Gross Income – Part 1

Prescribed readings

Silke 2025:
Chapter 3.3
Chapter 3.4
Chapter 3.4.1
Chapter 3.4.2
Chapter 3.5
Gross Income definition

“gross income”, in relation to any year or period of assessment, means—

(i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in
favour of such resident; or
(ii) in the case of any person other than a resident, the total amount, in cash or otherwise, or in
favour of such person from a source within the Republic, received by or accrued to
during such year or period of assessment, excluding receipts or accruals of a capital nature……
The focus of CTAA021 is on the part of the gross income definition in red.
Receipts and accruals of a capital nature will be covered in the 2nd part of the Gross Income lecture;
Gross income – section 1 of the Income Tax
Act
“gross income”, in relation to any year or period of assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise,
received by or accrued to or in favour of such resident…..
during such year or period of assessment, excluding receipts or accruals of a
capital nature……..
Some of the terms are defined – “resident”;
“year or assessment” – 12 month period ending on the last day in February
(natural persons and trusts)
“year of assessment” for a company, the financial year end of the company.
Year of assessment for this course – 12 month period ending 29 February
2025 for natural persons and trusts;
A company will have a 2025 year of assessment if its financial year ends
during the 2025 calendar year.
Gross income – section 1 of the Income Tax
Act
“gross income”, in relation to any year or period of assessment,
means—
(i) in the case of any resident, the total amount, in cash or otherwise,
received by or accrued to or in favour of such resident…..
during such year or period of assessment, excluding receipts or accruals
of a capital nature……..
For the words in red – case law determines the meaning and provides
the interpretation of the various words.
Gross income – “amount, in cash orotherwise”.
“gross income”, in relation to any year or period of assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise,
received by or accrued to or in favour of such resident…..
during such year or period of assessment, excluding receipts or accruals of a
capital nature……..
▪ “amount” can be cash or an asset;
▪ If an asset, include in gross income the market value of the asset the date
the taxpayer becomes entitled to receive the asset;
▪ Lategan vs CIR – a wine farmer sold wine for a specific amount. Part of the amount
was to be paid to the farmer before the end of the year of assessment and the
balance to be paid instalments in the following year. The court was required to
determine if the “amount” only included the amount received in cash but should
also include the amounts payable in subsequent years. The court held that an
“amount” should be given a wider meaning other than money (cash) and include
every type of property earned by the taxpayer, whether corporeal or incorporeal
which has money value.
Gross income – “amount, in cash orotherwise”.
▪ CIR v Butcher Bros- 50 year lease and lessee obliged to effect improvements to the
property. At the end of the 50 year lease, the improvements would vest in the
lessor. But what is the value of these improvements on completion- and did that
amount to an “amount” for the lessor? The court held that no “amount” arose in
the current year of assessment, since the improvements did not have an
“ascertainable money value”.
▪ Principle – for an “amount” to be included in gross income it must have an
“ascertainable money value”;
Gross Income – “amount in cash or
otherwise”
• CSARS v Brummeria Renaissance (Pty) Ltd
• Retirement village constructed for pensioners to live in;
• Pensioners acquired life rights – the ability to live in a property for the rest of their lives;
• Pensioners paid for their life rights by providing interest-free loans to the developers;
• The court held that the developers had received an amount, which had an ascertainable
monetary value since the interest-free loan had been provided for a quid pro quo (the ability of
the pensioners to live in a property for the rest of their lives);
• SARS subsequently issued an Interpretation Note to address the valuation of the “amount”.
You do not need to know the details of how to calculate the “amount” for the Brummeria case.
• Principle – the interest free loan provided to the developers resulted in an “amount” having an
“ascertainable monetary value” since the interest-free loan was provided for a quid pro quo.
Gross Income – “received by”
“gross income”, in relation to any year or period of assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in
favour of such resident…..
during such year or period of assessment, excluding receipts or accruals of a capital nature……..
Geldenhuys v CIR – the wife and husband carry on business as farmers. After the death of the
husband, the will provided that the surviving wife should enjoy a usufructuary interest in the farm for
the rest of her life. The husband’s children inherited the bare dominium of the farm and its assets.
With the consent of the children, the wife sold the sheep and the proceeds from the sale of the sheep
were received by the surviving wife. The court held that the proceeds from the sale of the sheep were
not received by her, for her own benefit, since the amount was due to the bare dominium holders. It
follows an amount received by a taxpayer on behalf of another person is therefore not the gross
income of the taxpayer.
Principle – an amount is included in the gross income of the taxpayer when it is “received by the
taxpayer on his own behalf for his own benefit”
Gross Income – “received by”
Pyott v CIR.
Pyott was a biscuit manufacturer. The biscuits were sold in a containers and Pyott charged a fee for
the container. The fee was refunded to the customer if the container was returned the container in a
good condition. At the end of the year of assessment, Pyott deducted from its gross income a
provision representing the containers still to be returned. The court was required to determine if the
fee for the container should have been included in gross income. The court held that the amount
received for the containers should be included in gross income since there was a possibility that the
customer may not return the container. The court also held that if the fee had been held as “trust”
monies, the fee would not have been included in gross income.
Principle – deposits arising in the ordinary course of trade are “received by” and should be included
in gross income since they are received on its own behalf and for its own benefit;
Principle – if a deposit is held as “trust” monies, the deposit is not “received by” and would not be
included in gross income. Trust monies are held in separate bank accounts with the taxpayer acting in
a trustee capacity;
Gross Income – “received by”
• Rental deposits and security deposits are usually held in trust accounts and are refundable at the
end of a rental period or contract period and therefore they are not received by the taxpayer (the
landlord) on his own behalf for his own benefit.
• Rental payments in advance are not deposits and therefore these amounts are included in gross
income on receipt – these amounts are not held in trust;
Gross Income – “received by”
If an “amount” is received illegally, has the “amount” been“received by”?
CIR v Delogoa Bay Cigarette. The company operated an illegal lottery. The company sold cigarettes
at a higher price than the normal selling price and the excess was paid to the holder of a lucky
coupon. The court found that even though the business carried on was illegal, the receipts from the
illegal activities were still “received” and included in the taxpayer’s gross income;
Principle – the receipts from illegal activities are “received by” and included in a taxpayer’s gross
income;
Gross Income – “received by”
If an “amount” is received illegally, has the “amount” been “received”?
MP Finance Group CC (in liquidation) v CSARS – the taxpayer operated an illegal investment
pyramid scheme where it promised significant returns of investor’s money. Some investors received a
repayment of their investment and returns, whilst most investors received nothing. The operators used
some of the investor funds “for their own benefit”. For all the years, the operators knew that the
investment scheme was insolvent and fraudulent and that it would be impossible to pay all investors
what they had promised. The court was required to decide whether the amounts invested were
included in gross income – the taxpayer argued that the investment funds were not gross income,
since it was obliged to refund the deposits to investors. The court found that the deposits were
“received by” the taxpayer and included in gross income since it was the taxpayer’s intention to retain
them “for their own benefit” regardless that they were legally required to refund the deposits to
investors;
Principle – the receipts from illegal activities are “received by” and included in a taxpayer’s gross
income. The intention of the taxpayer to use the deposits “for their own benefit” is critical.
Gross Income – “accrued to”
“gross income”, in relation to any year or period of assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in
favour of such resident…..
during such year or period of assessment, excluding receipts or accruals of a capital nature……..
When does an amount “accrued to” a taxpayer?
Lategan v CIR
In this case the taxpayer, a farmer sold wine to a customer with part of the sale amount being paid in
the year of sale and the balance in subsequent years. The farmer argued that the amount that he would
receive in subsequent years had not accrued to him in the year of sale. The court held that the full sale
amount “accrued to” the taxpayer in the year of sale since the farmer had become “entitled to” the
amount once delivery had taken place.
Principle – “accrued to” means “entitled to”. The court also held that an amount does not have to be
“due and payable” for an amount to accrue to the taxpayer.
Gross Income – “accrued to”
In the CIR v People Stores (Wavis Bay) (Pty) Ltd the principle of become “entitled to” in the
Lategan case was confirmed.
In this case People Stores sold goods to customers for cash and on credit. The credit sales were on a
six-months to pay scheme. The court needed to decide if the instalments outstanding at a particular
year of assessment accrued to the taxpayer and should be included in gross income. The court
confirmed it must be “entitled to” an amount for it to accrue. The court confirmed that this does not
mean that an amount must be due and payable for an amount to accrue to a taxpayer. The court held
that the amount must be valued at its presentvalue.
Principle of “entitled to” was confirmed;
After the court case SARS amended the tax legislation and inserted a proviso in the gross income
definition – refer next slide.
Proviso in “gross income”definition
“Provided that where during any year of assessment a person
has become entitled to any amount which is payable on a
date or dates falling after the last day of such year, that
amount shall be deemed to have accrued to the person
during such year”.
The face value of the amount must be included in a person’s gross income–
no need to present value the amount.
Example:
A natural person sold and delivered goods on 28 February 2025 for R100 000
(the face value). Payment for the goods is only required 5 years later. Assume
the present value of the R100 000 amount is R60 000. What amount should
be included in the natural person’s gross income on 28 February2025?
The face value of the amount of R100 000 will be included in the natural
person’s gross income in the year of assessment ending on 28 February 2025.
Gross Income – “accrued to”
The principle of “entitled to” was extended in the Mooi v CIR case.

