LML4804 ASSIGNMENT 2 MEMO
1. Which statement best describes “gross income” for South African income-tax purposes?
A. All amounts received by a taxpayer during the year
B. The total value of all assets owned by a taxpayer
C. The total amount, in cash or otherwise, received by or accrued to a resident, subject to the
statutory definition
D. Only amounts received from employment
Answer: C
Rationale: The Income Tax Act defines gross income by reference to amounts received by or
accrued to a taxpayer, subject to the statutory requirements and exclusions.
2. Which case is particularly important in determining whether an amount forms part of
gross income?
A. CIR v Butcher Bros
B. CIR v People’s Stores (Walvis Bay) (Pty) Ltd
C. S v Makwanyane
D. Donoghue v Stevenson
Answer: B
Rationale: CIR v People’s Stores is important for the treatment of accrued amounts and the
meaning of “accrued to” in South African tax law.
3. An amount may accrue to a taxpayer when:
A. The taxpayer merely hopes to receive it
B. The taxpayer becomes entitled to the amount
C. The taxpayer spends the money
D. The taxpayer records a loss
Answer: B
Rationale: Accrual generally focuses on when the taxpayer obtains an unconditional right to the
amount rather than merely when payment is physically received.
,4. Which factor is generally relevant when determining whether a receipt is capital or
revenue in nature?
A. The taxpayer's age
B. The taxpayer's intention when acquiring the asset
C. The taxpayer's marital status
D. The taxpayer's nationality
Answer: B
Rationale: The taxpayer's intention and the circumstances surrounding acquisition and disposal
are important in distinguishing capital from revenue receipts.
5. A taxpayer purchases shares with the intention of reselling them at a profit as part of an
ongoing trading operation. The resulting profit is most likely:
A. Capital in nature
B. Revenue in nature
C. Exempt automatically
D. A donation
Answer: B
Rationale: An asset acquired as part of a profit-making trading operation is generally associated
with revenue rather than capital.
6. A taxpayer purchases a property as a long-term investment and later disposes of it
because of changed personal circumstances. The nature of the profit is primarily
determined by:
A. The original intention and surrounding circumstances
B. The property's municipal value only
C. The taxpayer's bank balance
D. The purchaser's nationality
Answer: A
Rationale: The original intention, together with subsequent conduct and circumstances, is
central to determining whether a transaction is capital or revenue in nature.
,7. Which principle is associated with the concept of “gross income”?
A. Only cash can constitute gross income
B. Receipts in kind can potentially constitute gross income
C. Capital amounts are always gross income
D. All gifts are taxable income
Answer: B
Rationale: Gross income can include amounts received or accrued otherwise than in cash,
depending on the circumstances.
8. A taxpayer receives a taxable benefit in kind instead of cash. Which statement is most
accurate?
A. It can never constitute income
B. It may constitute gross income depending on the applicable rules
C. It is automatically exempt
D. It is automatically a capital receipt
Answer: B
Rationale: Tax law recognises that economic benefits can potentially constitute income even
where no cash is received.
9. Which distinction is particularly important when determining the tax consequences of a
receipt?
A. Personal versus professional
B. Capital versus revenue
C. Urban versus rural
D. Domestic versus imported
Answer: B
Rationale: The capital/revenue distinction determines whether an amount may fall into ordinary
income or be dealt with under capital-gains provisions.
, 10. A recurring amount received from conducting a business is generally likely to be:
A. Revenue income
B. A capital contribution
C. A private gift
D. An inheritance
Answer: A
Rationale: Amounts generated through ordinary business operations are generally revenue in
character.
11. Which statement concerning a gift is correct?
A. Every gift automatically constitutes taxable income
B. A gift can never have tax consequences
C. Its tax treatment depends on the relevant statutory provisions and circumstances
D. A gift is always a capital gain
Answer: C
Rationale: The tax treatment of gifts depends on the nature of the transaction and the applicable
provisions of tax legislation.
12. What is meant by an “accrual” in income-tax law?
A. Physical possession of cash only
B. Becoming entitled to an amount
C. Paying an expense
D. Incurring a liability
Answer: B
Rationale: Accrual generally concerns the taxpayer becoming entitled to the amount, even if
payment occurs later.
