, PLEASE USE THIS DOCUMENT AS A GUIDE TO ANSWER YOUR ASSIGNMENT
Please also note that the author of this document will not be responsible for any plagiarism you
commit.
Question 1
1. Mr Xhumalo lives in Gqeberha, South Africa. He manufactures and sells various grass
baskets and placemats from a street stall. Due to the high demand for his products, he concluded
a sales agreement with a well-known houseware retailer in South Africa. In terms of the
agreement, the retailer will purchase R25 000 worth of products from Mr Xhumalo on 15
February 2025 on credit. The goods must be manufactured and delivered by 15 March 2025,
with payment scheduled for 31 March 2025. The agreement clearly states that Mr Xhumalo will
only become entitled to payment once he has delivered the goods. Mr Xhumalo’s accountant is
uncertain in which year of assessment the R25 000 must be declared for tax purposes and
contacted you for advice.
A) Discuss whether the R25 000 of the sale will constitute gross income in the hands of Mr
Xhumalo for the 2025 year of assessment.
In determining whether the R25,000 from the sale of goods to the houseware retailer will constitute
gross income for Mr. Xhumalo in the 2025 year of assessment, it is important to consider the timing
of when income accrues under South African tax law. Income tax is assessed based on the taxpayer's
taxable income, which includes amounts received or accrued to the taxpayer during a particular year
of assessment. In this case, the key issue is when Mr. Xhumalo becomes entitled to the payment, as
gross income only includes amounts that have either been received or accrued.
The sale agreement between Mr. Xhumalo and the houseware retailer specifies that the goods must
be delivered by 15 March 2025 before Mr. Xhumalo is entitled to payment. This condition clearly
indicates that Mr. Xhumalo will only have the right to the R25,000 once the delivery occurs.
According to the principles outlined in the "Fundamentals of South African Income Tax 2025," the
amount does not accrue to the taxpayer until they are entitled to it, which, in this case, happens on
the delivery date, 15 March 2025. The accrual concept is further clarified by case law, including CIR
v People's Stores (Walvis Bay) (Pty) Ltd, which confirms that income accrues when the taxpayer
becomes entitled to the amount, not merely when the agreement is made or when the sale is initiated.
As the 2025 year of assessment ends on 28 February 2025, the income will not be included in Mr.
Xhumalo’s gross income for that period, as the right to the payment does not arise until after the
year-end. Therefore, the R25,000 will be declared as gross income in the 2026 year of assessment,
which ends on 28 February 2026. In conclusion, Mr. Xhumalo should include the R25,000 in his tax
return for the year of assessment ending 28 February 2026, as this is when the income will be
considered to have accrued.
Please also note that the author of this document will not be responsible for any plagiarism you
commit.
Question 1
1. Mr Xhumalo lives in Gqeberha, South Africa. He manufactures and sells various grass
baskets and placemats from a street stall. Due to the high demand for his products, he concluded
a sales agreement with a well-known houseware retailer in South Africa. In terms of the
agreement, the retailer will purchase R25 000 worth of products from Mr Xhumalo on 15
February 2025 on credit. The goods must be manufactured and delivered by 15 March 2025,
with payment scheduled for 31 March 2025. The agreement clearly states that Mr Xhumalo will
only become entitled to payment once he has delivered the goods. Mr Xhumalo’s accountant is
uncertain in which year of assessment the R25 000 must be declared for tax purposes and
contacted you for advice.
A) Discuss whether the R25 000 of the sale will constitute gross income in the hands of Mr
Xhumalo for the 2025 year of assessment.
In determining whether the R25,000 from the sale of goods to the houseware retailer will constitute
gross income for Mr. Xhumalo in the 2025 year of assessment, it is important to consider the timing
of when income accrues under South African tax law. Income tax is assessed based on the taxpayer's
taxable income, which includes amounts received or accrued to the taxpayer during a particular year
of assessment. In this case, the key issue is when Mr. Xhumalo becomes entitled to the payment, as
gross income only includes amounts that have either been received or accrued.
The sale agreement between Mr. Xhumalo and the houseware retailer specifies that the goods must
be delivered by 15 March 2025 before Mr. Xhumalo is entitled to payment. This condition clearly
indicates that Mr. Xhumalo will only have the right to the R25,000 once the delivery occurs.
According to the principles outlined in the "Fundamentals of South African Income Tax 2025," the
amount does not accrue to the taxpayer until they are entitled to it, which, in this case, happens on
the delivery date, 15 March 2025. The accrual concept is further clarified by case law, including CIR
v People's Stores (Walvis Bay) (Pty) Ltd, which confirms that income accrues when the taxpayer
becomes entitled to the amount, not merely when the agreement is made or when the sale is initiated.
As the 2025 year of assessment ends on 28 February 2025, the income will not be included in Mr.
Xhumalo’s gross income for that period, as the right to the payment does not arise until after the
year-end. Therefore, the R25,000 will be declared as gross income in the 2026 year of assessment,
which ends on 28 February 2026. In conclusion, Mr. Xhumalo should include the R25,000 in his tax
return for the year of assessment ending 28 February 2026, as this is when the income will be
considered to have accrued.
