subject: The taxation of illegal receipts and the deduction of expenditure related thereto [print this page] The taxation of illegal receipts and the deduction of expenditure related thereto
1. Introduction and formulation of the problem
The Income Tax Act 58 of 1962 provides for the taxation to be levied on income received. However, the source of the income sometimes constitutes a problem. The law is easily applicable when the income is received from a legal source. Though, the nature of life nowadays and the activities in which taxpayers are involved are not always in line with the law.
There is no doubt that some taxpayers are involved in illegal or fraudulent activities. Yet, one of the objectives of income tax is to collect as much tax as possible. By targeting illegal receipts, is it not a way of legalising illegal activities?
Surely income generated from illegal activities is considerable and tax levied on such income will undoubtedly benefit the State. But, should we ignore the source of such income?
There is no provision in the Income Tax Act 58 of 1962 dealing with illegal receipts. Therefore, it implies that the source of the income is not relevant when it comes to income tax.
There are tax cases in the South African legal landscape, where income received from an illegal source has been taxed. It is admitted in most of those cases that the legality or illegality of the business from which income is derived does not affect the taxability of such an income.
Also the Income Tax Act 58 of 1962 allows the deduction of expenses in the production of income. Should illegal receipts fall under the ambit of income tax, the expenditure related to these receipts would be allowed to be deducted from income.
On the other hand, if income from illegal activities is not taxable the expenditure incurred in deriving such an income will definitely not be taxable as it would not be accepted as having been incurred in the production of income.
In addition, the dispositions of S23(o) prohibit the deduction of expenditure related to corruption, corrupt activities or a fine or penalty imposed as a result of unlawful activities.
2. The report 2.1 General description and background
Tax collection is an important mandate for the government, because only through the collection of tax they can generate money for service delivery. It only makes sense that the State would like to collect as much tax as possible in order to satisfy the needs of its citizens. Therefore, the receiver of revenue extends the scope of income to achieve such an objective.
Income tax is collected on income generated by taxpayers. Taxpayers generate income from various sources, illegal or legal. Also, the income received by taxpayers is not always meant for them and the activities through which they receive their income are not always legally acceptable.
Nonetheless, the Income Tax Act 58 of 1962 does not contain any provision that refers to the legality or illegality of income. Tax is payable on income for as long as such income has been received by the taxpayer. The receiver of revenue would like to ensure that tax is payable on any income received by taxpayers as it is provided in the Income Tax Act.
The taxability of illegal receipts generates a problem related to the deductibility of expenditure incurred in the production of illegal receipts. It is provided in the Income Tax Act of 1962 that expenditure incurred in the production of income should be allowed as a deduction in the calculation of taxable income.
Still, expenditure incurred in relation to corruption, corrupt activities, bribes or fines are not allowed to be deducted from the income of the taxpayer. Does this imply that if the expenditure incurred is not in relation to corruption, corrupt activities, bribes or fines, can it be allowed as a deduction from income?
2.2 Population of interest
The population of the interest targeted is the personnel of Black Hair Salon and the Accountant Tax and Advisory.
The census size is six (8) staff members organised as follows:
For Black Hair Salon: One (1) manager, One (1) worker and Two (2) temporary workers who only come in on the last weekend of each month.
For The Accountant Incorporated: One (1) Chief Executive, One (1) Manager and Two (2) staff members.
Black Hair Salon's main business activity is hairdressing. However, the one permanent worker is a foreign national. She was introduced to an immigration official who solicited a payment to help her with the extension of her temporary residence permit. Black hair Salon saw a business opportunity in that and started offering such services to other foreign nationals at a cost through the immigration official. They had a mark up of 25% on the amount demanded by the immigration official. People requesting such a service were invoiced with Black Hair Salon invoice book.
The Accountant Incorporated's main business is to provide accounting services. However, to get tax returns quickly for their deserving clients, the Accountant Incorporated has an inside man who speeds up the process for them in return of a payment which is the equivalent of 8% of what the Accountant Incorporated charges its clients The Accountant Incorporated on its side demands 30% of the refund from its clients.
