Question

This is my question from the subject of principles of income tax law below:

Nikki owns and carries on a chain of clothing stores. So far she has 7 of such stores. When she chooses a premises to open a new store on, the most important criterion is where she can maximise the sales of clothes. However, she is also influenced by the potential for the land on which each of the shop premises is located on to grow in capital value. In late 2019, Nikki decides to develop one of the shop premises, because real estate in the area which it is located on had appreciated markedly in recent years. This involved Nikki obtaining a building approval from the local council, demolishing the shop, and building a 6 storey apartment building on the land. As Nikki did not know much about building, this consisted of contracting a major builder to be in charge of the process of building the apartment. These apartments are sold individually to the public through a leading real estate agent.

Ignoring Capital Gains Tax, discuss whether the sales proceeds from the apartments generate ordinary income.

The answer needs approximately 400 words.

Thanks

Answer 1

No, as ignoring the capital gain tax the sales proceeds from the apartment generates ordinary income

In the point of view of Nikki she has intention to maximize sales, she can think it as sale proceeds from apartments

apart from that she is influences from potential land for development to grow capital value.d

She developed her land with her consent so she has to owe capital gain tax .

She has only pay tax for 6 shops as income from business but she has to pay tax as commercial building as capital gain tax.

She has to declare that land as a commercial building and she has pay capital gain tax.

But when she constructed as commercial building, so she declares as income from capital gain and income from House property when she give for rent .

But that income is not treated as sale proceeds from apartments.

As per income tax rule , any income arising out from rent of property treated as income from house property and income arising from sale of building treated as capital gain.

Conclusion: In the Nikki point of view, she can think it as sale proceeds

But for the tax purpose, it treated as capital gain tax.