QUESTION

A family business or professional practice receives amounts in it's bank account that cannot be allocated to debtor accounts. Some of these amounts are double payments by patients/medical aids but some are never identified.

ANSWER
 VAT
In our opinion we should split these amounts i.e. double payments received and unidentified payments. With regards to the double payments received. Section 8(27) provides for the VAT consequences. This section provides that where an amount is received in respect of a taxable supply of services at the standard rate exceeds the consideration charged for that supply and such excess amount has not been refunded within four months of receipt thereof, this excess amount shall be deemed to be consideration for a supply of services. The effect of this is that output has to be accounted for on this excess amount after 4 months.
With regard to the unidentified amounts is our opinion that a supply for VAT purposes has not been made. Consequently the amount received has no VAT consequences.

Income tax
Except where the Act specifically provides that income is deemed to have accrued to or to have been received by a taxpayer, the receipt or accrual must be for his own benefit. If this is not the case, the receipt or accrual is not gross income in his hands.
In our opinion we should once again split these amounts i.e. double payments received and unallocated payments.
With regard to double payments received the current legal position is that an amount will be ‘received by' a taxpayer, if such taxpayer has intended to receive the amount for his or her own benefit. This was held in MP Finance Group CC v CSARS (2007 A) and the court concluded that the amounts were received by the taxpayer for purposes of gross income, in view of the fact that his intention was to benefit for his own purposes. Although there is criticism against the fact that the court followed a subjective approach, instead of an objective approach, it appears that the legal position is that an amount will be regarded as having been received by a taxpayer for purposes of income tax if he or she has intended to receive it for own benefit.

If this money that was received, was not kept in a separate bank account until such time as their true purpose was determined, in terms of the above court case the subjective intention of the taxpayer was to use this money for his own purposes and therefore has received these amounts. The taxpayer would be taxed on these amounts immediately and not only when the prescription period runs out i.e. three years. Therefore, in our opinion, the subjective intention of the medical practitioner was to use this money for his own account and should be taxed on these amounts.
We further need to distinguish between two types of unallocated payments. The first is a payment that you have received form a debtor but you could not identify the debtor. This amount would already be part of your gross income as it was included in gross income when the amount accrued to you. These unallocated amounts therefore have no income tax consequences. The other type of unallocated payments is amount that you have received for which you have not rendered any services. Although this amount is received within the meaning of gross income it might be argued that the amount is of a capital nature. We are therefore of the opinion that this type of unallocated payment should not fall within the ambit of gross income.