When is profit taxed?

[JohnApple]

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?

[flaker]

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

[JohnApple]

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.

[dellatjie]

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!

[JohnApple]

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?

[JohnApple]

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?

[dellatjie]

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.

[JohnApple]

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.

[CLIVE-TRIANGLE]

Just to comment further on the house example given by Dellatjie:

I have a client who, during the period 2004 to 2007 bought in the region of 80 houses. That's not a typo. All were bonded. All were refinanced to provide the funds for the next purchase. All had tenants.

In 2008 the bubble burst and the client offloaded 75% of the properties, because the rentals were now substantially less than the bond repayments.

Many of the offloads, but not all, were at a loss.

We submitted all of the profits on disposal as capital; some were only a few months old.

SARS audited the numbers and condoned the treatment because we were able to show that the intention was to acquire the properties, let tenants indirectly service the loans, with a view ultimately owning the properties as freehold.

The important factor was that they had tenants; in other words the assets were generating income and were not acquired solely for capital appreciation.

Intention is very important. Beware attempting to manipulate events to give the illusion of a different intention; it almost always fails.

[flaker]

i'm not savy with matters of tax, so Clive will you please help me understand the above post.Where the houses were sold at a profit, that profit was taxed as capital gain tax. And in the instance of profit/loss on trading of the same houses (rental income less expenses as interest,maintenance) the profit or loss would be declared as such.
Now what happened to those houses that were sold at a capital loss,that is sold at less than what was originally paid for them?