©THEBRIGHT EXAM SOLUTIONS
11/05/2024 12:06 PM
TAXN201 Exam Questions With Correct
Answers
Personal property Dispositions - answer✔CB3,4 &5
Land vs Non land property - answer✔land sales are now taxed under separate rules in sec CB 6 to CB 23.
Business of Dealing - answer✔CB5
Under section CB 5 -for the sale to be caught, two questions must be answered in the affirmative:
- Was the taxpayer carrying on a business of dealing in that type of property sold?
- If so, was the property sold as part of that business of dealing?
A business of dealing would exist if there were a number of similar property transactions (regularity),
and the taxpayer's conduct was consistent with that of a being a dealer -the transactions were
undertaken with the objective of making a profit.
Regularity is fairly important here.
The status of the taxpayer at the time the property was sold is critical, not their status when the
property was first acquired.
"Dealing" means selling property in the same condition in which it was acquired. If the property is
transformed by the taxpayer in some way then they are not dealing in that property.
To be in the "business of dealing" there must be a reasonable frequency of transactions involving that
type of property.
Bates v CIR 1955 - answer✔part time polytechnic tutor
used dining room to prepare classes
Claimed 20% based on outgoings
CIR disallowed this claim and is referred to CA (test case)
The courts noted two important features of what is now DA 1(1)(a):
Firstly deduction is only available where the expenditure has the necessary relationship both with the
tax payer and raw gaining or producing of his income
, ©THEBRIGHT EXAM SOLUTIONS
11/05/2024 12:06 PM
The court held that a house could be for both private and business uses and there was no requirement
that the primary use of an asset is required for the income earning process
COA upheld deduction sought by banks
CIR v Stockwell - answer✔"One would normally expect to find a considerable number of purchases and
sales over an appreciable period of time before he could be regarded as dealing in shares and a
substantial capital investment before one would take the next step of regarding him being in the
business of dealing in shares." per Hardie-Boys J.
National distributors Limited v CIR - answer✔The taxpayer was a private company. A supermarket
business had been sold and the company invested the proceeds in listed shares and commercial
properties.
The taxpayer undertook a number of share transactions on a haphazard basis. Shares were sold when
the managing director felt that particular share had "peaked" and the dividend yield was low.
Director had also stated the objective of the investments was to "make some capital for the family" and
to protect their capital against inflation.
HC and CA held that the taxpayer was not carrying on a business of dealing in shares.
Property acquired for the purpose of sale or disposal - answer✔CB4
This section is the easiest to fall within and can catch an isolated or one-off transaction.
Any proceeds derived from the sale of property acquired for the purpose of resale is taxable.
The purpose that exists at the time the taxpayer acquires the shares is the key one. Firstly there has to
be an "acquisition" of property within the statutory sense. This means that the taxpayer must take some
positive action to acquire the property for the sale/disposition to fall within this limb.
Passive acquisitions (gifts, inheritances etc.) do not fall within CB 4.
Secondly, there must also be a "sale or disposition" which the courts have held requires some positive
action on the part of the taxpayer.
Dispositions of property through compulsory acquisition etc. have been held not to be a sale or
disposition that falls within section CB 4.
Purpose and conduct of the Taxpayer - answer✔The purpose of the taxpayer is to be determined by
their actions, rather than statements from them as to their motives.
"Purpose" is not necessarily the same as "intention". Thus what a taxpayer intended to achieve by
acquiring the shares and what their purpose for acquiring the shares was can be two different things.
Refer Plimmer case
11/05/2024 12:06 PM
TAXN201 Exam Questions With Correct
Answers
Personal property Dispositions - answer✔CB3,4 &5
Land vs Non land property - answer✔land sales are now taxed under separate rules in sec CB 6 to CB 23.
Business of Dealing - answer✔CB5
Under section CB 5 -for the sale to be caught, two questions must be answered in the affirmative:
- Was the taxpayer carrying on a business of dealing in that type of property sold?
- If so, was the property sold as part of that business of dealing?
A business of dealing would exist if there were a number of similar property transactions (regularity),
and the taxpayer's conduct was consistent with that of a being a dealer -the transactions were
undertaken with the objective of making a profit.
Regularity is fairly important here.
The status of the taxpayer at the time the property was sold is critical, not their status when the
property was first acquired.
"Dealing" means selling property in the same condition in which it was acquired. If the property is
transformed by the taxpayer in some way then they are not dealing in that property.
To be in the "business of dealing" there must be a reasonable frequency of transactions involving that
type of property.
Bates v CIR 1955 - answer✔part time polytechnic tutor
used dining room to prepare classes
Claimed 20% based on outgoings
CIR disallowed this claim and is referred to CA (test case)
The courts noted two important features of what is now DA 1(1)(a):
Firstly deduction is only available where the expenditure has the necessary relationship both with the
tax payer and raw gaining or producing of his income
, ©THEBRIGHT EXAM SOLUTIONS
11/05/2024 12:06 PM
The court held that a house could be for both private and business uses and there was no requirement
that the primary use of an asset is required for the income earning process
COA upheld deduction sought by banks
CIR v Stockwell - answer✔"One would normally expect to find a considerable number of purchases and
sales over an appreciable period of time before he could be regarded as dealing in shares and a
substantial capital investment before one would take the next step of regarding him being in the
business of dealing in shares." per Hardie-Boys J.
National distributors Limited v CIR - answer✔The taxpayer was a private company. A supermarket
business had been sold and the company invested the proceeds in listed shares and commercial
properties.
The taxpayer undertook a number of share transactions on a haphazard basis. Shares were sold when
the managing director felt that particular share had "peaked" and the dividend yield was low.
Director had also stated the objective of the investments was to "make some capital for the family" and
to protect their capital against inflation.
HC and CA held that the taxpayer was not carrying on a business of dealing in shares.
Property acquired for the purpose of sale or disposal - answer✔CB4
This section is the easiest to fall within and can catch an isolated or one-off transaction.
Any proceeds derived from the sale of property acquired for the purpose of resale is taxable.
The purpose that exists at the time the taxpayer acquires the shares is the key one. Firstly there has to
be an "acquisition" of property within the statutory sense. This means that the taxpayer must take some
positive action to acquire the property for the sale/disposition to fall within this limb.
Passive acquisitions (gifts, inheritances etc.) do not fall within CB 4.
Secondly, there must also be a "sale or disposition" which the courts have held requires some positive
action on the part of the taxpayer.
Dispositions of property through compulsory acquisition etc. have been held not to be a sale or
disposition that falls within section CB 4.
Purpose and conduct of the Taxpayer - answer✔The purpose of the taxpayer is to be determined by
their actions, rather than statements from them as to their motives.
"Purpose" is not necessarily the same as "intention". Thus what a taxpayer intended to achieve by
acquiring the shares and what their purpose for acquiring the shares was can be two different things.
Refer Plimmer case
