TAX3702 Assignment 03 2021.

Course Code: TAX 3702 Assignment No: 03 Closing Date: 16 August 2021 ______________________________________________________________________________ Question 1 For an amount to be included in gross income, it must satisfy all the requirements of the general definition of “gross income”. That is:  the total amount in cash or otherwise  received by or accrued to  during the year of assessment  not of capital nature. Or, alternatively, the amount may also be included in tax payer’s gross income via one of the special inclusions as set out in paragraphs (a) to (n) of the gross income definition. (i)Amount in to be included in Mrs Kane’s gross income in terms of sales  The R60 000 sales amount was coincidently received and accrued during the 2021 year of assessment  The inclusion hinges on whether it is of capital or revenue nature. The amount is of revenue in nature because it was generated through sales.  The amount was received for Mrs. Kane’s own benefit as per percentage sharing arrangements.  HerbLife will receive (R60 000 x 80%) R48 000 of the sales amount received from customers by Mrs. Kane whereas she will retain the remaining 20% as part of her gross income.  Therefore, (R60 000 x 20%) R12 000 is for Mrs Kane’s own benefit and as such qualifies for inclusion in her gross income for tax purposes.  Geldenhys case here refers. (ii)Amount to be included in Mrs Kane’s gross income in terms of the deposit  An amount received in advance for work still to be performed, such as deposit of R12 000, will be included in Mrs Kane’s gross income. This inclusion is supported by the principle as set out by the court in Pyott case. It therefore means that the amount as received, accrued to Mrs Kane. TAX3702 Assignment 03 2021.  The amount was received by Mrs. Kane from a customer as deposit during 2021 year of assessment.  Mrs. Kane received the amount in the form of this deposit for her own benefit as per contractual arrangement with HerbLife Limited.  The amount to be included by Mrs. Kane in her gross income equals to (R12 000 x 20%) R2400.  HerbLife will receive (R12 000 x 80%)R9 600 which qualifies inclusion into their gross income for this current year of assessment even though not actually received by the 28th February 2021. Mrs. Kane is treated as the agent.  The principle on inclusion of the amount of R9 600 in HerbLife’s gross income was set out by the court in SARS v Cape Consumers case. (iii)Amount to be included in Mrs Kane’s gross income in terms of the refund arrangement  The amount of (R8 000 x 2%) to be refunded to customers as per refund arrangements between Mrs. Kane and her customers, will be included in her gross income. The principle is set out by the court in Brookes-Lemos and Greases cases.  The R160 will be included in Mrs. Kane’s gross income as received for her benefit during 2021 year of assessment. Question 2 Part (a) In terms of section 11(a) of the general deduction formula, for a taxpayer who carries on trade, any expenditure and losses actually incurred, in the production of income during the year of assessment, are deductible from the income, provided such expenditure or loss is not of capital nature and is laid out or expended for the purpose of trade. The section 11(a) must be read with section 23 because it prohibits various deductions despite the fact that they satisfy the requirements of the general deduction formula. It should be noted that it is mandatory as per Covid 19 protocols that service business which interacts with clients such as in the case of Rochelle’s nail salon, sanitisers must be made available at point of entry. It is therefore obvious that expenditure of R4210 actually incurred in the provision of sanitisers is part of the cost performing income-earning operations in the nail salon trade. It can also be concluded that it did not provide an enduring benefit to Rochelle’s trade and therefore not capital in nature. Rochelle incurred this expenditure during 2021 year of assessment.