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Thread: When is profit taxed?

  1. #1
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    Question When is profit taxed?

    When a person sells a personal-use item, can the profit somehow be taxed?

    Apart from CGT, which is better defined in the literature, if a person sells
    something for profit, when will that profit be taxable, and how is it taxed?

    Let's say the profit must be counted as part of the person's taxable income,
    are there exceptions to such taxation? Like if it is the sale of a personal-use
    item?

    Will such taxation happen independent of possible CGT being applied?

    These are some basic questions that I cannot find a straight answer for
    on the web, so I help someone can please point me in the right direction?

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    Question. Is this personal-use item an one off sale or these sales on a regular basis & they just happen to be profitable?

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    JohnApple (15-Nov-12)

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    Quote Originally Posted by flaker View Post
    Question. Is this personal-use item an one off sale or these sales on a regular basis & they just happen to be profitable?
    Let us assume the worst case scenario of the sale of personal-use items on a regular basis
    that just happen to be profitable.

    For instance, the prolonged sell-off of personal numismatic collectors items in a person's
    personal capacity only, say through Ebay.

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    If it is sold on a regular basis, it is deemed to be your trade, rather than a "capital good" sale.

    In that case, the profit less expenses incurred in order to trade, will be taxable.

    A good example is when selling a house.

    If you sell a house now and, incidentally,another one 5 years later, it will definitely not appear to be a trade.

    But should you buy a house, sell it 3 months later, buy another one, sell it again after 5 months etc., the house becomes inventory rather than a capital "expense", which means that the profit, after all expenses incurred (like commission, legal fees, advertising costs) will be taxable.

    I hope it makes sense, as I studied tax in Afrikaans, so my terminology is not always up to scratch!
    Last edited by dellatjie; 15-Nov-12 at 03:45 PM. Reason: To make understanding clearer

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    Quote Originally Posted by dellatjie View Post
    In that case, the profit less expenses incurred in order to trade, will be taxable.
    So would the taxable profit be added to personal taxable income?

    Would CGT also apply in the case of profit from inventory sales?

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    The profit will be added to personal taxable income yes.

    CGT will not apply in case of profit from inventory, as this is not a sale that is capital of nature.

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    Quote Originally Posted by dellatjie View Post
    But should you buy a house, sell it 3 months later, buy another one, sell it again after 5 months etc., the house becomes inventory rather than a capital "expense", which means that the profit, after all expenses incurred (like commission, legal fees, advertising costs) will be taxable.
    Is there a line in the sand?

    How often may a personal-use item then be sold and not be deemed inventory?

    1 month, 1 year, 3 years? And what if it is not the same item, but a different item each time?

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    i know that in the good old days that shares purchased for investment purposes and which when sold after a period of some years never attracted tax. Am not sure what the situation is to-day.just to clarify, you have been holding these coins for a while now & disposing them when the timing is correct. you're no longer purchasing (otherwise it can be construed as trading).

    I'm eager to know what advice our guru tax members will give.

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    When the "GOVERNMENT" steps in....... and...... amongst all other things related to tax.

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    JohnApple (16-Nov-12)

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    Quote Originally Posted by dellatjie View Post
    The profit will be added to personal taxable income yes.

    CGT will not apply in case of profit from inventory, as this is not a sale that is capital of nature.
    Someone without a salary and no other income can then sell 'inventory' to the tune of R50,000+ profit
    with the taxable 'income' being less than the threshold, and then has to pay no taxes.

    Or SARS can then decide that no it was not 'inventory' (even though it clearly was) and that CGT will apply here,
    which means that they can then charge 13.3% tax on the profit above the threshold of R30,000.

    Based on these thoughts, can SARS then make a case-by-case decision whether profit is
    taxable income or a CGT sale, or are there clear definitions which they have to adhere to?


    If someone sells off an entire coin collection in one sale, is it the sale of 'inventory'?

    If not, then one can make several separate sales of the items of a collection and
    receive payment like anonymous Bitcoins, and then when all items have been
    sold one can make a once-off conversion of Bitcoins to Rands.

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