LML4804
Assignment 1 September 2025
Unique #:
Due Date: 8 September 2025
Detailed solutions, explanations, workings
and references.
+27 81 278 3372
, QUESTION 1
1.1 Mr X – Attorney and Trust Account
Mr X is a sole proprietor attorney based in Tshwane who, according to his work
policy, requires payment into his trust account before rendering services. At the end
of the 2024/25 year of assessment, his trust account reflected R175 000 for work still
to be performed. Additionally, he had issued invoices to clients who had not made
upfront deposits, offering a discount for early settlement. None of these invoices
were settled by year-end.
The question is whether the R175 000 in trust and the invoiced but unpaid amounts
form part of his gross income for 2024/25.
The definition of gross income in section 1 of the Income Tax Act 58 of 1962
includes “the total amount, in cash or otherwise, received by or accrued to a
taxpayer, excluding amounts of a capital nature.” The test is therefore whether the
amounts were received or accrued.
Trust Monies: Amounts deposited into a legal practitioner’s trust account do
not vest in the attorney but remain the property of the client until earned. In
ITC 1525 the court held that trust monies are not received “for own benefit”
and therefore do not constitute gross income until they are transferred to the
business account for work performed.1 Accordingly, the R175 000 in Mr X’s
trust account does not yet form part of gross income, as it represents an
advance for services still to be rendered. Only upon completion of the work
and transfer from the trust account to his business account will the amount be
regarded as gross income.
Unpaid Invoices: In terms of Lategan v CIR,2 “accrual” occurs when a
taxpayer becomes unconditionally entitled to an amount, even if payment is
deferred. Mr X became entitled to payment upon issuing invoices, even
though payment was not received. The fact that he allowed a conditional
discount for early payment does not alter his entitlement. As none of the
clients settled by year-end, the full invoiced amounts accrued to him. Thus,
these amounts must be included in gross income for the 2024/25 year.
Conclusion: The R175 000 held in trust is excluded from gross income for 2024/25,
but all invoiced amounts are included as accruals.
1
ITC 1525 (1991) 54 SATC 209.
2
Lategan v CIR 1926 CPD 203, 2 SATC 16.
Varsity Cube 2025 +27 81 278 3372
Assignment 1 September 2025
Unique #:
Due Date: 8 September 2025
Detailed solutions, explanations, workings
and references.
+27 81 278 3372
, QUESTION 1
1.1 Mr X – Attorney and Trust Account
Mr X is a sole proprietor attorney based in Tshwane who, according to his work
policy, requires payment into his trust account before rendering services. At the end
of the 2024/25 year of assessment, his trust account reflected R175 000 for work still
to be performed. Additionally, he had issued invoices to clients who had not made
upfront deposits, offering a discount for early settlement. None of these invoices
were settled by year-end.
The question is whether the R175 000 in trust and the invoiced but unpaid amounts
form part of his gross income for 2024/25.
The definition of gross income in section 1 of the Income Tax Act 58 of 1962
includes “the total amount, in cash or otherwise, received by or accrued to a
taxpayer, excluding amounts of a capital nature.” The test is therefore whether the
amounts were received or accrued.
Trust Monies: Amounts deposited into a legal practitioner’s trust account do
not vest in the attorney but remain the property of the client until earned. In
ITC 1525 the court held that trust monies are not received “for own benefit”
and therefore do not constitute gross income until they are transferred to the
business account for work performed.1 Accordingly, the R175 000 in Mr X’s
trust account does not yet form part of gross income, as it represents an
advance for services still to be rendered. Only upon completion of the work
and transfer from the trust account to his business account will the amount be
regarded as gross income.
Unpaid Invoices: In terms of Lategan v CIR,2 “accrual” occurs when a
taxpayer becomes unconditionally entitled to an amount, even if payment is
deferred. Mr X became entitled to payment upon issuing invoices, even
though payment was not received. The fact that he allowed a conditional
discount for early payment does not alter his entitlement. As none of the
clients settled by year-end, the full invoiced amounts accrued to him. Thus,
these amounts must be included in gross income for the 2024/25 year.
Conclusion: The R175 000 held in trust is excluded from gross income for 2024/25,
but all invoiced amounts are included as accruals.
1
ITC 1525 (1991) 54 SATC 209.
2
Lategan v CIR 1926 CPD 203, 2 SATC 16.
Varsity Cube 2025 +27 81 278 3372
