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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 70
GUF dug holes that became closer and closer to the railway line – the railway was concerned that the
railway would collapse
The railway paid GUF an amount to not mine close to the tracks (restricve covenant) – the amount
was equivalent to what GUF would have received from the minerals if they mined it
o
Judgment
The land is a capital asset – by agreeing to not dig it up and sell it, GUF is “sterilizing” the asset
A lump sum received for sterilizing a capital asset is sll a capital receipt, just like it would be if they
sold the capital asset
Van den Berghs Ltd v Clark
[1935] AC 431
o
Facts
Two margarine manufacturers entered into a long-term agreement (consisng of mulple contracts)
whereby they effecvely divided the market amongst themselves, and they agreed that they would
not compete in each other’s poron of the market
However, the First World War disrupted trade – their agreement was terminated, and the Dutch
company paid the English company a large sum to get out of the contracts
The tax authority wanted to assess tax on the payment
o
Judgment
The general rule is
that
an ordinary trading contract (e.g. a sale and purchase agreement) is an asset
of a revenue nature – therefore, payments received for the cancellaon of an ordinary trading
contract, are of a revenue nature
and thus taxable
The contract is of a revenue nature because the vendor is in the business of selling its goods
– so if the contract was performed, then the monies thereby produced (from selling goods)
would be of a revenue nature and taxable
If monies produced from performing the contract is of a revenue nature, then compensaon
for the loss of the contract is also of a revenue nature and taxable
The contracts in this case were not for a simple purchase or supply of margarine – so they were not
ordinary trading contracts
Rather, the contracts were long-term and
related to the whole structure of the company’s
profit-making apparatus
– they affected the whole conduct of the business and formed the
fixed framework within which their circulang capital operated and were thus of a capital
nature
The contracts constuted a capital asset
because they were part of the fixed framework of
the capital arrangements of the business – therefore, when the company paid money to
cancel the contract, the payment was also of a capital nature
Factors to consider:
Duraon of contract
– the longer it is, the more likely it is of a capital nature
How many years of the contract was leſt to run when it was cancelled
– the more years are
leſt, the more likely it is of a capital nature
How much of the business the contract covers
– if they have only one contract, it covers the
whole business and more likely to be of a capital nature; but if there are hundreds of
contracts, one contract cancelled does not cover the whole business and thus not of a capital
nature
The nature of the contract
Commissioner of Inland Revenue v Brish Salmson Aero Engines Ltd
[1938] 2 KB 482
o
Facts
The case concerned the sale and purchase of an IP licence to make aero engines – the licensee paid a
lump sum by annual instalments
o
Judgment
A relevant factor is the periodicity of the payment (a series of recurring payments is more likely to be
of a revenue nature compared to a singular payment) – but this is not necessarily determinave
The lump sum payment was of a capital nature even though it was payable in periodic instalments
Higgs v Olivier
(1952) 33 TC 136
o
Facts
Olivier was a movie star – one movie producon company hired him to appear in their movie
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