UNIVERSITY OF KWAZULU-NATAL, PIETERMARITZBURG EXAMINATIONS: MAY/JUNE 2009 SUBJECT, COURSE AND CODE: DURATION: 2 HOURS External Examiner: Internal

Examiner: Ms Tracy Gutuza Professor RC Williams INCOME TAX (LAWS4IT) TOTAL MARKS: 60

STUDENTS ARE REQUESTED, IN THEIR OWN INTERESTS, TO WRITE LEGIBLY

PLEASE NOTE: This paper consists of 2 pages. Ensure that you have them all. INSTRUCTIONS TO STUDENTS 1. 2. 3. 4. 5. This paper contains three questions. All references to the Act or to sections of the Act are to the Income Tax Act 58 of 1962 Answer any two questions. When answering questions, refer where appropriate, to relevant decided cases. Do not deal with any capital gains tax issues arising out of the questions. This is a closed book examination, and you are not permitted to consult any materials in the writing of the examination.

QUESTION ONE In Natal Estates Ltd v SIR a taxpayer who subdivided farm land and sold the erven was held to be liable for income tax on the proceeds. In Berea West Estates (Pty) Ltd v CIR, a taxpayer who subdivided land and sold it was held not to be liable. In Elandsheuwel Farming Edms Bpk v SBI, a company which sold a farm without subdividing it was held to be taxable on the proceeds. Explain the ratio of each of these three decisions and discuss the extent (if any) to which these decisions are in conflict with each other. (30 marks)

UNIVERSITY OF KWAZULU-NATAL, PIETERMARITZBURG EXAMINATIONS: MAY/JUNE 2009 SUBJECT: INCOME TAX PAGE 2 QUESTION TWO It used to be widely believed, amongst tax lawyers, that an amount, received by or accruing to a taxpayer did not have the quality of income (and therefore did not have to be included in the taxpayers gross income) unless it was either money, or capable of being turned into money. YOU ARE REQUIRED TO (a) Explain the basis of the aforementioned belief, in other words, on what legal principles or decisions of the courts was it based? Explain whether (and if so how) the law in this regard has been changed by the 2007 decision of the Supreme Court of Appeal in Commissioner for the South African Revenue Service v Brummeria Rennaissance (Pty) Ltd.

(b)

(There is no division of marks between (a) and (b) and the answer will be marked as a whole.) (30 marks)

QUESTION THREE In Port Elizabeth Electric Tramway Co Ltd v CIR, the taxpayer company was held to be entitled to deduct damages payable by it as the result of a motor accident involving one of its buses. In Joffe and Co (Pty) Ltd v CIR, it was held that the taxpayer company was not entitled to deduct damages which became payable as the result of an accident which occurred in the course of the construction of a building. Explain the principles which underlie the decisions in these two cases and discuss whether they are in conflict with one another. (30 marks)