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Determining the nature of an amount:
Capital (not included in gross…
Determining the nature of an amount:
- Capital (not included in gross income)
- Revenue (included in gross income)
Nature of the asset:
- If capital = Excluded from gross income
- If revenue = Included in gross income
Case: Visser
Core principles:
- Income is what is produced by capital
- Income can be described as the product of a person's wits and energy
- Tree vs fruit
- If selling the tree = capital
- If selling the fruit = revenue
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Case: Nel
Core principles:
- Proceeds from selling unique assets (Krugerrands)= capital
- Proceeds from selling unique assets (Krugerrands), where it is your trade to buy and sell them = revenue
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Intention of taxpayer:
- Profit making scheme: Purchase an asset for resale at a profit = Revenue
- Return on investment: Purchase an asset to earn a return = Capital
Considerations:
- Intention at the time of purchase:
*If for profit = revenue
*If mixed = identify dominant motive
- Change of intention:
*Decision to sell and to sell at profit (realising asset to best advantage) does not confirm change of intention
"*Something more" is needed to confirm change of intension
Case: Capstone
Core principle:
- A company's intention is indicated by a person who is in effective control
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Case: Stott
Core principle:
- With mixed or dual intentions, consider the dominant intention
- The fact that the asset is sold at a profit does not indicate a change of intention.
Case: Nel
Core principles:
- Consider the tax payer's intention for selling the Krugerrands
*If only income is from the sale = Capital
*If sold as part of your trade = Revenue
Case: John Bell:
Core principles:
- The mere decision to sell an asset does not change the intention.
- A capital asset can be realised at its best advantage. Waiting for market conditions to change does not indicate a change of intention
Case: Natal Estates Ltd
Core principles:
- A tax payer may realise its assets to its best advantage but must not cross the Rubicon
- Thus, may realise assets to best advantage but must not embark on a profit making scheme
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