Gross income – Class work
QUESTION 1
(15 marks; 30 minutes)
Edinburgh Clock Works Company (Pty) Ltd (hereafter referred to as Clock Works) is a
resident company established by four NWU graduates. The main purpose of the company
is to buy antique clocks, restore them and then selling these clocks at a maximum profit.
Clock Work’s year end is 28 February 2025.
Transaction
During the 2025 year of assessment the company sold fifteen clocks to a school in
Potchefstroom as part of the school’s renovation. Delivery of the goods took place on
20 February 2025, the same date on which the company issued the school with an invoice
for the full amount of R25 000. The school was only able to pay the company R10 000 on
28 February 2025 and agreed to pay the rest as soon as they have the available cash flow.
There are no additional conditions linked to this sale and the school is liable to pay the full
amount of R25 000. The directors have learnt that you are in the process of obtaining your
degree at NWU they have approached you for tax advice.
REQUIRED
a)
Discuss, with reference to legislation and case law, the amount of the
transaction (if any) of Edinburgh Clock Works Company (Pty) Ltd for
the year ended 28 February 2025 that needs to be included as part of
the company’s gross income.
Marks
15
You may accept that the issue to be discussed is whether or not the
amount (or a part thereof) has accrued to the company at 28 February
2025. You may ignore the objective factors / tests.
TOTAL MARKS
Class test 1 – 2016 – Question 2
15
QUESTION 2
(20 marks; 30 minutes)
Prop Dev (Pty) Ltd (hereafter referred to as Prop Dev) is a resident company established
by NWU graduates. The main purpose of the company is to identify land, develop student
accommodation and selling these units at maximum profit. Prop Dev’s year end is
30 June 2025.
Transaction
In 2011, Prop Dev’s directors identified and bought a large farm outside Potchefstroom. The
intention with this land, at the time, was to buy the land and hold if for capital appreciation.
The directors are thinking of selling this land in the 2025 year of assessment but are concerned
in the manner of how the SARS might assess the transaction. The land was not further
developed after purchase. The directors have learnt that you have obtained your degree at
NWU and have had tax as one of the mayor subjects. They have approached you for some
tax advice.
REQUIRED
Marks
a)
Define “Gross Income” contained in the Income tax Act 58 of 1962
3
b)
Discuss, with reference to legislation and case law, whether the
15
transaction of Prop Dev (Pty) Ltd for the year ended
30 June 2025 will be of a capital nature or not. You can also
accept that the issue that needs to be discussed is You can also
ignore the objective factors / tests.
c)
Discuss the tax implications of the transaction if assumed that the
proceeds
2
are capital of nature (reference to case law is not required)
TOTAL MARKS
Class Test 1 – 2015 - Question 2
20