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The Difference between Capital and Revenue items when calculating your taxable income in a year of assessment
BySubmitted in partial fulfilment of the requirements for the degree
31 March 2014
Table of contextpage
- The nature of receipts or expenditure3
The definition of gross income is the total amount in cash or otherwise, received by or accrued to, or in favour of, a person other than receipts or accruals of a capital nature (Haupt 2011:17). The general deduction formula is expenditure and losses actually incurred during the year of assessment in the production of income not of capital nature (Haupt 2011:107). In this paper we are going to look at the underlining difference between capital items and items that are of a revenue nature when calculating your income tax liability for a year of assessment. Misstating any of the items either as capital in nature or revenue in nature will have drastic consequences to your taxable income and thus your tax liability will either be higher than its supposed to be meaning that you will be paying more than you really need to be paying or you will underestimate your liability with the risk of receiving fines from the commissioner. A lot of factors should be taken into account when deciding if an item will fall under capital or revenue, things such as the intention of the taxpayer at the time of acquisition or disposal of the asset or the frequency of the transaction, the length of time that the asset was held by the taxpayer, the nature of the taxpayers business, the income stream the asset generates, the way the asset in financed, the nature of the asset and the reason for the disposal of the asset when it is finally disposed of. The use of case law will be vital in this paper because previous cases give a clear indication by way of court rulings which will help on deciding the nature of an asset.
The nature of receipts or expenditure
Any amount received or paid that is of revenue in nature should be included in calculating the tax liability of a taxpayer in the same year of assessment as the receipt or expenditure takes place, unless other special rules apply like when including restraint or trade accruals for a taxpayer, these accruals will be included in gross income using a time frame which is the lesser of the period in which the restraint of trade is applicable and a period of three. A taxpayer is defined as a resident or nonresident of the republic that carries on ay trade within the republic or receives any amount for services rendered within the republic. Individuals, trusts and companies amongst others are examples of different taxpayers and different tax rates will be applicable to these different taxpayers. An amount that is of a capital nature will be included in the gross income of the taxpayer but will be dealt with under the capital gains tax provisions which are found in the income tax act, specifically the Eighth Schedule of the income tax act. The act has not attempted to define the terms of a capital nature and in cases of uncertainty it is left to the courts to decide whether or not a receipt or accrual is of a capital nature (Haupt 2011:44). It is almost impossible to have an amount that contains a part that is of revenue in nature as well as capital.
Generally revenue is the income that arises from the use of a capital asset and capital is the income bearing object, in plain terms, income arises from capital. The present congressional approach to the definition of capital gains and losses inevitably results in more and more complexity, so that the difficulties can only grow worse (Surrey 1956:885). In general, when an amount is received and is not matched by any disposal of any asset, that amount is considered to be revenue in nature. In the case of Modderfontein B Gold Mining Co, Ltd v CIR (32 SATC 202, 1923 AD 34) the court said: …annuality of accruals must be an important factor in the determination of the nature of money received – though it may not be decisive. To simplify the statement made by the court one would say that if a specific amount is received every year it can be seen as an indication that the amount is of revenue in nature rather than capital.
Haupt, P. 2011, Notes On South African Income Tax 2012, Thirty-first edn, Hedron Tax Consulting and Publishing cc, Republic of South Africa.
"Modderfontein B Gold Mining Co Ltd v. CIR", 1923, AD, vol. 1923, pp. 34
Surrey, S.S. 1956, "Definitional Problems in Capital Gains Taxation", Harvard law review, , pp. 985.
Table of contextpage
- Perspectives often taken to analyse ethics
- Ethics in Research
- Plagiarism and its role in ethical Research
Ethics is moral principles that govern a person's behaviour or the conducting of an activity. It can be said that ethics is a person’s perception of what may be good or bad to themselves or to others around them, something that you consider good for you may not be considered good by someone else. Values and ethics are closely related, values are convictions about what is good or desirable. Values and ethics are influenced by a number of factors including age, religion, gender, climate and social background amongst other. Research is defined as a systematic investigation into and study of materials and sources in order to establish facts and reach new conclusions. Plagiarism is defined as the practice of taking someone’s ideas and passing them of as their own ideas. Ethics, research and plagiarism should be considered together when doing research on a specific topic. The work contained in a research assignment should not be unethical, passing of someone’s work as your own is a lie, and lying is unethical behaviour no matter what religion or culture you may follow.
Perspectives often taken to analyse ethics
Two perspectives are often taken to analyse whether actions related to research are ethical. First the utilitarian perspective deems actions as ethical if they are likely to involve more benefits than harm, have consequences that are positive, and provide the greatest good for the greatest number of individuals (Aguinis & Henle 2002:34-56). Utilitarian ethics focuses on the consequences of actions in order to decide their ethical worth (Rossouw 2009:57). In this theory it is clear that the practical consequences of any action should be looked at in order to determine whether an action is right or wrong. John Stuart Mill is a classical representative of the utilitarian theory. Second, the deontological approach emphasises strict adherence to universal rules of moral behaviour regardless of the consequences (Aguinis & Henle 2002:34-56). Deontological ethics insist that there are objective ethical standards of behaviour that everyone should respect; deontological ethics therefore shifts the focus from the quality of agents, those carrying out ethical or non-ethical behaviour, to the quality of actions (Rossouw 2009:62). The classical representative of this theory is the German philosopher Immanuel Kant.
