Gross income - Mixed/dual intention

Question 1

Facts:
The TP, Stott, was an architect and surveyor. He purchased a few properties as an investment over a period of 20 years. One of the properties, a piece of coastal land of nearly 54 acres, was acquired by the TP with the intention of building a seaside residence thereon, which he did. Because the property was enormous, the TP subdivided it into two parts and retained only the part on which the residence stood. He subdivided the other part into lots and sold it piecemeal.

Answer 1

Stott

Issue:
Did the TP have a dual intention? i.e. an intention to hold one piece of land as a capital asset and to enter into a scheme of profit making in respect of the other part of the land?

Principle:
Consider the TP’s dominant intention.
The fact that the asset is sold at a profit, does not necessarily indicate a change in intention.

Question 2

Facts:
The TP bought Kruger Rands over the long term as an investment. 11 years later, he sold some to purchase a car for his wife.

Answer 2

Nel

Issue:
Is the profit realized capital or revenue in nature?
Kruger Rands can only be realised through sale, does this indicate a scheme of profit making?

Principle:
Kruger Rands are a unique asset where the only income earned is through sale. Therefore it will normally be seen as capital unless it is your trade to buy and sell them. Consider the TP’s reason for selling the Kruger Rands.