Week 3 - Capital in Nature

Question 1

of a capital nature?

Answer 1

• determined by intention of taxpayer
• produces revenue/benefits = is the tree
• income earning structure = result of use produces rev
• if a business were to be worse off selling it

Question 2

taxable capital gains of a company?

Answer 2

80% is taxable

Question 3

how to determine intention of the taxpayer?

Answer 3

• nature is determined by intention in relation to asset disposed of
• determine main or dominant intention at acquisition and assess whether intention changed

Question 4

two intentions at acquisition?

Answer 4

• speculative = for the purpose of profit making = rev

- investment = to earn return on inv = capital

Question 5

changes in intention?

Answer 5

• realize something at best advantage = no change
• happen to sell something for profit = no change
• if profit motivated = change = revenue in nature
• mere intention to sell in future = no change

Question 6

crossing the rubicon?

Answer 6

• point of no return
• farmer owns land which grows apples to sell. converts it to apartment complex to sell apartments. still holds land as capital but sale of apartments = revenue
• crosses rubicon by building complex

Question 7

what is a realization company?

Answer 7

• one which was formed to facilitate the realisation of property which could not otherwise be dealt with satisfactorily. does not change intention.
• does not change from cap to rev = not included in GI

Question 8

onus of proving capital in nature?

Answer 8

taxpayer

Question 9

objective test for determining intention?

Answer 9

- used if ipse dixit used -- unproven statement
look at:
- actions of directors
- length of time held
- frequency of activities
- nature of taxpayer bus
- inc stream
- reason for sale
- financing of item
- nature of asset

Question 10

damage and compensation?

Answer 10

• loss of capital asset = capital in nature

- compensating for loss in profit = revenue

Question 11

receipt from cancellation of a trade agreement?

Answer 11

• normally rev in nature unless the contract is so crucial it will cripple the business

Question 12

fortuitous gains

Answer 12

(prizes, donations, gifts) = capital

Question 13

sporadic successes from gambling

Answer 13

capital (losses not deductible)

Question 14

illegal contracts/business

Answer 14

revenue (allows for deductions)