BLR EXAM 14 JUNE 2024

Frédéric Simon Augustyn

1
PLAGIARISM DECLARATION

Student name: Frédéric Simon Augustyn

Student number: 21470627

Course code: BLR 310

Assignment nr: Exam

I know that plagiarism is to use of another’s work and pass it off as one’s own work.
I know that plagiarism is wrong.
I confirm that this assignment is my own work.
I have acknowledged all sources that I have used in the bibliography accompanying the
assignment.
I have not directly copied anything from the internet or from any other source.
I have indicated every quotation and citation in a footnote or bracket linked to that quotation.
I have not allowed anyone else to copy my work so as to pass it off as their work.
I understand that if any unacknowledged copying whatsoever appears in my assignment I
will receive 0% for the assignment.
I am aware of the UNIVERSITY OF PRETORIA policy on plagiarism and understand that
disciplinary proceedings can be instituted against me by the UNIVERSITY OF PRETORIA if
I contravene this policy.

Signed by Frederic Simon Augustyn

on this 14th day of June 2024

2
 QUESTION 1
LEGAL MEMORANDUM

To: Elon Reeske

From: Augustyn Attorneys

Re: Tax Implication of the R800’000.00 for 2023/2024 Tax Year

Date: 15 June 2024

OPINION

I. STATEMENT OF FACTS
1. As per the brief provided by Elon Reeske (herein ‘the Client’).
II. QUESTIONS PRESENTED
2. There are 2 questions to tackle in dealing with the Client’s tax implication
for the 2023/2024 year of assessment:
a. Firstly, whether the Client is a resident for tax purposes. This will be
determined with reference to the ‘ordinarily resident’ and ‘physical
presence’ tests.
b. Secondly, whether the dividends earned by the Client is taxable in
South Africa.
III. APPLICABLE LAW
3. Section 1 of the Income Tax Act contains the definition of Gross Income.1
The definition provides that Gross Income, in any year or period of
assessment is firstly to be determined with respect to the amounts received
by or accrued to residents or non-residents. There are naturally separate
tax implications depending on which category the Client forms a part of.
4. Section 1 of the Income Tax Act defines a ‘resident’ as being someone who
is either (1) ordinarily resident in the Republic, or (2) was not at any time
during the relevant year of assessment ordinarily resident in the Republic,
but was physically present in the Republic for a period or periods of 91 days

1
Income Tax Act 58 of 1962.

3
 in aggregate in that year of assessment and exceeding the 91 days period
or periods in aggregate for each of previous 5 years of assessment
preceding such a year of assessment and for a period or periods exceeding
915 days in aggregate during those five years of assessment.2 However,
the terms ‘ordinarily resident’ and ‘physically present’ are not defined in the
Act.
5. SARS Interpretation Note 3 provides the definition of the term ‘ordinarily
resident.’3 As discussed in the interpretation note, the courts have defined
the phrase to mean “the country to which a person would normally and as a
matter of course return from his/her wanderings.”4 I discuss the cases
immediately below, as interpretation notes are not binding authority and thus
require additional support in the form of case law to provide a definitive
answer on this matter.
6. Cohen v CIR is authority for the definition of ‘ordinarily resident’ provided by
SARS Interpretation Note 3.5 It further held that physical absence during the
full year was very nearly, but not entirely decisive in determining the
question of whether the taxpayer was to be considered a resident.6
7. CIR v Kuttel is further supporting authority for the definition of ‘ordinarily
resident’ provided in SARS Interpretation Note 3, adopting the approach in
Cohen and stating that someone is ordinarily resident where they have their
“usual or principal place of residence.”7
8. SARS Interpretation Note 4 provides the definition of the term ‘physically
present.’8 This interpretation note has been archived, as the position
reflected therein is essentially perfectly reflected within the Income Tax Act
and is thus, merely of persuasive value in providing additional context to the
definition.9
9. Geldenhuys v CIR is a case that dealt with when an amount is considered
“received by” a taxpayer.10 The court held that where an amount is received

2
Income Tax Act (n1) secs 1(a)(i) & 1(a)(ii)(aa) & 1(a)(ii)(bb).
3
SARS Interpretation Note 3 (2002).
4
SARS Interpretation Note 3 (n3) page 2.
5
Cohen v Commissioner for Inland Revenue 1946 (13) SATC 362 (AD).
6
Cohen (n5) page 365.
7
Commissioner for Inland Revenue v Kuttel 1992 (54) SATC 298 (AD).
8
SARS Interpretation Note 4, 2018.
9
Income Tax Act (n1) sec 1.
10
Geldenhuys v Commissioner for Inland Revenue 1947 (3) SA 256 (C).

