Principles of Taxation
TAX2601
2023 Semester 1
ASSESSMENT 3 - SOLUTION
TAX2601 is presented by:
Department of Taxation
School of Accountancy
College of Accounting Sciences
, TAX2601/2023/Semester 1/Solution to assessment 3
____________________________________________________________________________
TASK 1 (18 marks)
(a) Requirements of the GI definition:
In the case of a resident, there must be:
- A total amount (1)
- In cash or otherwise (1)
- Received by or accrued to (1)
- During the year of assessment (1)
- Excluding receipts or accruals of a capital nature (1)
[5]
(b) Discuss whether the R20 000 receipt is of a capital nature or not in terms of the
“gross income” definition as defined.
The subjective and objective tests should be used when discussing the “excluding receipts or (1)
accruals of a capital nature”.
Test
Intention on RentaGeny’s intention at the time the asset was acquired was to hold the (3)
acquisition asset as an income/rental producing asset (investment intention) and not
for speculation purposes
(CIR v Pick ‘n Pay Employee Share Purchase Trust)
Change in RentaGeny deciding to sell the Bela Bela generator and making a profit (6)
intention did not show a change in intention i.e. one from earning rental income to
speculation.
RentaGeny is entitled to realise the asset to their best advantage.
“Something more” than the mere decision to sell an asset is requiredto
bring about a change in intention.
RentaGeny did not embark on a profit-making scheme (they did not start
with a business to sell generators); they were approached by an existing
customer while their intention remained to rent out the generator.
(CIR v Stott); or
(Natal Estates)
Period for which The asset was held for just less than four years, which is a long period for (2)
the asset was held a moveable asset, thus indicating capital nature.
This could indicate a revenue nature as four years is a short time to hold
an asset, but it was always the intention to rent out the generator and
earn income from the asset.
Nature of the asset The generator was used as an income-producing asset for almost four (4)
years, indicating that it is capital in nature.
Capital is compared to a tree (that generates fruit/income) and revenue
to the fruit of the tree.
(CIR v Visser)
Conclusion It appears, based on the tests, that the sale of the generator amounts to (1)
the sale of a capital asset and not the sale of an asset to make a profit.
The R20 000 should not be included in gross income.
Marks (17)
max [13]
Total marks for Task 1 [18]
2
TAX2601
2023 Semester 1
ASSESSMENT 3 - SOLUTION
TAX2601 is presented by:
Department of Taxation
School of Accountancy
College of Accounting Sciences
, TAX2601/2023/Semester 1/Solution to assessment 3
____________________________________________________________________________
TASK 1 (18 marks)
(a) Requirements of the GI definition:
In the case of a resident, there must be:
- A total amount (1)
- In cash or otherwise (1)
- Received by or accrued to (1)
- During the year of assessment (1)
- Excluding receipts or accruals of a capital nature (1)
[5]
(b) Discuss whether the R20 000 receipt is of a capital nature or not in terms of the
“gross income” definition as defined.
The subjective and objective tests should be used when discussing the “excluding receipts or (1)
accruals of a capital nature”.
Test
Intention on RentaGeny’s intention at the time the asset was acquired was to hold the (3)
acquisition asset as an income/rental producing asset (investment intention) and not
for speculation purposes
(CIR v Pick ‘n Pay Employee Share Purchase Trust)
Change in RentaGeny deciding to sell the Bela Bela generator and making a profit (6)
intention did not show a change in intention i.e. one from earning rental income to
speculation.
RentaGeny is entitled to realise the asset to their best advantage.
“Something more” than the mere decision to sell an asset is requiredto
bring about a change in intention.
RentaGeny did not embark on a profit-making scheme (they did not start
with a business to sell generators); they were approached by an existing
customer while their intention remained to rent out the generator.
(CIR v Stott); or
(Natal Estates)
Period for which The asset was held for just less than four years, which is a long period for (2)
the asset was held a moveable asset, thus indicating capital nature.
This could indicate a revenue nature as four years is a short time to hold
an asset, but it was always the intention to rent out the generator and
earn income from the asset.
Nature of the asset The generator was used as an income-producing asset for almost four (4)
years, indicating that it is capital in nature.
Capital is compared to a tree (that generates fruit/income) and revenue
to the fruit of the tree.
(CIR v Visser)
Conclusion It appears, based on the tests, that the sale of the generator amounts to (1)
the sale of a capital asset and not the sale of an asset to make a profit.
The R20 000 should not be included in gross income.
Marks (17)
max [13]
Total marks for Task 1 [18]
2
