CIR v Livingston and Others [1926] 11TC538

A sea vessel was purchased as a joint venture by three individuals. The Lord President stated:

“The Respondents began by getting together a capital stock sufficient (1) to buy a second-hand vessel, and (2) to convert her into a marketable drifter. They bought the vessel and caused it to be converted at their expense with that object in view, and they successfully put her on the market. From beginning to end, these operations seem to me to be the same as those which characterise the trade of converting and refitting second-hand articles for sale… The profit made by the venture arose, not from the mere appreciation of the capital value of an isolated purchase for resale, but from the expenditure on the subject purchased of money laid out upon it for the purpose of making it marketable at a profit. That seems to me of the very essence of trade”.'




Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/

Harvey v Caulcott [1952] 33TC159

A builder claimed that certain properties that he had built and then sold many years later were investments and not part of his trading stock. On the facts of his case he succeeded but the court commented:

“Such a case as the present is always coloured by the fact that the man is a builder. That no doubt puts a peculiar onus on him, to show that the profit from the sale of some property is profit from an investment, or profit from something which is not trading stock. That onus is not incapable of discharge”.'

The courts in other cases have also considered possible connections with a person's main trade.

Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/

Marson v Morton and Others [1986] 59TC381

Some land was purchased with the intension to hold it as an investment.  No income was generated by the land, however, it did have planning permission.  The land was sold latter following an unsolicited offer.  As the transaction was far removed from the taxpayers normal activity (potato merchant) and was similar to an investment, it was not a trading profit.  The transaction was not an adventure in the nature of a trade.




Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/

IRC v Fraser 1942 24 TC 498

In IRC v Fraser 1942 24 TC 498, an isolated transaction in the purchase and re-sale of whisky in bond was held to be an adventure in the nature of trade. The nature of the commodity and quantity purchased was such that it could not reasonably be considered to be for own consumption, and there was insufficient evidence to indicate an investment motive.
Sources from: [http://www.taxationweb.co.uk/tax-articles/business-tax/the-badges-of-trade.html]

Rutledge v CIR CS 1929 14 TC 490

On a business trip to Germany a taxpayer purchased one million toilet rolls.  On returning to the UK the sole consignment of toilet rolls were sold to one individual for a profit.  The profit made on this large quantity single purchase and resale item was ‘an adventure in the nature of trade’.  The case was decided on the fact that the purchase was not made for own use or investment purposes.




Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/

Salt v Chamberlain Ch D 1979 53 TC 143 [1979] STC 750

A research consultant made a loss on the Stock Exchange after trying to forecast the market.  The loss was made after several years and over 200 transactions.  This was not seen as a trade and capital in nature.  It was concluded that share trading by a private individual can never have the badges of trade pinned to them.  These transactions are subject to Capital Gains Tax.




Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/

Capital Allowance Schedulers

Partial from a set of Corporate Income Tax Computation (ITC) (or either an individual with business income who going to claim for their capital allowance), Capital Allowance Schedulers Analysis would be a large portion for most of the ITC with tangible assets. Here I going to standardize and analysis the procedures steps by steps to be apply on your Capital Allowance (CA) Schedulers.

Understanding on each particular for CA Schedulers:-

A.  Pages may appear for CA Schedulers:    

         i.            [FA]       FIXED ASSETS LISTING - ADDITIONS/DISPOSALS   

       ii.            [HP2]     SCHEDULE OF HIRE PURCHASE PAYMENTS  

      iii.            [CA3]     COMPUTATION OF INDUSTRIAL BUILDING ALLOWANCE/ CAPITAL ALLOWANCE - PURCHASED ASSETS

     iv.            [HPCA4]COMPUTATION OF CAPITAL ALLOWANCE - HIRE-PURCHASE ASSETS

       v.            [BABC]  WRITTEN OFF/ DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT - BALANCING CHARGE AND ALLOWANCE 

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From the above is the analysis of completed ITC arrangement, we may stating the explanation from (i) to (iii) &(v) , then Hire Purchase from (ii) to (iv).

