TAX3701 Taxation of Business Activities - 200 Practice
Questions (Semester 1 2026)
Questions 1-20: Gross Income & Residency
1. A South African resident company earns interest from a fixed deposit account in London. Is this
amount included in Gross Income?
a) No, foreign interest is exempt.
b) Yes, residents are taxed on worldwide receipts, subject to specific exemptions.
c) Only if it is remitted to South Africa.
d) No, only trading income is taxable.
Answer: b) Section 1 of the Income Tax Act defines gross income for a "resident" as the total
amount in cash or otherwise, worldwide, received by or accrued to him/her, excluding receipts of
a capital nature .
2. Thabo Manufacturing (Pty) Ltd sold goods to a client on 22 November 2025. The client was
liquidated on 15 March 2026. When did the "accrual" of that sale occur?
a) 15 March 2026
b) 22 November 2025
c) Date of liquidation meeting
d) 31 March 2026
Answer: b) Accrual occurs when the taxpayer becomes entitled to the amount, even if payment is
received later. The right to claim payment arose on the date of sale (22 November 2025), not the
date of liquidation .
3. Which of the following is NOT a requirement for an amount to be "received" by a taxpayer?
a) Cash or asset must be received.
b) The receipt must be of a capital nature.
,c) The amount must be for the taxpayer’s own benefit.
d) The receipt must be final and unconditional.
Answer: b) Gross income excludes receipts of a capital nature. Therefore, an amount "received"
can be either income or capital. The question asks what is NOT a requirement for "receipt"; capital
nature is an exclusion, not a requirement for receipt .
4. A company incorporated in South Africa but managed entirely in Namibia is considered:
a) Non-resident due to management location.
b) Resident due to incorporation (place of incorporation test).
c) Resident only if a Double Tax Agreement says so.
d) A headquarter company.
Answer: b) South Africa uses the "place of incorporation" test for companies. A company
incorporated in South Africa is automatically a South African tax resident, regardless of where
management occurs .
5. Proceeds from an indemnity payment by an insurer for destroyed trading stock are:
a) Capital in nature and not taxable.
b) Included in Gross Income as receipts of a revenue nature.
c) Exempt from tax as insurance payouts are specific exemptions.
d) Only taxable if the stock was insured for more than cost.
Answer: b) Insurance proceeds received for the loss of trading stock are treated as a receipt in
substitution for trading income (revenue nature) and are fully includible in gross income .
6. An amount received by a company as a loan from a bank is:
a) Included in Gross Income because it is a receipt.
b) Excluded from Gross Income because it is of a capital nature.
c) Taxable only if the interest rate is below market.
,d) Included as "gross receipts" for VAT but not Income Tax.
Answer: b) Loan capital is not income. It is a liability (capital receipt). It does not meet the
definition of "gross income" as it is not of a revenue nature .
7. In the case of a resident individual, foreign dividends are:
a) Fully taxable at marginal rates.
b) Generally exempt from Income Tax but subject to Dividends Tax if paid by SA companies.
c) Fully taxable, but a foreign tax credit may apply.
d) Always capital in nature.
Answer: c) Residents pay tax on worldwide income. Foreign dividends are generally included in
gross income (unless specific exemptions apply, e.g., portfolio relief), but a foreign tax credit
(Section 6quat) is granted for foreign taxes paid to avoid double taxation.
8. "Amounts accrued" implies that the taxpayer:
a) Has received the cash in hand.
b) Has a vested right to claim the amount.
c) Has issued an invoice.
d) Has deposited the funds in a bank account.
Answer: b) The accrual concept (Lategan v CIR) states that an amount accrues when the taxpayer
becomes entitled to it (unconditional right to claim), not necessarily when it is paid.
9. Which amount is EXCLUDED from the Gross Income of a manufacturer?
a) Rental received from leasing out excess floor space.
b) Proceeds from the sale of a manufacturing machine (not a trader in machinery).
c) Bad debts recovered that were previously written off.
d) Interest received from a fixed deposit.
, Answer: b) The proceeds from the sale of a fixed asset (manufacturing machine) used to produce
income are generally capital in nature (unless the company is a trader in machinery), thus excluded
from Gross Income. Proceeds are subject to Capital Gains Tax (CGT), not Income Tax.
10. A resident company receives a dividend from a South African resident company. How is this
treated?
a) Taxable at 28% corporate rate.
b) Included in Gross Income but subject to the "Dividends Exemption" (Section 10(1)(k)).
c) Exempt from Income Tax but Dividends Tax is withheld.
d) Both b and c are correct.
Answer: d) Dividends from SA companies are included in Gross Income (as defined) but are
specifically exempt from Normal Tax (Section 10(1)(k)). However, the paying company must
withhold Dividends Tax (20%) from the shareholder.
11. Equity contributions from shareholders are treated as:
a) Gross Income.
b) Capital contributions (Not Gross Income).
c) Loans (Gross Income).
d) Exempt income.
Answer: b) Share capital contributed by shareholders is capital in nature. It is not income; it is an
investment in the ownership structure of the company .
12. Thabo Manufacturing received R22,520 from a liquidated client. The amount was written off.
If the company later recovers R5,000 from the liquidator, this amount is:
a) Capital in nature (return of capital).
b) Included in Gross Income as a recovery (subject to Section 11(jA)).
c) Exempt as a bad debt recovery.
d) Not taxable if the original sale was included.
