court cases

Question 1

cohen (principle )

Answer 1

a person is ordinarily resident in the country to which he intends to return from all his wanderings. the country he regards as his real home.

Question 2

kuttel (principle)

Answer 2

a person is ordinarily resident where the person’s principle resident is-where the person is habitually and normally resident

Question 3

Butcher Bros (principle )

Answer 3

The onus is on SARS to determine the amount.

Question 4

people’s stores (principle)

Answer 4

Accrued to = entitled to
include in gross income when entitled to not when you received the money.
accrual =face value not discounted value.

Question 5

Witwatersrand Association of Racing clubs (principle )

Answer 5

an amount accrues to a taxpayer if the taxpayer has no legal obligation to pay over (only moral obligation) to another.

Question 6

Lategan (principle )

Question 7

mooi (principle )

Answer 7

Accrued to = unconditionally entitled to the amount of.

Question 8

Geldenhuys (principle)

Answer 8

the amount is only include in gross income by a taxpayer only if it is received by him on his own behalf, for his own benefit.

Question 9

Pyott Ltd ( principle )

Answer 9

generally deposits are still received and form part of gross income.
A deposit is only treated as not being received if the money is kept separately in a trust account, for the benefit of the customer.

Question 10

Delagoa Bay Cigarette Co Ltd (principle )

Answer 10

The legality of the income is irrelevant. the amount will still be gross income.

Question 10

MP Finance Group CC ( principle )

Answer 10

even though the receipts are illegal, they are still received, and therefore gross income.

Question 11

visser (principle )

Answer 11

income may be described as the product of a person’s wits and energy.

Question 12

Georgy Forest Timber (principle)

Answer 12

all assets are either classified as fixed or floating capital
Floating is consumed in the very process of production, while fixed capital is not. Fixed capital is the structure that enables income to be generated.
The sale of fixed capital gives rise to capital proceeds while the sale of floating capital gives rise to revenue.

Question 13

Pick n Pay Employee share Purchase Trust ( principle )

Answer 13

The scheme of profit making is essential to classify proceeds as revenue in nature.

Question 14

stott (principle )

Answer 14

consider the taxpayer’s dominant intention. The fact that the asset is sold at a profit, does not necessarily indicate a change of intention.

Question 15

John Bell (principle )

Answer 15

The mere decision to sell an asset does not change an intention. A capital asset may be realised at its best advantage.

Question 16

Natal Estate Ltd (principle)

Answer 16

a person may realise his capital asset to his best advantage, yet must be careful to not cross the Rubicon and embark on a scheme of profit making.

Question 17

Nussbuam ( principle )

Answer 17

the secondary purpose could taint the primary purpose of a taxpayer , if taxpayer’s actions become too frequency .

Question 18

WJ Fourine Bleggings (principle)

Answer 18

Compensation for damage of capital assets = capital
compensation for loss of profit /income =income

Question 19

Burgess(principle)

Answer 19

(carrying on a Trade ) A wide interpretation should be given to trade.

Question 20

Nasionale Pers Bpk(principle)

Answer 20

(actually incurred ) if a payment is contingent upon the happening of uncertain future events, the expense and corresponding liability can on be actually incurred once the conditions are met.

Question 21

edgars stores(principle)

Answer 21

an expense can only be deducted once there is an unconditional legal obligation to pay the expense.

Question 22

sub-Nigel Ltd(principle )

Answer 22

( during the year of assessement) An expense must be deducted in the year of assessment that it is incurred, even if it will only produce income in future years.

Question 23

Joffe & Co(principle)

Answer 23

(in the production of income ) If something is not an inevitable concomitant of the business
operations it is not deductible

Question 24

Provider (principle )

Answer 24

Expenditure incurred to induce the employees to enter and remain in the service of the taxpayer may qualify as a deduction since the purpose is to produce current or future income. Amounts paid in terms of a service package (employment contract) are deductible.

