Question

In: Accounting

With reference to the article 'Understanding tax on mere realisation of a capital asset' by Tony...

With reference to the article 'Understanding tax on mere realisation of a capital asset' by Tony Dimitriadis (2018), explain the difference between capital receipts and income. You must include original examples to illustrate your answer.

In my own words, the difference between Capital and Income is:

My own unique example to illustrate my understanding of this (really, really, really) important topic:

Solutions

Expert Solution

In my view the key difference between Capital Receipt and Income is the "intent" while procuring the asset.If the asset is procured for holding for a long period of time it will be Capital in nature.If the intent at the time of purchase is to sell at profit then it is not Capital.

A natural example can be taken case of say residential house.People generally purchase house to stay and live there in.At times generations stay in the same house.Often it also happens that on account of changing economic scenarios area rates change and often people tend to take benefit of same by realising the gains inherent.These are all still capital in nature.

On the other hand the same house when built by a Builder is not capital in nature as house building or acquiring is part of his operations.He is in the business of constructing / acquiring and selling at profit business.For him this is clear case of Income.   


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