Hypothesis 1
- Illegal receipts will always increase the taxpayer's gross income
- Illegal receipts will not always increase the taxpayer's gross income
Hypothesis 2
- Expenditure incurred in the production of illegal receipts does not decrease taxable income
- Expenditure incurred in the production of illegal receipts decreases taxable income
2.3 Approach to solve the problem
The researcher approached two organisations namely Black Hair Salon and The Accountant Incorporated. He requested that the management of the two organisations provide him respectively with the income figures of residence permits and tax refunds and the total amount paid in commissions paid to their inside men.
The statics figures were extended over a period of 10 months starting from 1 January 2010 to October 2010. These statics will be used to confirm the position of the legislator in connection with illegal receipts.
In addition a survey questionnaire will be designed for the same population of interest, meaning the personnel of both Black Hair Salon and The Accountant Incorporated.
3 Objectives of the research
The aim of this research study will be to:
Discuss the rationale behind the taxation of illegal income. It is important to acknowledge that the receiver of revenue does not emphasise on the legality or illegality of income. As long as income is received, accrued to or in favour of, the taxpayer is due to be taxed on such income. The receiver of revenue is more interested in expanding the scope of taxable income in order to generate more funds for the State.
Refer to and discuss some tax cases that deal with the taxability of illegal receipts and the decision taken by the courts. Emphasize on the facts related to those cases as well as the arguments brought forward by the judges in deciding on the taxability or non taxability of illegal receipts.
Prove that illegal receipts does not only generate from illegal activities. Illegal receipts might be income that was not intended to be yours. It is clear that in the course of a taxpayer's business activities, he/she might receive more income that he was entitled to. Such income, even though not received directly for services rendered should be taxable.
Expenditure incurred in the production of income is allowed to be deducted under S11 (a) of the Income Tax Act, read together with S 23(g) and to some extent S 23(f). A dilemma arises here as income received from illegal activities might be included in the taxpayer's taxable income, whereas the expenditure incurred in receiving the bribe is not allowed as a deduction.
Acknowledge that the deduction of expenditure arising from the payment of bribes or illegal activities is prohibited under S 23(o) of the Income Tax Act 58 of 1962. If expenditure arising from the payment of bribes and illegal activities is not allowed as a deduction, what expenditure related to illegal receipts of money is allowed to be deducted from income?
4 Literature review and the use of concepts
4.1 Definitions and important sections of the Income Tax Act 58 of 1962
The Income Tax Act 58 of 1962 defines Gross income as follows:
In the case of the resident as total amount in cash or otherwise, received, accrued to or in favour of such a resident during the year of assessment, which is not of a capital nature.
In the case of a non resident, gross income is defined as the total amount received, accrued to or in favour of such a person during the year of assessment from a source within the Republic, which is not of a capital nature.
Illegal receipts are incomes that have been received by the taxpayer from activities that are not considered as being a legal trade. Also, the receipt of income that was not intended the taxpayer and for his benefit constitutes illegal receipts.
S 11(a) of the Income Tax Act 58 of 1962 reads: "For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such a person so derived expenditure and losses actually incurred in the production of the income, provided such expenditure and losses are not of a capital nature.
However, S 11(a) should be read together with S 23(g), which prohibits the deduction of any moneys claimed as a deduction from income derived from trade, to the extent to which such moneys were not laid out or expended for the purposes of trade.
Also, S 23(f) prohibits the deduction of any expenses incurred in respect of any amounts received or accrued which do not constitute income as defined in section one.
4.2 The rationale behind the taxation of illegal income
The receiver of revenue taxes all residents on their worldwide income and non residents on income generated within the Republic. Taxpayers are taxed on any income generated by them, provided that it is not of a capital nature. It is accepted that there is no need to carry a trade for the taxpayer to be taxed on his income. Professor Lynette Olivier (2008) confirmed this statement in a paper presented at the South African Institute of Tax Practitioners.
