which it is earned, not necessarily
when it is received.
Key Considerations
1. Accrual Basis of Accounting: The Income Tax Act follows the accrual basis of
accounting for tax purposes. This means that income is recognized when it is earned,
which, in the case of a sale agreement, typically occurs when the goods are delivered, or
the service is rendered, and not necessarily when payment is received. In this case, the
contract specifies that Mr Xhumalo will only be entitled to payment once the goods are
delivered to the retailer. Therefore, he is not entitled to receive payment until the goods
are delivered.
2. When is the Income Earned? According to the agreement, delivery of goods must be
completed by 15 March 2025, and payment is scheduled for 31 March 2025. The critical
point is that Mr Xhumalo becomes entitled to payment only after the delivery of
goods. Thus, income is earned on the date the goods are delivered, i.e., 15 March
2025.
, 3. Tax Year of Assessment: The 2025 year of assessment for individual taxpayers in
South Africa typically runs from 1 March 2024 to 28 February 2025. Based on the
accrual accounting principle, the income will be recognized in the 2026 year of
assessment because the goods will be delivered after 1 March 2025 (i.e., by 15 March
2025). Therefore, Mr Xhumalo will declare the R25,000 of sales revenue in the 2026
year of assessment, which runs from 1 March 2025 to 28 February 2026.
Relevant Case Law:
In the case of CIR v Butcher Bros. (Pty) Ltd, the court emphasized that income is earned when
the right to receive it arises, which in the case of sales transactions generally occurs when the
goods are delivered, not when payment is made. This aligns with the contractual stipulation in
Mr Xhumalo’s agreement, where payment is contingent on delivery.
Conclusion:
The R25,000 of the sale will not constitute gross income in the 2025 year of assessment
because Mr Xhumalo will not have earned the income until the goods are delivered on 15 March
2025. The income will therefore be included in the 2026 year of assessment.
To determine whether the R25,000 from the sale of the grass baskets and placemats will
constitute gross income in the hands of Mr. Xhumalo for the 2025 year of assessment, we must
refer to the principles of gross income under South African tax law, particularly the Income Tax
Act, No. 58 of 1962.
Definition of Gross Income:
Under section 1 of the Income Tax Act, gross income includes "all amounts received or accrued"
during the year of assessment, except those specifically excluded. The key element here is
whether the amount is "received or accrued" in the relevant year of assessment.
The Accrual Basis:
In South African tax law, income is generally recognized on an accrual basis rather than a cash
basis. This means that income is included in the year it is earned or accrued, even if it is not yet
physically received. Therefore, the timing of when the income accrues is critical in determining
the year of assessment in which the R25,000 must be declared.
When Does the Income Accrue?
The key aspect of the sales agreement between Mr. Xhumalo and the retailer is that Mr.
Xhumalo will only become entitled to payment once the goods have been delivered. This means
(COMPLETE ANSWERS)
Semester 1 2025 - DUE 7
April 2025
NO PLAGIARISM
[Pick the date]
[Type the company name]
, Book
Fundamentals of South African Income Tax
TAX2601 Assignment 1 (COMPLETE ANSWERS) Semester 1 2025 - DUE 7
April 2025; 100% TRUSTED Complete, trusted solutions and explanations.
Ensure your success with us...
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
In this case, we need to determine in which year of assessment Mr Xhumalo should declare the
R25,000 from the sale of products for tax purposes. According to South African tax law,
specifically the Income Tax Act, 1962, gross income is defined as "the total amount of
income, including any amount derived from any source". For the sale of goods or services,
the income must generally be recognized in the tax year in which it is earned, not necessarily
when it is received.
Key Considerations
1. Accrual Basis of Accounting: The Income Tax Act follows the accrual basis of
accounting for tax purposes. This means that income is recognized when it is earned,
which, in the case of a sale agreement, typically occurs when the goods are delivered, or
the service is rendered, and not necessarily when payment is received. In this case, the
contract specifies that Mr Xhumalo will only be entitled to payment once the goods are
delivered to the retailer. Therefore, he is not entitled to receive payment until the goods
are delivered.
2. When is the Income Earned? According to the agreement, delivery of goods must be
completed by 15 March 2025, and payment is scheduled for 31 March 2025. The critical
point is that Mr Xhumalo becomes entitled to payment only after the delivery of
goods. Thus, income is earned on the date the goods are delivered, i.e., 15 March
2025.
, 3. Tax Year of Assessment: The 2025 year of assessment for individual taxpayers in
South Africa typically runs from 1 March 2024 to 28 February 2025. Based on the
accrual accounting principle, the income will be recognized in the 2026 year of
assessment because the goods will be delivered after 1 March 2025 (i.e., by 15 March
2025). Therefore, Mr Xhumalo will declare the R25,000 of sales revenue in the 2026
year of assessment, which runs from 1 March 2025 to 28 February 2026.
Relevant Case Law:
In the case of CIR v Butcher Bros. (Pty) Ltd, the court emphasized that income is earned when
the right to receive it arises, which in the case of sales transactions generally occurs when the
goods are delivered, not when payment is made. This aligns with the contractual stipulation in
Mr Xhumalo’s agreement, where payment is contingent on delivery.
Conclusion:
The R25,000 of the sale will not constitute gross income in the 2025 year of assessment
because Mr Xhumalo will not have earned the income until the goods are delivered on 15 March
2025. The income will therefore be included in the 2026 year of assessment.
To determine whether the R25,000 from the sale of the grass baskets and placemats will
constitute gross income in the hands of Mr. Xhumalo for the 2025 year of assessment, we must
refer to the principles of gross income under South African tax law, particularly the Income Tax
Act, No. 58 of 1962.
Definition of Gross Income:
Under section 1 of the Income Tax Act, gross income includes "all amounts received or accrued"
during the year of assessment, except those specifically excluded. The key element here is
whether the amount is "received or accrued" in the relevant year of assessment.
The Accrual Basis:
In South African tax law, income is generally recognized on an accrual basis rather than a cash
basis. This means that income is included in the year it is earned or accrued, even if it is not yet
physically received. Therefore, the timing of when the income accrues is critical in determining
the year of assessment in which the R25,000 must be declared.
When Does the Income Accrue?
The key aspect of the sales agreement between Mr. Xhumalo and the retailer is that Mr.
Xhumalo will only become entitled to payment once the goods have been delivered. This means