Question 25

Golden dumps (principle )

Answer 25

Where an obligation to pay an amount is in dispute, the expense can only be actually incurred when the dispute is settled with regards to the obligation and the amount thereof

Question 26

New state area (principle)

Answer 26

Cost of establishing/ improving/adding income earning plant (fixed capital) is capital in nature and therefore not deductible vs. Cost of performing income-earning operations (floating capital) which is revenue in nature and therefore deductible

Question 27

Rand Mines (principle )

Answer 27

Expenditure incurred to obtain an income earning right or structure will be capital in nature Cost incurred to create a capital structure = capital Cost incurred to work the capital structure = revenue

Question 28

Mobile telephone Networks holding (principle )

Answer 28

Incurring audit fees is necessarily attached to the performance of the taxpayer’s income earning operations i.e. Audit fees are incurred in the production of income. Where a there is a split between producing income versus exempt income (thus where audit fees are incurred for a dual purpose), apportionment has to take place. Apportioning audit fees based on time spent on areas generating exempt versus non-exempt income is not necessarily correct. Apportionment will depend on the facts of each case

Question 29

Nel (principle)

Answer 29

Kruger Rand normally seen as capital in nature, unless in trade to buy and sell. Kruger Rand is a unique asset. Consider a taxpayers reasons for selling Kruger Rands

Question 30

Port Elizabeth Electric Tramway(principle)

Answer 30

1. Link between expense and production of income: * What is the purpose of the expense? * How closely connected is that expense to the production of income?

Question 31

An American parent company with operations in South Africa was obliged to ensure that South African subsidiary companies (the taxpayer) complied with the Sullivan Code i.e. social responsibility expenses were incurred by the taxpayer in terms of this code. The taxpayer incurred this social responsibility expenditure and claimed it as a deduction under section 11(a).

Answer 31

Warner Lambert SA (Pty) Ltd

Question 32

A mine management company incurred an expense to acquire a contract to manage a mine in the same group of companies. SARS disallowed the deduction

Answer 32

Rand mines

Question 33

A taxpayer was required to install a new sewerage system on its premises as well as on and outside its property. The system was installed at the cost of the local authority but the taxpayer had to repay the cost in monthly instalments (relating to the system on the premises and the system outside). The Commissioner disallowed the deduction of both amounts.

Answer 33

New State Area Ltd

Question 34

Mobile Telephone Networks Holdings (Pty) Ltd incurred expenditure in respect of an audit performed. The auditors spent 94% of its time on the audit of interest income and 6% of its time of auditing the exempt dividend income Furthermore, expenditure was incurred in respect of training fees to train staff on learning the new computerised accounting system. The system was only used in respect of interest income.

Answer 34

Mobile Telephone Network Holdings (Pty) Ltd

Question 35

The taxpayer had introduced two schemes for the benefit of its employees: a life assurance scheme and a service bonus. The amount of the bonus or benefit varied in line with the length of the employee’s service. The taxpayer sought to deduct both amounts.

Answer 35

Provider

Question 36

A company carried on a concrete engineering business. A concrete hood, which the company was supervising, collapsed; killing a workman. It was determined in the court case that the company was negligent and had to pay damages to the workman’s deceased widow. The Commissioner disallowed the company’s claim for compensation and the legal costs incurred

Answer 36

Joffe and Co

Question 37

A driver employed by the taxpayer died as a result of injuries sustained from an accident that occurred while working. The taxpayer had to pay damages to the widow of the employee. The taxpayer also incurred legal costs resisting the claim. The commissioner disallowed both deductions

Answer 37

Port Elizabeth Electric Tramway

Question 38

The taxpayer and a former employee were involved in a 4 year dispute over the delivery of shares promised by the taxpayer. The taxpayer claimed the cost of the shares as a deduction

Answer 38

Golden Dumps (Pty) Ltd

Question 39

The taxpayer leased premises to conduct its business. There was a basic monthly rental and an annual rental based on turnover. The taxpayer estimated the annual amount and claimed it as deduction.

Answer 39

Edgars Stores

Question 40

The taxpayer claimed a provision for bonuses as a deduction. The amount was only payable at a future date. The provision was raised for the liability as a result of the employees working for a full year and becoming entitled to their bonus.

