Your client, Mr Horace Knowagooddeal, lives on a 4 hectare plot in Midrand, which he bought for R30 000.He has lived there for the last 30 years, where he has been running stables for horses as his business.Horace is of the opinion that the plot should be developed so that he may capitalise upon the development that is taking place in the Midrand/Kyalami area.He intends to sub-divide the plot into four portions of 1 hectare each as follows:

Portion 3

On this portion, Horace intends to develop 4 cluster homes.The land is worth R1 000 000 and the development will cost another R2 000 000.He estimates that he will be able to sell each cluster home for R1 000 000.

Portion 4

Horace intends to keep this portion for himself and his wife.There is a small cottage on this portion, where he and his wife intend to stay.In addition, he intends to build bed-and-breakfast accommodation next to the cottage, which Horace and his wife will operate as a business.

Horace pays tax at the marginal rate of 41%.

You are required to advise your client as to the most tax efficient strategy for him to follow upon each of the portions.You must ensure that you discuss the income as well as capital gains tax implications of each situation.In addition, you must also discuss the transfer duty and VAT implications of each situation, as well as any capital allowances that Horace may claim, if any.

You must motivate your answer fully and provide authority from the case law and the legislation.