AC405 Lecture 2
AC405 Lecture 2
AC405 Lecture 2
• The term gross income is very important in tax law because it is the starting
point in the determination of the tax liability of a taxpayer.
• The above definition gives a general formula of what should, and what
should not, be included in a person‘s taxable income.
Lecture 2: GROSS INCOME
• From the definition , the following terms are the pillars of the principle of gross income:
Total amount
received by
• The source of income is not where it comes from(the quarter whence it comes) but the
work which was done by the taxpayer which resulted in the income being earned(the
originating cause of the income).
• i.e. the quid pro quo(effort, work) which he gives in return for the income.
• This section provides the basis for taxing income that is receivable
by way of installments such as hire purchase agreements and
credit sales.
Lecture 2: GROSS INCOME
2.9 Receipt of capital nature
• The definition of gross income specifically excludes amounts proved by the taxpayer to be
capital in nature.
• Legislation did not give the meaning of capital nature.
• Reliance can thus be placed on decided court cases so as to elucidate the meaning of the term.
• The basic principle of determining whether an item is of capital or revenue in nature, is to
examine the intention underlying the transaction.
• Where there are more than one intention, then the dominant intention will determine the
nature.
• Any transaction undertaken for a profit motive is of revenue nature and is taxable, despite the
fact that it might be an isolated transaction; Case : Overseas Trust Corporation v CIR (1926) 2
SATC 71.
• As a general rule, capital is wealth used to generate more wealth, income is the fruits of capital
productively employed.
• The sale of fixed capital represents a realization which should not be included in gross income.
Lecture 2: GROSS INCOME
2.9 Receipt of capital nature continues….
Form of capital receipts Explanation
1.Restraint of trade
2.Damages compensation
3.Inheritances
4.Fortuitous receipts
Lecture 2: GROSS INCOME
Example
Determine the Gross Income for 2018 from the information given below for an ordinary resident of Zimbabwe($)
Insurance Policy Proceeds 12,000
Rent from a house in Harare 25,000
Fixed Deposit account interest from South Africa 1,000
Econet Zimbabwe dividends 3,500
Textbooks royalties from Zimbabwe 53,000
Rent from a house in Botswana 250,000
Salary form ZIMRA 110,000
Royalties from a book written in Nigeria 3,600
Zimbabwe debenture interest 60,000
Annuity from a fund in Zimbabwe 10,000
Allowances from Zimbabwe Government for services rendered in Swaziland 60,000
Leave pay (for December 2017 & January 2018- evenly spread per month) 200,000
Cash in lieu of leave 12,000
Groceries received from employer 500
Commission earned from sell of motor vehicle 74,000
Loan from local building society 50,000