The taxpayer's income is constituted of amounts in cash or otherwise. What are amounts made of? In Lategan v CIR 1926 CPD 203 it was said 'the word amount must be given a wider meaning and must include not only money, but the value of every form of property earn by the taxpayer, whether corporeal or incorporeal, which has a money value.'' Therefore, where an amount of income in a non monetary form accrues to the taxpayer, its realisable value must be included in the taxpayer's gross income (Williams: 2009). The People's stores case took the same direction by admitting that the right to future payments which accrued to the taxpayer is an amount that can be converted into money and was as a result income in the hands of the taxpayer. The Butcher Brothers case affirmed the same principle by admitting that amount connotes anything that has a money value.
An individual is taxed on the first of accrual or receipt. We ought to enquire when does an amount constitutes a receipts and when is it an accrual? The two cases mentioned in the paragraph above address the issue of accrual. Lategan established that an accrual is an amount 'to which the taxpayer has become unconditionally entitled to''. The peoples' stores case reinforced that principle by stating that even outstanding amounts must be valued as they can also accrue to the taxpayer. However, Professor Lynette Olivier (2008) stated that a thief cannot be taxed on accrual basis as he cannot be unconditionally entitled to money that he is planning to steal.
Income is received when an amount has been received on behalf of the taxpayer and for his own benefit. With regards to illegal receipts, in ITC 1624 59 SATC 373, it was admitted that 'where a taxpayer receives a payment of money in the course of carrying on its trade which it obtains from making fraudulent or, for that matter, negligent misrepresentation to a customer, it receives that money has intended to receive it as part of its business income and in the course of its business." Such a receipt is therefore taxable in the hands of the taxpayer.
4.3 Court cases dealing with the taxability or non taxability of illegal receipts
The receiver of revenue imposes taxes on all amounts received by or accrued to the taxpayer (from within the Republic for non residents and worldwide for residents), except on those of a capital nature. It is the responsibility of the taxpayer to prove that there was no receipt or accrual, that the income received was not for the benefit or in favour of the taxpayer, or the income was of a capital nature.
In COT v G 43 SATC 159, it was admitted that a thief does not receive, he steals. If there is no mutual intention to give and to take, then there is no receipt. Therefore, there is no inclusion in gross income. Moreover, the money received by the respondent was not intended for his own benefit despite his intention to treat it as his own. It was received in order to discharge some government's responsibilities. Even though some of the receipts were embezzled, those receipts were given for a specific assignment. Consequently, the income received by the taxpayer was not in his favour or for his own benefit. It does not subsequently form part of his gross income as there was no receipt within the meaning the meaning used in the definition of gross income.
In MP Finance Group CC (in liquidation) v Commissioner for South African Revenue Service 69 SATC 41, the appellant company objected to the inclusion of some receipts in its gross income. It claimed that by the time the income was received there was a legal obligation to repay it; therefore the income does not fall within the ambit of gross income. Nonetheless, it important to mention that the appellant company was involved in a so called pyramid scheme whereby investors were attracted with the intention of defrauding them. The appellant failed to prove that income from its operations did not constitute gross income as the court ruled for the inclusion of those receipts into gross income. The basis of that judgement was the intention of the taxpayer to keep the receipts for its own benefit from the time the investors handed the money over to her.
The Delagoa Bay Cigarette Co case was one in which a company advertised packets of cigarettes worth six pence for sale at ten shillings. There was a number coupon enclosed in each packet. The company advertised that they will set aside two-thirds from its revenue from sale towards a fund from which prizes will be awarded to the holders of winning numbers on a monthly basis. Two distributions were made and then legal actions were instituted against Delagoa Bay Cigarette Co for running an illegal lottery. In addition, the receiver of revenue claimed that the distribution of prizes was a scheme aimed at disposing of the company's profits after they had been earned and was not a deductible expenditure. Moreover, the receiver of revenue applied for a court order to prevent the payment of prizes in the future on the basis that this will keep the company from paying the tax due. Nevertheless, the court held that the payment of prizes in accordance with legal terms under which the cigarettes were sold was an outgoing incurred in earning the company's income and was in no way a distribution of the company's profit after it had been earned.
