Taxation – South African Court Cases & Principles

A comprehensive set of question-and-answer flashcards summarising leading South African tax cases and statutory principles on gross income, intention, deductions, capital vs revenue, and related doctrines.

What is the statutory definition of "gross income" for a South African resident?

The total amount, in cash or otherwise, received by or accrued to or in favour of a resident during the year of assessment, excluding amounts of a capital nature.

According to Lategan v CIR, how must the word "amount" in gross income be interpreted?

It has a wide meaning that includes every form of property, corporeal or incorporeal, that has a money value.

Why were the improvements in CIR v Butcher Bros NOT included in gross income?

Because the improvements had no ascertainable money value at the time they were made.

What did the ‘special inclusion para h’ add to the gross-income definition?

It specifically includes the value of leasehold improvements in gross income.

What principle was established in CSARS v Brummeria Renaissance regarding non-cash benefits?

A benefit with a monetary value that is convertible into money is includable in gross income.

Under Lace Proprietary Mines v CIR, how is the monetary value of a benefit determined?

By establishing the true intention of the parties to the transaction.

What key rule about ‘received by’ was affirmed in Geldenhuys v CIR?

An amount is received only when it is for the taxpayer’s own benefit.

Why are borrowed funds excluded from gross income according to CIR v Genn?

Because there is an obligation to repay, so the taxpayer does not benefit.

In MP Finance v CSARS, whose intention determines whether stolen funds are income?

The thief’s intention to benefit, not the victim’s intention to part with the money.

What did Pyott Ltd v CIR decide about deposits held as trust money?

Trust money is not gross income because the taxpayer is not the beneficial owner.

When does an amount "accrue" according to CIR v Peoples Stores?

When the taxpayer acquires an unconditional right during the year to claim payment that can be converted into money.

Why were charity-event proceeds included in gross income in CIR v Witwatersrand (horses)?

Because the taxpayer was entitled to the money and had no obligation to pay it over to the charities.

When did the right accrue in Mooi v SIR?

Only once the contractual conditions were fulfilled and the right became exercisable.

CIR v George Forest Timber distinguishes between which two types of capital?

Fixed capital (capital in nature) and floating capital / trading stock (revenue in nature).

What "fruit-and-tree" analogy was used in CIR v Visser?

Income is the fruit produced by capital (the tree).

Elandsheuwel Farming v SIB set what rule about company intention?

The shareholders’ intention is attributed to the company; a change of purpose can convert land into trading stock.

What does CIR v Stott say about ‘realise at best advantage’?

Selling an asset at the best price does not on its own prove a change of intention from capital to trading stock.

Why did John Bell & Co v SIR hold that more than a mere decision to sell is needed?

Because realisation to best advantage plus additional conduct is required to show trading intention.

How did Berea West Estates v SIR treat the use of a realisation company?

Using such a company does not change the character of the gain from capital to revenue.

According to Pick n Pay Employee Share Purchase Trust, when are receipts revenue in nature?

Only when the business is carried on with a profit-making purpose.

What was the ‘crossing the Rubicon’ moment in Natal Estates Ltd v SIR?

A decisive change of intention that converted land from capital to trading stock, making proceeds revenue.

Why did CSARS v Founders Hill reject the taxpayer’s ‘realisation company’ argument?

Because there were no special circumstances justifying the structure; the gains were still revenue.

What did CIR v Nussbaum establish about ‘secondary purpose’?

A secondary, profit-making purpose can make proceeds revenue even if there was an initial capital intention.

State the main rule from CIR v Richmond Estates about proceeds character.

The nature of an amount is determined by the taxpayer’s intention regarding the asset at disposal time.

Why were damages taxable in WJ Fourie Beleggings v CSARS?

Because they were a product of the taxpayer’s income-earning activities, not capital compensation.

List the five positive requirements of the general deduction formula in s11(a).

Expenditure or loss; actually incurred; during the year of assessment; in the production of income; not of a capital nature.

How did Burgess v CIR define ‘trade’?

It must receive the widest interpretation, involving a profit motive and continuity of activity.

What are ‘expenditure and losses’ in tax terms?

Cash outflows or liabilities that may be settled in cash or otherwise.

What principle about involuntary losses came from Joffe & Co?

A loss can be involuntary yet still be deductible if incurred in the production of income.

According to Edgars Stores v CIR, when is expenditure "actually incurred"?

Only when the taxpayer has an unconditional legal obligation during the tax year.

Why was the expense in Nasionale Pers v KBI disallowed?

Because it depended on an uncertain future event outside the year of assessment, so it was not actually incurred.

When is a liability considered incurred under CIR v Golden Dumps?

Once the outcome of the dispute that gives rise to the liability has been determined.

Why was issuing shares not ‘expenditure’ in CSARS v Labat?

Because the issue of shares does not involve a cash outflow or liability in money terms.

What did Caltex Oil v SIR clarify about unpaid but incurred expenses?

A liability incurred during the year is deductible even if not yet paid by year-end.

What timing rule was confirmed in Concentra regarding deductions?

An expense must be claimed in the year in which it is incurred.

State the close-connection test from PE Electric Tramway v CIR.

An expense is deductible if it is so closely connected with income-earning operations that it forms part of their cost.

What did Joffe v CIR say about negligence expenses?

Negligence must be an inevitable concomitant of the taxpayer’s trade for the related expense to be deductible.

According to Cot v Rendale, when is a contingent expense deductible?

When the risk of incurring it is sufficiently closely connected to the taxpayer’s business operations.

What rule about prior-year expenses arose from Sub-Nigel v CIR?

Expenditure incurred in a previous year cannot be deducted in the current tax year.

When is interest on borrowed funds deductible per CIR v Drakensberg Gardens?

If the purpose of borrowing was to ensure the continuance of the taxpayer’s income-earning trade.

How did BP Southern Africa distinguish capital from revenue payments?

Payments that do not create or maintain a new asset tend to be revenue rather than capital.

List the three New State Areas tests for capital vs revenue.

Income-earning structure vs operation; fixed vs floating capital; enduring benefit (yes = capital).

What was the key holding in Warner Lambert about purpose of expenditure?

Expenditure must be incurred for the purpose of the taxpayer’s trade to be deductible.

How do s11(a) and s23(g) interact in the Income Tax Act?

Section 11(a) is the positive deduction test, while s23(g) is the negative test that disallows non-trade related expenses.