UNIVERSITY OF LIMPOPO

FACULTY OF MANAGEMENT & LAW

SCHOOL OF ACCOUNTANCY

DEPARTMENT OF TAXATION

DEGREE AND DIPLOMA SUGGESTED SOLUTION SEMESTER TEST 1

MODULE: CTAA 021 APR 2021

(TAXATION)

TIME: 2 HOURS PAPER : P1

MARKS : 80

EXAMINERS : MR MM LEPHEANA

MODERATOR : MS NNH MANOKO

THIS MEMO CONSISTS OF …8…PAGES INCLUDING COVER PAGE

QUESTION 1
 CTAA 021 MEMO 1 2021

QUESTION 1 (38 MARKS)

1. How does the South African Government finance its expenses? (3points)

- Taxes, √
- Loans, √
- Sundry Government Income √ (Fines, interest, dividends, rentals and sales)

2. What is the timing of supply for the month of February 2021 where Co A leases an office
building to Co B, under a contract stipulating that payments are monthly in advance and Co B
pays on 18 February? (7points).

- General rule:
o Earlier of invoice and receipt √
- However, when dealing with a rental agreement √, specific rules apply:
o Earlier of:
 When payment is due √ – in advance (01 February 2021) √
 When payment is made √ – 18 February 2021 √
o Thus, use 18 February 2021 √

3. Explain what is an effective date. (3 points).

- The date set out in the amending acts, √

- Or when the Act is promulgated √ (OR published in the Gazette √)
- Being the date that the new rule/law comes into operation. √

4. Advise Doris & Moris CC on how to determine the rate to claim input VAT, if they make a total
revenue of R2,000,000 consisting of Financial services worth R400,000. (5 points).

- The portion relating to financial services is exempt, √

o Thus it is deemed to not form part of enterprise, √
o No VAT input may be claimed on this portion, √
- VAT Input must be apportioned √
o Using the turnover basis √
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑠 √
o
(𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑠 √ +𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝐸𝑥𝑒𝑚𝑝𝑡 𝑆𝑢𝑝𝑝𝑙𝑖𝑒𝑠√)

(2,000,000 √ − 400,000 √)
o
2,000,000 √

o 80% √
Available = 12
Max = 10

5. According to the Income Tax Act, taxpayers are not allowed to claim deductions if the negative
test applies, provide details of the test. (5points).

2
 CTAA 021 MEMO 1 2021

- No deduction shall √
- in any case be made √
- To the extent √
- Not laid out or expended √
- For the purposes of trade √

6. Which vendors may apply the Payment basis of accounting? (5points).

- Public authority, √
- public water board, √
- municipality √
- Association not for gain √
- Natural person √ (or unincorporated body of natural persons√)
o Taxable supplies do not exceed R2.5 million√
Available = 6
Maximum = 5

7. Explain when may a vendor be regarded as a Category A or B VAT vendor (3 points)?

- Any vendor that makes taxable supplies exceeding R1,000,000√

- If the supplies do not exceed R30,000,000 √
- And they do not meet requirements for and apply to be category D or E √

8. Which vendors may fall under category D (2points)?

- Micro businesses√ and
- Farming business√
o However, these businesses must apply to the commissioner √
Available = 3
Maximum 2

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 CTAA 021 MEMO 1 2021

QUESTION 2
MARK AWARDED FOR
# DETAILS REASON/CALCULATIONS AMOUNT REASON TIMING AMOUNT
VAT Output
1 Residential Rent Exempt √, residential accommodation - 1 0 0,5
Earlier of:
- Payment is due √ - 01/02/2021 √,5 AND 01/03/2021 √,5
- Payment is made √ - 01/02/2021 √,5 AND 15/03/2021 √,5

For february - 01/02/2021 √,5

For March - 01/03/2021 √,5

Commercial Rent R80,000 X 2 √ X 15/115 √ 20 870 0 5 2

Earlier of:
- Registration in recipient name √ - 13/03/2021 √
- Payment is made √ - 05/04/2021 √

Use: 13/03/2021 √

2 Building Sold R2,000,000 X 15/100 √√ (2 points for using 15% as Value was provided) 300 000 0 5 2
VAT Input
Earlier of
- Invoice - 04/02/2021 √ , and
- Payment - 03/03/2021 √

Use: 04/02/2021 √,5

3 Advertising R25,000 X 15/115 √ - 3 261 0 2,5 1

Earlier of
- Invoice - 28/02/2021 √ , and
- Payment - 15/03/2021 √

Use: 28/02/2021 √,5

4 Renovations R35,000 X 15/115 √ - 4 565 0 2,5 1

salary - Not enterprise √ - Nil √,5
diesel - Fuel levy goods √ - Zero rated √,5
Vehicle Insurance - R2,000 X 2 √ X 15/115 √
passanger insurance - Financial services √ - exempt supplies /Nil √,5
5 Shuttle Service Service and maintenance - 1,400 X 15/115 √ - 704 3 0 4,5
6 Municipal Rates Exempt √ relates to exempt part of the business - 1 0 0,5
7 Cleaning Services Exempt √ relates to exempt part of the business - 1 0 0,5
VAT Payable 312 339 0 0 1
Available 6 15 13
Max 5 14 12

4
 CTAA 021 MEMO 1 2021

QUESTION 3 (10 MARKS)

# COURT CASES (1) PRINCIPLES (1) Element Applicable (1)

1 New State Areas √ Income Earning Operation Not Capital Nature √
(Revenue), Income earning
structures (Capital) √
2 Golden Dumps√ Outcomes under dispute are only Actually Incurred √
actually incurred when they have
been resolved √
3 Port Elizabeth Electric Close link between expenditure & In the Production of Income √
Tramway √ the act √
3 Marks (Max) 3 Marks (Max) 3 Marks (Max)

Additional Mark will be awarded for clear presentation and legibility.