In the Griffiths v J P Harrison (Watford) Ltd case Lord Denning asked if a gang of burglars was involved in trade or an adventure in the nature of trade. A gang of burglars spend money on acquiring equipment and they acquire goods by their efforts. They are involved in the sale of their goods and make a profit. Apart from legality, nothing is lacking to the gang of burglars activities to constitute trade. Besides, legality is not an essential characteristic of trade. Still, it is not a trade. It is burglary, therefore an illegal activity. If we consider such an activity as trade, will their business expenses such as the cost of dynamites to blow open safes or the cost of petrol used by their getaway cars be allowed to be deducted from their income?
4.4 The deduction of business expenses, having regard to illegal activities
The Income Tax Act allows the deduction of business expenses from income to arrive at the taxpayer's taxable income. By business expenses, we understand expenditure incurred in the production of income.
The South African Revenue Service taxes moneys derived from prostitution, drug-dealings and presumably other unlawful trades (Williams: 2009). Based on that, we can reasonably argue that expenses such as bribes, fines and penalties actually incurred in the course of carrying on a trade were deductible for income tax purposes if they were an inevitable concomitant to the taxpayer's trade.
In the Genn case it was admitted that when assessing the deductibility of expenses, the closeness of the relationship between the expenditure and the income earning operations should be looked at having regard to the purpose of the expenditure and what it really effects. Therefore, the prohibition of a deduction under S 23(o) does not arise if the expenditure does not pass the test under S 11(a).
The Port Elizabeth Electric Tramway Co Limited case was the case of a tramway driver who claimed compensation for injury sustained while on duty. The taxpayer claimed the deduction of the compensation paid to the driver. As the compensation was so closely linked to the employment to be regarded as part of the cost of performing it, the cost incurred was deductible. Should the act that led to the compensation been unlawful or negligent the expenditure would not necessarily be deductible.
In ITC 1490, the taxpayer claimed the deduction of traffic fines under S 11(a). S 11(a) allows the deduction of expenditure incurred in the production of income. The court disallowed the deduction claiming that it is contrary to public policy. Should such a fine be allowed as a deduction, it will frustrate the intention of the legislator to punish the taxpayer for his actions and eventually lightening a punishment imposed.
The deduction of fines and penalties is prohibited to justify good governance and instigate an anti-corruption drive as mentioned in the South African Revenue Service Interpretation Note 54. Even though the deduction of expenditure related to illegal activities does not have any rationale justification from a policy point of view, allowing fines to be deducted from income would be contrary to the foundation of the law that imposed them.
4.5 The prohibition of the deduction of expenditure related to corruption, fines and penalties S 23(o)
S 23(o) reads: No deductions shall in any case be made in respect of the following matters, namely
Any expenditure incurred -
i) Where the payment of that expenditure or the agreement or offer to make that payment constitutes an activity contemplated in chapter 2 of the Prevention and Combating of Corrupt Activities Act, 2004 ( Act No 12 of 2004); or
ii) Which constitutes a fine charged or penalty imposed as a result of an unlawful activity carried out in the Republic or in any other country if that activity would be unlawful had it been carried out in the Republic.
Corruption is defined in the Prevention and Combating of corrupt Activities Act as an agreement to give, or an offer to give or the giving of a benefit that is not due to a person vested with a duty by virtue of his or her office, employment or status intending to influence the receiver or offerree to do something or to refrain from doing something at variance with his or her duty, or intending to reward the offerree or recipient for having done it or for having refrained from doing it.
Based on the wording of S 23(o), a fine imposed outside the Republic for an offence considered not unlawful in the Republic will not be disqualified as a deduction, but will have to pass the deductibility test under s 11(a) read with s 23(g). However, not all penalties are prohibited under S 23(o). Such penalties are mostly commercial ones and need to meet the requirements of both S 11(a) and S 23(g) to be allowed as a deduction.
