scholarly journals INCOME TAX: GROSS INCOME – CAPITAL VERSUS REVENUE, PROFIT-MAKING SCHEME OR FIXED/FLOATING-CAPITAL TEST?

Obiter ◽  
2021 ◽  
Vol 30 (2) ◽  
Author(s):  
David Joubert
Keyword(s):  
Income Tax ◽  
Fixed Capital ◽  
Eastern Cape ◽  
Good Sense ◽  
High Court ◽  
Park Avenue ◽  
Majority Judgment ◽  
Gross Income

The question of whether a receipt or accrual is of a capital nature or not has vexed the courts, legal minds and tax advisors for years. Simplifying or limiting the tests would provide greater certainty. According to some writers, the case of CIR v Pick ’n PayEmployee Share Purchase Trust (1992 4 SA 39 (A), 54 SATC 271, hereinafter “Pick ’n Pay”) seems to have finally limited the test incapital/revenue cases to the “profit-making scheme” test. However, in subsequent cases there is no suggestion that the scheme ofprofit-making test is the sole test. In Berea Park Avenue Properties (Pty) Ltd v CIR (1995 2 SA 11, 57 SATC 167) it is clear that the Appellate Division (as it then was) considered a profit-making scheme and trading stock in one breath, so to speak. In SARS v Knuth and Industrial Mouldings (Pty) Ltd (1999 62 SATC 65), a case heard in the Eastern Cape Provincial Division of the High Court dealt with the proceeds of the sale of shares. The case was concerned with the floating versus fixed-capital test, and Leach J opined (72) that the distinction“is often referred to in tax cases and can now be regarded as entrenched in our law”. Leach J referred to Pick ’n Pay, but only to the extent that sound commercial and good sense should prevail in selecting the tests applicable. It was held in Pick ’n Pay that if there is no trading then there can be no floating capital. The trading stock definition was not considered in the majority judgment. The profit-making scheme test is only one way of establishing that an asset is trading stock. An asset acquired for the purpose of sale is tradingstock and the proceeds are gross income. That should, it is submitted, be the basis on which capital/revenue cases are decided. The scheme of the profit-making test is but one method of establishing intention at acquisition. It is submitted that the intention to make a profit, inherent in the concept of a profit-making scheme, is not essential to establish trading. “Gross income” is receipts and accruals, not profits. The majority judgment in this case is, it is submitted, flawed in that it did not consider this reality. For years the courts have vacillated between the “floating capital/fixed capital” and “profit-making scheme” tests to establish whether the proceeds of the disposal of an asset is of a capital or revenue nature for the purpose of establishing gross income as defined in the Income Tax Act 58 of 1962. Pick ’n Pay seems to have finally limited the test of whether proceeds are of a capital or revenue nature to the “profit-making scheme” test. This note questions that submission by examining the concepts and application of the two tests, trading stock, Pick ’n Pay and subsequent capital/revenue cases.

A Note on Mandela v Executors, Estate Nelson Mandela 2018 (4) SA 86 (SCA) and the Conundrum around the Customary Marriage between Nelson and Winnie Mandela

2019 ◽  
Vol 34 (2) ◽  
Author(s):  
Sipho Stephen Nkosi
Keyword(s):  
Supreme Court ◽  
The State ◽  
The Other ◽  
Customary Law ◽  
Eastern Cape ◽  
High Court ◽  
Nelson Mandela ◽  
The Supreme Court ◽  
Court Of Appeal

The note is about the appeal lodged by the late Mrs Winnie Madikizela-Mandela to the SCA against the decision of the Eastern Cape High Court, Mthatha, dismissing her application for review in 2014. In that application, she sought to have reviewed the decision of the Minister of Land Affairs, to transfer the now extended and renovated Qunu property to Mr Mandela and to register it in his name. Because her application was out of time, she also applied for condonation of her delay in making the application. The court a quo dismissed both applications with costs, holding that there had been an undue delay on her part. Mrs Mandela then approached the Supreme Court of Appeal, for special leave to appeal the decision of the court a quo. Two questions fell for decision by the SCA: whether there was an unreasonable and undue delay on Mrs Mandela’s part in instituting review proceedings; and whether the order for costs was appropriate in the circumstances of the case. The SCA held that there was indeed an unreasonable delay (of seventeen years). Shongwe AP (with Swain, Mathopo JJA, Mokgothloa and Rodgers AJJA concurring) held that the fact that there had been an undue delay does not necessarily mean that an order for costs should, of necessity, particularly where, as in this case, the other litigant is the state. It is the writer’s view that two other ancillary points needed to be raised by counsel and pronounced on by the Court: (a) the lawfulness and regularity of the transfer of the Qunu property to Mr Mandela; and (b) Mrs Mandela’s status as a customary-law widow—in relation to Mr Mandela.