13. If a taxpayer has merely an uncertain hope of receiving money, this generally means:
A. An unconditional accrual has necessarily occurred
B. There may not yet be an accrual
1. Which statement best describes “gross income” for South African income-tax purposes?
A. All amounts received by a taxpayer during the year
B. The total value of all assets owned by a taxpayer
C. The total amount, in cash or otherwise, received by or accrued to a resident, subject to the
statutory definition
D. Only amounts received from employment
Answer: C
Rationale: The Income Tax Act defines gross income by reference to amounts received by or
accrued to a taxpayer, subject to the statutory requirements and exclusions.
2. Which case is particularly important in determining whether an amount forms part of
gross income?
A. CIR v Butcher Bros
B. CIR v People’s Stores (Walvis Bay) (Pty) Ltd
C. S v Makwanyane
D. Donoghue v Stevenson
Answer: B
Rationale: CIR v People’s Stores is important for the treatment of accrued amounts and the
meaning of “accrued to” in South African tax law.
3. An amount may accrue to a taxpayer when:
A. The taxpayer merely hopes to receive it
B. The taxpayer becomes entitled to the amount
C. The taxpayer spends the money
D. The taxpayer records a loss
Answer: B
Rationale: Accrual generally focuses on when the taxpayer obtains an unconditional right to the
amount rather than merely when payment is physically received.
,4. Which factor is generally relevant when determining whether a receipt is capital or
revenue in nature?
A. The taxpayer's age
B. The taxpayer's intention when acquiring the asset
C. The taxpayer's marital status
D. The taxpayer's nationality
Answer: B
Rationale: The taxpayer's intention and the circumstances surrounding acquisition and disposal
are important in distinguishing capital from revenue receipts.
5. A taxpayer purchases shares with the intention of reselling them at a profit as part of an
ongoing trading operation. The resulting profit is most likely:
A. Capital in nature
B. Revenue in nature
C. Exempt automatically
D. A donation
Answer: B
Rationale: An asset acquired as part of a profit-making trading operation is generally associated
with revenue rather than capital.
6. A taxpayer purchases a property as a long-term investment and later disposes of it
because of changed personal circumstances. The nature of the profit is primarily
determined by:
A. The original intention and surrounding circumstances
B. The property's municipal value only
C. The taxpayer's bank balance
D. The purchaser's nationality
Answer: A
Rationale: The original intention, together with subsequent conduct and circumstances, is
central to determining whether a transaction is capital or revenue in nature.
,7. Which principle is associated with the concept of “gross income”?
A. Only cash can constitute gross income
B. Receipts in kind can potentially constitute gross income
C. Capital amounts are always gross income
D. All gifts are taxable income
Answer: B
Rationale: Gross income can include amounts received or accrued otherwise than in cash,
depending on the circumstances.
8. A taxpayer receives a taxable benefit in kind instead of cash. Which statement is most
accurate?
A. It can never constitute income
B. It may constitute gross income depending on the applicable rules
C. It is automatically exempt
D. It is automatically a capital receipt
Answer: B
Rationale: Tax law recognises that economic benefits can potentially constitute income even
where no cash is received.
9. Which distinction is particularly important when determining the tax consequences of a
receipt?
A. Personal versus professional
B. Capital versus revenue
C. Urban versus rural
D. Domestic versus imported
Answer: B
Rationale: The capital/revenue distinction determines whether an amount may fall into ordinary
income or be dealt with under capital-gains provisions.
, 10. A recurring amount received from conducting a business is generally likely to be:
A. Revenue income
B. A capital contribution
C. A private gift
D. An inheritance
Answer: A
Rationale: Amounts generated through ordinary business operations are generally revenue in
character.
11. Which statement concerning a gift is correct?
A. Every gift automatically constitutes taxable income
B. A gift can never have tax consequences
C. Its tax treatment depends on the relevant statutory provisions and circumstances
D. A gift is always a capital gain
Answer: C
Rationale: The tax treatment of gifts depends on the nature of the transaction and the applicable
provisions of tax legislation.
12. What is meant by an “accrual” in income-tax law?
A. Physical possession of cash only
B. Becoming entitled to an amount
C. Paying an expense
D. Incurring a liability
Answer: B
Rationale: Accrual generally concerns the taxpayer becoming entitled to the amount, even if
payment occurs later.
13. If a taxpayer has merely an uncertain hope of receiving money, this generally means:
A. An unconditional accrual has necessarily occurred
B. There may not yet be an accrual