Answer 40

Nasionale Pers Bpk

Question 41

The taxpayer borrowed money from the bank and invested in a short term investment company as part of a scheme. He wanted to deduct the losses from the scheme.

Answer 41

burgess

Question 42

A taxpayer company paid insurance premiums on a loss of profits insurance policy. The insurance policy will only pay out in future, if certain events took place.

Answer 42

Sub-Nigel

Question 43

A company had an illegal pyramid scheme where they promised investors fantastic returns with no intention of doing just that. They classified the money received as deposits (loans) and used it for their own purpose

Answer 43

MP finance

Question 44

The company ran an illegal lottery. It set aside a certain portion of its income from the sale of cigarettes in order to pay prizes to people who held winning numbers, obtained from coupons in the cigarette packets

Answer 44

Delagoa Bay Cigarette Co Ltd

Question 45

A CC leased premises from which it operated as a hotel. It had been paid compensation for the loss of a contract it had with another entity to provide meals and accommodation to students.

Answer 45

WJ Fourie Beleggings

Question 46

A taxpayer held shares during his lifetime for investment purposes. After retirement he sold the shares over a three year period; some shares were held for a long period and others for a shorter period. The taxpayer sold shares each time the dividend yield dropped

Answer 46

Nussbaum

Question 47

The taxpayer held a piece of land for many years as a capital asset. Before selling the land, town planners, consulting engineers and professional advisors were approached to develop and sub-divide the land.

Answer 47

Natal Estate Ltd

Question 48

The taxpayer operated a textile business from premises that it owned. After the business relocated to other premises, the directors of the company decided to sell the original premises. In view of the fact that the property market was not performing well at that point in time, the directors decided to wait until the market had improved. In the meantime, the property was rented out (for a period of 11 yeas) and thereafter, once the market had improved, the property was realised at a profit

Answer 48

John Bell

Question 49

The taxpayer, Stott, was an architect and surveyor. He purchased a few properties as an investment over a period of 20 years. One of the properties, a piece of coastal land of nearly 54 acres, was acquired by the taxpayer with the intention of building a seaside residence thereon, which he did. Because the property was enormous, the taxpayer subdivided it into two parts and retained only the part on which the residence stood. He subdivided the other part into lots and sold it piecemeal.

Answer 49

Stott

Question 50

The company established a trust to purchase shares and administer them for the benefit of the employees. This trust was also compelled to repurchase shares from employees who were required to forfeit their holdings.

Answer 50

Pick n Pay Employee Share Purchase Trust

Question 51

The taxpayer company carried on a business as timber merchants and sawyers. It acquired about 6oo morgen of natural forest for the purpose of its business. The nature of the trees in the forest was such that they did not renew themselves, and for practical purposes the value of the land without the timber was negligible. In the course of its business the company felled a quantity of timber each year which was sawn up in the mill and sold as part of its trading stock

Answer 51

George Forest Timber

Question 52

The taxpayer (an influential businessman in the area) acquired mining options for a period of two years over certain farm properties. The options, however, lapsed – at which time he still did not start with any search for mineral deposits. Later, a third party negotiated with and offered the taxpayer an interest in a company to be formed if he would assist him to acquire the previously lapsed options from the farmers again.

Answer 52

Visser

Question 53

A widow inherited the right of use of a farm (usufruct) while her children received the right of ownership (bare dominium). She later decided to give up farming and sold the sheep on the property with her children’s consent

Answer 53

Geldenhuys

Question 54

A race event was held and resulted in proceeds that the taxpayer divided between two charities. The taxpayer argued that the proceeds did not accrue to them, but to the charities.

Answer 54

Witwatersrand Association of Racing clubs

Question 55

A clothing retailer sold on credit.

Answer 55

People's store

Question 56

The taxpayer owned land, leased it to a company for 50 years with a renewal option of 49 years. In terms of the lease agreement the lessee was obliged to effect improvements. The ownership of the improvements would pass to the lessor upon termination or renewal.

Answer 56

Butcher Bros