Thesis (M.B.A.)

The Supreme Court of Appeal has revisited the issue that has attracted the most litigation in South African tax law: whether gains from the disposal of an asset are of a capital or of a revenue nature. In CSARS V Founders Hill (509/10) [2011] ZASCA 66, 73 SATC 183 the court held that „intention‟ is not conclusive in the enquiry and cannot be the litmus test in determining the nature of proceeds from the sale of an asset. This judgement relegates intention to only one of the factors to be considered as it was held that it should be considered objectively whether the taxpayer is actually trading or not. The court also indicated that a „realisation company‟ would only act on capital account if it is formed for the purpose of facilitating the realisation of property which could not otherwise be dealt with satisfactorily. This treatise was primarily aimed at an analysis of the court cases which dealt with the „realisation company‟ concept in South African income tax law. In analysing the „realisation company‟ concept through case law culminating in Founders Hill, it was found that in every instance where „realisation company‟ x had won the argument, there had been compelling reasons why the owners of the assets had found it necessary to realise the asset through an interposed company established for that purpose. These reasons include:  to facilitate the sale of property previously held by different people and  to consolidate and conveniently administer the interests of beneficiaries under different wills. Furthermore, this treatise criticised „intention‟ as the primary test in determining the nature of proceeds from the sale of a capital asset and examined the objective approach to the inquiry as advocated in CSARS v Founders Hill. A discussion on the advantages of this approach indicated that it will certainly obviate a number of difficulties that arise from invoking „intention‟ as the litmus test.

The aim of the treatise was to provide a clear understanding of the changes to the trading stock provisions in the Income Tax Act. Various sections of the Act were covered and case law was reviewed with relevance in relation to this research project in order to gain a deeper understanding of the development of the trading stock provisions, thus bringing together the tax legislation and the case law principles. Emphasis was placed on the development of the trading stock provisions. The conclusion from this was that some of the amendments were merely textual in nature whilst others were driven by case law. There were instances where cases did not give rise to amendments but simply reinforced existing provisions by providing guidance and clarity by way of the judges’ interpretations of those provisions. The amendments relating to the trading stock provisions in the Act and the judges’ interpretation of the applicable case law have resulted in a comprehensive understanding of the treatment of trading stock.

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The new Income Tax Act (S.C. 1970-71, c.63), formely known as Bill C-259, has introduced important changes and many new rules into Canadian legislation, which affect taxation of non-residents. This thesis is a study of the tax treatment which the new law imposes on non-residents and an examination of the differences from the previous system. However, taxation of non-residents depends not only on statutes but also on case law. Therefore, attention is devoted to judicial decisions to ascertain whether they conflict with the new statutory provisions. This thesis studies non-residents earning income from a business they carry on in Canada, and deriving income from investments they make in Canada. The comparatively simple situations of persons holding employments in Canada, or receiving pension payments from Canadian sources are not analyzed. The study is limited to the law normally applicable without modifications dependent on international treaties. The thesis is organized in seven main chapters and a short conclusion. The first chapter summarizes the reasons making taxation of non-residents a complexe matter, and the rules governing it. The second chapter is devoted to the definition of residence as well as to a brief comparison with certain other countries. The tax consequences of non-residents carrying on business in Canada and the methods available are examined in the third chapter. The taxation of the different forms of investment income which non-residents may derive from Canada is the object of the fourth chapter. The non-resident-owned investment corporation, that is to say the special vehicle afforded to foreign investors, is analyzed in the fifth chapter. The sixth chapter explains the technical provisions aimed at counteracting thin capitalization. The taxation of capital gains realized by non-residents is studied in the chapter seven. Finally, some conclusions are drawn in the eighth and last chapter. / Law, Peter A. Allard School of / Graduate

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The subject of tax avoidance and tax reduction within the framework of the income tax legislation has so far not been dealt with in any work in South Africa and this is, therefore, the first work of its kind. My approach in this work has generally been, firstly, to set out the effect of the law in the light of the court decisions, the depart- mental practice and my own interpretations; secondly, to consider and discuss the extent to which taxpayers can arrange their affairs within the letter of the law in order to avoid or reduce tax and the prejudicial effect on the public revenue, and finally to offer my criticisms, suggestions and recommendations. It was inevitable that during the course of my studies and investigation into the workings of the Income Tax Act and the incidence of the taxes levied, various anomalies, inequities and obscurities would present themselves. Although some of these bear no or little relation to the problem of tax avoidance and tax reduction, I have nevertheless considered it necessary to deal with them in this work. Often they lead to results quite opposed to well-established commercial and accountancy practice. I have attempted to show how this conflict that exists between the Income Tax Act and the accountant's and business man's approach frequently results in the taxable income not coinciding with the profits as ascertained on the basis of ordinary, commercial and accountancy principles. Many of these aspects have up till now received very scant thought, and I have, therefore, felt that they should be clarified with a view to making both the taxpaying public and the fiscus fully conscious of them. The legislator and the taxpayer should be ever mindful of anomalies, inequities and obscurities in the law, because only by continual discussion and criticism can one hope for their ultimate eradication and hence for a better and fairer tax system.

The study examined tax legislation that affects Public Benefit Organisations (PBOs) with specific emphasis on sports organisations. The relevance of the legislation was examined and secondly, where applicable, a review on how specific sports organisations (PBOs and recreational clubs) implemented the tax legislation was performed. A detailed analysis of the national and international sports environment was presented in order to inform the study. This was followed by a comprehensive examination of each section of the Income Tax Act in relation to PBOs and sport. A brief comparative study was also undertaken to benchmark South Africa against countries playing the same or similar sports. As the tax on Public Benefit Organisations is a relatively recent tax, little or no analysis has yet been conducted on its relevance and the implementation thereof. This study served to critically analyse the implementation of this tax by sports organisations using the limited data available in the public domain. The results revealed that the legislation is excessive, particularly for recreational clubs, taking into consideration South Africa's sporting development needs. In support of the findings, it is recommended that the Treasury consider separating the legislation affecting sports organisations from legislation affecting other Public Benefit Organisations.

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