Revenue and capital

subjective test

The taxpayers intention is the primary test to determine whether a recipt or accrual is of a capital nature , that is, the most appropriate test to determine whether the taxpayer’s intention has changed since acquistion.

Pick n Pay Employee Share Purchase Trust case

Receipts or accruals are of a revenue nature if the receipts or accruals are
generated ‘by an operation of business in carrying out a scheme of profit-
making

Capstone 556 case(Business rescue and shares)(acquistion)

Where shares were not acquired as trading stock for resale at a profit, the proceeds from the sale of the shares are capital in nature(assuming no change in the taxpayer’s intention has taken place since acquistion)

Levy case

Mixed intentions - dominant intention: Determine the main or dominant intention

of the taxpayer at acquisition, where the taxpayer has mixed intentions in respect of an asset

NONE DOMINANT- REVENUE IN NATURE

Mixed intentions no dominant intentions

Mixed intentions - no dominant intention (dual intentions or alternative

intentions): If none of the intentions are dominant, the taxpayer’s intention at

acquisition is revenue in nature.

Stott case

The taxpayer’s intention at acquisition is important and conclusive, unless a change in the taxpayer’s intention occurred thereafter; that is, if the taxpayer’s intention at acquisition is capital in nature and no change in intention from capital to revenue in nature (scheme of profit-making) has taken place since acquisition, the receipt or accrual will be of a capital nature

John Bell Case

The mere decision by a taxpayer to dispose of a capital asset does not per se

constitute a change in intention – ‘something more’ is required.

Richmond Estates case

The mere decision by the a taxpayer to sell a capital asset at a profit does not per se constitute a change in intention

Stott case

The taxpayer is entitled to sell a capital asset at best advantage and to accommodate the asset to the exigencies of the market in which it is sold. The fact that the taxpayer did so is not a change in intention from capital to revenue in nature.

Natal Estates

The extent, nature and degree of the taxpayer’s activties must be evaluated to determine whether the taxpayer has crossed the Rubicon and embarked on a scheme of profit making which indicates a change in intention from held for investment(capital) to the scheme of profit making(revenue)

Nussbaum case

If a taxpayer has primary purpose that capital in nature(held for investement) and a secondary purpose that is revenue in nature, the secondary purpose may cause the receipt or accrual to be revenue in nature as taxpayer pursue the 2 purposes simultaneously

Founders Hill(Pty)Ltd case

If special circumstances(real justification) exist for forming a realisation company, the realisation company will stand in the shoes of the entity transferring the capital assets to it and in turn hold these assets as capital assets(no change in intention)

WJ Fourie Beleggings v SARS

A contract which is directed by its performance towards making a profit in which case the compensation received for the cancellation of the contract will be revenue in nature

A contract that was which was a means of producing income (that is a contract that provides an income producing capital structure or asset) in which case the compensation received for the cancellation of the contract will be capital in nature.

Stellenboach Farmers Winery Ltd v SARS

Damages or compensation received in respect of the loss or termination of a capital asset or the sterilisation of a part of the income producing structure is capital in nature

Loss of profits( due to the loss of sales) is revenue in nature.

Nel case

If an asset that could only be realised through sale as it derives no other return is purchased for long term investment purposes(capital) and subsequently sold due to due pressing or unexpected circumstances, the proceeds are capital in nature.