Please enable JavaScript.
Coggle requires JavaScript to display documents.
GROSS INCOME, THE NATURE OF THE ASSET
…
GROSS INCOME
-
-
2.year of assessment
natural person - 1 march to 28(or 29) February and for a non-natural person is financial year
the court case for this element is SUB-NIGEL
fact of the case- a taxpayer company made an ex gratia payment to an employee to compensate for the loss of a share option when the company went into voluntary liquidation.
principle- an expense has to be claimed in the year that it is incurred. it cannot be claimed in later years.
-
- excluding receipts/accruals of capital nature(capital nature v revenue in nature)
-
CHANGE OF INTENTION 1. JOHN BELL(fact of the case)- the taxpayer operated a textile business from premises that it owned. after the business relocated to other premises, the directors of the company decided to sell the original premises. in view of the fact that the property market had improved. in the meantime, the property market was rented out (for a period of 11 years ), and thereafter, once the market had improved, the property was realized at a profit.
principle- the mere decision to sell an asset does not change an intention. a capital asset may be realized at its best advantage. waiting for market conditions to change was no indication of the change in intention.
- NATAL ESTATES LTD(fact of the case)- the taxpayer held a piece of land for many years as a capital asset. Before selling the land, town planners, consulting engineers, and professional advisors were approached to develop and sub-divide the land.
principle- a person may realize his capital asset to his best advantage yet must be careful to not ''cross the Rubicon" and embark on a scheme of profit-making. This indicates a change of intention and the proceeds being revenue in nature.
- NUSSBAUM(fact of the case)- the taxpayer held shares during his lifetime for investment purposes. After retirement, he sold the shares were held for a long period and others for a shorter period. The taxpayer sold shares each time the dividend yield dropped.
principle- profit on share transaction can be taxable in gross income if the frequency or volume of share transactions suggests the carrying on of a business.
- BEREA WEST ESTATES(fact of the case)- a company was formed to facilitate the realisation of land which formed part of assets of a deceased estate. The company acquired the land, and other , after subdividing it, sold the subdivided plots at a profit.
principle- using a realisation company to realise a capital asset merely means the taxpayer is disposing of the asset to its best advantage. the receipts of the realisation company are capital in nature.
- FOUNDERS HILL (PTY) LTD(fact of the case)- AECI Ltd set up founders hill (pty) Ltd as its wholly-owned subsidiary to sell off land surplus to AECI's needs. AECI therefore transferred this land to founders hill. Which proceeds to realise the property to best advantage.
principle- there has to be a real justification for realisation company to be formed . A realisation company was one which was formed to facilitate the realisation of property which could not otherwise be dealt with satisfactorily. could thus indicate a change in intention (scheme of profit making)..
INTENTION OF A NATURAL PERSON- IPSE DIXIT
INTENTION OF TAXPAYER
- RICHMOND ESTATES(PTY) LTD(fact of the case)-the memorandum of incorporation(MOI) of a company indicated that the company could purchase , develop, layout and prepare land for building purposes. the company bought specific plots with this intention but due to certain restrictions, held it for rental purposes.
principle-a company 's initial intention is indicated by the actions of directors, type of business and the MOI.
- LEVY(fact of case)- the taxpayer disposed of his shares in a property-holding company at a profit . he had 2 purposes for originally purchasing the shares, namely to acquire the shares as an income-earning investment while at the same time not excluding the possibility of a profitable resale of the shares.
principle- if there are mixed intention , one needs to determine the dominant intention.
- ELANDSHEUWEL FARMING(fact of the case)- the taxpayer , a company , owned a farm near Klerksdrop. for many years the farm was rented out to a farmer whose family owned all the shares in the company. shortly after the farmer sold all of his shares and the new shareholders took over the farm, after being briefly rented out for farming purposes, was sold at a profit to the Klerksdrop Municipality . the shareholders had a history of speculation with properties.
principle- a mere decision decision to sell does not mean there was a change in intention.
MIXED /DUAL INTENTION
- STOTT(fact of the case)- the taxpayer ,Stott, was an architect and surveyor. he purchased a few properties as an investment over the period of 20 years. one of the properties , a piece of coastal land of nearly 54 acres ,was acquired by the taxpayer with the intention of building a seaside residence thereon, which he did. because the property was enormous, the taxpayer subdivided it into 2 parts and retained only the part on which the residence stood. he subdivided the other part into lots and sold it piecemeal.
principle- consider the taxpayer's dominant intention. the fact that the asset is sold at a profit , does not necessarily indicate a change of intention.
DISPOSAL OF LONG TERM INVESTMENT
- NEL(fact of the case)- the taxpayer bought Kruger Rands over long term as investment . eleven years later he sold some to purchase a car for his wife.
principle- intention hasn't changed -still investment. the purpose of sale wasn't to make a profit but to realise a capital asset in order to purchase another capital asset.
