TAX2601
ASSIGNMENT 2 2025
Question 1
Gross income, as defined by the Income Tax Act, includes only receipts of a revenue
nature (Sec. 1) and expressly excludes capital receipts. The sale of the vacant land by
Groundhog was not in the ordinary course of its motorcycle-parts manufacturing
business, the land was acquired to build a factory (i.e. as fixed capital) and only
opportunistically sold at a profit. In such cases the “profit-making scheme” test applies: if
an asset is acquired for resale with a profit-making intent, the sale proceeds are income;
but if acquired as capital e.g. for use and later sold, the proceeds are capital, not
income.
In Heron Heights CC v CSARS the High Court confirmed that “receipts or accruals of a
capital nature are excluded” from gross income. Groundhog’s facts closely match that
scenario: it bought the land to hold for factory use (fixed capital) and had no trading
intention. Although the land was sold at a gain, the transaction reflects realization of a
capital asset, not a profit-making scheme.
The R4,300,000 received is not “gross income” of Groundhog but a capital receipt (with
no CIT on capital by instruction). This conclusion is supported by the fixed-vs-floating
capital test discussed in cases such as Heron Heights, Pick ’n Pay Employee Share
Trust, and others, which emphasize the taxpayer’s intention at acquisition and sale.
, Question 2
For Khanya Solutions Ltd (2025 year to 31 March), the basic amount is the last
preceding year’s taxable income as assessed (less any taxable capital gain), provided
that assessment was issued at least 14 days before the provisional due date.
First payment (due 30 Sept 2024):
The prior year (2024) income (R3,287,685, assessed 15 Feb 2025) is not available in
time. The only year qualifying at least 14 days before 30 Sept 2024 is 2022 (taxable
income R2,853,972; assessed 3 May 2022). Hence the basic amount is R2,853,972.
Normal tax at 27% (company rate) = R799,111.
First provisional (50%) = R399,556 by 30 Sept 2024.
Second payment (due 31 Mar 2025):
By this date the 2023 assessment (R2,371,254, assessed 20 Sep 2024) and 2024
assessment (R3,287,685, assessed 15 Feb 2025) exist. The latest preceding
assessment (at least 14 days before 31 Mar) is 2024’s R3,287,685. Basic amount =
R3,287,685; normal tax
= R887,575; second payment
= R887,575 – 399,556 = R488,019 by 31 Mar 2025.
ASSIGNMENT 2 2025
Question 1
Gross income, as defined by the Income Tax Act, includes only receipts of a revenue
nature (Sec. 1) and expressly excludes capital receipts. The sale of the vacant land by
Groundhog was not in the ordinary course of its motorcycle-parts manufacturing
business, the land was acquired to build a factory (i.e. as fixed capital) and only
opportunistically sold at a profit. In such cases the “profit-making scheme” test applies: if
an asset is acquired for resale with a profit-making intent, the sale proceeds are income;
but if acquired as capital e.g. for use and later sold, the proceeds are capital, not
income.
In Heron Heights CC v CSARS the High Court confirmed that “receipts or accruals of a
capital nature are excluded” from gross income. Groundhog’s facts closely match that
scenario: it bought the land to hold for factory use (fixed capital) and had no trading
intention. Although the land was sold at a gain, the transaction reflects realization of a
capital asset, not a profit-making scheme.
The R4,300,000 received is not “gross income” of Groundhog but a capital receipt (with
no CIT on capital by instruction). This conclusion is supported by the fixed-vs-floating
capital test discussed in cases such as Heron Heights, Pick ’n Pay Employee Share
Trust, and others, which emphasize the taxpayer’s intention at acquisition and sale.
, Question 2
For Khanya Solutions Ltd (2025 year to 31 March), the basic amount is the last
preceding year’s taxable income as assessed (less any taxable capital gain), provided
that assessment was issued at least 14 days before the provisional due date.
First payment (due 30 Sept 2024):
The prior year (2024) income (R3,287,685, assessed 15 Feb 2025) is not available in
time. The only year qualifying at least 14 days before 30 Sept 2024 is 2022 (taxable
income R2,853,972; assessed 3 May 2022). Hence the basic amount is R2,853,972.
Normal tax at 27% (company rate) = R799,111.
First provisional (50%) = R399,556 by 30 Sept 2024.
Second payment (due 31 Mar 2025):
By this date the 2023 assessment (R2,371,254, assessed 20 Sep 2024) and 2024
assessment (R3,287,685, assessed 15 Feb 2025) exist. The latest preceding
assessment (at least 14 days before 31 Mar) is 2024’s R3,287,685. Basic amount =
R3,287,685; normal tax
= R887,575; second payment
= R887,575 – 399,556 = R488,019 by 31 Mar 2025.
