TAX2601
Assignment 1
Semester 2
DUE 8 September 2025
, PRINCIPLES OF TAXATION
ASSESSMENT 1 SEMESTER 2 2025
DUE DATE 8 SEPTEMBER 2025 AT 10AM
LEARNING UNITS 3 – 5.
Question 1: Gross Income Discussion (12 marks)
The issue at hand is to determine whether the R4,300,000 received by Groundhog (Pty)
Ltd from the sale of vacant land constitutes gross income for the year of assessment
ending 31 March 2025. This requires an analysis of the definition of "gross income" and
an application of relevant legal principles and case law.
Legal Principles and Definition
The definition of gross income in section 1 of the Income Tax Act states that it is "the
total amount, in cash or otherwise, received by or accrued to a resident during a year of
assessment, excluding receipts or accruals of a capital nature."
This definition presents two key tests:
1. Is it an 'amount' that was 'received by' or 'accrued to' the taxpayer? The
R4,300,000 was physically received by Groundhog on 1 March 2025, which falls
within the relevant year of assessment. This first test is therefore met.
2. Is the amount of a revenue or capital nature? This is the central question. The
distinction between revenue and capital receipts is based on the intention of the
taxpayer at the time the asset was acquired and held.
Application of Case Law
• CIR v Visser: This case established the "intention" test. The court held that if an
asset is acquired with the purpose of holding it as a permanent structure for the
Assignment 1
Semester 2
DUE 8 September 2025
, PRINCIPLES OF TAXATION
ASSESSMENT 1 SEMESTER 2 2025
DUE DATE 8 SEPTEMBER 2025 AT 10AM
LEARNING UNITS 3 – 5.
Question 1: Gross Income Discussion (12 marks)
The issue at hand is to determine whether the R4,300,000 received by Groundhog (Pty)
Ltd from the sale of vacant land constitutes gross income for the year of assessment
ending 31 March 2025. This requires an analysis of the definition of "gross income" and
an application of relevant legal principles and case law.
Legal Principles and Definition
The definition of gross income in section 1 of the Income Tax Act states that it is "the
total amount, in cash or otherwise, received by or accrued to a resident during a year of
assessment, excluding receipts or accruals of a capital nature."
This definition presents two key tests:
1. Is it an 'amount' that was 'received by' or 'accrued to' the taxpayer? The
R4,300,000 was physically received by Groundhog on 1 March 2025, which falls
within the relevant year of assessment. This first test is therefore met.
2. Is the amount of a revenue or capital nature? This is the central question. The
distinction between revenue and capital receipts is based on the intention of the
taxpayer at the time the asset was acquired and held.
Application of Case Law
• CIR v Visser: This case established the "intention" test. The court held that if an
asset is acquired with the purpose of holding it as a permanent structure for the
