Misc Things

Question 1

When income is earned by a minor, in whose hands does it get taxed?

Answer 1

Section 7(3)
- any income that has been earned by the child because of a donation by the parent, will be included in the taxable income of the parent

Question 2

How do subsistence allowances get taxed?

Answer 2

section idk
- they have a limit on them

Question 3

what is the allowance given for credit losses? and for bad debts?

Answer 3

Credit Allowance
Section idk
- 25% of debtors of a certain age?
- 40% of debt over another certain age?
- if deducted in the current year of assessment, must be added back in the following year of assessment

Bad debts allowance
section idk
- all of bad debts

Question 4

what are the tax implications when you issue debentures?

Answer 4

• Deductible interest?
• deductible payments?

Question 5

What are the tax implications of a barter transaction?

Answer 5

section idk of the ITA or case idk
- the consideration you receive will then not be in money be known as “otherwise”
- the value of the otherwise will be deemed to be the market value of that consideration
- that item you receive then will either be capital in nature or revenue, revenue will be included in gross income

Question 6

When are you allowed to deduct output tax from your taxable income?

Answer 6

section idk of idk
- When no cash was received to pay over to SARS

Question 7

What happens when you issue shares in order to pay someone?

Answer 7

Labat Case
- the deduction in terms of s11a gets denied for the value of the shares because it was argued that no expenditure was actually incurred

Question 8

How does one determine whether to include something in gross income or not? When it’s unsure whether it is capital in nature or not.

Answer 8

• ask yourself if it is capital in nature of not
• determine what the original intention at the acqusition of the item - Stott case
• check if there was a change in intention during the year - Stott case
• was there a profit making scheme present during the sale - Pick n Pay
• the mere intention to sell is not a change in intention - John Bell
• Sub division could merely be to realise to best advantage - Stott case and didn’t cross the Rubicon - natal Estates
• but if the company is only selling the land because the shareholders changed to property speculators, then it is likely that the court will pierce the veil
• they’ll pierce the veil to see who is controlling the company and judge their intention - Elandsheuwel
• therefore proceeds will probably be revenue in nature and included in gross income

Question 9

How do you argue if an amount is deductible or not?

Answer 9

• Speak about section 11a and 23g and if it meets it
• Section 11a
  ~ actually been incurred
  ~ during the year of assessment
  ~ in the production of income
  ~ expenditure
  ~ not capital in nature
• Section 23g and f
  ~ for the purposes of trade
  ~ not for exempt incomes or capital in nature income
• then we need to prove each point
• Actually incurred
  ~ an amount has been incurred when an “unconditional liability” exists - Edgars stores
  ~ no amounts can be deducted for a provision - National Pers
  ~ an unconditional obligation to payment only exists if some work has been done by year end and
  ~ when they can put a number to it
• In the production of income
  ~ an amount is considered in the production of income if it is sufficiently closely connected to an inevitable concomitant of the actions of that produce income - PE electric tramways
  ~ a required audit for JSE is certainly incurred in the production of income
  ~ if part of the income is exemept or capital in nature and part isn’t, then a reasonable allocation basis must be determined, like time or amount of revenue - mobile telephone network holdings
• remember that local dividends is exempt
• if the amount was incurred for capital income, you can likely add it to the base cost

Question 10

What is the definition of a connected person?

Answer 10

Section 1 of the ITA
- in relation to a company means
* any person other than a company who together with someone else or alone holds at least 20% of the equity shares or voting rights
* Any other company who holds at least 50% equity shares or voting rights