Excluding receipts/accruals of a capital nature

Question 1

Visser

Answer 1

Income may be described as the product of a person’s wits and energy.
Tree vs. fruit:
‘Income’ is what ‘capital’ produces.
The tree is seen as the capital structure of the business and the fruit the result of the income earning activities. Thus, receipts for selling the tree is capital in nature and receipts for selling fruit is revenue in nature.

Question 2

George Forest Timber

Answer 2

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.

Question 3

Nel

Answer 3

Kruger Rands are a unique asset where the only income earned is through sale. Therefore it will normally be seen as capital unless it is your trade to buy and sell them.

Question 4

Capstone.

Answer 4

A company’s intention is indicated by the persons who are in effective control of the company, such as directors and executive management.

Question 5

Stott

Answer 5

Consider the taxpayer’s dominant intention. The fact that the asset is sold at a profit, does not necessarily indicate a change of intention.

Question 6

Pick ‘n Pay Employee Share Trust

Answer 6

The scheme of profit making is essential to classify proceeds as revenue in nature.

Question 7

Levy

Answer 7

Mixed intentions
Dominant intention is taken
If dominant intention cant be established = revenue

Question 8

Richmond Estates (Pty) Ltd

Answer 8

A company’s initial intention is indicated by the actions of directors, type of business and the MOI

Question 9

Niko

Answer 9

Receipts of floating capital = Revenue
Receipts of fixed capital = Capital

Question 10

Natal Estates Ltd

Answer 10

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. This indicate a change of intention and the proceeds being revenue in nature.

Question 11

Nussbaum

Answer 11

The secondary purpose could taint the primary purpose of a taxpayer, if a taxpayer’s actions become too frequency.
This may result in profits that are initially seen as capital, to be revenue. An investor with a dual intention should keep two separate accounts, one capital and one revenue.

Question 12

Berea West Estates

Answer 12

Using a realisation company to realise a capital asset merely means the taxpayer is disposing of the asset to its best advantage.
The receipts of the realisation company are capital in nature

Question 13

WJ Fourie Beleggings

Answer 13

Compensation for damages of capital assets = capital
Compensation for loss of profit/ income = income
If proceeds relate to “filling a hole” in the income earning structure, it is capital in nature.
If the proceeds relates to “filling a hole” in the income pocket, it is revenue in nature.

Question 14

John bell

Answer 14

The mere decision to sell an asset does not change an intention. A capital asset may be realised at its best advantage. Waiting for market conditions to change was not an indication of a change in intention.