A fundamental principle in South African tax law is the distinction between amounts which are of a capital nature and those which are of a revenue nature, as this classification directly determines their tax treatment.
One might expect such a basic principle to be straightforward. However, this distinction, arguably the most significant in the Act, has proven to be one of the most elusive.[1] The Income Tax Act 58 of 1962 (“the Act”) provides only limited guidance, which applies to very specific scenarios, on when an amount should be regarded as capital in nature. Consequently, the task of defining and interpreting these concepts has been left to the courts. Over several decades, a substantial body of case law has developed, offering various “tests” to assist in making this determination.
[1]Regent Oil Co Ltd v Strick (Inspector of Taxes); Regent Oil Co Ltd v Inland Revenue Commissioners [1965] 3 All ER 174 (HL), 43 T.C. 1 at 53A (T.C.).