Description
UNIVERSITY EXAMINATIONS
Oct/Nov Exam 2026
LML4804
INCOME TAX LAW
60 Marks
24-Hours
EXAMINERS:
FIRST: ADV ML PADI
SECOND: DR SW SIBIYA
EXTERNAL: DR R KABWE (UNIVERSITY OF PRETORIA)
This paper consists of 7 pages.
PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY BEFORE
ANSWERING THE EXAMINATION QUESTIONS.
1. The examination question paper consists of 60 marks.
2.
It consists of FOUR (4) questions. Answer ALL FOUR (4) questions.
3. The duration of the examination is 24-hours. You must submit your answers NO
LATER THAN 12:00 midday (South African Standard Time) on 13 October 2026.
4. This is an open-book examination. You may consult your prescribed study materials
during the examination. However, your answer must be your own unaided work and
not plagiarised (see 13 below).
5.
This examination is not proctored (or invigilated).
6. The cover page to your exam portfolio must include your name, student number and
the module code.
7.
It is preferred that your portfolio exam is typed. If the portfolio exam is typed, the
maximum length is 12 pages (which excludes the cover page and the bibliography
if included). A handwritten submission will also be accepted but it must be scanned
on PDF. If the portfolio exam is handwritten, the maximum length is 14 pages (which
excludes the cover page and the bibliography if included).
8. Whether your answers are typed or handwritten, your submission must be made in
the form of one PDF document file.
9 The exam answer file that you submit must not be password protected or uploaded
as a “read only” file.
QUESTION 1
Mr Joe Soap, a South Africa taxpayer transferred his high-yield investment portfolio from
Investments Matters to Soaps Projects and Construction a newly formed company where
he is the sole shareholder. Following an enquiry into the transaction, he claimed that the
primary reason for the transfer was for ‘estate planning’ and ‘asset protection’. As a result
of the transfer the income was taxed at a flat corporate rate rather than his higher personal
marginal rate.
With reference to relevant case law, critically discuss the “sole or main purpose” test as
applied by our courts. Further, briefly discuss the onus of proof in tax avoidance
arrangements. (10)
QUESTION 2
Royal Jozini Game Reserve (Pty) Ltd (RJ Game) is a well-known and respected game
reserve situated in the North Coast of KwaZulu Natal. Mr Zulu who was employed as a
technician enrolled for a postgraduate diploma in Information Technology with the
University of Artificial Technology which costs R17 000. Mr Zulu also attended an
International Information Technology Conference. The conference attendance cost a fee
of R3 000 annually. Both the costs of the postgraduate diploma and conference were paid
by RJ Game
RJ Game being an employer of choice in the North Coast of KwaZulu Natal showed
appreciation to its valuable employees and decided to take an insurance policy on behalf
of its employees for injuries, death or illness which they might incur during the course of
their employment. The total premium of R 20 000 per annum was paid the employer.
Towards the end of the year, all the employees of the company went on a vacation
sponsored by the company for team building purposes and the company pays R50 000
annually for such activities.
With reference to Income Tax Act and relevant case law, advise RJ Game on the
deductibility of all these expenses. (10)
QUESTION 3
After Lentu retired from playing professional netball, she applied for a liquor licence on 04
April 2024 to start-up a business of selling liquor in Bopcity (Pretoria-Gauteng). Although
Lentu only received her licence on 08 July 2024, she had already commenced with trading
in April 2024 under the name Lentu ’s Pub and Grill. On 23 January 2025, Lentu ’s Pub
and Grill earned a profit of R420 000. Noticing the success of the business, her comrade
friend S’Celo) advised her to join Events Support Club (“ESC”). When a person becomes
a member of the ESC, their name is added to the list of distributors which supply
organisations, companies or individuals hosting events or functions with liquor on credit.
The distributor receives payment within three months after the hosting of such event or
function by such organisation, company or individual.
