Reference no: EM132887605

Shaka Mthembu purchased a small farm adjacent to a village on the KwaZulu-Natal North Coast in 2010 for R50 000. He continued living and working in Durban, merely visiting the farm occasionally over weekends. In 2020, Chaka Rock sub-divided the farm into 20 plots and then started selling these plots as part of a township development scheme for a R100 000 a plot. He expects to realise a substantial profit from the sale of the farm. Shaka has asked you to advise him on the factors that are taken into account in deciding whether the profit he makes will be subject to normal tax. He also requested you to provide him with a list of relevant questions that the Commissioner would request to ascertain whether his receipts or accruals from the sale of the plots are of a capital nature.

You advised your clients that you would provide them with a legally valid tax opinion based on your research which is sourced from the applicable tax acts and the precedent set by the courts in case law.

Problem 1: Write a tax opinion in the format of a business letter (including the technical requirements of a tax opinion and business letter) for Shaka Mthembu. Discuss the factors that are taken into account when determining whether the profits from the sale of the plots are taxable. Provide a list of relevant questions the Commissioner would request to determine if the profits from the sale of the plots are of a capital nature.