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From i.[FA] - FIXED ASSETS LISTING - ADDITIONS/DISPOSALS 

It would appear almost the particulars in the notes for Plant, Property and Equipment in the Financial Statement Notes (mostly note 3 in A/c or note 4 A/c) – Cost of assets

Which it would shows:-

 

What we can saw from this [FA] listing is that the company acquire a computer cost to RM2,010 during the financial year 2010 (says), where the computer may be listed under “Office Equipment” from the client’s Asset Listing or even an audited financial statement. To be act in good fair, we would still claim the office equipment (computer) as ITC for 20% Initial Allowance (IA) & 80% Annual Allowance (AA) for the Year of Assessment (YA) 2010 regardless whether they do disclosed in their financial statement.

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Steps to compound for [FA]:-

1.    1.   Check the closing balance of previous year ITC (says YA2009 for this eg.) and match up with the current year financial statement (audited report would be preferable) opening balance.

-          This to be done because there is sometimes auditors may reclassifying the assets into another categories like transferred “Property in process” into “Land and building” without notification or disclosure but showing with different balance from c/d to b/d

1.     2.  Matching the total figure to be acquired (and also disposal) during the year (says RM2,010 in this eg.) to ensure your closing balance could match up to the audited financial statements.

-          Says if there is reclassifying of assets from the starting balance, you can choose to bring in the previous year ITC (2009) closing balance and make the reclassifying amount to be disclosing in your ITC 2010.

-          Says auditor found out an amount of RM 100,000 in Furniture and fitting should be  reclassified in Office Equipment, but they do only adjust the opening balance in the financial statement with no other notification, you can make the disclosure only in your ITC  as :-

From here we may understand that the Fixed Asset Listing become the primary indicator to justifying the qualifying expenditure to be allowed to claim for capital allowance instead of Client’s Asset Listing or Audited Financial Statement. 

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From  iii. [CA3] COMPUTATION OF INDUSTRIAL BUILDING ALLOWANCE/ CAPITAL ALLOWANCE -                             PURCHASED ASSETS

 [CA3] view :

 

 [Note: Please Click to Enlarge]

We can divide the schedule into 3 parts,

C1. Capital allowance balance brought forward

C2. Movement of assets during the year

C3. Calculation of Capital Allowance claim for the YA

Items (sources) we may need is

1.       Previous year tax computation(for CA carrying balance purpose)

2.       Audited financial statement (for matching the total ups amount of asset holdings)

3.       Client’s assets listing (to know details of each asset, the date of purchase, purchase price, type of asset)

From the sources above,

[C1] – Copy and special paste all the Tax Written Down Value (Tax WDV) for each particular item, total amount for Tax WDV b/f must be equal to Tax WDV c/f from previous year. Says RM45,000 in this case. For new incorporate company without fixed asset before or domain previously, no Tax WDV to be carrying, means Tax WDV b/d = 0 is just fine.

[C2] - The new acquired assets during the year putting at the “Additions” column say Computer RM2010 acquired during the year in this case.

[C3] – Take calculates the Capital allowance claim for each asset during the year. Check on each asset the Initial Allowance (I.A.) & Annual Allowance (A.A.) for the year such as Accelerate Capital Allowance else normal rate to be claim. [Note: check on each item and condition from section to budget whether eligible to claim a higher rate for the YA, says Computer for YA2010 is I.A. 20%, A.A. 80%, but under certain condition (says) person has been granted any incentive under the Promotion of Investments Act 1986[Act 327], normal rate (20%, 40%) of computer would be claim according to PU(A)358 ]

For the rest of the column, formula on each introduce as below for your reference:-

1. Sub-Total = Tax WDV + Additions – Disposal @ Tax WDV

2. Cost =Cost b/f + Additions – Disposal @ Cost

3. Tax WDV c/f = Sub-Total – Initial Allowance – Annual Allowance

4. Rate of Allowance – Few sources is appreciable you may refer to :

4.1. Chapter 4. Capital Allowance

4.2. 2009/2010 Malaysian Tax and Business Booklet