UNIVERSITY OF KWAZULU-NATAL, PIETERMARITZBURG EXAMINATIONS: JUNE 2007 SUBJECT, COURSE AND CODE: INCOME TAX (PLA5TX1) INCOME TAX

(LAWS4IT) TOTAL MARKS: 60 Mr Daryl Arbuckle Ms S Soni

DURATION: 2 HOURS External Examiner: Internal Examiner:

STUDENTS ARE REQUESTED, IN THEIR OWN INTERESTS, TO WRITE LEGIBLY PLEASE NOTE: This question paper consists of 3 pages. Please see that you have them all. ___________________________________________________________________ INSTRUCTIONS TO STUDENTS 1. 2. Answer any TWO (2) of the THREE (3) questions. When answering questions, refer, where appropriate, to relevant decided cases. 3. 4. 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

Explain the criteria that the courts apply in determining, for the purposes of section 11(a) of the Income Tax Act whether expenditure was incurred in the production of income. In the course of your answer you must refer to decided cases. [30 marks] /Question 2

UNIVERSITY OF KWAZULU-NATAL, PIETERMARITZBURG, EXAMINATIONS, JUNE 2007 SUBJECT: INCOME TAX PAGE 2 QUESTION TWO Answer ALL of the following:

(1)

Discuss the meaning of accrued in the definition of gross income and the concept of a beneficial accrual. (10 marks)

(2)

Often a taxpayer purchases an asset with one intention, and then alters that intention and deals with the asset in a different manner. This Crossing the Rubicon is largely a question of fact in determining whether a taxpayer did indeed alter his intention. Briefly discuss the manner in which the court approaches this change in intention, with brief reference to relevant case law. (10 marks)

(3)

George operates a small ice cream store on the local university campus. Due to his deteriorating health he wants to sell his business for R50,000. He accepts an offer of R950 per month for the rest of his life, and payments from the purchaser would cease upon his death. He accepts that this arrangement would be a gamble between himself and the purchaser, because if George lived a short time the purchaser would have made a bargain, and if George lived for a long time he would in effect receive an amount far greater than R50,000. Write a note in which you explain how the courts are likely to treat the proceeds of this transaction. (10 marks) [30 marks] /Question 3

UNIVERSITY OF KWAZULU-NATAL, PIETERMARITZBURG, EXAMINATIONS, JUNE 2007 SUBJECT: INCOME TAX PAGE 3 QUESTION THREE

Discuss the meaning and relevance, in the context of income tax law, of a taxpayers intention. In the course of your answer you must refer to the concepts of dominant intention, dual intention; and secondary intention. You are also required to explain how the intention of a company is determined, and illustrate your answer with reference to decided cases.

[30 marks]