Page 23 - Test 1 Slides - 4. Gross Income

GROSS INCOME

Accrued to

Example 3

• Rex owns a holiday apartment in Camps Bay. Persons that wish to rent it
from him are required to pay monthly in advance. A foreigner wishes to rent
the apartment from him for 4 months. On 1 January 2014 he receives a
cheque for three months’ rent. When will the amount be included in Rex’s
income?

Solution:

• The amounts will be included in gross income on the earlier of receipt or
accrual. However, in this case it should be considered whether Rex is
unconditionally entitled to 4 months’ rent on 1 January 2014.

• If there is a contract that indicate that the foreigner has to pay for the full
three months with no recourse if he doesn’t stay there then the rent will be
included in the gross income as Johnny has received it for his own benefit
and has become unconditionally entitled to it.

• However, if the foreigner is entitled to a refund should he not stay there he
will not include the amounts in his gross income until he has become
unconditionally entitled to it.

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