Abstract

This case note reconstructs a consistent method for the Supreme Court of Appeal’s use of the taxpayer’s objective intention and subjective motive when classifying profits on the disposal of an asset as income or capital. It argues that the court has largely been consistent in applying the two-step test set out in CIR v Stott. Step 1 identifies whether the taxpayer is trading, in which case the taxpayer’s objective intention is used. Step 2 applies in the absence of a trade or where the transactions fall outside the identified trade. Here, the taxpayer’s subjective motive is used. Furthermore, this note identifies a narrow, fact-bound virtual certainty exception. A revenue intention is imputed in circumstances of foreknown virtual inevitability of profits, akin to indirect intention in criminal law. Read in this way, the SCA cases reveal a consistent methodology in the use of the taxpayer’s objective intention and subjective motive.