SCHEME OF PROFIT MAKING
- PICK N PAY EMPLOYEE SHARE PURCHASE TRUST(fact of the case)- the company established a trust to purchase shares and administer them for the benefit of the employees. this trust was also compelled to repurchased shares from employees who were required to forfeit their holdings.
DAMAGES AND COMPENSATION
- FOURIE BELEGGINGS (fact of the case)- a CC leased premises from which it operated as a hotel . it has been paid compensation for the loss of a contract it had with another entity to provide meals and accommodation.
principle- compensation for damages of capital assets=capital in nature
- compensation for loss of profit/income =revenue in nature.
- it proceeds relate to filling a hole in the income earning structure . it is capital structure.
COMPENSATION FOR CANCELLATION OF A CONTRACT
2.STELLENBOSCH FARMER'S WINERY(fact of the case)- the taxpayer was a whole wholesaler that imported and distributed bells whiskey in South Africa, it concluded a 10 year agreement relating to this distribution which was prematurely can cancelled more than 3 years before the earliest date on which the distribution agreement could be terminated . as a result, the taxpayer received the sum of R67 million from United Distillers, a UK based company with which the taxpayer had concluded the distribution agreement . SARS included the receipt of this payment as part of the taxpayer's gross income in the assessment for tax.
principle- compensation for cancellation of a contract to an income-earning right will be considered capital in nature.
NON-ORDINARILY RESIDENT will be defined using the PHYSICAL PRESENCE TEST and the test have 3 requirements to be satisfied before a person can be deemed as a 'resident '.
Requirement 1- the person must have been physically present in South Africa for more than 91 days in aggregate during the current year of assessment.
Requirement 2- the person must have been physically present in SA for more than 91 days in aggregate during each of the 5 preceding years of assessment.
Requirement 3- he or she must have been physically present in SA for more than 915 days in aggregate during the 5 preceding years of assessment.
THERE ARE 2 TESTS THAT CAN BE APPLIED WHEN DETERMINING WHETHER A NON-NATURAL PERSON AS A RESIDENT.
- Incorporated, established or formed
- place of effective management.
THE NATURE OF THE ASSET
- VISSER(fact of case)- the taxpayer (an influential businessman in the area) acquired mining options for a period of 2 years over certain farm properties. the options ,however, lapsed- at which time he still did not start with any search for mineral deposits. later, a third party negotiated with and offered the taxpayer an interest in a company to be formed if he would assist him to acquire the previously lapsed options from the farmers again.
principle- income is produced by an income- producing asset. the income is revenue and will be included in gross income , while the asset is of a capital nature.
- GEORGE FOREST TIMBER(fact of the case)- the taxpayer company carried on a business as timber merchants and sawyers. it acquired about 600 morgen of natural forest for the purpose of its business. the nature of the trees in the forest was such that they did not renew themselves, and for practical purposes the value of the land without the timber each year which was sawn up in the mil and sold as part of its trading stock.
principle- the sale of fixed capital gives rise to the capital proceeds , while the sale of floating gives rise to revenue.
3.NEL(fact of the case)- the taxpayer had bought a number of kruggerrands between 1976 and 1978. his avowed intention was to hold them as an inflation hedge and as inheritance for his children. from 1978 to 1989 he had neither bought nor sold any coins, despite there having been many opportunities to do so. he stated in evidence that the thought of selling them had never entered his mind . in 1989 he was obliged to buy a car for his wife. the need was urgent and he did not have necessary funds available . his auditor advised him to exchange some krugerrands
for the car, and in fact assisted in the transaction.
principle-in circumstance where an asset only earn income through sale , the proceeds will most of the time be capital nature.
-
-
ordinarily resident is charged on their world wide income and non-ordinarily resident on their deemed on SA source SOURCE 1. LEVER BROTHERS(fact of the case)- a foreign creditor lent money to a south African company and earned interest income. . principle- in order to determine the source of an amount one must consider LEVER BROTHER: what is the originating cause ? where is the cause situated ?
ORDINARILY RESIDENT can be defined through the use of court cases as it is not defined in the income tax act.
- COHEN(fact of the case)- a taxpayer owned a flat in Johannesburg . moved overseas for work for 2 years and leased his flat.
principle- 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.
- KUTTEL(fact of case)- a taxpayer emigrated to America and started his life there. He returned to south Africa regularly pursue business interest and take part in yachting activities. During these periods he stayed in his home in cape town , where he maintained and renovated his house.
principle- a person is ordinarily resident where the person's principle residence is, where the person is habitually and normally resident.
- Interpretation Note 3 - also need to be considered. as it is guideline not a court case.
-
-
-
-
-
-
-
-
-
KEAMOGETSWE MINAH MOLETE , 220093847