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CAPITAL v REVENUE of nature - Coggle Diagram
CAPITAL v REVENUE of nature
Change in intentions
John Bell
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 a market condition to change was not an indication of a change in intention.
Was profit motive of the sale= Revenue
Was sale result a profit = Capital
"something more"
Nussbaum
Principle
The secondary purpose could taint the primary purpose of a taxpayer, if a taxpayers actions become too frequently.
This might result in profit that are initially seen as capital to be revenue. An investor with a dual intention should keep two separate accounts on capital and one revenue.
Natal Estates Ltd
Principle
A person may realize his capital asset to be 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.
Case Facts:
Subdivision and marketing is there "something more" that made them cross the Rubicon therefore the income was included in gross income.
Elandsheuwel Farming
Principle
I'm here decision to sell does not mean there was a change in intention.
Embark on scheme of profit making
Pick n Pay Employee Share Purchase Trust
Principle
The scheme of making money is essential to classify proceeds as revenue in nature.
Judge Decision:
The fact that the shares were sold at the profit is an important factor to consider however no scheme of profit making existed.
Issue
The court had to decide whether the employee benefits scheme was taxable on the profits earned in terms of buying and selling of shares.
Intentions of the company
Capstone
Principle
A company's intentions is indicated by the person who are in effective control of the company such as the directors and executive management
Richmond Estate
Principle
My company is an artificial person with no body to kick and the only way of ascertaining its intentions is to find out what is the directors acting as such intended. The formal acts in the form of resolutions constitute evidence as to the intentions of the company of which they are directors.
Stott
Investment= Capital
Speculation = Revenue
Dormant intention is taken
Mixed/ dual intentions
Stott
Principle
Consider the taxpayers dominant intention. The fact that the asset is sold at a profit does not necessarily indicate a change of intention.
Judge Decision:
The court remarked that the mere fact that the taxpayer subdivided the property or that the taxpayer was a surveyor did not instantly convert the nature of the proceeds to incur. The court relied on the fact that each taxpayer has the right to realize his asset through the "best advantage" and consequently held that the proceeds were capital in nature
Nel
Principle
Kruger Rands are a unique asset with the only income earned is through sale. Therefore, it will normally be seen as capital unless it is your trade to buy and sell them. Considered taxpayers the reason for selling the Kruger Rands
Levy
Dominant intention taken
If dominant intention can't be established= Revenue
Mixed intentions: Investment and Speculation
Damages and compensation
Fourie Beleggings
Principle
Compensation for damages on capital assets= capital
Compensation for loss of profit/ income = income
The nature of the asset
George Forest Timber
Principles
The sale of a fixed capital give rise to capital proceeds while the sale floating capital gives rise to revenue
Flighting is consumed in the very process of production while fixed capital is not fixed capital is the structure that enables income to be generated.
All assets are either classified as fixed assets or floating capital
Issue:
Was the income received from the sale of the natural forest capital or revenue in nature?
Judge decision:
The trees were part of the trading capital and therefore revenue of nature
Nel
Principel
Kruger Rands are a unique asset where the only income earned is through sale. Therefore it would normally be seen as capital unless it is your trade to buy and sell them.
Visser
General Rule:
Income is produced by an income producing asset the income is revenue and will be included in gross income while the asset is capital nature.
Issue:
What's the value of shares that the taxpayer received capital or revenue of nature?
Principle:
Income may be described as the product of a person's wits and energy. Tree v fruit. The tree is seen as the capital structure of the business and the fruit is the result of the income earning activities. Thus selling the tree is capital in nature and receipts from selling fruit is revenue in nature
Case name:
CIR v Visser
Judge desision:
The amount in the spirit has occurred to the taxpayer as a result of its wits and energy and therefore is revenue in nature
Continuity
Stephan
If my company has a isolated transaction it will not necessarily indicate a capital intention
If an individual has an isolated transaction it could indicate a capital intention
Business Sale
NIKO
Case Facts
When he sold his company he claimed it was Capital but the sales prices were for various company parts and each would be evaluated separately as either capital or revenue.
The portion related to trading stock is floating capital and included in the gross income