The Income Tax Act clearly prohibits the deduction of expenditure related to illegal activities. Such prohibitions are supported by the Prevention and Combating of Corrupt Activities Act, which makes provision regarding corrupt activities relating to specific matters (witnesses or evidential material in certain proceedings, contracts, the procuring and withdrawal of tenders, corrupt activities related to auctions, sporting events, gambling games and games of chance) and to specific persons (Public officers, foreign public officials, judicial officers, members of the legislative authority and members of the prosecuting authority).
The Prevention and Combating of Corrupt Activities Act also addresses corruption and corrupt activities with regards to parties to an employment relationship. It provides for the receiving and an offering of an unauthorised gratification and inducing another person to commit an offence. Gratifications include gifts, contracts of employment, or services and the avoidance of punishment or loss.
The Prevention and Combating of Corrupt Activities Act acknowledges that corruption and corrupt activities are obstacles to democratic processes, good governance, sustainable development and fair business practices. They are an infringement to ethical considerations and represent a threat to morality.
5 Research methodology
In analysing the deduction of illegal receipts and the deduction of the expenditure related thereto, the researcher has chosen to adopt the scientific observation method to confirm the taxability of illegal receipts irrespective of its lack of legality and the prohibition of the expenditure incurred in relation to such receipts or activities.
The scientific observation method is defined as the systematic process of recording the behavioural patterns of people, objects, and occurrences as they are witnessed (Zikmund: 2003).
5.1 Collection of data
Statistics were obtained from the organisations for the period January 2010 to October 2010, which is ten months in total. Data were taken from the organisations' records.
5.2 Methodology
The researcher made use of descriptive statistics and measures of variability to conclude whether hypotheses ought to be discarded or not.
Data were also useful to confirm the taxability of receipts regardless of their source and the prohibition of expenditure related to activities considered illegal during the chosen period and compare the results of the two organisations under study.
5.3 Sampling
A questionnaire was prepared to collect additional information, relevant to the subject under study. The questionnaire was distributed among the population of interest and the researcher made sure that they understand not just its content, but also its relevance for the purpose of this study. They were assured of the confidentiality of their information and were advised to ask questions when they needed clarity.
Other variables such as the number of years spent with the company, the activities that form part of the employee's responsibility and knowledge of the company's registered business were taken into consideration. From the completed questionnaires, the researcher had an insight on the employees' positions regarding their knowledge of the company's illegal activities and the fiscal treatment of such activities.
Hypothesis 1
- Illegal receipts will always increase the taxpayer's gross income
- Illegal receipts will not always increase the taxpayer's gross income
Hypothesis 2
- Expenditure incurred in the production of illegal receipts does not decrease taxable income
- Expenditure incurred in the production of illegal receipts decrease taxable income
We used the correlation coefficient to confirm to the position of the legislator in relation to illegal receipts using variables for the two hypotheses. The results were processed through Microsoft Excel.
6 Analysis of data results
6.1 Research results
The researcher had an excellent rate of return (100%) on the questionnaire as out of the eight (8) issued out; he received feedback on all of them.
