Intention

The test for intention is a two-pronged question, ie what a person intended in acquisition of an asset, and whether that intention persisted.

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Ultimately, this turns on evidence, which in the first instance is a person’s

‘ipse dixit’. Intention is discussed below with reference to relevant case law. Moreover, this discussion highlights two seminal cases which are integral to this analysis – namely, CIR v Pick ‘n Pay Employees Share Purchase Trust,

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and CSARS v Wyner.

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4.3.1 Original Intention

In CIR v Stott,

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the taxpayer, a land surveyor, had bought and sold land over an extended period of time, two of which were assessed as revenue.

In both cases, the taxpayer had subdivided the land, and sold the subdivisions at a profit, viewed by the Commissioner as demonstrative of a scheme of profit-making. The court held as follows:

 Determination of a capital or revenue intention rests in examining the taxpayer’s purpose at the time of acquiring an asset (original intention), as well as his intention at the time of disposal.

71 Visser supra note 67 at p 276.

72 Ibid.

73 Tsatsawane, K ‘Receipts or accruals of a capital nature’ (2000) 8(2) Jutas Business Law at 40.

74 CIR v Pick ‘n Pay Employees Share Purchase Trust (1992 (4) SA 39 (A)) 54 SATC 271 (“the Pick ‘n Pay case”).

75 CSARS v Wyner 66 SATC 1 [2003] 4 All SA 541 (SCA) (“the Wyner case”).

76 CIR v Stott (1928 AD 252) 3 SATC 253.

 Examination of intention necessarily requires the court taking cognisance of all surrounding facts and circumstances.

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 The taxpayer’s ‘ipse dixit’ is conclusive, ‘in the absence of any other factors indicating that the taxpayer had engaged in a scheme of profit-making…’

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 A taxpayer is allowed to realise an asset to ‘best advantage’, which alone is insufficient to demonstrate a change of intention.

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 A revenue intention cannot rebuttably presumed in the case of a natural person unless there is some degree of continuity in their dealings.

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This case stands as general authority that a natural person, who engages in a single transaction, ought not to be presumed to be engaged in business activities; is permitted to realise an asset in the best possible manner, all the while considering the prevailing market norms and conditions.

4.3.2 Change of Intention

The Stott case was cited with support in CIR v Paul,

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where the court held that it would be counterintuitive that a person would intend to sell an asset at a loss, and seeking the best price for an asset is not damning in itself. Additionally, in John Bell and Co (Pty) Ltd v SIR the court found that merely allowing the ‘hand of time’ to affect market conditions in a favourable manner pursuant to a taxpayer’s decision to realise an asset is not sufficiently significant to constitute a change of intention.

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The clearest example of this is Natal Estates v SIR.

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Here it was agreed that while ‘original intention’ is important, it is not conclusive. The list of corroborating (or contradicting) factors is not exhaustive, and that it behoves the court to consider the ‘totality of facts’ surrounding the matter

77 Stott supra note 76 at p 255.

78 Ibid at p 262.

79 Ibid at p 261.

80 Ibid at p 260.

81 CIR v Paul (1956 (3) SA 335 (A)) 21 SATC 1 at p 8.

82 John Bell and Co (Pty) Ltd v SIR (1976 AD) 38 SATC 87 at p 103.

83 Natal Estates v SIR (1975 (4) 177 (A)) 37 SATC 193.

when evaluating a taxpayer’s ‘ipse dixit’. This is expressed as the having,

‘crossed the Rubicon’.

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The taxpayer had also dealt in land, however, in contradistinction to Stott,

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had devoted significant resources to developing the land for sale and in a manner which had all the hallmarks of a commercial undertaking.

The court determined that he had ‘crossed the Rubicon’, and that the license to realise an asset to ‘best advantage’ was a question of degree, and only extends so far.

This is illustrated with reference to the CIR v Nussbaum,

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where the taxpayer, who had become more actively involved in managing his investment portfolio, stipulated that his investment thesis was to sell assets when their dividend yield decreased. The price of a share in an efficient open market is roughly equivalent to its value; value is in essence determined with reference to the present value of the expected future cash flows to be enjoyed by owning the share. This necessarily implies that when expectations change, the market price responds commensurately. However, in the Nussbaum case, the practice was to profit from market pricing inefficiencies, not to realise the value of his investment. The court found this nuance to be sufficient to constitute him as holding shares as trading stock, not a capital asset. This practice is summarised with reference to intention most eloquently in stating,

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…whether it is the profit which motivates the sale, or whether it is the sale which results in the profit. The former may constitute a change of intention while the latter does not.

