Ben Smith, a resident of the Republic, has been achieving a reasonable return from the letting of a block of 15 flats that he purchased in 1993. He does not have a history of property dealing. Ben is aware that he can make a substantial profit by selling the 15 flats individually. He has made applications for a sectional title register to be opened. To make the flats more attractive to would be purchases, Ben is considering improving them.

REQUIRED:

Discuss with reasons whether Ben Smith's receipt or accrual from the sale of the flats is of a revenue nature. Deal with the position when the flats are sold individually without improvements being made to them, and the position when the flats are first improved, and then sold. You must also apply the principles.

PART B - (50 MARKS)

GT Football (Pty) Limited, a resident of the Republic, owns the Gt football team. It recently sold two of its players, namely Kent Den and Jill Lake to HG Football (Pty) Limited. Kent Den was sold by GT Football (Pty) Limited for R5 000 000 and Jill Lake was sold for R25 000.

• Kent Den has started playing for the GT football team eight years ago in its under 14 team and, after signing a life service contract, had been trained by GT Football (Pty) Limited's trainers until he was considered to be the number one striker in the county.
• Jill Lake had been snapped up by the GT Football (Pty) Limited at a bargain price from FH Football Club for R3 000. When purchasing Jill Lake, its board of directors realized he would not suit its style of play, but anticipated being able to sell him at a quick profit. This it succeeded in doing, only eight weeks after purchasing him.

REQUIRED:

Discuss what amount, if any GT Football (Pty) Limited must include in its gross income. Assume that the receipts and accruals of GT Football (Pty) Limited are not exempt from normal tax and ignore a possible inclusion in its taxable income under section 26A (being a taxable captain gain)