Case laws: Special inclusions and Exempt income

Question 1

Amount: Butcher Bros (Pty) Ltd

Answer 1

1. The onus of establishing an amount lies with the Commissioner
2. . An “amount” must have an
   ascertainable monetary value to be included in gross income.

Question 2

Amount and Entitled To: Lategan

Answer 2

1. value of every form of
   property (corporeal or incorporeal)
2. you have become entitled to an amount, it has accrued to you (not due and payable).

Question 3

Amount and Accrued To: Peoples Stores (Walvis Bay) (Pty)Ltd

Answer 3

amount “accrued to” a taxpayer is the amount to which a taxpayer “had become
entitled to and it does not need to be due and payable to be accrued.

Question 4

Accrued To: Witwatersrand Association of Racing Clubs

Answer 4

Principle vs Agent
Cede right to proceeds before receipt otherwise you will be liable to pay tax on the amount
Cede right and fully act as an agent so that you won’t be held liable

Question 5

Accrued To: Mooi

Answer 5

“accrued to” it needs to become “unconditionally
entitled to” the taxpaer to be included in the gross income

Question 6

Received by: Geldenhuys

Answer 6

It was received by him on his own behalf and for his own benefit.

Question 7

Received by and Illegal receipts: MP finance Group CC

Answer 7

1. Illegal receipts are
   still taxable
2. intention of utilising the deposits for their
   own benefit

Question 8

Received By: Pyott Ltd

Answer 8

Only if the money was kept in a separate account and only used for paying back the deposits, would the amount received not be
included in gross income.

Question 9

Received By: ITC 24510

Answer 9

Moneys paid by customers for gift cards only accrue to the taxpayer upon transfer out of the designated bank account upon redemption or expiry

Question 10

Of a capital nature (intention): Richmond Estates (Pty) Ltd

Answer 10

1. The intention of a company is not that of its holders of shares but that of its
   directors.
2. Intention of a company is derived from its formal acts as well as its informal
   acts.

Question 11

Of a capital nature (intention): Levy

Answer 11

If there are two possible motives at the time an asset is purchased, the dominant motive prevails

Question 12

Of a capital nature (intention): Elandsheuwel Farming (Edms) Bpk

Answer 12

1. Change in shareholding = change of
   intention of company (trees might be apple and vise versa)
2. Lifting corporate veil

Question 13

Of a capital nature (scheme of profit making): Pick ‘n Pay Employee Share Purchase Trust

Answer 13

There has to be a scheme of profit-making before the proceeds become taxable. The
fact that the memorandum of the company permits the company to trade does not
automatically mean that the sale of all assets constitutes trading

Question 14

Of a capital nature (mixed or dual purpose): Stott

Answer 14

A person may realise a capital asset to his best advantage – the mere sub-division
of land doesn’t constitute a scheme of profit making.

Question 15

Of a capital nature (mixed or dual purpose) & Of a capital nature (the nature of the asset): Nel

Answer 15

KrugerRands. Kruger Rands are thus a capital asset if held as an investment, or income if you trade in the buying and selling of Kruger
Rands.

Question 16

Of a capital nature (change in intention): Nussbaum

Answer 16

1. secondary purpose of an individual, in specific instances, could taint the primary
   purpose
2. two purposes are pursued
   simultaneously
3. An investor with a dual purpose should have two separate portfolios to be able to distinguish between shares of a capital and income nature
4. If separate portfolios are not held, they will be seen as though the taxpayer has a dual purpose and the revenue motive will prevail.

Question 17

Of a capital nature (change in intention): Natal Estates Ltd

Answer 17

1. May realise his capital asset to his best advantage, he must be careful not to “Crossed the Rubicon”
2. Othetrwise it will constitute as a scheme of profit making

Question 18

Of a capital nature (change in intention): John Bel

Answer 18

Something more is required to say intention changed from capital in nature to income (which then would be included in gross income to be taxed).

Question 19

Of a capital nature (change in intention): Berea West Estates v CIR, 1976

Answer 19

1. Capital Creation of realization Co. JUSTIFIED + does not change the intention
   -if a tax- payer uses his/her own capital, it indicates that the intention is to hold the asset as a capital asset, while using loan capital could indicate the intention to use it as stock-in-trade.
2. (look @ facts of case) = Capital

Question 20

Of a capital nature (change in intention): Founders Hill (Pty) Ltd

Answer 20

1. Income Holding Co & realisation Co. = one and the same ONLY in special circumstances

Question 21

Of a capital nature (the nature of the asset): Visser

Answer 21

Income is what capital produces

Question 22

Of a capital nature (the nature of the asset): George Forrest Timber Co Ltd

Answer 22

1. The nature of the asset can assist in determining whether the proceeds received
   from the sale of that asset is income or capital
2. Floating capital is consumed or disappears in the very process of production (trading stock/consumables)
3. fixed capital does not; though it produces fresh wealth, it remains intact (machinery)

Question 23

Damages and compensation: WJ Fourie Beleggings v CSARS

Answer 23

1. If the contract was a normal trading
   contract that relates to the income-producing activities of the business, then the compensation for the cancellation of such a contract will be of a revenue nature
2. If the contract related to the income-producing structure of the business, then the
   compensation for cancellation of such a contract will be of a capital nature.

Question 24

Damages and compensation: Stellenbosch Farmers’ Winery

Answer 24

1. If the contract was a normal trading contract that relates to the income-producing activities of the business, then the compensation for the cancellation of such a contract will be of a revenue nature
2. If the contract related to the income-producing structure of the business, then the compensation for cancellation of such a contract will be of a capital nature.
3. Taxpayer did not embark on a scheme of profit-making and thus any compensation received would be capital in nature

Question 25

Illegal receipts: CIR v Delagoa Bay Cigarette Co Ltd

Answer 25

Illegal receipts are still taxable even if an illegal business is being conducted