Abstract

It has long been understood that the intention influencing the acquisition of an asset is decisive in deciding on whether the proceeds on sale are of a capital or of a revenue nature, unless there was a change of intention on behalf of a taxpayer. That change of intention has been catered for in the capital gains tax (CGT) legislation as a change of use. There is a correlation between the concepts in that by and large they are the same. However, there are some subtle and some not so subtle changes that have arisen and the message to be gleaned from the cases are in the main that (a) the time of the change of intention, when there is one, is critical; (b) the definition, application and valuation of trading stock is always to be considered in capital/revenue cases; (c) despite the advent of CGT, the arguments surrounding capital vs revenue are unlikely to reduce – the differences in taxation are too great to make the cases less relevant. A further complication that appears to have arisen is the deemed disposal of share dealers’ trading stock when such dealers emigrate. There appears to be the potential for double tax in that the deemed disposal of such stock gives rise to proceeds for CGT purposes as contained in paragraph 12 and 35 of the Eighth Schedule to the Income Tax Act, but also for normal tax purposes in terms of s22(8). This apparent double taxation is, it is submitted, just that – apparent.

Key words: Trading stock, capital gains tax, deemed disposal, change of use, change of intention, capital versus revenue.