4
 by the taxpayer for their own benefit and on their own behalf, it is considered
“received by” the taxpayer for the purposes of the definition in the Income
Tax Act.11
10. Section 9(2)(a) of the Income Tax Act provides for the treatment of dividends
earned in respect of a South African Company.12 Even non-residents
earning income from a South African source are taxed on such income, in
line with the statutory source rules set out in Section 9 of the Act.13
11. Section 10(1)(k)(i) of the Income Tax Act provides that income received from
a South African resident company in the form of dividends is exempted from
normal tax.14 Such a company will, in line with section 10(1)(k)(i) be subject
to a 20% dividends tax, which is a form of withholdings tax, paid on behalf
of the Client by the company itself.15
12. Section 9H(2) of the Income Tax Act provides that subject to the provisions
of subsection (4), any person who ceases to be a resident will be deemed
to have disposed of their assets remaining in the Republic.16 Subsection (4)
provides that these assets do not include immoveable property owned by
the person who ceases to be a resident.17
IV. DISCUSSION AD TAX RESIDENCY OF THE CLIENT
13. It is common cause that the Client was born in South Africa and emigrated
to Canada from Pretoria on the 26th of March 2023. Furthermore, it has also
been established in the brief that the Client retains his South African
citizenship but has no intention of returning to the Republic in the future.
Therefore, the Client has ceased to be a resident. It is on the basis of these
facts that I will proceed.
14. The Client is not to be considered a resident for tax purposes in the
Republic. Under subsection (a) of the definition of a ‘resident’ provided in
the Income Tax Act, the Client is not ordinarily resident in the Republic.18 In

11
Geldenhuys (n10) page 430.
12
Income Tax Act (n1) sec 9(2)(a).
13
Income Tax Act (n1) sec 9.
14
Income Tax Act (n1) sec 10(1)(k)(i).
15
SARS Website ‘Dividends Tax’ 21 February 2024 https://www.sars.gov.za/tax-rates/income-
tax/interest-and-
dividends/#:~:text=Dividends%20Tax,more%20information%20see%20Dividends%20Tax.
16
Income Tax Act (n1) sec 9H(2).
17
Income Tax Act (n1) sec 9H(4).
18
SARS Interpretation Note 3 (n3) page 2.

5
 terms of the test set out in Cohen, the Client is not to be considered
ordinarily resident because he harbours no intention of returning to the
Republic after his wanderings.19 The Client’s principal place of residence
has shifted away from the Republic to Canada.20
15. The Client is, furthermore, also not be considered a resident in terms of
being ‘physically present’ under subsection (b) of the definition provided in
the Income Tax Act.21 The physical presence tests requires that the
taxpayer be physically present in the Republic for an aggregate of days
exceeding 91 days in the given year of assessment as a departure point for
determining physical presence.22 The Client departed the Republic on 26
March 2023. The year of assessment of individuals in the Republic runs
from the 1st of March until the last day of February in the following calendar
year. As the Client has therefore only been physically present in the
Republic for a period of 26 days for the 2023/2024 year of assessment, he
does not exceed the 91-day threshold established in the test set out in the
Act.23
16. Therefore, the Client is not a resident under subsection (a) of the definition
of ‘resident’ in the Act.24 Furthermore, the Client is not a resident under
subsection (b)(aa) – (bb) of the Act.25
V. DISCUSSION AD THE INCOME EARNED BY THE CLIENT
17. It is common cause that the Client received R800’000.00 as a payment of
dividends from one company ‘Restla (Pty) Ltd’ on the 30th of May 2023. This
date falls within the 2023/2024 year of assessment and must thus be
considered against the relevant case law and provisions of the Act.26
Furthermore, it is also common cause that the Waterkloof Apartment has
increased in value, but it has not been sold. Whilst the Client has ceased to
be a resident, a deemed disposal of the property will not occur as this is
ousted by the exclusion of immoveable property from the ambit of Section

19
Cohen (n5) page 365.
20
Kuttel (n7) 306.
21
Income Tax Act (n1) sec 1(b)(aa)-(bb).
22
Income Tax Act (n1) sec 1(b).
23
Income Tax Act (n1) sec 1(b).
24
Income Tax Act (n1) sec 1(a).
25
Income Tax Act (n1) sec 1(b).
26
Income Tax Act (1) sec 1.

