, PLEASE USE THIS DOCUMENT AS A GUIDE ONLY
QUESTION 1
A) With reference to the definition of gross income in section 1 of the Income Tax Act, discuss
whether the R1 million must be included in Portia Financial Advisory (Pty) Ltd’s gross income
for the 2026 year of assessment.
Requirements Discussion
PFA is a South African resident company. The definition of gross
income for a resident includes "the total amount... received by or
1. Is the taxpayer a
accrued to... such resident..." (Carpenter et al., 2026, p. 47; TAX2601,
resident?
Study Guide, p. 57). Therefore, PFA is potentially subject to tax on its
worldwide receipts.
The R1 million was paid to PFA upfront on 1 June 2025. However, this
creates two separate issues:
a) Accrual: The amount does not "accrue" to PFA because it is not
unconditionally entitled to it (TAX2601, Study Guide, p. 59; CIR v
People's Stores (Walvis Bay) (Pty) Ltd). PFA is acting as an agent,
holding the funds on behalf of the client. It is contractually obliged to
return any uninvested portion, meaning it does not have an
2. Is there a "total unconditional right to the full amount for its own benefit.
amount... received by
or accrued to"? b) Receipt: For an amount to be "received," it must be received by the
taxpayer on their own behalf and for their own benefit (TAX2601,
Study Guide, p. 59; Geldenhuys v Commissioner for Inland Revenue).
PFA is holding the funds as a fiduciary (as an agent), not for its own
benefit (TAX2601, Study Guide, p. 63). The Geldenhuys case
established that a receipt is not for the recipient's own benefit if they
hold it on behalf of another party. While PFA physically received the
money, it cannot be considered a receipt for tax purposes because it was
not for its own benefit.
3. Is the amount "in
Yes, this requirement is met as the R1 million was received in cash.
cash or otherwise"?
The R1 million itself is capital in nature, as it represents the client's
capital being entrusted to PFA for investment. However, the question
4. Is the receipt of a
focuses on the inclusion of the R1 million. Because the amount fails the
"capital nature"?
"received or accrued" requirement, this point does not need to be
discussed. It is important to note that capital receipts are generally
QUESTION 1
A) With reference to the definition of gross income in section 1 of the Income Tax Act, discuss
whether the R1 million must be included in Portia Financial Advisory (Pty) Ltd’s gross income
for the 2026 year of assessment.
Requirements Discussion
PFA is a South African resident company. The definition of gross
income for a resident includes "the total amount... received by or
1. Is the taxpayer a
accrued to... such resident..." (Carpenter et al., 2026, p. 47; TAX2601,
resident?
Study Guide, p. 57). Therefore, PFA is potentially subject to tax on its
worldwide receipts.
The R1 million was paid to PFA upfront on 1 June 2025. However, this
creates two separate issues:
a) Accrual: The amount does not "accrue" to PFA because it is not
unconditionally entitled to it (TAX2601, Study Guide, p. 59; CIR v
People's Stores (Walvis Bay) (Pty) Ltd). PFA is acting as an agent,
holding the funds on behalf of the client. It is contractually obliged to
return any uninvested portion, meaning it does not have an
2. Is there a "total unconditional right to the full amount for its own benefit.
amount... received by
or accrued to"? b) Receipt: For an amount to be "received," it must be received by the
taxpayer on their own behalf and for their own benefit (TAX2601,
Study Guide, p. 59; Geldenhuys v Commissioner for Inland Revenue).
PFA is holding the funds as a fiduciary (as an agent), not for its own
benefit (TAX2601, Study Guide, p. 63). The Geldenhuys case
established that a receipt is not for the recipient's own benefit if they
hold it on behalf of another party. While PFA physically received the
money, it cannot be considered a receipt for tax purposes because it was
not for its own benefit.
3. Is the amount "in
Yes, this requirement is met as the R1 million was received in cash.
cash or otherwise"?
The R1 million itself is capital in nature, as it represents the client's
capital being entrusted to PFA for investment. However, the question
4. Is the receipt of a
focuses on the inclusion of the R1 million. Because the amount fails the
"capital nature"?
"received or accrued" requirement, this point does not need to be
discussed. It is important to note that capital receipts are generally