4.3.3 Mixed Intention

It is possible for a taxpayer to have a mixed intention, intending an asset to be part speculative and capital investment. While the intention may be bipolar, as Davis AJA determined in the Pyott case the object of that intention can be possessive of only one absolute quality.

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In such cases, a court would need to determine which intention is dominant in the mind

84 Ibid at p 220.

85 Stott supra note 76.

86 CIR v Nussbaum (1996 (4) SA 1156 (A)) 58 SATC 55.

87 Phillip Haupt Notes on South African Income Tax (2020) ch 2 at p 47.

88 Pyott supra note 69.

of the taxpayer in acquiring an asset, and give effect thereto, see ITC 1185,

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citing as authority COT v Glass,

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and COT v Levy.

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Per Steyn, CJ in African Life Investment Corporation v SIR,

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for there to be an ‘absolving dominant purpose’ the execution of the main objective must give rise to occasions of what is merely an ‘incidental change of investment’. In CIR v Tod,

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it was held that dividend-capture cases represent a co-existent revenue intention, reasoning that the buying and selling of shares is not incidental but a sine qua non for the active pursuit of the dividend income.

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The two are so inextricably linked as to complement each other so that one is not dominant over the other.

In general, the dominant intention may be ascertained by virtue of the taxpayer’s demeanour after acquisition.

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This effectively acts as objective corroboratory evidence of their ‘ipse dixit’.

Intention would be considered to have been revenue, if no dominant intention were able to be proved. This is consistent with s 102 of the Tax Administration Act 28 of 2011 (“the TAA”),

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as it essentially creates a rebuttable presumption of revenue intention.

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4.3.4 Summative Statement

As is clear from the above, intention is required to be tested subjectively, as well as reconciled objectively with surrounding circumstances. A non- exhaustive list is provided below:

 ‘Ipse dixit’ per Stott:

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if there are no contracting facts, a taxpayer’s stated intention is conclusive, see also Malan v KBI.

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 Length of time held: a shorter duration may be indicative of a revenue intention, but not an absolute confirmation.

89 ITC 1185 (1972) 35 SATC 122(n) at p 123.

90 COT v Glass (1962 (1) SA 872 (FC)) 24 SATC 499.

91 COT v Levy (1952 (2) SA 413 (A)) 18 SATC 127.

92 African Life Investment Corporation v SIR 31 SATC 163, 1969(4) S.A. 259 (A.D.) at p 176.

93 CIR v Tod 45 SATC 1 1983(2) SA 364 (N) at p 9.

94 Cf African Life supra note 92.

95 Haupt op cit note 87 at p 45; cf CIR v Lydenburg Platinum Ltd 4 SATC 8 (1929 AD 137)

96 Tax Administration Act, Act 28 of 2011.

97 L. Olivier ‘Capital versus revenue: Some guidance: notes’ (2012) 45(1) 172-177 De Jure.

98 Stott supra note 76.

99 Malan v KBI 45 SATC 59, 1983 (3) SA 1 (AD).

 Continuity, or frequency: if there is continual buying and selling, it indicates revenue intention. However, a single transaction is not an absolute defence, see Stephan v CIR,

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and the Wyner case.

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 Nature of business – if the asset is not one typically bought and sold in the taxpayer’s business, it may be regarded as capital, see SIR v The Trust Bank of Africa Ltd.

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 Income stream: in the absence of an income stream, or a paucity thereof, where an enhancement in financial position can only be made by the selling of the asset, the asset is revenue in nature unless some other benefit is derived, see Bloch v SIR.

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 Special circumstances: where a sale is motivated by emergent and urgent circumstances, see CIR v Nel,

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ITC 1355,

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ITC1379,

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and ITC 1543 (“the Krugerrand cases”).

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 Mixed Intentions: there is a rebuttable presumption of

revenue intent.

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