| Ernst & Young on Tax |
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| Written by Friedel van Rensburg | |
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The term gross income is defined in section 1 of the Income Tax Act. In terms of section 1 “gross income” refers to the total amount in cash or otherwise received by or accrued to a person during the year of assessment from a source in Namibia or deemed to be in Namibia, but excluding receipts of a capital nature.
Received by or accrued to refer to the particular year
in which the gross income arises and this term presupposes that there
are two ways that income arises, on receipt or accrual. Receipt refers
to the physical receipt of an amount, while accrual refers to an amount
being due to the taxpayer. Even though the term receipt is not nearly
as contentious a term as that of accrual, the question whether an
amount received forms part of gross income has also been considered by
the courts in the context of receipts not received for the taxpayer’s
benefit, the receipt of loans and the receipt of amounts never intended
to be those of the taxpayer
Generally, where the receipt of an amount precedes the accrual thereof, the amount will form part of the taxpayer’s gross income, except to the extent that it was not received for his own benefit. In Geldenhuys v CIR the court found that the proceeds on the sale of an asset over which the taxpayer had an usufructuary interest did form part of the taxpayer’s income but part of the gross income of the bare dominium holder even though the amount was received by the holder of the usufructuary interest. However, in CIR v the Witwatersrand Association of Racing Clubs, the court found that money collected from a charity race was received by the taxpayer and therefore taxable in its hands. The court found that although the taxpayer had a moral obligation to pay over the money to the charities, it was not bound to do so. Although money received as a loan is a receipt it is one on loan account and not a receipt for income tax purposes – what is borrowed does not become his. Another problem that often arises is where an amount is received in a tax year but the related expenditure is only incurred in a later year. In this scenario the receipt will be taxable in full while the related expenditure will not be deductible. Namibia does not have an equivalent to section 24C in South Africa in terms of which a provision for future expenditure can be deducted. However, in Namibia limited relief is available in terms of section 25 of the Income Tax Act in terms of which an allowance is granted in respect of installment sales where ownership passes to the purchaser upon payment of a portion of the purchase price and the full amount is included in the seller’s taxable income. The allowance is usually a percentage of the installment sale debt based on the average gross profit on these sales, including interest. The allowance granted is included in the income of the following year and a new allowance is calculated. Based on the fact the allowance provided in terms of section 25 of the Income Tax Act is of such limited application the only remedy available to taxpayers outside of the context of installment sales is to approach the Directorate Inland Revenue to approve an allowance for contingent expenditure on a case-by-case basis. |
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