Renovations Pty Ltd (Renovations) carries on business of providing home renovation services to homeowners who want their home renovated (modernised). As a result of the recent downturn in the home renovation sector, the company seeks out new sources of income. The company decides to purchase old run-down houses in the inner-city, renovate them and let them out to inner-city upwardly mobile people. These people are willing to pay very high rent for occupation of such houses. In total over a three-year period, Renovations purchased 12 such properties. Renovations' weekly rental income was S 14,600 from all the 12 properties.

After three-years, the directors decide that the company should concentrate on, or get back to, its core activity. It thus decides to sell the houses it renovated for rental income when the time was right. This meant that the company would monitor the market valuations of these assets and sell when it considered the best price could be obtained. The company, over some time, sold its rental properties and made large profits (i.e. sale proceeds exceeded purchase and renovation and improvement costs). Every house sale gave rise to a profit. Profits on sale of the houses were S3.3m.

Which of the following is most correct in respect to the S3.3m of profit made by Renovations?

O a. The profit made on the sale of the houses is income as everyone knows that if an asset is owned, it could be sold at a profit at some stage.

O b. The profit on the sale of the houses is income as Renovations did have a purpose of profit-making by sale just before making each sale.

O c. The profit on the sale of the houses is income as the overall purpose was to make a profit from the houses in some way (e.g. rental income).

O d. The profit on sale of the houses is capital (not income) as the purpose with which the houses were purchased was for long-term investment and/or the houses are structural assets to Renovation.