Hypothesis 1
- Illegal receipts will always increase the taxpayer's gross income
- Illegal receipts will not always increase the taxpayer's gross income
Black Hair Salon
The Accountant Incorporated
Month
Receipts from immigration
Gross Income
Total
Receipts from refunds
Gross Income
Total
Jan 2010
R1170
R 8897
R 10067
R 28900
R 81697
R 110597
Feb 2010
R 852
R 7356
R 8208
R 24227
R 76225
R 100452
Mar 2010
R 1474
R 8982
R 10456
R 34985
R 72632
R 107617
Apr 2010
R 2357
R 9928
R 12285
R 17315
R 67528
R 84843
Mai 2010
R 1285
R 8900
R 10185
R 12965
R 61630
R 74595
June 2010
R 2152
R 9753
R 11905
R 19627
R 67983
R 87610
July 2010
R 2629
R 10136
R 12765
R 37973
R 86321
R 124294
Aug 2010
R 2476
R 9157
R 11633
R 41675
R 90310
R 131985
Sep 2010
R 987
R 7298
R 8285
R 38652
R 87688
R 126340
Oct 2010
R 1327
R 9296
R 10623
R 47784
R 83720
R 131504
Totals
R 16709
R 89703
R 106412
R 304103
R 775734
R 1079837
Table 1: Receipts from immigration services, receipts from refunds and gross income of both Black Hair Salon and the Accountant Incorporated for the period January 2010 to October 2010.
Statistical measures used for data analysis
A median is described as the numeric value separating the higher half of a sample, a population or a probability distribution from the lower half.
The mean is the expected value of a random variable, which is also called the population mean. For a data set, the mean is the sum of the values divided by the number of values.
The mode is the value that occurs the most frequently in a data set or probability distribution.
Pearson's correlation coefficient (r) is a measure of the strength of the association between two variables.
Black Hair Salon
Mean = R 10641.2
Median = R 10539.5
r = 0.82
Mode: There is no mode associated with the data
The researcher used the Pearson's correlation coefficient as the data are quantifiable. The coefficient above shows a strong correlation between the receipts from immigration services and gross income. It translates as the greater the value of receipts from immigration services, the greater the value of gross income. The probability of occurrence of this correlation is 100%. Therefore, it is right to declare that illegal receipts will always increase the taxpayer's gross income.
The Accountant Incorporated
Mean = R 107983.7
Median = R 109107
r = 0.87
Mode: No mode has been associated with the data
The Pearson's simple correlation shows a strong correlation between receipts from illegal receipts and gross income. The greater the value of illegal receipts, the greater the value of gross income will be. The probability of this correlation occurring is 70%. Therefore, it is right to declare that illegal receipts will increase the taxpayer's gross income.
The relationship between illegal receipts and gross income
Hypothesis 2
- Expenditure incurred in the production of illegal receipts does not decrease taxable income
- Expenditure incurred in the production of illegal decreases taxable income
Black Hair Salon
The Accountant Incorporated
Month
Immigration expenditure
Taxable Income
Total
Refunds expenditure
Taxable Income
Total
Jan 2010
R936
R397
R1333
R2312
R8457
R10769
Feb 2010
R682
(R1144)
(R462)
R1938
R3291
R5229
Mar 2010
R1179
R482
R1661
R2799
R521
R3320
Apr 2010
R1886
R1428
R3314
R1385
(R5786)
(R4401)
May 2010
R1028
R400
R1428
R1037
(R11796)
(R10759)
June 2010
R1722
R1253
R2975
R1570
(R4759)
(R3189)
July 2010
R2103
R1636
R3739
R3038
R13428
R16466
Aug 2010
R1981
R657
R2638
R3334
R17253
R20587
Sep 2010
R790
(R1202)
(R412)
R3092
R14359
R17451
Oct 2010
R1062
R796
R1858
R3823
R9939
R13762
Total
R13369
R4703
R18072
R24328
R44907
R69235
Table 2: Expenditure for immigration services and tax refunds as well as taxable income of both Black Hair Salon and the Accountant Incorporated for the period January 2010 to October 2010.
Black Hair Salon
Mean = R 1807.2
Median = R 1759.5
r = 0.82
Mode: There was no mode associated with the data.
