Special inclusions

Question 1

Leasehold improvement should be included in the gross income of lessee if the lessor had a contractual obligation to perform the improvements.

Answer 1

False

Question 2

Foreign dividends do not form part of taxpayer’s gross income.

Answer 2

False

Question 3

The sale of a copyright in an operating manual is a special inclusion in terms of paragraph (gA) therefore, included as pert of gross income.

Answer 3

False

Question 4

Any restraint of trade amount received by a labour broker does form part of gross income.

Answer 4

True

Question 5

A lease premium is not defined in the Income Tax Act

Answer 5

True

Question 6

Interest is capital in nature and does not form par of gross income

Answer 6

False

Question 7

An annuity is defined in the Income Tax Act.

Answer 7

False

Question 8

What are the different types of annuities, and how do they differ from one another?

Answer 8

The different types of annuities include capital annuities, living annuities, and annuities amount (section 10A). Capital annuities are typically paid out in a lump sum or periodic payments over a predetermined period, while living annuities provide regular payments during the annuitant’s lifetime. Annuities amount (section 10A) refers to annuities received as income, subject to specific tax regulations.

Question 9

True or False: An annuity always provides for a fixed annual payment without any possibility of change.

Answer 9

False. While annuities typically offer fixed payments, they can sometimes include provisions for payment increases or adjustments.

Question 10

True or False: An annuity received directly from an individual’s employer, via a life insurance policy, falls under paragraph d(ii) of the gross income definition, making it subject to specific tax considerations.

Answer 10

True. Annuities received from an individual’s employer, indirectly through a life insurance policy, are often excluded from certain tax considerations as per paragraph d(ii) of the gross income definition

Question 11

True or False: Annuities and pensions are considered synonymous and are taxed identically in all jurisdictions.

Answer 11

False. While annuities and pensions both provide regular income, they may be taxed differently depending on the jurisdiction and specific tax laws governing each type of payment.

Question 12

True or False: An annuity can only originate from an insurance company and cannot arise from other sources such as gifts or the sale of a business.

Answer 12

False. Annuities can originate from various sources, including insurance companies, gifts, legacies, or as consideration for the sale of a business or asset

Question 13

True or False: An annuity, by definition, must provide for payments over the annuitant’s lifetime and cannot be structured for a fixed term.

Answer 13

False. While some annuities provide payments over the annuitant’s lifetime (living annuities), others may be structured for a fixed term, such as a certain number of years (term certain annuities).

Question 14

True or False: An annuity received as a series of voluntary payments, even if repetitive, would still be classified as an annuity for tax and legal purposes.

Answer 14

False. Annuities are typically characterized by fixed, periodic payments with an obligation to pay, distinguishing them from voluntary payments, even if repetitive.

Question 15

True or False: An annuity arising from the sale of a business represents a form of structured payment agreement between the buyer and seller.

Answer 15

True. Annuities arising from the sale of a business or asset often involve the buyer making periodic payments to the seller in exchange for the transfer of ownership, providing the seller with regular income.

Question 16

True or False: An annuity can never include provisions for payment adjustments or increases over time.

Answer 16

False. Some annuities may include provisions for payment adjustments or increases, allowing for changes in payment amounts over time.

Question 17

True or False: All annuities are subject to the same tax treatment regardless of their source or purpose

Answer 17

False. The tax treatment of annuities may vary depending on factors such as the source of the annuity, the purpose for which it was received, and applicable tax laws in the jurisdiction

Question 18

True or False: An annuity received as a gift or legacy is always exempt from taxation.

Answer 18

False. Annuities received as gifts or legacies may be subject to gift or inheritance tax laws depending on the jurisdiction and the value of the annuity.

Question 19

What types of payments are included in the gross income definition for alimony or maintenance?

Answer 19

Alimony, allowances, or maintenance payments made by a spouse or former spouse are included in the gross income definition for alimony or maintenance.

Question 20

In what circumstances does alimony qualify as gross income?

Answer 20

Alimony qualifies as gross income when it is payable under a written agreement of separation or order of divorce.

Question 21

Does the paying spouse receive a tax deduction for alimony payments?

Answer 21

The paying spouse does not receive any tax deduction for the amount paid as alimony.

Question 22

If maintenance is paid by a pension fund to a member’s ex-spouse, how is it treated for tax purposes?

Answer 22

If maintenance is paid by a pension fund to a member’s ex-spouse, the member is deemed to have received the amount as income.

Question 23

How are payments for the maintenance of children treated in the context of gross income?

Answer 23

Payments for the maintenance of children are included in the gross income definition for alimony or maintenance.

Question 24

What types of income are deemed to be gross income under paragraph (c)?(service rendered)

Answer 24

All amounts received in respect of services rendered or employment, whether of capital or revenue in nature, are deemed to be gross income under paragraph (c).

Question 25

Provide examples of amounts that fall into paragraph (c of services rendered.

Answer 25

 Voluntary bonuses e.g. performance bonuses
 Tips received by waiters
 Reward for providing the police with information.
 Voluntary awards =part of gross income even though not stipulated in service rendered.

Question 26

Are voluntary bonuses, such as performance bonuses, considered part of gross income? Why or why not?

Answer 26

Yes, voluntary bonuses such as performance bonuses are considered part of gross income because they are received in respect of services rendered.

Question 27

How are tips received by waiters treated for tax purposes?

