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Capital/revenue in nature. - Coggle Diagram
Capital/revenue in nature.
Intention and "Scheme of profit-making"
VISSER
Principle:
A taxpayer should realise an asset to its best advantage, for example subdividing land to geta better price. Tree vs Fruit. Capital (Tree) produces income (fruit). selling the tree is capital, income from the tree is revenue. (Income is what capital produces.)
:
NATAL ESTATES LTD v SIR
Principle
: Introduces the concept of "crossing the ribbon". If a taxpayer is holding a capital asset, they embark on a structured
scheme of profit-making
, which changes their intention, is seen as "something more", and proceeds become revenue.
George Forest Timber Co Ltd
Principle:
All assets are either classified as fixed or floating capital. Floating is consumed in the very production, while fixed capital is not. Fixed capital is the structure that enables income to be generated. The sale of fixed capital gives rise to capital proceeds, while the sale of floating capital gives rise to revenue. Ensure that capital receipts are converted into income through the implementation of a profit-making system. Like "crossing the Rubicon."
Nature of Asset:
Pick n Pay Employee share purchase trust:
Principle:
A distinction between an asset held as trading stock and an asset held as an investment. Even for employees, shares purchased to enable future sales were regarded as trading stock. A
scheme of profit making
is essential to classify proceeds as revenue in nature.
Secondary Intention:
Stott:
Principle:
The taxpayers intention has to be established to determine whether a receipt is capital or revenue in nature. Even if the initial intention was capital, if active measures are taken to develop and market the asset as part of a profit-making strategy, the "secondary intention" of selling at a profit may take priority over the primary intention.
Nel:
Principle:
Kruger rands are a unique asset where the only income earbed is through sale. therefore, it will
normally be seen as capital
unless it is your trade to buy and sell them.
Mixed Inetention:
John Bell and Co Ltd:
Principle:
A taxpayer is allowed to realise an asset to his best advantage, for example subdividing land to get a better price. (Something more is required to indicate a change in intention.) If a company's main business purpose involves the acquisition and disposal of assets, even if held for a period, the proceeds are likely revenue.
