Please enable JavaScript.
Coggle requires JavaScript to display documents.
Capital / Revenue in Nature - Coggle Diagram
Capital / Revenue in Nature
CIR v Visser
The nature of the asset
Principle: Tree vs Fruit. Income is what capital produces
Income produced from an income-producing asset is revenue in nature while the income-producing asset, itself, is capital in nature.
CIR v Stott
Change of intention
Principle: The Intention of the taxpayer, change in intention
The Taxpayers intention on Aquisition of the asset is decisive unless some other factor intervenes which indicates a change in intention
A taxpayer is always entitled to realise his/her assets at their best advantage
COT v Levy
Intention - mixed intentions
Principle: Mixed intentions (investment or speculation). The dominant intention is taken, and if dominant intention cannot be established = REVENUE
The question of whether a particular amount is income or capital depends on the taxpayer's intention at the time of aquisition of the property.
The main or dominant purpose with which the property was acquired must be determined. The taxpayer is not required to completely exclude the slightest contemplation of profitable sale.
John Bell v SIR
Change of intention
Principle: Something more is required to indicate a change in intention
If more is being done to dispose of the property, like marketing , it would constitute that more is being done and would be seen as = REVENUE
Natal Estates Ltd v SIR
Change of intention
Principle: A taxpayer needs to be carefull not to cross the rubicon and embark on a scheme of profit making
Despite a taxpayer being entitled to realise his/her asset at its full advantage, if the totality of the facts indicates that the taxpayer has "crossed the Rubicon" and embarked on a profit making scheme, the asset will be revenue in nature.
George Forest Timber Co Ltd
Nature of the asset
Principle: Fixed vs Floating capital
Proceeds from floating capital (merchandise) = REVENUE
Proceeds from fixed caipital (machinery) = CAPITAL
Floating capital is used or disappears in the production process (e.g. trading stock)
Fixed capital remains intact and creates wealth (e.g. PPE)
Pick 'n Pay Employee Share Purchase Trust
Scheme of profit making
Principle: A scheme of profit making is essential to classify proceeds as revenue in nature.
Receipts and accruals are assumed to be capital in nature unless the taxpayer entered a scheme of profit making, in which case they will be revenue in nature.