Concept Construction (Pty) Ltd suffered severe cashflow problems due to the Covid-19 lockdown and, as a result, the company's shareholders have been forced to suspend their plans to construct an apartment complex on a vacant piece of land. The land is the company's only asset (there are no liabilities) and it was originally acquired in 2015 at a cost of R3 million. Two individuals (both property developers) have approached the shareholders with an offer to buy the shares in Concept Construction (Pty) Ltd in equal proportions for a total amount of R5 million (the current market value of the vacant land). The two individuals propose erecting a nursing clinic on the site. The individuals estimate that the completed clinic could be sold for an amount of R17 million to a listed property company (Medcare Holdings Ltd) that invests in frail care nursing facilities across South Africa. The clinic's construction costs would amount to an estimated R8 million. Due to a shortage of working capital, the two property developers will have to approach a local bank for assistance in financing the deal. Should their application be approved, the bank will advance R3 million to them to settle the purchase price of the shares in Concept Construction (Pty) Ltd. An additional R7 million will then be advanced over regular intervals spanning the period of construction. Projections indicate that interest to be charged by the bank for the two years during which the property is under construction, will amount to R420 000 and R340 000, respectively, before the proceeds from selling the clinic can be used to repay the bank.

QUESTION1

Indicate whether the proceeds realised on the disposal of the property to Medcare Holdings Ltd will constitute gross income, or whether it will be subject to capital gains tax. Also, indicate the taxable person(s) in this regard.

Question 2

Indicate whether any deduction, allowance or other relief will be claimable by (or available to) any person(s) for expenditure incurred or deemed to have been incurred and, if so, indicate the amount(s) thereof. Ignore the position of the current shareholders of Concept Construction (Pty) Ltd as well as the listed company.

Please assist with the approach?