Ethics in Research
Ethical norms are so ubiquitous that one might be tempted to regard them as simple commonsense (Resnik 2011). It’s hard to define commonsense though because people interpret things differently. It’s important to note that if something is ethical, it does not necessarily mean that it is also legal, actions can be legal but unethical like abortion and also ethical but illegal like speeding on the freeway while rushing your pregnant wife to the hospital. Most issues are interpreted based on life experience, let’s take the issue of abortion for example, it is easy to say abortion is unethical even though it may be legal, when your are just a spectator and this issue has never effected your life in any way. Your view of abortion will certainly change when for example your wife was raped and fell pregnant as a result of that incident, surely your view of abortion will change because of what has happened. The same goes for ethical issues in research, it’s easy to I will just copy this one page of work, it won’t make a difference anyway because I am handing in this assignment at a University of Johannesburg, the person who initially wrote it lives in England so how can he possibly know that I plagiarised his work. This attitude would change if someone stole your idea and passed if off as his own. The reason that there are patents, trademarks and royalties amongst other things is because intellectual ideas are hard to come by and credit really should be given where credit is due. Acknowledgement of work done by others is vital in conducting research.
The aim of research is to provide new knowledge or ideas that are truthful and lack errors. Prohibitions against fabricating, falsifying, or misrepresenting research data promote the truth and avoid error (Resnik 2011). Accountability is important in almost everything that we do in our everyday life, the driver on a bus should be held accountable for any injuries he may cause to any of the passengers in the bus while he is on duty, an accountant will always be held accountable for any misappropriation of funds in a company if his signature appears on the documents from which the matter arises. Similarly a person should be held accountable for any harm or good that might arise because of the research done by that person, especially if that research contains information that is false or may have been altered in anyway which will make the public bias to any idea or view. Honesty and integrity of the researcher is also a key factor when conducting research. The work done by an honest individual is way more reliable then work done by a person who lacks integrity.
Plagiarism and its role in ethical Research
As stated above, Plagiarism is the practice of taking someone’s ideas and passing them as their own without the proper referencing or acknowledgment to the original author. Plagiarism is such an important ethical issue when conducting research that specific codes and policies had to be put in place to try and mitigate this risk. A perfect example is having to submit your work through a program like ‘turn it in’ that will check the level of plagiarism contained in your assignment. Patents, trademarks and copyrights should be honored at all times during your research and any deviation from these rules may lead to legal actions taken towards a person. Know and obey relevant laws and institutional and governmental policies. Ethical misconduct in the reporting stage of the research is often in the form of plagiarism. Some forms of paraphrasing where the writer just changes a few words here and there or only changed the wording of the sentence to make it seem like a new idea and the writer has failed to cite a source for any of the ideas or facts that he used in his version on the work is also considered to be plagiarism. Acceptable paraphrasing is when the writer or researcher relays the information in the original text accurately and puts it in his own words to show his understanding of the work and also show by way of referencing where he got the original idea from.
For a Student, the biggest consequence of plagiarism is either suspension or drastic cases the student may even be expelled from the university. Once this has happened, it is clear that the reputation of the student amongst his fellow students and amongst lecturers in all universities will be tarnished. The legal repercussions of plagiarism can be quite serious.Copyright lawsare absolute. One cannot use another person’s material without citation and reference. An author has the right to sue a plagiarist (Anonymous 2014). An Ohio University student was charged with plagiarizing a paper because she didn’t cite or paraphrase correctly, the judgment was she was expelled from the University of Virginia’s Semester at Sea program and was forced to disembark early and go home (La Jolla 2010:1). A student at UC San Diego cut and pasted phrases from Internet websites into his research paper, he received a zero on the assignment, which caused him to fail the class and he needed to repeat it, he also had to attend a special workshop (La Jolla 2010:1).
It is always important to cite or reference work or ideas done by others people which you have used in your research firstly to acknowledge and give credit to the original others and to show that your research is the continuation of views shared with other people. Ethics in general are very important no matter in what situation you may be faced with, honesty, accountability, responsibility, confidentiality and producing work that is not bias and free from errors are key characteristics in producing a research assignment. Plagiarism should be avoided at all times because its consequences are repercussions are not favorable to the person who has committed the misconduct.
Anonymous 2014,. Available: http://www.ithenticate.com/resources/6-consequences-of-plagiarism [2014, March].
Aguinis, H. & Henle, C.A. 2002, "Ethics in research", Handbook of research methods in industrial and organizational psychology, , pp. 34-56.
La Jolla 2010, 2010-last update, Real world examples [Homepage of University of California], [Online]. Available: http://libraries.ucsd.edu/locations/sshl/guides/preventing-plagiarism/real-world-examples.html [2014, March].
Resnik, D. 2011, 29 June 2013-last update, What is Ethics in Research & Why is it Important? [Homepage of National Institution of Environmental health sciences], [Online]. Available: http://www.niehs.nih.gov/research/resources/bioethics/whatis/ [2014, March].
Rossouw, D., du Plessis, C., Prinsloo, F. & Prozesky, M. 2009, Ethics for Accountants & Auditors, Second edn, Oxford University Press Southern Africa, Cape Town.