scholarly journals Pyott case: A lasting deposit for our tax heritage

2019 ◽  
Vol 19 ◽  
pp. 47-70
Author(s):  
A C Engelbrecht ◽  
G K Goldswain ◽  
A Heyns
Keyword(s):  
South Africa ◽  
Income Tax ◽  
Rental Housing ◽  
Value Added ◽  
Point Of View ◽  
Relevant Today ◽  
Consumer Protection Act ◽  
Contingent Liability ◽  
Beneficial Ownership ◽  
Gross Income

Pyott Ltd v CIR is generally regarded as the seminal case in South Africa on the tax treatment of deposits received on containers that may be returned at a later stage for a refund. This article analyses the tax treatment of deposits, prepayments and advances from a gross income point of view, as well as the possibility of claiming a deduction for the contingent liability to refund such deposit. 6The main objective of this article is to discuss the judgment in the Pyott case and establish whether the principle enunciated that deposits,received in respect of returnable containers, are taxable in full once received, can also be extended to receipts of deposits, prepayments and advances where no returnable container is involved. 7The conclusions reached are that the principles laid down in the Pyott case are still relevant today, apart from possible relief which may now be claimed under the subsequently introduced section 24C. Where no container is involved, beneficial ownership must first be established before such deposit, prepayment or advance becomes taxable, taking into account the specific provisions of legislation such as the Rental Housing Act and the Consumer Protection Act. The research has also shown coherence in the treatment of deposits for income tax purposes and other taxes, such as value-added tax.

scholarly journals Merchant cash advances: investigating the taxation consequences in South Africa

2015 ◽  
Vol 8 (2) ◽  
pp. 415-431
Author(s):  
Eduard Kilian ◽  
Rudie Nel
Keyword(s):  
South Africa ◽  
Service Provider ◽  
Income Tax ◽  
Cash Flows ◽  
Financial Service ◽  
Debit Card ◽  
Lump Sum ◽  
Gross Income

The merchant cash advance is an emerging lending product designed to address the need to maintain cash flows and is essentially the business equivalent of a “payday” loan. A lump-sum advance is made by the merchant cash advance service provider to a business (the merchant) in exchange for an agreed upon percentage of future credit and/or debit card receivables. This article investigates the taxation consequences of merchant cash advance transactions in South Africa, in an attempt to provide guidance which is currently lacking. Although it is posited that a merchant cash advance is a form of debt factoring, the income tax treatment of the initial advance and the resulting discount reflect that of a loan. Through the investigation it was determined that merchants will be able to deduct the discount and processing fees from income. The merchant cash advance service provider will include such discount and processing fee in ‘gross income’. The initial advance and any resulting discount are held to be a ‘financial service’ and therefore an exempt supply for VAT purposes, with the processing fee constituting a taxable supply.

Contingent Legal Fees on Settlements and Awards and the Calculation of Gross Income by Individuals for United States Federal Income Tax Purposes

2004 ◽  
Vol 2 (1) ◽  
pp. 1-12
Author(s):  
Michael P. Coyne ◽  
Richard Mason ◽  
John R. Mills
Keyword(s):  
Income Tax ◽  
Internal Revenue Service ◽  
Current Position ◽  
Significant Difference ◽  
The Supreme Court ◽  
Federal Income Tax ◽  
Gross Income ◽  
Legal Fees ◽  
Circuit Courts ◽  
Congressional Action

Lawsuits involving contingent legal fees are reasonably common. This paper focuses on the appropriateness of the inclusion in plaintiff's gross income for individual federal tax purposes of the portion of settlements going to attorneys for contingent legal fees. We present an example of the significant difference in taxes payable by a plaintiff under the two competing tax treatments. We also recap the current position of the various Circuit Courts on the issue using the opposing views of the Sixth to the Second and Seventh Circuits to frame a discussion of the issue and then discuss the treatment of securities classaction settlement proceeds that are apparently treated differently for tax purposes. The Supreme Court has recently granted certiorari in two cases and will be addressing the inclusion of contingent legal fees in gross income. We advocate that although taking the broader Sixth Circuit approach of excluding contingent attorney's fees on a joint endeavor theory would lead to more equitable results for plaintiffs, it would not necessarily be prudent judicial action and that the appropriate remedy to the situation may best be Congressional action, as the Internal Revenue Service has consistently favored inclusion.

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