TUTORIAL 10
QUESTION 1 (25 MARKS)
South African Rugby Union (SARU) administers and promotes professional rugby in South Africa.
In May 2025 it organised a rugby event for charity where four rugby clubs were to participate in
a one-day tournament at Loftus Versveld Stadium. The proceeds from the ticket sales were to be
distributed to various charity organisations after the tournament. On the day of the tournament,
the SARU had not yet identified which charity organisations were to benefit from the tournament
proceeds. Tickets were available for sale prior to the tournament at the various ticket outlets
such as Computicket and TicketPro.
Additional tickets were also available for sale at various stalls around the stadium complex. On
the day of the event pandemonium however broke out as when a stampede occurred at one of
the stadium gates that resulted in the death of two spectators.
The match commissioners however decided that the matches should go ahead. A month later,
the outcome of an investigation revealed that the stampede was caused because of failure to
control and limit the number of tickets sold by the South African Rugby Union. The result was the
excessive sale of tickets which lead to the number of tickets being in excess of the stadium
capacity.
The dependents of the families of the two fans who died sued the South African Rugby Union for
damages. In July 2025, the court ruled against the South African Rugby Union, citing that the
South African Rugby Union was negligent in implementing the ticketing system for the event. The
court awarded damages amounting to a total of R2 million payable to both families equally. The
legal costs incurred by the South African Rugby Union to defend the claim amounted to R260 000.
The financial year for South African Rugby Union ends on 31 July.
REQUIRED:
a) Discuss whether the damages payable by the South African Rugby Union amounting to
R2 million are deductible under section 11(a) of the Income Tax Act (general deduction
formula) in determining its taxable income. For the purposes of this question, you may
assume that the South African Rugby Union is regarded as carrying on a trade and the
damages are not capital in nature. (15 marks)
b) Assuming the damages are not deductible under section 11(a) of the Income Tax Act
because they are not in incurred in the production of income. Discuss whether the legal
fees of R260 000 incurred by South African Rugby Union in defending the claim will be
allowed as a deduction in determining its taxable income. (5 marks)
c) Discuss, with reference to the element of “received by” in the gross income definition as
per section 1 of the Act as well as the relevant case law, whether the proceeds from the
ticket sales will be included in the South African Rugby Union’s gross or not. (5 marks)
QUESTION 2 (10 MARKS)
IGNORE VAT FOR THIS QUESTION
Belfour Cellars CC (“Belfour Cellars”) is a small business enterprise, which is wholly owned by
Horatio, a South African resident. Belfour Cellars is involved in the wine-making industry, which
is considered a process of manufacture. Horatio has invested his life savings into Belfour Cellars
and owns no other shares or member’s interests.
For the year of assessment ending 31 March 2025, Belfour Cellars had the following receipts,
accruals and expenditure:
1. Sales of wine to other cellars amounted to R500 000.
2. Tax-deductible expenditure amounted to R56 000.
3. On 1 June 2024, they purchased one (1) additional (second-hand) stainless-steel tank used
in the manufacturing process for R100 000. Belfour Cellars had purchased its first tank on
1 June 2023 for R95 000 and brought it into use on the same date.
4. Purchased ten (10) new wooden display cabinets for an amount of R10 000 each on 1
June 2024 to expand its wine-tasting facilities. R95 000 had been spent on similar display
cabinets in the prior year of assessment.
Belfour Cellars does not elect s11(e) for the write off of its capital assets.
REQUIRED:
Calculate the normal tax payable by Belfour Cellars CC for its year of assessment ended on
31 March 2025 assuming that Belfour Cellars CC qualifies as a small business corporation. VAT
must be ignored for the purposes of this question. (10 marks)