On 15 December 2025, Lentu ’s Pub and Grill (as a member of the ESC), supplied liquor
worth R400 000 to Date & Wedd Event Organisers (Date & Wedd). After Date & Wedd
hosted a successful top celebrity marriage during December 2025 paid only R250 000 to
Lentu ’s Pub and Grill on 28 February 2026 from the total invoice of R400 000. However,
Date & Wedd refused to pay the outstanding balance owing to a dispute related to the
quantum of liquor that was supplied by Lentu ’s Pub and Grill. On 29 April 2026, the
outstanding balance of R150 000 was paid after the dispute was resolved as it was proven
that Lentu ’s Pub and Grill had indeed supplied the correct amount of liquor to Date &
Wedd.
Lentu ’s frustrations began when her business could not generate quick profit because of
selling liquor on credit. To accelerate her business profit margins, she came up with an
idea to invite a top local DJ to perform at her club every Saturday of the month. She
charged each person an entrance fee of R50. During July 2026, Lentu ’s Pub and Grill
earned a whopping profit of R1,5 million. However, there was an uproar within the
community members who complained about Lentu ’s Pub and Grill. Two of the complaints
from community members was that Lentu ’s Pub sells alcohol to children under the age
of 18 and that the pub operated until 05:00 in the morning.
The Gauteng Liquor Board and South African Police Service (“SAPS”) investigated the
complaints, and the investigations revealed that Lentu ’s Pub and Grill sold alcohol to
children under the age of 18 years and operated outside regulated hours. Further to the
investigation, the police also discovered that Lentu ’s Pub and Grill sold prohibited and
illegal substances such as dagga and drugs. Lentu ’s Pub liquor license was terminated,
and Lentu, as the owner, was subsequently arrested.
WHAT IS REQUIRED OF YOU:
3.1 Discuss in which tax year/s the income received by Lentu’s Pub and Grill in January
2025, February 2026 and April 2026 will fall into and motivate your answer with reference
to relevant applicable legal principles. (10)
3.2 Advise Lentu ’s Pub on whether they will be liable for income tax on the income
received from charging entrance fee. Also, advise Lentu ’s Pub and Grill whether it will be
liable for income tax on the profit it received from the proceeds of selling prohibited and
illegal substance such as drugs and dagga. (10)
QUESTION 4
Mr Marius Van Vuuren, a South African resident, is a professional tax consultant. During
the 2025 year of assessment, he entered into the following transactions:
1. He sold vacant land for R1,200,000, which he had acquired in 2015 at a cost of
R500,000. He had initially intended to build a family home on the land, but no
construction took place.
2. He disposed of jewellery to a friend for R90,000. He originally purchased the
jewellery for R180,000.
3. Mr Van Vuuren donated listed shares to a registered charity. The market value of
the shares at the date of donation was R300,000, while their base cost was
R100,000.
4. Mr Van Vuuren did not include any of the above disposals in his income tax return.
SARS later issued an additional assessment after an audit, and that included the
imposition of penalties.
WHAT IS REQUIRED OF YOU:
4.1 Define a “disposal” and identify which of Mr Van Vuuren’s transactions qualify as
disposals for Capital Gains Tax (CGT) purposes. (3)
4.2 Briefly discuss:
• (a) the sale of the land
• (b) the disposal of jewellery
(5)
4.3 Briefly explain the CGT treatment of donations and whether any relief applies in this
scenario. (2)
(10)
4.4 Discuss SARS’ statutory authority to issue an additional assessment after discovering
Mr Van Vuuren’s non-disclosure.
(3)
4.5 Explain the legal basis supported by legal principle/s for the imposition of
understatement penalties in this case. (3)
4.6 Outline Mr Van Vuuren’s rights and obligations in disputing the additional assessment,
referring to the relevant provisions governing objections and appeals. (4)
(10)
TOTAL FOR EXAM = [60 marks]
©
UNISA 2026
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