court cases Flashcards
cohen (principle )
a person is ordinarily resident in the country to which he intends to return from all his wanderings. the country he regards as his real home.
kuttel (principle)
a person is ordinarily resident where the person’s principle resident is-where the person is habitually and normally resident
Butcher Bros (principle )
The onus is on SARS to determine the amount.
people’s stores (principle)
Accrued to = entitled to
include in gross income when entitled to not when you received the money.
accrual =face value not discounted value.
Witwatersrand Association of Racing clubs (principle )
an amount accrues to a taxpayer if the taxpayer has no legal obligation to pay over (only moral obligation) to another.
Lategan (principle )
mooi (principle )
Accrued to = unconditionally entitled to the amount of.
Geldenhuys (principle)
the amount is only include in gross income by a taxpayer only if it is received by him on his own behalf, for his own benefit.
Pyott Ltd ( principle )
generally deposits are still received and form part of gross income.
A deposit is only treated as not being received if the money is kept separately in a trust account, for the benefit of the customer.
Delagoa Bay Cigarette Co Ltd (principle )
The legality of the income is irrelevant. the amount will still be gross income.
MP Finance Group CC ( principle )
even though the receipts are illegal, they are still received, and therefore gross income.
visser (principle )
income may be described as the product of a person’s wits and energy.
Georgy Forest Timber (principle)
all assets are either classified as fixed or floating capital
Floating is consumed in the very process of production, while fixed capital is not. Fixed capital is the structure that enables income to be generated.
The sale of fixed capital gives rise to capital proceeds while the sale of floating capital gives rise to revenue.
Pick n Pay Employee share Purchase Trust ( principle )
The scheme of profit making is essential to classify proceeds as revenue in nature.
stott (principle )
consider the taxpayer’s dominant intention. The fact that the asset is sold at a profit, does not necessarily indicate a change of intention.
John Bell (principle )
The mere decision to sell an asset does not change an intention. A capital asset may be realised at its best advantage.
Natal Estate Ltd (principle)
a person may realise his capital asset to his best advantage, yet must be careful to not cross the Rubicon and embark on a scheme of profit making.
Nussbuam ( principle )
the secondary purpose could taint the primary purpose of a taxpayer , if taxpayer’s actions become too frequency .
WJ Fourine Bleggings (principle)
Compensation for damage of capital assets = capital
compensation for loss of profit /income =income
Burgess(principle)
(carrying on a Trade ) A wide interpretation should be given to trade.
Nasionale Pers Bpk(principle)
(actually incurred ) if a payment is contingent upon the happening of uncertain future events, the expense and corresponding liability can on be actually incurred once the conditions are met.
edgars stores(principle)
an expense can only be deducted once there is an unconditional legal obligation to pay the expense.
sub-Nigel Ltd(principle )
( during the year of assessement) An expense must be deducted in the year of assessment that it is incurred, even if it will only produce income in future years.
Joffe & Co(principle)
(in the production of income ) If something is not an inevitable concomitant of the business
operations it is not deductible
Provider (principle )
Expenditure incurred to induce the employees to enter and
remain in the service of the taxpayer may qualify as a deduction
since the purpose is to produce current or future income.
Amounts paid in terms of a service package (employment
contract) are deductible.
Golden dumps (principle )
Where an obligation to pay an amount is in dispute, the
expense can only be actually incurred when the dispute is
settled with regards to the obligation and the amount thereof
New state area (principle)
Cost of establishing/ improving/adding income earning plant
(fixed capital) is capital in nature and therefore not deductible
vs.
Cost of performing income-earning operations (floating capital)
which is revenue in nature and therefore deductible
Rand Mines (principle )
Expenditure incurred to obtain an income earning right or
structure will be capital in nature
Cost incurred to create a capital structure = capital
Cost incurred to work the capital structure = revenue
Mobile telephone Networks holding (principle )
Incurring audit fees is necessarily attached to the
performance of the taxpayer’s income earning
operations i.e. Audit fees are incurred in the
production of income.
Where a there is a split between producing income
versus exempt income (thus where audit fees are
incurred for a dual purpose), apportionment has to
take place.
Apportioning audit fees based on time spent on areas
generating exempt versus non-exempt income is not
necessarily correct. Apportionment will depend on the
facts of each case
Nel (principle)
Kruger Rand normally seen as capital in nature, unless
in trade to buy and sell.
Kruger Rand is a unique asset. Consider a
taxpayers reasons for selling Kruger Rands
Port Elizabeth Electric Tramway(principle)
- Link between expense and production of income:
* What is the purpose of the expense?
* How closely connected is that expense to
the production of income?
An American parent company with operations in
South Africa was obliged to ensure that South
African subsidiary companies (the taxpayer)
complied with the Sullivan Code i.e. social
responsibility expenses were incurred by the
taxpayer in terms of this code. The taxpayer
incurred this social responsibility expenditure and
claimed it as a deduction under section 11(a).
Warner Lambert SA (Pty) Ltd
A mine management company incurred an
expense to acquire a contract to manage a mine
in the same group of companies. SARS
disallowed the deduction
Rand mines
A taxpayer was required to install a new
sewerage system on its premises as well as on and outside its property. The system was
installed at the cost of the local authority but the
taxpayer had to repay the cost in monthly
instalments (relating to the system on the
premises and the system outside). The
Commissioner disallowed the deduction of both
amounts.
