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Replacement of Sections 26 (a) and 26AAA upon their Repeal

23.76. Firstly, it will be convenient to point out that the Committee's recommended capital gains tax will cover the ground presently marked out by section 26AAA. Secondly, with regard to section 26 (a), it is apparent that no definitions or principles can be framed to provide either a universal or, short of that, a satisfactory solution for the problem of distinguishing between capital and income and between business income


  ― 432 ―
and non-business receipts. The distinctions between these concepts will of necessity remain areas of difficulty. The Committee is, however, of the opinion that consideration should be given to strengthening the broad sweep of section 25 without in any way detracting from its generality as a substantive enactment. This objective could be attained by giving to the decision-making tribunals directory emphasis of the fact that a business transaction can just as easily be constituted by a single act or operation or by one performed apart from the taxpayer's usual occupation, as a series of repetitive acts. This proposal, expressed as being without restriction of the generality of section 25, would neither add to nor detract from its actual scope and operation and would have an application equally to transactions resulting in a profit as to those in which a loss occurred. The well-known ‘badges of trade’ would still be the major considerations to which recourse would usually be had. However, the effect of the proposal would be that a declaratory warning would be contained in the section that the absence of one of those ‘badges’, which is so often relied upon to deny the business element in an isolated transaction, i.e. the frequency of similar transactions, cannot always be successfully relied upon. The repeal of section 26 (a) would necessitate the repeal of the similar verbiage in the definition of ‘income from personal exertion’ in section 6 (1) and also the repeal of section 52.

23.77. The Budget proposals specifically state that capital gains tax will not apply to transactions caught for income tax under section 25 or under sections 26 (a) or 26AAA upon the assumption that these two latter sections are to be retained against the Committee's recommendation.

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