Question

Block Holdings was incorporated ten years ago by Mr Block and Mrs Block, who were the initial shareholders and directors. Mr Block and Mrs Block had for many years been involved in property development. Eight years ago, Block Holdings purchased two properties in an area where there was extensive real estate development. For seven years the properties were used for a horse-riding school which offered trail rides and private lessons and the properties were improved for that purpose.

Owing to the COVID-19 outbreak, the horse-riding school proved to be unprofitable and an imminent zoning change was proposed that the properties could only be disposed of in 100-hectare lots instead of 25-hectare lots. Block Holdings quickly arranged to subdivide the land into 25-hectare blocks and sold them all to one purchaser.

Advise Block Holdings on whether the gross receipts are assessable for income tax purposes.

Please provide case laws and sections

Answer 1