6
 9H(2).27 Thus, it does not amount to a disposal and there are no tax
implications in terms of this asset. As such I will not discuss it in this opinion.
I will proceed on the basis of these established facts.
18. Income is ‘received-by’ a taxpayer, when it is for the taxpayer’s own benefit
and on their own behalf.28 It is common cause that the Client received the
payment of dividends on his own behalf and for his benefit.
19. Furthermore, whilst the Client is not a resident for tax purposes, the source
rules contained in Section 9 of the Act provide that he will still be taxed as
the company (Restla) is incorporated within the Republic and constitutes a
‘South African source.’29 The income earned from the dividends payment of
R800’000.00 falls squarely within the ambit of section 9(2)(a) of the Act.30
Thus, it does form part of the Client’s Gross Income.31 However, dividends
income earned from the South African resident company is not subject to
normal tax as the company already pays a dividends tax on behalf of the
beneficiary shareholder. This amounts to a withholding tax and is thus,
exempted from normal tax.32
VI. RECOMMENDATION
20. The Client is not a resident of the Republic for tax purposes.33 This is the
case regardless of the part of the definition considered, namely whether the
Client is ‘ordinarily resident’ or ‘physically present’ in the Republic.34
21. However, the dividend constitutes income from a South African source in
terms of Section 9 of the Act.35 This dividend is exempt from normal income
tax, and therefore, the Client will not need to pay the tax associated with it,
as the company pays it on his behalf.36
22. Therefore, the Client will need to file a tax return in which they indicate the
exemption of the dividends but will not be required to pay the amount
associated.

27
Income Tax Act (1) secs 9H(2) & (4).
28
Geldenhuys (n10) page 430.
29
Income Tax Act (n1) sec 9.
30
Income Tax Act (n1) sec 9(2)(a).
31
Income Tax Act (n1) sec 10(1)(k)(i).
32
Income Tax Act (n1) sec 10(1)(k)(i).
33
Income Tax Act (n1) sec 1.
34
Income Tax Act (n1) secs 1(a) & 1(b)(aa) & (bb).
35
Income Tax Act (n1) sec 9(2)(a).
36
Income Tax Act (n1) sec 10(1)(k)(i).

7
 QUESTION 2
To: Potlako Accounting Department <accountacy@potlako.co.za>
From: Frederic Augustyn <faugustyn@augustynattorneys.com>
Re: Deduction of Penalty Paid
Date: 15 June 2024
23. Dear Potlako Accountancy Department,
24. I trust that all is well, and that business is going swimmingly. I note your
question pertaining to the possible deduction of a penalty paid in
continuation of trade activities and will respond thereto below. Please inform
me should you have any additional questions. I have broken down my
response as follows for your convenience:
a. Penalty Deduction is Not Automatically Disallowed
b. Explaining and Applying the General Deduction Formula
This Penalty Deduction is Not Automatically Disallowed Under Section 23(o)(ii)
25. Firstly, I address section 23(o)(ii) of the Income Tax Act which provides that
deductions will not be allowed where any expenditure is incurred which
constitutes a fine charged or penalty incurred as a result of an unlawful
activity carried out in the Republic or any other country if that activity would
be unlawful if carried out in the Republic.37
26. As you can understand, it would set an unacceptable standard if deductions
for fines paid in respect of crimes committed by businesses were allowed.
This section in the Income Tax Act does not provide a definition of an ‘lawful
act’ but I have gathered additional clarity from SARS Interpretation Note 54,
which whilst not a legally binding source, does help to explain difficult
concepts in tax law.38
27. Note 54 explains that unlawful conduct must stem from the violation of some
form of law.39 In your case, the penalty was given by a private security officer
for violation of the rules of a private security village. Therefore, as provided
for by the logic of Note 54, the penalty will fall outside the ambit of section

