Mona purchased, as an investment, a rent-producing property for R1 500 000 on 1 November 2017. During the 2018 year of assessment, she incurred deductible expenditure in the determination of her taxable income of R80 000 in repairing its kitchen. On 1 March 2019 she installed a security system costing R30 000. In October 2019 she built a swimming pool at a cost of R80 000. In February 2021, after the tenant’s child nearly drowned in the swimming pool, she filled it in. YOU ARE REQUIRED to determine the base cost of Mona Lisa’s rent-producing property.a.R1 530 000b.R1 690 000c.R1 610 000d.R1 500 000
Question
Mona purchased, as an investment, a rent-producing property for R1 500 000 on 1 November 2017. During the 2018 year of assessment, she incurred deductible expenditure in the determination of her taxable income of R80 000 in repairing its kitchen. On 1 March 2019 she installed a security system costing R30 000. In October 2019 she built a swimming pool at a cost of R80 000. In February 2021, after the tenant’s child nearly drowned in the swimming pool, she filled it in. YOU ARE REQUIRED to determine the base cost of Mona Lisa’s rent-producing property.a.R1 530 000b.R1 690 000c.R1 610 000d.R1 500 000
Solution
The base cost of an investment property includes the purchase price and any capital improvements made to the property. In this case, Mona's base cost would include the purchase price of R1 500 000, the cost of repairing the kitchen (R80 000), and the cost of installing the security system (R30 000). The cost of the swimming pool (R80 000) would also typically be included, but since it was filled in, it no longer adds value to the property and therefore should not be included in the base cost.
So, the base cost of Mona's property would be calculated as follows:
Purchase price: R1 500 000 Kitchen repairs: R80 000 Security system: R30 000 Swimming pool: R0 (since it was filled in)
Adding these together gives a total base cost of R1 610 000. Therefore, the correct answer is c. R1 610 000.
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