Gross income (case law)

Question 1

State two case law related to ordinarily residences of a natural person

Answer 1

• Cohen case
• Kuttel case
• Physical presence test

Question 2

Elaborate on the Cohen case

Answer 2

• “though a man may be ‘resident’ in more than one country at the same time, he can only be ‘ordinarily resident’ in one’ -Schriener JA
• it would be natural to interpret ‘ordinarily’ by reference to the country of his most fixed or settled residence
• but his ordinarily residence would be the country to which he would naturally and as a matter of course return from his wanderings
• as contrasted with other lands it might be called usual or principal residence
• would be described more aptly than other countries as his real home
• a person can be ordinarily resident in a country which he was absent throughout the year of assessment

Question 3

Elaborate on Kuttel case

Answer 3

A person is ‘ordinarily resident’ where he ahs his usual/principle residence

Question 4

Explain when will a natural person be regarded a ordinarily resident according to the physical presence test

Answer 4

A natural person is a resident of the republic if he was physically present in SA for a period(s) exceeding:
- 91 days in aggregate during the current year of assessment; and
- 91 days in aggregate during each of the 5 years of assessment preceding the current year of assessment; and
- 915 days in aggregate during the 5 preceding years of assessment

Question 5

When will a natural person not be regarded as ordinarily resident under the physical presence test?

Answer 5

When they have been absent from the Republic for a continuous 330 days.
The days are inclusive of prior year of assessment as while as current.

Question 6

Which cause laws follow under “total amount of cash or otherwise”?

Answer 6

• Lategen case
• Butcher bros case
• Brummeria Renaissance case

Question 7

State the principle of the Lategen case (total amount of case or otherwise)

Answer 7

Amount should be given a wider meaning to only include cash but the vale of the every form of property earned by the taxpayer, whether corporeal or incorporeal, as long as it has a monetary value

Question 8

State the principle of Butcher bros

Answer 8

No amount was received or accrued if it has does not have an ascertainable monetary value at the time

Question 9

State Brummeria renaissance principle

Answer 9

a right that cannot be transferred or actually incurred into money can still have a monetary value; quid pro quo

Question 10

Which are cases that follow under “received by”?

Answer 10

• Geldenhuys
• MP Finance Group Co
• Delagoa Bay Cigarette
• Pyott

Question 11

Disclose Geldenhuys principle

Answer 11

An amount received by a taxpayer must be for the taxpayers benefit to include in gross income

Question 12

Disclose MP Finance Group Co ltd case principle

Answer 12

An illegal contract is not without legal consequences and despite of legal obligation to refund an amount - an amount accepted with the intention to retain the amount for the taxpayers own benefit

Question 13

Disclose the principle of Delagoa Bay cigarette co case

Answer 13

The legal or illegal nature of a corporation does not determine whether its income should be subject to tax

Question 14

Disclose the principle of Pyott case

Answer 14

Amount received that might be refundable to customers will be included in gross income if it is not “trust money” ( meaning funds paid into the normal business account= gross income but money kept in a separate account not included in gross income)

Question 15

What are case of “accrued to”?

Answer 15

• Lategen
• People stores (Walvis Bay) (Pty) ltd
• Witwatersrand association of racing club
• Mooi

Question 16

State the principle of Lategen (accrued to)

Answer 16

If a taxpayer acquires a right in the current year to amounts that will be paid to you instalments during subsequent years - present value of all amounts in gross income in current year

Question 17

State the principle of People stores (Walvis Bay) case

Answer 17

Does not have to be due or payable - amount will accrue if a right to future payments vests in the taxpayer

Question 18

State Witwatersrand association of racing club case principle

Answer 18

An amount accrues if a taxpayer becomes entitled to the proceeds and a moral obligation to hand over the proceeds to the charity (PBO) cannot destroy the beneficial character of the receipt

Question 19

State the mooi case principle

Answer 19

A right only accrued to the taxpayer when the conditions were fulfilled and the right become exercisable - entitlement is unconditional

Question 20

What are the case of “not of capital nature”?

Answer 20

• Elandsheuwel farming
• Richmond estate
• Levy
• Pick and Pay employees share purpose trust
• Stott
• Nel
• John Bell
• Natal Estate
• Berea West Estate
• Founders Hill
• Nussbaum
• George Forest Timber co ltd
• Visser
• WJ Fourie Beleggings
• Stellenbosch farmers winery

Question 21

Disclose the principle of Elandsheuwel farming case

Answer 21

The shareholder’s intention should be attributed to the company itself
- lifting of the corporate veil

Question 22

Disclose the principle of Richmond estate case

Answer 22

In evaluating intention you would consider the company’s memorandum of association and formal resolution of the company’s directorate

Question 23

Disclose the principle of Levy case

Answer 23

Where the purpose of the taxpayer is mixed - one should seek and give effect to the dominant factor

Question 24

Disclose the principle of Pick and Pay employees share purpose trust case

Answer 24

For a receipt to be revenue, it is not sufficient for the taxpayer to carry on business. The business should also be conducted with profit making purpose as well

Question 25

State the principle of Stott case

Answer 25

That fact land needs to be subdivided in plots rather than to sell it as a whole does not change capital to revenue because every person is entitled to realise an asset to its best advantage

Question 26

State the principle of Nel case

Answer 26

The mere decision to ell an asset originally held as an investment is not necessarily to be regarded as a transformation from capital to revenue, something more than the mere disposal is required for proceeds to be revenue

Question 27

State the principal of John Bell case

Answer 27

Something more than merely selling an asset is required in order to change the character of a asset from capital to revenue. The taxpayer must embark on some scheme or selling such assets for profits and use the assets as his stock in trade

Question 28

Mention the principle of the Natal estate case

Answer 28

On the totality of facts, one should enquire whether it can be said that the taxpayer had crossed the ‘Rubicon’ and embarked upon a scheme of profit, using the assets as stock in trade

Question 29

Mention the principle of the Berea west estate case

Answer 29

Where a company is formed to sell an asset (a realization corporation) is not a trading company but sells an asset at best advantage - not revenue (not traded for profit)

Question 30

Mention the principle of the George Forest Timber Co ltd

Answer 30

• Fixed vs Floating
• Floating capital is consumed or disappears in the process d production (trading stock/consumables)
• While fixed capital does not, through it produces fresh, wealth, it remains intact (machinery)

Question 31

Disclose the principle of Founders Hill case

Answer 31

Calling a company (a realization company) is not enough to guarantee capital. The taxpayer’s profit were made in carrying on a scheme of profit making and was therefore revenue in nature

Question 32

Disclose the principle of Nussbaum case

Answer 32

Where a taxpayer who intends to invest in a capital asset (portfolio of shares to earn dividends) with a secondary intention on selling it to make profit - the gains from selling shares was revenue in nature (frequency and number of sales)

Question 33

Disclose the principle of the Visser case

Answer 33

Tree and fruit

Question 34

State the principle of WJ Fourie Beleggings case

Answer 34

• When a taxpayer receives an amount as compensation for the cancellation of a contract the nature of the contract will relate to the means of producing income (capital) or toward making profit (revenue)
• payment for the loss of an asset - capital
• payment for the loss of income - revenue

Question 35

State the principle of Stellenbosch farmer’s winery case

Answer 35

Compensation for the exclusive distribution rights that was the legal agreement that enabled them to sell certain products - were capital in nature. The accounting treatment does not determine the nature of the receipts for tax