4. Remember:
Gross Income is the total amount, in cash or
otherwise, received or accrued to or in favour of any
resident/non-resident during such year or period of
assessment, excluding Receipts or Accruals of a
Capital nature, but including such amount (whether
of a capital nature or not) so received or accrued as
described hereunder s1.
Introduction
5. Note:
• It is only receipts or accruals of a non-capital
nature, commonly referred to as ‘income’ or
‘revenue’ that are taxable.
therefore
All receipts or accruals must categorized as being
of a capital or of an income nature
Introduction
6. CASES:
Focus on the Following:
✓ Classification
✓ Facts
✓ Issues
✓ Held
✓ Notes
✓ Lesson
Introduction
7. INCOME AND CAPITAL
• CONTENT
1. INTENTION – THE GOLDEN RULE
2. INTENTION OF THE COMPANY
3. FIXED AND FLOATING CAPITAL
4. ISOLATED TRANSACTIONS
5. REALISATION COMPANIES AND TRUSTS
6. SPECIFIC TRANSACTIONS
8. 1. INTENTION – THE GOLDEN RULE
The most import test used by the courts in deciding whether a
receipt is income or capital in nature is the test of Intention:
Generally, it will be income in nature and taxable if the asset was
acquired with the PURPOSE of selling it at a profit.
The taxpayer’s intention must be investigated:
• At the time he acquire the assets,
• During the whole period over which he held the assets,
• At the time he disposes of the asset
9. 1. INTENTION – THE GOLDEN RULE
The Intention – the golden rule is divided into
four subdivisions:
1.1 Subjective versus Objective Factors
1.2 Mixed Intentions
1.3 Alternative Intention
1.4 Change in Intention
10. 1.1 SUBJECTIVE V OBJECTIVE FACTORS
Intention is an important factor, as indicated in the
above. The problem is that intention is ‘Subjective’
factor.
• How can the intention of someone else be
established?
NB: “The intention of a person is his own personal plan
or agenda captured in his own head!”
It is however, possible to establish what the intention of
the person was, once his plans have been
implemented and his intended results achieved. This
results can be measured, and are referred to as the
‘Objective’ factor.
11. Example:
Answer the following question:
A person buys a car with the intention of immediately
selling it at a profit?
Question:
Is his intention Subjective or Objective?
Motivate your answer
[ 2 Minutes ]
13. 1.2 MIXED INTENTION
If at the date of purchase of an asset the
intentions of a taxpayer are mixed, effect will
be given to his main or dominant intention.
A dominant intention exists when the
alternative intention was secondary and did
not operate to a substantial extent on the
taxpayer’s mind.
14. 1.3 Alternative Intention
If a taxpayer has two alternative intentions with regard to
an asset, the proceeds of the disposal of the asset will be
income in nature
[ Overseas Trust Corporation Ltd v CIR (1926 AD)].
For example:
If assets was acquired to:
❑ Secure a profit either by reselling the assets or
❑ By using it to produce income
The assets is of an income nature, and the proceeds
arising upon its sale will be included in his income.
15. Subjective Tests
▪ CIR V WYNER, 66 SATC 1
▪ BEREA WEST ESTATE (PTY) v SECRETARY FOR INLAND
REVENUE, 38 SATC 43
▪ SAMRIL INVESTMENT (PTY) LTD v CIR, 65 SATC 1
▪ ENLAND SHEEUWEL FARMING (EDMS0 BPK v SEKRETARIS
VAN BINNELAND SE INKOMSTE, 39 SATC 163
▪ JOHN BELL & CO (PTY) LTD v SECRETARY FOR INLAND
REVENUE, 38 SATC 87
▪ DEARY v DEPUTY COMMISIONER OF INLAND REVENUE
▪ MORRISON v CIR, 16 SATC 377
▪ BURMAH STEAMSHIP CO LTD v IRC, 16 TC 67
16. NOT CAPITAL IN NATURE
▪ BURMAN v CIR, 53 SATC 63
▪ CIR v GENN & CO (PTY) LTD, 20 SATC 113
17. 1.4 CHANGE OF INTENTION
A taxpayer may change his intention with regard to the use
of an asset. For example: an original intention to use an
asset as an investment may be changed to an intention to
use it in the carrying out of a scheme of profit-making:
Cases:
❑ Natal Estate Ltd v SIR (1975 A)
❑ CIR v Lydenburg Platinum Ltd (1929 AD)
❑ CIR v Richmond Estates (PTY) LTD (1956 A)
❑ SIR v Rile Investment (PTY) LTD (1978 A)
18. 1.4 CHANGE OF INTENTION
END OF A CLASS
TO BE CONTINUED…….
