You have been approached by a friend of the family, Lucas, who has asked you to assist in providing some tax advice. Lucas emigrated from South Africa in 2000 fearing the country would end up in turmoil. He runs a very successful tyre business in Australia. He visits South Africa on an occasional basis but has no intention of returning permanently to South Africa. He enjoys the summers here, and has spent the following time in South Africa since emigrating: 2011 – 32 days 2012 – 92 days 2013 – 89 days 2014 – 204 days 2015 – 92 days 2016 – 108 days 2017 – 257 days 2018 – 265 days He expects to spend 91 days in South Africa in the 2019 tax year. He also purchased a piece of vacant land in Camps Bay for R1 million in 2012. The property is fairly large (1 acre) and Lucas wanted to build a modest house. He had the intention of using the house for three to five months in the summer months and letting it for the other months of the year. He is also in South Africa regularly on business. Whilst holidaying here in January 2018, he was discussing the worsening crime situation, and the increase in security estates. He decided that he could subdivide the property, secure the perimeter of the property, and build six homes. These would then be marketed as secure clusters with ocean views at R1 million each. Lucas estimates that the cast of subdividing and securing the perimeter would be R1.2 million. All costs would be funded by borrowing from a bank.

Required: Draft a letter to Lucas detailing:

1.1 Whether Lucas is a resident for tax purposes in South Africa. 

1.2 Whether the development of the property would result in income of a revenue or capital nature. 

1.3 Whether he would be able to deduct all his costs from any profit made. 

1.4 Whether the effect that Lucas’ residence status may have on the property transaction in 1.2.

Answer rating: 100% (QA)

11 For Lucas to meet the requirements of the physical presence test he must satisfy all three el... View the full answer