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EXCLUDING RECEIPTS OR ACCRUALS OF A CAPITAL NATURE (I.e. CGT) - Coggle…
EXCLUDING RECEIPTS OR ACCRUALS OF A CAPITAL NATURE (I.e. CGT)
Capital vs Revenue
George Forest Timber Co
Principle:
floating capital (merchandise) = revenue
fixed capital (machinery) = capital
court decision: Timber must be taxed since floating capital
Facts: income received from sale of timber trading stock
Visser
Principle: Income is what capital produces
(fruit vs tree)
Court decision: capital nature not part of gross income
Fact: offered shares for services rendered
intention
Stott
Facts: Sold land after some improvements made
Principle: Consider the taxpayer’s
dominant intention
(Dominant test)
Court decision: capital nature not included in gross income.
Levy
Principle: Mixed intentions: Dominant intention is considered
Court decision: dominant intention
Facts: mixed intentions
Richmond Estates
Facts: actions of directors
Principle: “A company is an artificial person with no body to
kick and no soul to damn
Pick ‘n Pay Employee Share Purchase Trust
Principle: No scheme of profit making.
The
scheme of profit making
is essential to classify
proceeds as
revenue in nature
.
Court decision: There was no scheme of profit makeing
Facts: Shares awarded to employees repurchased if employee resigns
Change in intention
Elandsheuwel Farming
Principle: A mere decision to sell does not mean there was
a change in intention.
Stott
Natal Estates
Principle: Scheme of profit making towards the sale of land. Subdivision and improvements.
Crossed the Rubicon
court decision: change in intentions, include in gross income
Facts: Property in Natal was acquired initially for the purpose to
farm with sugar cane. Property = capital.
Niko
Principle: many parts. Apportion
Court decision:
Portion of floating capital included in gross income
Facts: Sold his company “lock-stock and barrel” and claimed proceeds are capital
Share transactions
Nussbaum
Principle:
Secondary purpose could taint the primary purpose
if taxpayer
actions become too "frequent"
Court decision: apportion gross income inclusion
Fact: shares were held for a long period and others
for a shorter period
Realization companies
Berea West Estates
Principle: The receipts of the
realisation company are capital in nature.
Court decision: capital nature not included in gross income
Facts: Using a realisation company to realise a capital
asset
Founders Hill
Principle: there must be a justification for realization company.
Else there is a profit making sheme
Court decision: change in intentions, scheme of profit making
Nel
Facts: TP purchased Kruger Rands with intention to hold as a long term investment. Sold asset to purchase car.
Principle: as long as no change in intentions when realizing asset, remains capital in nature.
Court decision: not included in gross income.
Damages and compensation
Fourie Beleggings
Principle:
Compensation for damage
to capital assets = capital in nature
Compensation for loss of profit/income
= revenue in nature
Court decision: Compensation for loss of profit and repairs, include amount in gross income
Compensation for goodwill capital in nature, don't include in gross income
Facts: paid compensation (apportioned) for:
Loss of contract to provide meals for students.
Repairs
Goodwill
Stellenbosch Farmers Winery
Principle: Compensation on income-earning right is capita in nature.
Court decision: Not included in gross income