Answer 27

Tips received by waiters are treated as part of gross income because they are received in respect of services rendered.

Question 28

Is a reward for providing information to the police considered part of gross income? Why?

Answer 28

Yes, a reward for providing information to the police is considered part of gross income because it is received in respect of services rendered.

Question 29

Is there a requirement for an employer/employee relationship to exist for an amount to be included in gross income under paragraph (c)?

Answer 29

No, there is no requirement for an employer/employee relationship to exist for an amount to be included in gross income under paragraph (c).

Question 30

How are fortuitous gains distinguished from income for tax purposes?

Answer 30

Fortuitous gains, which happen by chance, are not included in gross income. An example would be a beggar receiving money.

Question 31

What constitutes a restraint of trade payment?

Answer 31

A restraint of trade payment is a payment made for undertaking not to render service.

Question 32

What are lump sum benefits according to paragraph (d)?

Answer 32

Lump sum benefits, according to paragraph (d), are amounts paid to an employee by an employer or associated institution due to a change or loss of employment.

Question 33

Provide examples of lump sum payments covered under paragraph (d).

Answer 33

Examples of lump sum payments include payments for
*breach of service contracts, *consideration for directors who lose their directorship, *compensation for variations in leave entitlement, *accumulated leave pay upon resignation, and
*payments to the dependents of a deceased employee

Question 34

What does the commutation of amount due, as mentioned in paragraph (f), refer to?

Answer 34

The commutation of amount due refers to the substitution of benefits due in terms of employment into cash.

Question 35

How is cash received through the commutation of amount due treated for tax purposes?

Answer 35

Cash received through the commutation of amount due is included in gross income for tax purposes.

Question 36

Give examples of situations covered under the commutation of amount due provision.

Answer 36

Examples of situations covered under the commutation of amount due provision include substituting leave days for cash and receiving lump sums upon termination of services.

Question 37

What is a lease premium according to paragraph (g)?

Answer 37

A lease premium, according to paragraph (g), is a payment made over and above or instead of rental for the use of an asset.

Question 38

How is a lessor ?

Answer 38

a lessor is the entity or person who owns the asset and grants the right to use the asset to another party in exchange for payment.

Question 39

Who is a lessee?

Answer 39

is the party who receives the right to use the asset in exchange for payment.

Question 40

What does a lease premium represent in relation to rental payments?

Answer 40

A lease premium represents an additional payment made by the lessee to the lessor, either in addition to or instead of regular rental payments, for the use of the asset

Question 41

Is the full amount of the lease premium included in the lessor’s income?

Answer 41

Yes, the full amount of the lease premium is included in the lessor’s income.

Question 42

What is meant by compensation for imparting knowledge according to paragraph (gA)?

Answer 42

Compensation for imparting knowledge, as defined in paragraph (gA), refers to payments received for the use of knowledge or information, or for rendering assistance or services related to such knowledge or information

Question 43

Provide examples of transactions that fall under compensation for imparting knowledge

Answer 43

Examples of transactions falling under compensation for imparting knowledge include the sale of operating manuals or information and technical advisory fees.

Question 44

How are know-how payments defined?

Answer 44

Know-how payments encompass amounts received for the use of scientific, technical, industrial, or commercial knowledge or information, as well as payments for providing assistance or services in connection with such knowledge or information.

Question 45

Is the supply of information, such as operating manuals, included in compensation for imparting knowledge?

Answer 45

Yes, the supply of information, such as operating manuals, is included in compensation for imparting knowledge.

Question 46

Is the sale of a copyright in an operating manual considered part of compensation for imparting knowledge?

Answer 46

No, the sale of a copyright in an operating manual is not included in compensation for imparting knowledge

Question 47

Can you explain the difference between amounts received for the use of knowledge or information and amounts received for rendering assistance or service in connection with knowledge or information?

Answer 47

Amounts received for the use of knowledge or information involve the direct utilization of the knowledge or information, while amounts received for rendering assistance or service in connection with knowledge or information pertain to providing support or aid related to the application or implementation of the knowledge or information.

Question 48

What are leasehold improvements according to paragraph (h)?

Answer 48

Leasehold improvements refer to enhancements made by a lessee to a leased property, whether land or building.

Question 49

Under what circumstances does a lessor have to include leasehold improvements in gross income?

Answer 49

A lessor must include leasehold improvements in gross income if the lessee is contractually obliged to perform the improvements.

Question 50

If a lessee is not contractually required to make improvements, does the lessor have to include them in gross income?

Answer 50

If a lessee is not contractually required to make improvements, the lessor does not have to include them in gross income

Question 51

What happens if a lessee spends more money on improvements than stipulated in the contract?

Answer 51

If a lessee spends more money on improvements than stipulated in the contract, the excess amount does not form part of the lessor’s gross income.

Question 52

What types of assets are included in gross income from the proceeds of their disposal?

Answer 52

Assets that are included in gross income from the proceeds of their disposal are those that are similar to trading stock.

Question 53

Can you provide examples of assets that fall under the category of those included in gross income from disposal proceeds?

Answer 53

Examples of assets included in gross income from disposal proceeds are those that are
*manufactured,
*produced,
* constructed, or
* assembled.

Question 54

How are assets that are merely purchased for own use or for resale treated in terms of gross income from disposal proceeds?

Answer 54

Assets that are merely purchased for own use or for resale are not included in gross income from disposal proceeds.