Court Cases

4.) Sub-Nigel

3.) Natal Estates

2.) Burgess

7.) Brummeria

Facts

  • The taxpayer companies developed retirement villages and sold life rights in the dwelling units to elderly individuals. In exchange for the life right, the pensioners had to provide an interest-free loan to the developer.

Principle

5.) Stott

Facts

  • The taxpayer, Stott, was an architect and surveyor who acquired several properties as investments over 20 years. One of the properties was a coastal land of nearly 54 acres, which Stott intended to develop as a seaside residence. Stott subdivided the property into two parts, keeping the portion with the residence and selling the other part in lots.

Principle

  • In determining a taxpayer's intention, the court examines the dominant purpose behind the acquisition and use of the asset. The mere sale of an asset at a profit does not automatically imply a shift in intention from capital investment to profit-making.

6.) Mobile Telepone Networks Holdings Pty Ltd

Facts

  • Mobile Telephone Networks Holdings (Pty) Ltd incurred audit expenditure, with 94% of the auditors' time spent on the audit of interest income and 6% on auditing exempt dividend income. Additionally, training fees were incurred to educate staff on a new computerized accounting system, which was solely used for interest income.

Principle

Apportionment Principle:

1.) Visser

Facts

  • An influential businessman acquired mining options but let them lapse without exploration. A third party offered him shares in a new company in exchange for help in reacquiring the expired options.

Principles

Principle

Facts

  • The taxpayer borrowed money from the bank. The taxpayer invested in a short-term investment company as part of a scheme. The taxpayer aimed to deduct the losses from the scheme.
  • A wide interpretation should be given to trade
  • Application of Arm's Length Principles of Valuation:

Is the scheme regarded as the carrying on of a trade?

Facts

Principles

  • 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.
  • A person may realise his capital asset to his best advantage, but once they cross the Rubicon and embard on a scheme of profit making, proceeds become revenue in nature

Provider

⭐ Edgars Stores

Joffe and Co

1.) Geldenhuys

2.) BP South Africa

3.) Rand Mines

Port Elizabeth Electric Tramway

Facts

Principles

  • A taxpayer company paid insurance premiums on a loss of profits insurance policy. The insurance policy will only pay out in future, if certain events took place.
  • An expense has to be claimed in the year that it is incurred. It cannot be claimed in later years.

Can expenses be deducted for tax purposes if the income related to those expenses was not received in the same year?

Facts

Principles

A widow got the right to use a farm, while her children got ownership of the farm. Later, she decided to stop farming and sold the sheep on the farm with her children's permission.

  • The amount is only included in gross income by a taxpayer only if it is received by him on his own behalf, for his own benefit

The issue is to determine '"Received by" or "Accrued to"

Facts

Principle

BP SA paid fees to BP worldwide for the right to use BP trademarks on their products. The fees were calculated based on the amount of product they sold. The tax authority (SARS) disagreed with BP SA and said they couldn't deduct these fees as an expense.

  • You can deduct regular payments you make to maintain your income-generating activities. These expenses are considered part of the cost of earning income. If you use intellectual property, like patents, copyrights, or inventions, to generate income, you can also deduct the royalty payments associated with them.

Are the royalty payments incurred in the production of income?

Facts

Principle

A company that runs mines spent money to get a contract to manage another mine in the same group of companies. The tax authority (SARS) didn't allow them to deduct that expense.

Spending money to acquire something that helps you earn income or build a framework for generating income is considered a capital expense.

Is the expenditure to acquire the contract revenue or capital in nature?

Facts

Principle

The taxpayer created two programs to help their employees: one for life insurance and one for service bonuses. The bonus or benefit given to employees depended on how long they had worked for the taxpayer. The taxpayer wanted to subtract both amounts from their taxes.

The Commissioner agreed to subtract the bonus amount from the income, but did not agree to subtract the life insurance benefit paid to the dependents. So, the question is whether both amounts were spent in earning the income.

Spending money to encourage employees to join and stay with a company can be considered as a deduction because it helps generate income now or in the future. Any payments made as part of an employment contract can be deducted.

Facts

Principle

A company carried on a concrete engineering business. A concrete hood, which the company was supervising, collapsed; killing a workman. It was determined in the court case that the company was negligent and had to pay damages to the workman’s deceased widow. The Commissioner disallowed the company’s claim for compensation and the legal costs incurred.

If something is not always connected to the normal business operations, then it cannot be considered as a deductible expense. In this case, the roof collapsed due to negligence, which is not a normal part of running a business and does not contribute to generating income.

Is the compensation to the widow and the legal costs deductible

Facts

Principles

The taxpayer leased premises to conduct its business. There was a basic monthly rental and an annual rental based on turnover. The taxpayer estimated the annual amount and claimed it as deduction.

  • An expense can only be deducted once there is an unconditional legal obligation to pay the expense

Facts

Principles

A driver employed by the taxpayer died as a result of injuries sustained from an accident that occurred while working. The taxpayer had to pay damages to the widow of the employee. The taxpayer also incurred legal costs resisting the claim. The commissioner disallowed both deductions

How closely connected is that expense to the production of income?

  • The fruit of the tree represents income while the tree itself represents capital

Did the taxpayer have a dual intention?

The issue is to determine Actually Incurred

The issue is to determine if it's in the production of income

  • Was the value received by the taxpayer considered capital or revenue in nature?

Was the sub division a change of intention from capital to revenue?

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The primary question is whether a receipt or accrual in a form other than money has a monetary value

Is there a dual Dual Purpose