Principle – “accrued to” means “unconditionally entitled to”.

Gross Income – “accrued to”
CIR v Witwatersrand Association of Racing Clubs
In this case the taxpayer, a horse-racing club held a horse racing event for the benefit of two charities.
The court was required to decide if the proceeds from the race should be included in the gross income
of the horse-racing club.
The horse racing club argued that it entered into the event on behalf of the charities. The court found
that based on the facts presented, that since the taxpayer had paid for the costs of holding the event,
that the taxpayer had acted as a principal and not as an agent for the charities.
The court held that the proceeds of the event were the gross income of the horse-racing club, since it
became “entitled to” the proceeds of the race. A moral obligation to pay the proceeds to the charities
did not destroy the beneficial character of the receipt.
Principle – “accrued to” means “entitled to”. If the horse-racing club had acted as an agent on behalf
of the charities the proceeds from the event would have accrued to the charities, because the horse-
racing club would not have been entitled to theamounts.
Gross Income – “received by or accrued to”
• An amount is included in gross income either when it is “received by” or when it is “accrued to” a
taxpayer.
• In practice the gross income arises at the earlier of the date of receipt or the date of accrual;
Year or period of assessment
• The year of assessment for a natural person or a trust is from 1
March 2024 to 28 February 2025;
• The year of assessment for a company is its financial year ending
during the 2025 calendar year.
References
Silke: South African Income Tax 2025;
Income Tax Act No. 58 of 1962;