Questions (Semester 1 2026)
Questions 1-20: Gross Income & Residency
1. A South African resident company earns interest from a fixed deposit account in London. Is this
amount included in Gross Income?
a) No, foreign interest is exempt.
b) Yes, residents are taxed on worldwide receipts, subject to specific exemptions.
c) Only if it is remitted to South Africa.
d) No, only trading income is taxable.
Answer: b) Section 1 of the Income Tax Act defines gross income for a "resident" as the total
amount in cash or otherwise, worldwide, received by or accrued to him/her, excluding receipts of
a capital nature .
2. Thabo Manufacturing (Pty) Ltd sold goods to a client on 22 November 2025. The client was
liquidated on 15 March 2026. When did the "accrual" of that sale occur?
a) 15 March 2026
b) 22 November 2025
c) Date of liquidation meeting
d) 31 March 2026
Answer: b) Accrual occurs when the taxpayer becomes entitled to the amount, even if payment is
received later. The right to claim payment arose on the date of sale (22 November 2025), not the
date of liquidation .
3. Which of the following is NOT a requirement for an amount to be "received" by a taxpayer?
a) Cash or asset must be received.
b) The receipt must be of a capital nature.
,c) The amount must be for the taxpayer’s own benefit.
d) The receipt must be final and unconditional.
Answer: b) Gross income excludes receipts of a capital nature. Therefore, an amount "received"
can be either income or capital. The question asks what is NOT a requirement for "receipt"; capital
nature is an exclusion, not a requirement for receipt .
4. A company incorporated in South Africa but managed entirely in Namibia is considered:
a) Non-resident due to management location.
b) Resident due to incorporation (place of incorporation test).
c) Resident only if a Double Tax Agreement says so.
d) A headquarter company.
Answer: b) South Africa uses the "place of incorporation" test for companies. A company
incorporated in South Africa is automatically a South African tax resident, regardless of where
management occurs .
5. Proceeds from an indemnity payment by an insurer for destroyed trading stock are:
a) Capital in nature and not taxable.
b) Included in Gross Income as receipts of a revenue nature.
c) Exempt from tax as insurance payouts are specific exemptions.
d) Only taxable if the stock was insured for more than cost.
Answer: b) Insurance proceeds received for the loss of trading stock are treated as a receipt in
substitution for trading income (revenue nature) and are fully includible in gross income .
6. An amount received by a company as a loan from a bank is:
a) Included in Gross Income because it is a receipt.
b) Excluded from Gross Income because it is of a capital nature.
c) Taxable only if the interest rate is below market.
,d) Included as "gross receipts" for VAT but not Income Tax.
Answer: b) Loan capital is not income. It is a liability (capital receipt). It does not meet the
definition of "gross income" as it is not of a revenue nature .
7. In the case of a resident individual, foreign dividends are:
a) Fully taxable at marginal rates.
b) Generally exempt from Income Tax but subject to Dividends Tax if paid by SA companies.
c) Fully taxable, but a foreign tax credit may apply.
d) Always capital in nature.
Answer: c) Residents pay tax on worldwide income. Foreign dividends are generally included in
gross income (unless specific exemptions apply, e.g., portfolio relief), but a foreign tax credit
(Section 6quat) is granted for foreign taxes paid to avoid double taxation.
8. "Amounts accrued" implies that the taxpayer:
a) Has received the cash in hand.
b) Has a vested right to claim the amount.
c) Has issued an invoice.
d) Has deposited the funds in a bank account.
Answer: b) The accrual concept (Lategan v CIR) states that an amount accrues when the taxpayer
becomes entitled to it (unconditional right to claim), not necessarily when it is paid.
9. Which amount is EXCLUDED from the Gross Income of a manufacturer?
a) Rental received from leasing out excess floor space.
b) Proceeds from the sale of a manufacturing machine (not a trader in machinery).
c) Bad debts recovered that were previously written off.
d) Interest received from a fixed deposit.
, Answer: b) The proceeds from the sale of a fixed asset (manufacturing machine) used to produce
income are generally capital in nature (unless the company is a trader in machinery), thus excluded
from Gross Income. Proceeds are subject to Capital Gains Tax (CGT), not Income Tax.
10. A resident company receives a dividend from a South African resident company. How is this
treated?
a) Taxable at 28% corporate rate.
b) Included in Gross Income but subject to the "Dividends Exemption" (Section 10(1)(k)).
c) Exempt from Income Tax but Dividends Tax is withheld.
d) Both b and c are correct.
Answer: d) Dividends from SA companies are included in Gross Income (as defined) but are
specifically exempt from Normal Tax (Section 10(1)(k)). However, the paying company must
withhold Dividends Tax (20%) from the shareholder.
11. Equity contributions from shareholders are treated as:
a) Gross Income.
b) Capital contributions (Not Gross Income).
c) Loans (Gross Income).
d) Exempt income.
Answer: b) Share capital contributed by shareholders is capital in nature. It is not income; it is an
investment in the ownership structure of the company .
12. Thabo Manufacturing received R22,520 from a liquidated client. The amount was written off.
If the company later recovers R5,000 from the liquidator, this amount is:
a) Capital in nature (return of capital).
b) Included in Gross Income as a recovery (subject to Section 11(jA)).
c) Exempt as a bad debt recovery.
d) Not taxable if the original sale was included.