37
Income Tax Act (n1) sec 23(o)(ii).
38
SARS Interpretation Note 54, 2010.
39
SARS Interpretation Note 54 (n38) page 9.

8
 23(o)(ii) and must instead meet the requirements as set out in section 23(g)
and section 11(a) of the Act in order to be deducted.40
The Deduction of the Penalty using the General Deduction Formula
The Requirement of a Trade
28. As a point of departure, you must be made aware of the General Deduction
Formula which emerges from a joint reading of sections 11(a) and 23(g) of
the Income Tax Act.41 A prerequisite for applying the general deduction
formula is that there must be a trade exercised as defined in the Income Tax
Act.42 The making of deliveries and running of a business falls within the
definition of a ‘trade’ in the Income Tax Act, and therefore we may proceed
with the general deduction formula.43
How the General Deduction Formula Works [Section 11(a) & 23(g)]
29. In simple terms, it states that for a deduction to be valid it must amount to
expenditure and losses that were actually incurred during the year of
assessment which were in the production of income and which are not of a
capital nature to the extent that it is laid out or expended for the purpose of
trade.44 In order to substantiate a deduction, each of these elements must
be satisfied.
Expenditure or Loses
30. The general deduction formula makes a distinction between losses and
expenditure, and it is required that any deduction you claim be made in
terms of one of these two choices. ‘Expenditure’ is explained in case law.45
The Labat case explains that expenditure must be defined in terms of its
dictionary meaning, which is an action of “spending funds, the disbursement
or consumption of resources and hence the amount of money spent.”46 The
payment of the penalty is voluntary, as Potlako chose to pay it on Vinnige
Frikkie’s behalf and thus it meets this requirement.
Actually Incurred in the Year of Assessment

40
SARS Interpretation Note 54 (n38) page 9.
41
Income Tax Act (n1) secs 11(a) & 23(g).
42
Income Tax Act (n1) sec 1.
43
Income Tax Act (n1) sec 1.
44
Income Tax Act (n1) secs 11(a) & 23(g).
45
Commissioner, SARS v Labat Africa Ltd (2011) JOL 27986 (SCA).
46
Labat Africa Ltd (n45) para 12.

9
 31. In order for an expense to be actually incurred, it must be unconditional,
meaning that there must not be dependent on some other event that may
or may not happen.47 Potlako made the payment and the claim against you
discharged subsequent to that payment. This amounts to an unconditional
payment in the 2024/2025 year of assessment as it was paid on 30 June
2024 which falls within the year of assessment.48
In the Production of Income
32. The most important element for your case hinges on whether the penalty
would be considered an expense in the production of income. The test for
this element is contained in the PE Electric Tramway case.49 This case
explained what ‘in the production of income,’ setting out a two-stage test in
the form of two questions as follows:
a. Firstly, what action gave rise to the expenditure and what is its
purpose?
b. Secondly, is the action a necessary concomitant of the income-
earning business activities?50
33. The answer to the first question is quite simple, as you are well aware that
the fine was incurred as a result of Vinnige Frikkie’s negligent driving whilst
out making deliveries for the company. The purpose of these deliveries is
further quite obvious, in that it is how the Potlako makes its money.
34. The answer to the second question is less straightforward, but easily
determined as well. As a general rule, Vinnige Frikkie working as a delivery
driver is required to make timeous deliveries to satisfy customers and
generate income for the company. The PE Electric Tramways case did
explain that motor accidents could be deducted and is sufficiently closely
connected to the production of income.51 However, in this specific context,
it is common cause that Vinnige Frikkie drove recklessly and courts my be
dissuaded from ruling in the Client’s favour as it may set a bad precedent.
Thus, in my view it will be difficult to prove in a court of law that payment of

47
Edgars Stores v Commissioner for Inland Revenue 1988 (3) SA 876 (A).
48
Concentra (Pty) Ltd v Commissioner for Inland Revenue 1942 CPD 509.
49
Port Elizabeth Electric Tramway v Commissioner for Inland Revenue 1936 CPD 241.
50
Port Elizabeth Electric Tramway (n49) page 16.
51
Port Elizabeth Electric Tramway (n49) page 16.

