| 17/5/2012 |
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| Board of Special Commissioners - Cases |
| Case No. 3/66 |
Decided: 10 May, 1967 |
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Expenses incurred in acquiring shares are of a capital nature; Dividends from shares - specific instances when they may be considered as capital income
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Appellant pleaded that expenses incurred in the acquisition of shares from which part of his income arose, ought to be deducted from his chargeable income. In view of the fact that appellant did not deal commercially in shares but purchased the shares with a view to making a capital investment, such expenses were incurred in procuring the source of income. Such income is of a capital nature and is not, therefore, deductible.
Appellant also claimed the deduction of part of the dividends once these were particular ones being goldmining shares. He quoted from An Investors Guide that "it is important to consider some factors. Foremost the life of the mine which is necessarily limited. This means, so far as the investor is concerned, that a part of the dividends he may receive when the mine reaches production must be regarded as a return of capital ... This is a fundamental difference between mining companies ... and the general run of trading and industrial companies."
The Board disregarded appellant's reference once the Guide was specifically meant to draw the attention of the investors to the risks inherent in mining shares. Instead it quoted from English case law:
- "It is not the source from which the assets are distributed but the machinery employed in that distribution which determines the question whether they are received as capital or income. They are received as capital if they are distributed as bonus shares or an authorised reduction of capital or in a liquidation ... if they are distributed in any other way, they are received and taxable as income" (Rae vs Lazard Investment Ltd).
- "... no doubt the shares abated in market value after the payment of the dividend but they nevertheless remained intact" (C.I.R vs Reid's Trustees).
Once appellant failed to produce proof to the effect that the income received did not consist of normal dividends paid out of the company's profits or that the nominal value of his shares had diminished as a direct effect of the distribution of such dividends, such income cannot be regarded as capital in nature and is, therefore, chargeable to tax.
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