The tax consequences of income and expenses arising from illegal activities

• Main Author: Singh, Shalona
• Format: Others
• Language: English
• Published: Rhodes University 2018
• Subjects: Income tax > South Africa; Taxation > South Africa; Commercial crimes > South Africa; Crime > Economic aspects > South Africa; Taxation > Law and legislation > South Africa; Tax evasion > South Africa; Money laundering > South Africa
• Online Access: http://hdl.handle.net/10962/59456

Income tax in South Africa is levied in terms of the Income Tax Act, 58 of 1962 (the South African Income Tax Act) on taxable income, which by definition, is arrived at by deducting from ''gross income" receipts and accruals that are exempt from tax as well as deductions and allowances provided for in the Act. The South African Income Tax Act provides no guidance with regard to the taxation of income and expenditure from illegal activities. In this mini thesis, case law and legislation is reviewed in an attempt to provide clarity on the tax consequences of income and expenses arising from illegal activities. An overview is provided of the taxation of income and expenditure in respect of illegal activities in the United States of America, Australia and New Zealand. Similarities are found between the American, Australian, New Zealand and South African tax regimes in relation to the taxation of income earned from illegal activities, but there appears to be more certainty in America, Australia and New Zealand with regard to the deduction of expenses arising from illegal activities. In South Africa, taxpayers earning income from ongoing illegal activities will, in principle, comply with the definition of “trade” as defined in section 1 of the South African Income Tax Act. However, this is contrary to the view of the South African Revenue Service that illegal activities do not meet the definition of “trade”, a viewpoint that may not hold if challenged in court. Recommendations are made for the amendment of the South African Income Tax Act to specifically provide for the inclusion in “gross income” of income from illegal activities and to prohibit the deduction of expenditure arising from illegal activities.