10
 a penalty in respect of such activities should be deducted from the Gross
Income of the taxpayer.
Conclusion on Deduction of the Penalty Paid
35. The general deduction formula is clearly not complied with, due to the fact
that the penalty incurred by Vinnige Frikkie is not a necessary concomitant
of the income-earning business activities.52 Thus, the remaining elements
of the general deductions formula are of less relevance. I concluded by
stating that payment of the penalty would clearly not amount to an expense
which is capital in nature, and it would be expended for the purpose of
trade.53
36. Therefore, despite the deduction not being excluded automatically under
section 23(o)(ii) of the Income Tax Act, it would also fail to qualify for
deduction under sections 11(a) and 23(g) of the same Act.54 I conclude that
the payment made by Potlako for the penalty incurred by Vinnige Frikkie is
most likely not deductible from its Gross Income for the 2024/2025 year of
assessment. However, should you wish to pursue a deduction anyway, they
will need to closely consider the factor of whether it is an expense in the
production of income.
37. Should you have any further questions please do make sure to reach out to
me as I would be happy to assist.
38. Kind regards,
39. Frederic Augustyn
QUESTION 3 – PART A
To: Buyer and Co

From: Augustyn Attorneys

Re: Correctness of Penalty Imposed by SARS

Date: 15 June 2024

OPINION

52
Port Elizabeth Electric Tramway (n49) page 16.
53
Commissioner for Inland Revenue v Visser 1937 TPD 77.
54
Income Tax Act (n1) secs 23(o)(ii) & 23(g) & 11(a).

11
 I. STATEMENT OF FACTS
40. Facts as provided in the brief by Buyer & Co (herein ‘the Client’).
II. APPLICABLE LAW
41. Section 1 of the Income Tax Act provides the definition of Gross Income as
pertaining to amounts received by or accrued to residents and non-residents
of the Republic.55
42. The journal article titled ‘The Lategan case: The accrual principle – then and
now’ is written by Professor L. van Zyl and explains the meaning of the term
‘accrued to’ in the definition of Gross Income contained in the Income Tax
Act.56 This journal article serves as persuasive and clarifying authority for
explaining the terms and implications of the decisions made by the courts
detailed in the article.
43. Lategan v CIR is the landmark case where the courts defined the meaning
of ‘accrued to,’ ruling that the words should be taken to mean ‘entitled to.’57
This was considered to be the “timing rule” which resulted in any amount to
which taxpayers had become entitled to, regardless of whether it had
actually come into their possession, to be included in their Gross Income.58
44. Ochberg v CIR is a case where in the learned judge Watermeyer J restricted
the definition of accrued to which was provided in Lategan.59 Watermeyer J
explained that the correct position was that they should be ‘unconditionally
entitled to’ the income.60 Specifically, this case pertained to payment in
instalments at a future date which were unconditional.61
45. In the Mooi v SIR case, the Appellate Division confirmed the combined
position established in terms of the Lategan and Ochberg cases.62
46. The Visser case spoke to the intention of the taxpayer in separating capital
and revenue income for the purposes of Gross Income.63

55
Income Tax Act (n1) sec 1.
56
L van Zyl ‘The Lategan case: The accrual principle – then and now’ (2015) Southern African
Business Review Special Edition Tax Stories 98.
57
WH Lategan v Commissioner of Inland Revenue 1926 (2) SATC 16 (CPD).
58
Van Zyl (n56) 97.
59
Ochberg v Commissioner of Inland Revenue 1933 (6) SATC 1 (CPD).
60
Van Zyl (n56) 105.
61
Van Zyl (n56) 105.
62
Mooi v SIR 1972 (1) SA 674 (A).
63
Commissioner for Inland Revenue v Visser 1937 TPD 77.

12
 47. The Vasco Dry Cleaners case established the rule of substance over form,
wherein courts will give effect the objective construction of a transaction and
not what the parties believe the transaction to be.64
48. The Tax Administration Act provides for the procedural rules for tax
disputes.65 Important sections to this memorandum include section 105
(Objections) and sections 222 and 223 which prescribe the penalties.66
49. Lance Dickinson Construction is a Supreme Court of Appeal case which
established ‘reasonable care’ as determined with reference to the level of
diligence which an ordinary person filing a tax return would exercise.67
50. The Thistle Trust case is another Supreme Court of Appeal judgement in
which the court held that ‘bona fide inadvertent errors include taxpayers who
are bona fide acting upon legal opinion and is not only limited to involuntary
typographical mistakes.68
51. The Guide to Understatement Penalties provided by SARS (Second Issue)
is supporting and persuasive authority to supplement the case law provided
above.69 It provides that where a taxpayer relies on their own opinion instead
of an expert legal opinion, their error is construed as being voluntary.70
III. DISCUSSION AD THE MERITS OF THE UNDERSTATEMENT PENALTY
52. It is common cause that with respect to the purchase agreement between
the Client and El & Co, El & Co have become the full owners of the property.
El & Co subsequently pay instalments of R400’000.00 to the Client upon the
sale of any of the 85 individual plots to a total value of R34’000’000.00 as
fulfilment of the purchase price. Thus, it is not a bare purchase agreement
and should rather be considered as an instalment contract.71 Furthermore,
the Client developed the property to be sold for profit, which makes it
revenue in nature and subject to inclusion in Gross Income.72

