LML4804
Assignment 1 Semester 2 2025
2 2025
Unique Number:
Due date: 8 September 2025
QUESTION 1
1.1 Mr X – Attorney and Trust Account
Mr X is a sole proprietor attorney based in Tshwane who, according to his work policy,
requires payment into his trust account before rendering services. At the end of the 2024/25
year of assessment, his trust account reflected R175 000 for work still to be performed.
Additionally, he had issued invoices to clients who had not made upfront deposits, offering a
discount for early settlement. None of these invoices were settled by year-end.
The question is whether the R175 000 in trust and the invoiced but unpaid amounts form
part of his gross income for 2024/25.
The definition of gross income in section 1 of the Income Tax Act 58 of 1962 includes “the
total amount, in cash or otherwise, received by or accrued to a taxpayer, excluding amounts
of a capital nature.” The test is therefore whether the amounts were received or accrued.
DISCLAIMER & TERMS OF USE
Educational Aid: These study notes are intended to be used as educational resources and should not be seen as a
replacement for individual research, critical analysis, or professional consultation. Students are encouraged to perform
their own research and seek advice from their instructors or academic advisors for specific assignment guidelines.
Personal Responsibility: While every effort has been made to ensure the accuracy and reliability of the information in
these study notes, the seller does not guarantee the completeness or correctness of all content. The buyer is
responsible for verifying the accuracy of the information and exercising their own judgment when applying it to their
assignments.
Academic Integrity: It is essential for students to maintain academic integrity and follow their institution's policies
regarding plagiarism, citation, and referencing. These study notes should be used as learning tools and sources of
inspiration. Any direct reproduction of the content without proper citation and acknowledgment may be considered
academic misconduct.
Limited Liability: The seller shall not be liable for any direct or indirect damages, losses, or consequences arising from
the use of these notes. This includes, but is not limited to, poor academic performance, penalties, or any other negative
consequences resulting from the application or misuse of the information provided.
, For additional support +27 81 278 3372
QUESTION 1
1.1 Mr X – Attorney and Trust Account
Mr X is a sole proprietor attorney based in Tshwane who, according to his work
policy, requires payment into his trust account before rendering services. At the end
of the 2024/25 year of assessment, his trust account reflected R175 000 for work still
to be performed. Additionally, he had issued invoices to clients who had not made
upfront deposits, offering a discount for early settlement. None of these invoices
were settled by year-end.
The question is whether the R175 000 in trust and the invoiced but unpaid amounts
form part of his gross income for 2024/25.
The definition of gross income in section 1 of the Income Tax Act 58 of 1962
includes “the total amount, in cash or otherwise, received by or accrued to a
taxpayer, excluding amounts of a capital nature.” The test is therefore whether the
amounts were received or accrued.
Trust Monies: Amounts deposited into a legal practitioner’s trust account do
not vest in the attorney but remain the property of the client until earned. In
ITC 1525 the court held that trust monies are not received “for own benefit”
and therefore do not constitute gross income until they are transferred to the
business account for work performed.1 Accordingly, the R175 000 in Mr X’s
trust account does not yet form part of gross income, as it represents an
advance for services still to be rendered. Only upon completion of the work
and transfer from the trust account to his business account will the amount be
regarded as gross income.
Unpaid Invoices: In terms of Lategan v CIR,2 “accrual” occurs when a
taxpayer becomes unconditionally entitled to an amount, even if payment is
deferred. Mr X became entitled to payment upon issuing invoices, even
though payment was not received. The fact that he allowed a conditional
discount for early payment does not alter his entitlement. As none of the
1
ITC 1525 (1991) 54 SATC 209.
2
Lategan v CIR 1926 CPD 203, 2 SATC 16.
Assignment 1 Semester 2 2025
2 2025
Unique Number:
Due date: 8 September 2025
QUESTION 1
1.1 Mr X – Attorney and Trust Account
Mr X is a sole proprietor attorney based in Tshwane who, according to his work policy,
requires payment into his trust account before rendering services. At the end of the 2024/25
year of assessment, his trust account reflected R175 000 for work still to be performed.
Additionally, he had issued invoices to clients who had not made upfront deposits, offering a
discount for early settlement. None of these invoices were settled by year-end.
The question is whether the R175 000 in trust and the invoiced but unpaid amounts form
part of his gross income for 2024/25.
The definition of gross income in section 1 of the Income Tax Act 58 of 1962 includes “the
total amount, in cash or otherwise, received by or accrued to a taxpayer, excluding amounts
of a capital nature.” The test is therefore whether the amounts were received or accrued.
DISCLAIMER & TERMS OF USE
Educational Aid: These study notes are intended to be used as educational resources and should not be seen as a
replacement for individual research, critical analysis, or professional consultation. Students are encouraged to perform
their own research and seek advice from their instructors or academic advisors for specific assignment guidelines.
Personal Responsibility: While every effort has been made to ensure the accuracy and reliability of the information in
these study notes, the seller does not guarantee the completeness or correctness of all content. The buyer is
responsible for verifying the accuracy of the information and exercising their own judgment when applying it to their
assignments.
Academic Integrity: It is essential for students to maintain academic integrity and follow their institution's policies
regarding plagiarism, citation, and referencing. These study notes should be used as learning tools and sources of
inspiration. Any direct reproduction of the content without proper citation and acknowledgment may be considered
academic misconduct.
Limited Liability: The seller shall not be liable for any direct or indirect damages, losses, or consequences arising from
the use of these notes. This includes, but is not limited to, poor academic performance, penalties, or any other negative
consequences resulting from the application or misuse of the information provided.
, For additional support +27 81 278 3372
QUESTION 1
1.1 Mr X – Attorney and Trust Account
Mr X is a sole proprietor attorney based in Tshwane who, according to his work
policy, requires payment into his trust account before rendering services. At the end
of the 2024/25 year of assessment, his trust account reflected R175 000 for work still
to be performed. Additionally, he had issued invoices to clients who had not made
upfront deposits, offering a discount for early settlement. None of these invoices
were settled by year-end.
The question is whether the R175 000 in trust and the invoiced but unpaid amounts
form part of his gross income for 2024/25.
The definition of gross income in section 1 of the Income Tax Act 58 of 1962
includes “the total amount, in cash or otherwise, received by or accrued to a
taxpayer, excluding amounts of a capital nature.” The test is therefore whether the
amounts were received or accrued.
Trust Monies: Amounts deposited into a legal practitioner’s trust account do
not vest in the attorney but remain the property of the client until earned. In
ITC 1525 the court held that trust monies are not received “for own benefit”
and therefore do not constitute gross income until they are transferred to the
business account for work performed.1 Accordingly, the R175 000 in Mr X’s
trust account does not yet form part of gross income, as it represents an
advance for services still to be rendered. Only upon completion of the work
and transfer from the trust account to his business account will the amount be
regarded as gross income.
Unpaid Invoices: In terms of Lategan v CIR,2 “accrual” occurs when a
taxpayer becomes unconditionally entitled to an amount, even if payment is
deferred. Mr X became entitled to payment upon issuing invoices, even
though payment was not received. The fact that he allowed a conditional
discount for early payment does not alter his entitlement. As none of the
1
ITC 1525 (1991) 54 SATC 209.
2
Lategan v CIR 1926 CPD 203, 2 SATC 16.
