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Legality and Income Tax – Is SARS

18 January 2008   (0 Comments)
Posted by: TaxFind ™
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Legality and Income Tax – Is SARS ‘entitled to’ Levy Income Tax on Illegal Amounts ‘received by’ a Taxpayer?

Introduction

Pimps, prostitutes, pyramid schemes and perpetrators of other crimes all have one thing in common: the production of illegal profits.Whether the crime is a once-off prank or is executed after precise planning, the prejudice involved does not only affect an innocent victim.The South African Revenue Service (‘SARS’) is placed in a predicament with regards to the income-tax consequences of crime.It remains a highly controversial issue whether or not such proceeds should be subject to income tax.

The purpose of this analysis is to evaluate the principles applied by the courts to determine whether an amount obtained in an illegal manner, is included in the gross income of a taxpayer. The meaning of the phrase ‘received by’ in the definition of gross income (see s 1 of the Income Tax Act58 of 1961 (‘the Act’)), its judicial interpretation, and the latest decision of the Supreme Court of Appeal in MP Finance Group CC (In Liquidation) Commissioner,  South African Revenue Service (2007 (5) SA 521 (SCA)) will be examined.

Is SARS entitled to levy income tax on stolen amounts ‘received by’ a taxpayer? It will be argued that this question may be answered by examining the phrase ‘received by, accrued to or in favor of a person’ and by applying it correctly. It is submitted that the phrase ‘accrued . . . in favor of a person’ as it appears in the definition of gross income, could be relied on to levy tax on illegally produced income.

Source: By LG Classen (University of South Africa)

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