64
Vasco Dry Cleaners v Twycross 1979 (1) SA 603 (A).
65
Tax Administration Act 28 of 2001.
66
Tax Administration Act (n65) secs 104 & 222 & 223.
67
Lance Dickinson Construction CC v Commissioner for the South African Revenue Service 2023
JOL 57412 (WCC).
68
Commissioner for the South African Revenue Service v The Thistle Trust 2022 JOL 56178 (SCA).
69
SARS ‘Guide to Understatement Penalties’ (2018) Issue 2.
70
Guide to Understatement Penalties (n69) page 17.
71
Vasco Dry Cleaners (n64) page 325.
72
Visser (n63) page 81.

13
 53. The understatement penalty imposed by SARS may be objected to on the
basis that it is incorrect. The Client may object to the decision to impose the
understatement penalty in terms of section 104 of the Tax Administration
Act.73 The merits of this objection are discussed below.
54. The understatement penalty is incorrectly imposed because the
R34’000’000.00 purchase price does not form part of the Client’s Gross
Income in the given 2022/2023 year of assessment. In order for an amount
to be included in a taxpayer’s Gross Income, it must be ‘received by or
accrued to’ the taxpayer in the relevant year of assessment.74
55. The term ‘accrued to’ should be taken to mean ‘unconditionally entitled to.’75
In the facts provided, the Client is not ‘unconditionally’ entitled to the
R34’000’000.00, as it is paid in instalments which are conditional upon the
sale of the individual plots of land. Therefore, the income amount had not
accrued to the Client as there is a distinction between the taxpayers right to
claim payment where that right vests immediately and where it might only
vest upon the fulfilment of a condition in the future.76
56. At the time of filing the tax return for the 2022/2023 year of assessment,
none of the individual plots of land had been sold. The Client’s right to the
income had not yet vested. As it had not vested, the Client was not
unconditionally entitled to the amount and it does not form part of their Gross
Income, as they correctly provided for in their tax return for 2022/2023.77
IV. DISCUSSION AD PROCEDURE OF THE UNDERSTATEMENT PENALTY
57. In the alternative, where it is found that SARS has not erred in their
assessment of the R34’000’000.00 there is still an argument to me made for
avoidance of the penalty imposed. Section 222 of the Tax Administration
Act provides that penalties imposed by SARS for understatements by the
taxpayer must be paid unless they are due to a ‘bona fide inadvertent
error.’78 Case law has developed the meaning of a bona fide inadvertent
error as I explain below.79

73
Tax Administration Act (n65) sec 105.
74
Income Tax Act (n1) sec 1.
75
Ochberg (n59) page 264.
76
Van Zyl (n56) 105.
77
Income Tax Act (n1) sec 1.
78
Tax Administration Act (n65) sec 222.
79
Lance Dickinson Construction CC (n67) para 101.

14
 58. The Lance Dickinson Construction CC case established that a bona fide
inadvertent error must be considered with reference to the ‘reasonable care’
that an ordinary person filing their tax return would have taken in the
circumstances.80 The Thistle Trust is a case that developed the meaning of
such an error beyond typographical errors to include reliance on expert legal
opinions where such reliance is bona fide.81
59. In the facts presented, the Client relied on their own legal opinion of what
the correct tax position would be and not on that of an independent expert.
Therefore, the unfortunate result is that the Client is not able to escape
payment of the penalty as their decision would be construed as being
voluntary.82
V. CONCLUSION
60. SARS erred in imposing a penalty as they have assumed the wrong tax
position with respect to the R34’000’000.00, assuming that the sale had
vested in the Client. This is incorrect, and because the sale is conditional it
does not form part of the Client’s Gross Income. Therefore the Client must
immediately file an objection in terms of Section 104 of the Income Tax Act.
However, it is in the Client’s best interest to pay the tax and requisite penalty
first and claim it back upon winning the dispute in order to avoid further
penalties.
61. In the alternative, the Client must simply pay the taxable amount in terms of
the R34’000’000.00 purchase price as they will be unable to escape the
penalties on the grounds of a bona fide error.
QUESTION 3 – PART B
62. As we can assume the prejudice on the part of SARS has been
demonstrated and furthermore that the imposition of the understatement
penalty was reasonable, there are only two issues to be tackled. Whether
the tax court has a general authority to hear such disputes (1) and a specific
authority to decide on the increase of an understatement penalty as a rule
of law (2).

