John Doe has for many years carried on a business of furniture upholstery from leased premises. John Doe recently purchased a plot of land. He erected on it a double-story building: - The ground floor was built to accommodate his furniture upholstery business. - The upper floor was a four-bedroomed house to accommodate his, and his familys accommodation. Both floors are exactly the same size. Shortly before moving both John Does business and family into the new building it was pointed out to him that to enjoy the section 13quin capital allowance it was necessary that the building was wholly or mainly used by [him] during the year of assessment for purposes of producing income in the course of [his] trade. This meant that if John Doe traded from the ground floor and lived in the upper floor, and since both floors were of equal size, he would not enjoy the section 13quin capital allowance. 5 John Doe then held a meeting with his wife. At this meeting he informed her that the fourth bedroom upstairs was unavailable for family use since it was needed by his upholstery business as a storeroom for the rolls of materials that are used by him in his business. The storage of these rolls of materials is an essential part of his upholstery business. John Doe then moved his business and family into the new building. The outcome of the meeting with his wife was adhered to, and he now uses the ground floor and the fourth bedroom of the upper floor for his trade. The commissioner believes that this arrangement between John Doe and his wife is a sham and that his new building was not used during the year of assessment wholly or mainly for the purposes of producing income in the course of his trade.

Required 4.1 Discuss whether the agreement between John Doe and his wife constitutes an impermissible avoidance arrangement. You may assume that this transaction is not being carried out in the context of business. (14)

4.2 On the assumption that the agreement between them is an impermissible avoidance arrangement, determine which paragraph in section 80B the Commissioner should use to remedy his mischief.