The Pearson's simple correlation coefficient indicates a strong positive relationship between expenditure incurred from illegal activities and taxable income. The value of expenditure from illegal activities does not decrease the taxpayer's taxable income. The probability of this correlation occurring is 80%. Consequently, we can affirm that expenditure from illegal activities does not decrease the taxpayer's income
The Accountant Incorporated
Mean = R 6923.5
Median = R 7999
r = 0.87
Mode: There is no mode associated with the data
The Pearson's simple correlation coefficient indicates a strong positive relationship between expenditure incurred from illegal activities and taxable income. The value of expenditure from illegal activities does not decrease the taxpayer's taxable income. The probability of this correlation occurring is 80%. Consequently, we can affirm that expenditure from illegal activities does not decrease the taxpayer's income
The relationship between expenditure from illegal activities and taxable income
6.2 Analysis of the questionnaire
We drew the following conclusions from the data collected from the questionnaire:
87.5% of the population have been working for their respective organisations for a minimum of two years
All employees who completed the questionnaire are aware of their organisations' main activities
A disappointing 37.5% of the population knew that the source of income did not have any effect on its taxability
Of all the participants to the survey questionnaire, only 37.5% not expenditure incurred for illegal receipts was not allowed as a deduction from income
An important 62.5% of the population admitted that they would pay a bribe in exchange of a service
All participants to the survey questionnaire agreed that fines and penalties should not be considered as business expenses.
7 Conclusion
The taxability of illegal receipts is an issue that the legislator has made clear. The source of income is irrelevant for the inclusion of the receipt in gross income. The only recourse left to the taxpayer is to prove that the receipts were not for his/her own benefit or they were of a capital nature. The different court cases that have been mentioned all confirmed the position of the legislator.
Also, the deduction of expenditure incurred in relation to illegal activities as well as fines and penalties is prohibited by law. S 23(o) of the Income Tax Act specifically prohibits the deduction of expenditure related to corrupt activities, fines and penalties.
There is no evidence in the South African judicial system of cases where expenditure related to corrupt activities, fines or penalties were allowed to be deducted from income. It is therefore clear that receipts or accruals from corruption and corrupt activities are included in gross income, while expenditure related to such receipts or accruals are prohibited from being deducted from the income.
8 References and sources
Arendse, J.A. Silke :South African income tax, 2001. Durban: Butterworths 2000.
Deneys Reitz attorneys (2008). Receiving illegal income? Is it taxable. Available from www. Deneysreitz.co.za. Accessed on 12.10.2010
Fluxmans attorneys (2007). Taxation of illegal income. Available from www.fluxmans.com/news. Accessed on 12.10.2010
Income Tax Act 58 of 1962
Olivier, L (2008). MP Finance Group CC (in liquidation) v CSARS 69 SATC 141. Available from www.moneywebtax.co.za. Accessed on 12.10.2010
South African Revenue Service Interpretation Note: No 54
Williams, R.C. Income Tax in South Africa: Cases & Materials. Durban: LexisNexis 2009.
Zikmund, W. G., Babin, B.J., Carr, J.C. Business Research Methods 7th edition. Mason, Ohio USA: Thompson South Western
9 Annexure
Questionnaire on illegal receipts
The information received on this questionnaire is strictly confidential and will be treated as such.
The aim of the questionnaire is to assess the knowledge of staff members about the legality of the business activities in which their companies are involved a well as the fiscal consequences related to the income and expenditure associated from such activities.
1) For how long have you been working for the company?
a) Less than a year
b) More than a year
c) More than 2 years
2) Do you have any knowledge of the company's registered activities?
a) Yes
b) No
3) Do you know that the source (legal or illegal) of income does not exclude it from inclusion into the gross income?
a) Yes
b) No
4) Are you aware that expenditure related to corruption and corrupt activities as well as fines and penalties is not allowed as a deduction?
a) Yes
b) No
5) Would you pay a bribe to get a service rendered?
a) Yes
b) No
6) Do you think that fines and penalties should be considered as business expenses?
a) Yes
b) No
10 Tables
Table 1: Receipts from immigration services, receipts from refunds and gross income of both Black Hair Salon and the Accountant Incorporated for the period January 2010 to October 2010.
Table 2: Expenditure for immigration services and tax refunds as well as taxable income of both Black Hair Salon and the Accountant Incorporated for the period January 2010 to October 2010.
