Discuss the capital gains tax consequences for Central Developments (Pty) Ltd for the 2020 year of assessment. Please support your answer with calculations and references to legislation. You may ignore any VAT implications.

QUESTION 4 Central Developments (Pty) Ltd, hereafter referred to as Central Developments is a South African resident company that is located in Midrand with a February year-end. On 1 April 2018 Central Developments purchased two buildings from a property developer (not connected to Central Developments) and financed the acquisition with a loan from BNF Bank. Building 1 was purchased for R7 million and Building 2 was purchased for R3 million. These buildings did not qualify for any capital allowances. On 1 June 2018 Central Developments discovered that Building 1 had a large crack in its foundation. After heated negotiations with the property developer, the developer finally agreed to refund Central Developments with R600 000 of the original purchase price. Central Developments received the R600 000 on 1 August 2018 and immediately thereafter sold Building 1 for R4 million to an unconnected person. Due to circumstances beyond Central Developments' control, Building 2 has also significantly declined in value. As part of a business arrangement, BFN Bank cancels R6 million of the total debt on 1 February 2020. The cancellation amount is pro rata to the initial loan amounts on each building. Up to date, Central Developments had not repaid any portion of the loan to BNF Bank. QUESTION 4 Central Developments (Pty) Ltd, hereafter referred to as Central Developments is a South African resident company that is located in Midrand with a February year-end. On 1 April 2018 Central Developments purchased two buildings from a property developer (not connected to Central Developments) and financed the acquisition with a loan from BNF Bank. Building 1 was purchased for R7 million and Building 2 was purchased for R3 million. These buildings did not qualify for any capital allowances. On 1 June 2018 Central Developments discovered that Building 1 had a large crack in its foundation. After heated negotiations with the property developer, the developer finally agreed to refund Central Developments with R600 000 of the original purchase price. Central Developments received the R600 000 on 1 August 2018 and immediately thereafter sold Building 1 for R4 million to an unconnected person. Due to circumstances beyond Central Developments' control, Building 2 has also significantly declined in value. As part of a business arrangement, BFN Bank cancels R6 million of the total debt on 1 February 2020. The cancellation amount is pro rata to the initial loan amounts on each building. Up to date, Central Developments had not repaid any portion of the loan to BNF Bank