New State Area Ltd
Mobile Telephone Networks Holdings (Pty) Ltd
incurred expenditure in respect of an audit
performed. The auditors spent 94% of its time on the audit of interest income and 6% of its time of
auditing the exempt dividend income
Furthermore, expenditure was incurred in respect
of training fees to train staff on learning the new
computerised accounting system. The system
was only used in respect of interest income.
Mobile Telephone Network Holdings (Pty) Ltd
The taxpayer had introduced two schemes for the
benefit of its employees: a life assurance scheme
and a service bonus. The amount of the bonus
or benefit varied in line with the length of the
employee’s service. The taxpayer sought to
deduct both amounts.
Provider
A company carried on a concrete engineering
business. A concrete hood, which the company
was supervising, collapsed; killing a workman. It
was determined in the court case that the
company was negligent and had to pay damages
to the workman’s deceased widow. The
Commissioner disallowed the company’s claim
for compensation and the legal costs incurred
Joffe and Co
A driver employed by the taxpayer died as a
result of injuries sustained from an accident that
occurred while working. The taxpayer had to pay
damages to the widow of the employee. The
taxpayer also incurred legal costs resisting the
claim. The commissioner disallowed both
deductions
Port Elizabeth Electric Tramway
The taxpayer and a former employee were
involved in a 4 year dispute over the delivery of
shares promised by the taxpayer. The taxpayer
claimed the cost of the shares as a deduction
Golden Dumps (Pty) Ltd
The taxpayer leased premises to conduct its
business. There was a basic monthly rental and
an annual rental based on turnover. The taxpayer
estimated the annual amount and claimed it as
deduction.
Edgars Stores
The taxpayer claimed a provision for bonuses as
a deduction. The amount was only payable at a
future date. The provision was raised for the
liability as a result of the employees working for a
full year and becoming entitled to their bonus.
Nasionale Pers Bpk
The taxpayer borrowed money from the bank and
invested in a short term investment company as
part of a scheme. He wanted to deduct the losses
from the scheme.
burgess
A taxpayer company paid insurance premiums on
a loss of profits insurance policy. The insurance
policy will only pay out in future, if certain events
took place.
Sub-Nigel
A company had an illegal pyramid scheme
where they promised investors fantastic
returns with no intention of doing just that.
They classified the money received as
deposits (loans) and used it for their own
purpose
MP finance
The company ran an illegal lottery. It set aside
a certain portion of its income from the sale of
cigarettes in order to pay prizes to people who
held winning numbers, obtained from coupons
in the cigarette packets
Delagoa Bay Cigarette Co Ltd
A CC leased premises from which it operated
as a hotel. It had been paid compensation for
the loss of a contract it had with another entity
to provide meals and accommodation to
students.
WJ Fourie Beleggings
A taxpayer held shares during his lifetime for
investment purposes. After retirement he sold
the shares over a three year period; some
shares were held for a long period and others
for a shorter period. The taxpayer sold shares
each time the dividend yield dropped
Nussbaum
The 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.
Natal Estate Ltd
The taxpayer operated a textile business from
premises that it owned. After the business
relocated to other premises, the directors of
the company decided to sell the original
premises. In view of the fact that the property
market was not performing well at that point in
time, the directors decided to wait until the market had improved. In the meantime, the
property was rented out (for a period of 11
yeas) and thereafter, once the market had
improved, the property was realised at a profit
John Bell
The taxpayer, Stott, was an architect and
surveyor. He purchased a few properties as
an investment over a period of 20 years. One
of the properties, a piece of coastal land of
nearly 54 acres, was acquired by the taxpayer
with the intention of building a seaside
residence thereon, which he did. Because the
property was enormous, the taxpayer
subdivided it into two parts and retained only
the part on which the residence stood. He
subdivided the other part into lots and sold it
piecemeal.
Stott
The company established a trust to purchase
shares and administer them for the benefit of
the employees. This trust was also compelled
to repurchase shares from employees who
were required to forfeit their holdings.
Pick n Pay
Employee Share
Purchase Trust
The taxpayer company carried on a business
as timber merchants and sawyers. It acquired
about 6oo morgen of natural forest for the
purpose of its business. The nature of the
trees in the forest was such that they did not
renew themselves, and for practical purposes
the value of the land without the timber was
negligible. In the course of its business the
company felled a quantity of timber each year
which was sawn up in the mill and sold as part
of its trading stock
George Forest Timber
The taxpayer (an influential businessman in
the area) acquired mining options for a period
of two years over certain farm properties. The
options, however, lapsed – at which time he
still did not start with any search for mineral
deposits. Later, a third party negotiated with
and offered the taxpayer an interest in a
company to be formed if he would assist him
to acquire the previously lapsed options from
the farmers again.
Visser
A widow inherited the right of use of a farm
(usufruct) while her children received the right
of ownership (bare dominium). She later
decided to give up farming and sold the sheep
on the property with her children’s consent
Geldenhuys
A race event was held and resulted in
proceeds that the taxpayer divided between
two charities. The taxpayer argued that the
proceeds did not accrue to them, but to the
charities.
Witwatersrand
Association of
Racing clubs
A clothing retailer sold on credit.
People’s store
The taxpayer owned land, leased it to a
company for 50 years with a renewal option of
49 years. In terms of the lease agreement the
lessee was obliged to effect improvements.
The ownership of the improvements would
pass to the lessor upon termination or renewal.
Butcher Bros
