QUESTION 3 (20 marks)

Paul and Yolande are married out of community of property. They decided to purchase and plot and build their own primary residence.

During April 1992 Paul purchased a plot for R150 000 and started building a house on it. The house was completed, and they moved into the residence on 1 November 1992. The costs relating to building the home amounted to R650 000.

Architectural fees amounted to R15 000 and transfer and legal fees totalled R7 500. The property is registered in Pauls name.

During July 2002 Paul added an office, from where Yolande conducted her practice. Yolande is a qualified CA(SA). This addition added 36m2 floor space to the house and cost R300 000. Paul also had the domestic workers quarters extended. This addition added 18m2 floor space to the house and cost R150 000. With the completion of both additions on 30 October 2002, the total floor space of the house measured 720m2 . Yolande occupied the office space since 1 November 2002 and she paid Paul rent of R7 500 per month.

The domestic worker also had the use of the additional living space from 1 November 2002.

During June 2004, a large crack developed in one of the walls of Yolandes office. The wall was restored to its original condition at a cost of R65 000.

During September 2008, the houses thatch (grass) roof was replaced with a tiled roof, which cost R285 000.

In February 2021, the couple relocated as the house was sold. On 30 March 2021 Paul received a net amount of R5 605 000 after the deduction of 5% agents commission. You may assume the time apportionment base cost was R1 800 000 (correctly calculated), the 20% rule value was R1 125 500 and the market value was R2 400 000 on 1 October 2001.

Required:

Calculate Pauls taxable capital gain/loss for the 2021 year of assessment. Provide reasons for the selection of the valuation date value. (20 marks)