Maboneng Mokeng ("Mami'') acquired three adjoining (adjacent) fruit farms (R550 000 each) in

Limpopo on 1 May 1997 when she was 39 years old. She has farmed on these farming lands

since then. Mami is now ready to retire and would like to move closer to a city for more

convenience. She does not have any children who could continue the farming operations and

consequently decided to stop farming and to sell the farms.

She is considering her options and would like your opinion:

OPTION 1:

She could sell all three farms in total for R29 000 000 to a South African company that is

interested in the land.

Additional information (applicable to this option only):

The farms are 20 hectares in size each and they all have the same market value. Mami has

lived on one of the farms since 1 April 1998 when the farm residence was completed at a

cost of R1 050 000. Mami had no other disposals during her current year of assessment.

Question 2 (continued)

OPTION 2:

She could sell each farm individually to three neighboring farmers who have indicated that

they are all interested (rather than having a big company take over their surrounding land).

Additional information (applicable to this option only):

Mami did not reside on any of the farms and used it solely for farming operations. She

received R10 000 000 for each of the three farms after the deduction of 7,5% commission

paid to the estate agent who would do all the paperwork for the sale.

Required: Marks

a) Discuss, with supporting calculations & relevant case law, the income tax

implications for Mami of the first two options.

b) Discuss whether the amount of R40 000 000 would constitute gross income

in Mami's hands under the third option. Any facts established under part (a)

of the required do not have to be proved again. If there are any capital gains

tax implications, just mention these. No calculations are required for this part

of the question.

References to legislation are not required

Answer rating: 100% (QA)

a Income Tax Implications for Mami in the First Two Options Option 1 Selling all three farms to a South African company for R29 000 000 In this option Mami sells all three farms as a single transactio... View the full answer