[Question] Court Case Payouts & SARS

[AmithS]

Hi All,

I need some info on the following situation.

Say you are in a legal battle with someone and

A) It goes to court and you win the case - how is this handled from an accounting view - Does SARS need to know about it and will it be taxed?

B) The other party decides to settle you out of court - how is this handled from an accounting view - Does SARS need to know about it and will it be taxed?


Any info would be welcome, Thanks!

[Dave A]

It really depends on why you're getting paid rather than how.

Taxable income is taxable income, even if you had to go to court to collect it.

Of course, if the payout is taxable income, the cost to collect it (if you didn't win a cost award, or the shortfall if you did) is a deductible expense

[AmithS]

It would not be sales\debit collection from a customer.

It is abit difficult to explain but would be along the lines of a partnership agreement not being followed!

[BusFact]

If he receives a payment from a partner, I would imagine that is income. As Dave said, I don't think it matters how you went about getting it, the fact is that you received the payment. (Non expert opinion).

[Blurock]

If you are being paid for damages e.g. loss of income, you would have had to prove to the court that you have suffered damages. I am not an expert, but in this case it would seem like a re-imbursement and therefore be taxable as it is still business income.

Can the tax experts help?

[nkawit]

As far as I'm concerned any money a business receives is income and taxable. Every year my auditors go through our income accounts (we allocate all odd things to certain accounts) and they decide what must happen. I'd feel better paying SARS more and claiming it back than paying too little and SARS smacking me with fines and interest.

[Dave A]

I'd feel better paying SARS more and claiming it back than paying too little and SARS smacking me with fines and interest.

I hear where you're coming from, but first prize is paying the right amount on the due date

[nkawit]

I hear where you're coming from, but first prize is paying the right amount on the due date

Totally true ... probably why our auditors told me to be "more creative"

[Blurock]

I'd feel better paying SARS more and claiming it back than paying too little and SARS smacking me with fines and interest.

Although I agree with Dave, I think this is a good principle. Do not take chances with SARS as it may create bad perceptions about you or your business. You do not want continuous audits as it takes up the time that you could have done new business (...to generate more money to pay more tax?).