TAXA400
TAXATION IV
TAXA400
GROSS INCOME
QUESTION 1
Luvuyo Design (Pty) Ltd is a company that was established by a young entrepreneur in
Kathu (Northern Cape province). Due to its popularity and it campaigns it held on to their
social media platforms, the company has opened further branches all over South Africa.
The accountant of Luvuyo Designed has asked for your assistance with the following
transactions:
1. Luvuyo Design (Pty) Ltd is a store that designs and sells household accessories.
On 1 January 2025, they sold one of their accessories to Titus Trades with the
value of R25 000.00. However, instead of Titus Traders paying with cash, they have
agreed that Titus Trades will provide wooden material to Luvuyo Design (Pty) Ltd
for the next 6 months to the value of R25 000.
2. Simo Dludla has been tasked by his employer Luvuyo (Pty) Ltd to facilitate the sale
of its exclusive designs. Simo has approached a number of clients and managed to
win some. Ten clients have already placed orders and made an upfront payment to
the total of R300 000 to Simo’s personal bank account. At the end of the month
(28 February 2025), Simo will transfer the total amount made from the sale to his
employer Luvuyo (Pty) Ltd.
3. Luvuyo (Pty) Ltd has a number of assets which involve land and buildings. The land
and building situated in the Coastal area of Durban were bought 2 years ago for
R6 000 000 with the intention of relocating all their exclusive design processing to
that site. However, with the recent spate of riots that took place in July 2022,
Luvuyo decided that Durban is no longer a safe environment and they sold the
property for R10 000 000 on 1 February 2025.
4. Luvuyo Design has won an exclusive project to decorate a house for one of the
popular business moguls located in the North West province. The total project price
is R800 000, however, the payment will be made according to the stage of
completion. As at 28 February 2025, Luvuyo design was at the 38% stage of
completion.
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Required:
(i)
Discuss by quoting relevant case law, whether the receipt or accruals from the
above scenarios would constitute gross income of Luvuyo Design (Pty) Ltd as
defined in the Income Tax Act 58 of 1962 for the year ending 28 February 2025.
(ii)
Discuss by quoting relevant case law, whether the receipt or accruals from
scenario number 2 would constitute the gross income of Simo Dludla as defined
in the Income Tax Act 58 of 1962 for the year ending 28 February 2025.
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QUESTION 2
Ms Independent is a South African Ordinary resident, who is a share dealer. During the
current year of assessment, she sold her investment in Toyway worth R900 000. The
reason for the sale was to raise proceeds for her son’s surgery which was estimated at
R600 000. She has held these shares for the past six years. These shares were bought
with the intention of funding her son’s tertiary education.
Required:
Discuss whether the sales of these shares will give rise to gross income, your discussion,
should be supported by quoting relevant section(s) and relevant case law.
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QUESTION 3
Mrs Madlala is a 54-year-old South African Resident. She works as a teacher in one of the
high schools located in KZN. She is married in community of property to Mr Madlala. On
1 February 2025, Mrs Madlala sold her investment house, which is located in Pretoria. Mrs
Madlala bought this house with the intention of letting it out 14 years ago for R600 000.
The house has been generating a net rental income of R45 000 per annum including the
current year of assessment. On 1 February 2025, an agreement to sell her house for
R6 000 000 was concluded. The jump in prices was primarily driven by the recent
developments that took place around her area. These developments saw property prices
jumping by 400%.
Required:
1. Discuss whether the sales of the property will give rise to gross income, your
discussion, should be supported by quoting relevant section(s) and relevant case
law.
2. Calculate the total gross income of Mrs Madlala for the 2025 year of assessment.
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QUESTION 4
Ms Zethu Malevu, a 45-year-old South African resident, bought 15 hectares of a sugar
cane farmland in Ballito-KZN on 01 March 2023 for R570 million. The purchase of the farm
was financed through an agricultural mortgage loan from ABC Bank. The farm was
operating well and producing tons of sugar cane which were sold to the nearby sugar cane
mill. On 01 December 2024, Ms Z. Malevu was approached by Mr Solani Xulu, who
expressed an interest in buying the sugar cane farm from Ms Z. Malevu.
Mr S. Xulu wants to rezone the farm into the residential zone and build a block of flats to
be let to tenants. On 01 February 2025, Ms Z. Malevu and Mr S. Xulu reached an
agreement where the sugar cane farm was sold for R870 million to Mr S. Xulu.
REQUIRED:
Discuss by quoting relevant section(s) on the Income Tax Act and relevant case law,
whether the disposal of sugar cane farm by Ms Z. Malevu will result in either capital or
revenue receipt gross income implications for the year of assessment ended on
28 February 2025.
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