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Gross Income Definition Element:
Amounts included in gross income…
Gross Income Definition Element:
Amounts included in gross income excludes any receipts or accruals of a capital nature.
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Mixed/Dual Intention
Stott
- Taxpayer was an architect who purchase several properties as investments over 20 years.
- One property he developed into a coastal residence and kept. The remaining area of this land was subdivided and sold.
- Land was acquired with surplus funds and was hopelessly too large for the intended coastal residence.
- No development done to excess land which was subdivided and sold.
- Principle:
- Consider the taxpayer's dominant intention.
- The fact that an asset is sold at a profit does not necessarily indicate a change in intention.
Nel
- Taxpayer purchased Kruger Rands over the long-term as an investment.
- 11 years later sold some to buy a car for his wife.
- Intention was to acquire funds to buy another asset, not to make a profit.
- Principle:
- Kruger Rands are unique assets where income is only earned through its sale.
- Normally seen as capital, unless the taxpayer trades through the buying and selling of Kruger Rands.
- Consider taxpayer's reasons for selling the Kruger Rands.
Change of intention
John Bell
- Taxpayer operated textile business from self-owned premises.
- Taxpayer moved to another premises and directors decided to sell original premises, but directors decided to wait until the property market improved.
- Property was rented out in the meantime.
- Principle:
- Mere decision to sell does not change the intention.
- Capital asset may be realised at its best advantage.
- Waiting for market conditions to change was not an indication of change in intentions.
Natal Estates Ltd
- Taxpayer held a piece of land for many years as a capital asset.
- Before selling the land, town planners, consulting engineers and professional advisors were approached to develop and sub-divide the land.
- Change of intention was evidenced by involving advisors and experts to consult on developing and sub-dividing the land. (Became a scheme of profit-making.)
- Principle:
- Person may realise his capital asset to his best advantage yet must be carefull to not "cross the Rubicon" and embark on a scheme of profit-making.
- This indicates a change of intention and the proceeds becoming revenue in nature.
Nussbaum
- Taxpayer held shares during his lifetime for investment purposes.
- After retirement he sold the shares over 3 years.
- Sold shares each time the dividend yield dropped.
- Frequency indicates continuity.
- Principle:
- Secondary purpose could taint the primary purpose of a taxpayer, if taxpayers actions become too frequent.
- May result in profits that are initially seen as capital to be revenue instead.
An investor with dual intentions should keep 2 separate accounts, one capital and one revenue.
Damages and Compensation
Fourie Beleggings
- Operated a hotel from leased premises.
- Was compensated for loss of a contract with another entity to provide meals & accommodation to students.
- Contract was not part of income earning structure, therefore compensation was revenue in nature.
- Principle:
- Compensation for damage of capital assets = Capital (relate to filling a hole in the income earning structure)
- Compensation for loss of profit/income = Revenue (relate to filling a hole in the income pocket)
- Goodwill is part of income earnings structure
Crypto Assets
No specific court case
- Crypto assets are included in the definition of financial instruments.
- VAT perspective: its a financial service, and exempt from VAT.
- Natural Person & Capital Gains perspective: cannot be seen as a personal use asset.
- Losses suffered by natural person are ring-fenced in terms of section 20A of Income Tax Act.
- If held as trading stock, closing stock can only be carried at cost and not market value.
- Principle:
- Taxpayer mining crypto assets: Gain/loss is revenue in nature
- If acquired crypto assets: Normal tax principles apply. Determine whether or not they were purchased in a scheme of profit-making (Revenue).
- If acquired as medium of exchange: Gains/losses are probably Capital in nature.
- Normal questions of intention need to be asked.
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