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Deductions Cases, Intention of the taxpayer, Total amount in case or…
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Accrual
If an amount has accrued to a TP and no legal obligation exists to pay it over to another individual, then the amount has accrued and will form part of the TP's GI.
TP held a race event for and resulted in proceeds that the TP divided between 2 charities. TP argued that the amounts did not accrue to them.
- Witwatersrand Association of racing clubs
A clothing shop sold clothes, to customers, for payment at a later date.
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Receipt
Widow inherited the right of use of a farm while her children inherited the right of ownership. She gave up farming and sold the sheep with the consent of the children.
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She did not increase the amount of sheep and therefore the full proceeds were received by the children
An amount is only included in a TP's TI if the amount is received by the TP, on their behalf, fr their benefit.
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- MP Finance Group CC (in liquidation)
Biscuit manufacturer sold tinned biscuits. Customers could return tins and recieve money for the tin. The company treated proceeds relating to the tin as deposits and not grss income.
Generally deposits are still received and form part of gross income.
A deposit is only treated as not being received if the money is kept seperately in a trust account, for the benefit of the customer.
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Capital vs Revenue
Kruger Rands
Bought Kruger Rands with the intention of holding them as an inflation hedge and as inheritance for his children. Then years later, Then sold some to buy a car for his wife.
Judge's decision - His intention was clear that selling them was not to make a profit but rather to realise a capital asset to acquire another capital asset
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Tree v Fruit Tree is seen as capital structure of the business and fruit the result of the income earning activities.
Thus proceeds from sale of tree = capital and proceeds from sale of fruit = revenue
Tp acquired mining options for 2 years which expired. The TP made a deal for shares in another company to be formed if he helped make the company and gained the previously lapsed options.
Was the value of the shares that the TP received capital or revenue in nature?
The amount received was revenue in nature because it resulted because of the use of the TP's wits, energy and influence.
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TP was a timber merchant and acquired 600 morgen of natural forest for this purpose. Grew trees and sold them.
was the proceeds from sale of the natural forest revenue or capital in nature?
Revenue in nature
Trading Stock Cases
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of unsold vehicles including trucks, busses and
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original cost, such closing stock was accounted
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down of closing trading stock, namely damage, deterioration,
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for the trading stock, thus a deduction was
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purchase, does not mean that trading stock was acquired for
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If trading stock is aquired for consideration, the section 22
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VAT
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advisory services constitutes imported services,
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part of the vendors enterprise, could be seen as for the
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zero-rated (being an international flight), the
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VAT is levied on a service by a vendor, and not merely upon
receipts.
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terminated. As a result, the taxpayer received the
sum of R67 million from United Distillers, a United
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- Stellenbosch Farmer's Winery
Residency
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TP emigrated to America. Started a new life there and returned to SA for business and yatching ctivities. He maintained and renovated his CT house.
A person is ordinarily resident where his principal residence is - where the person is habitually and normally resident.
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A person is ordinarily resident in the country to which he intends to return from all his wanderings. The country he regards as his real home.
Damages and Compensation
TP (wholesaler of Bell's whiskey) had a contract that was prematurely terminated, 3 years early,, for which it received R67 million as compensation. The contract was with United Distillers which was based in the UK. SARS included this amount in their GI and this was upheld by the tax court
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- Stellenbosch Farmer's Winery
Evaluating the evidence in the case, the court
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purchase and sell liquor products, did not
embark on a scheme of profit making, and
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Tp (CC) leased premises to operate hotels. Received money as compensation for a contract that was to provide the CC with meals and accomodation to students.
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earning structure, it is capital in nature.
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Special inclusions
Annuity
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An annuity constitutes gross income. Its characteristics are:
- A contractual obligation for the person to pay
- A fixed or determinable amount
- Annually or more frequently
- Fora specific period.
But these payments must not be reducing the principle amount
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Repairs
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potential? If yes, an improvement has taken place which might
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- African Products Maanufacturing Co Ltd
A taxpayer drilled a new borehole, erected a
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need to repair an asset that has been subject to use, in order to
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earning ability of the asset, not improve this
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Source
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In order to determine source of inc - one must determine:
- what is the originating course? ;
- where is the course situated?
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