80
Lance Dickinson Construction CC (n67) para 101.
81
The Thistle Trust (n68) para 29.
82
Guide to Understatement Penalties (n69) page 17.

15
 63. The General Authority of the tax court: The tax court has jurisdiction over
tax appeals lodged under section 107 of the Tax Administration Act.83
Furthermore the tax court may decide on and hear an interlocutory
application or an application in a procedural matter relating to a dispute
provided for in Chapter 9 of the Act.84 However, the tax court has no inherent
jurisdiction as it is not considered a court of law and is thus limited to those
areas provided for in section 117 of the Tax Administration Act.85
64. Inherent jurisdiction is not to be confused with general authority for the
purposes of my answer, herein. Inherent jurisdiction entails the courts listed
in section 166 of the Constitution which are established in terms of the
judicial authority to be found in section 165 of the Constitution.86 The tax
court is not such a court. However, it has general authority over tax matters
and therefore, it can now be analysed whether the tax court has the specific
power of adjusting understatement penalties.
65. The Specific Authority of the tax court: The question of whether the tax
court can increase an understatement penalty was answered in the
affirmative by the Supreme Court of Appeal on the condition of this being
requested of the court by SARS.87 The court reasoned that section 129(3)
of the Tax Administration Act must be read alongside Rule 34 of the Tax
Court Rules in order to give effect to the power of the tax court to confirm,
reduce, or increase an understatement penalty.88
66. Section 129(3) provides that in the case of an appeal against an
understatement penalty the tax court must decide on the matter on the basis
that the burden of proof is upon SARS, and may increase, reduce or confirm
the understatement penalty.89 This is in contradiction to the burden of proof
generally being upon the taxpayer.90
67. As per Purlish Holdings Rule 34 of the Tax Court Rules essentially provides
that the ruling of the tax court is limited to those claims that are specifically

83
Tax Administration Act (n65) sec 117(1).
84
Tax Administration Act (n65) sec 117(3).
85
Tax Administration Act (n65) sec 117(3).
86
The Constitution of the Republic of South Africa, 1996.
87
Purlish Holdings (Pty) Ltd v Commissioner for SARS 2019 ZASCA 04 (SCA).
88
Purlish Holdings (n87) para 25.
89
Tax Administration Act (n65) sec 129(3).
90
Tax Administration Act (n65) sec 102.

16
 included in the grounds for assessment (usually filed by SARS) and the
appeal (usually filed by the taxpayer).91
68. Thus, we may conclude that the tax court was permitted to increase the
penalty as SARS specifically requested it of the tax court upon filing their
grounds for assessment.92
QUESTION 4A
69. In dealing with the applicable Capital Gains Tax (‘CGT’), as asked to do by
The Crossfit F1 accountant Mr Jamie Vowels, I will calculate the taxable
gain for the 2023/2024 year of assessment. I will first deal with some
preliminary issues essential to CGT and then provide the calculation. As a
matter of efficiency, references to any ‘paragraphs’ herein, are specifically
with reference to Schedule Eight of the Income Tax Act, as this is the
applicable law to govern this issue.93
Residency
70. Only ‘residents’ for tax purposes are subject to CGT.94

91
Purlish Holdings (n87) para 25.
92
Purlish Holdings (n87) para 25.
93
Income Tax Act (n1) Schedule 8.
94

17
BIBLIOGRAPHY (EXAMPLE)
Case Law
1.

Journal Articles and Commentaries

Legislation
3. Consumer Protection Act 68 of 2008.
4. Income Tax Act 58 of 1962

Textbooks
5.

18
19