CE ASSESSMENT 2 TAX02A2

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FACULTY/COLLEGE College of Business and Economics

SCHOOL School of Accounting
DEPARTMENT Accountancy
CAMPUS(ES) APK
MODULE NAME Taxation 2A
MODULE CODE TAX02A2
SEMESTER Second
ASSESSMENT OPPORTUNITY, Continuous Evaluation Assessment 2
MONTH AND YEAR September 2021

ASSESSMENT DATE 16 September TIME

2021
ASSESSORS Mr PA van Jaarsveld
Mrs M Wassermann
Mr J Wessels
MODERATOR(S) Mr CD Anschutz
DURATION 30 min TOTAL MARKS 20

NUMBER OF PAGES OF QUESTION PAPER (Including cover page)

INSTRUCTIONS:
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1. The marks shown against the requirement(s) for every question should be regarded as an
indication of the expected length and depth of your answer.
2. Answer the questions by the use of:
- effective structure and presentation;
- clear explanations;
- logical arguments; and
- clear and concise language.
3. Round all amounts to the nearest Rand.

Question Marks Time allocated (minutes)

1 13 19
2 7 12

Total 20 31
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CE ASSESSMENT 2 TAX02A2
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QUESTION 1 13 MARKS

You can IGNORE VAT for this question.

The Lavender Company Ltd (“TLC”), manufactures soap and cleaning products from
natural ingredients. TLC has a June year end. The accountant had a few queries
regarding possible deductions for the 2021 year of assessment.

This question has 7 sub-questions:

Question 1 Multiple choice

Question 2 - 5 Choose the applicable case law and principle
Question 6 Match column A and B
Question 7 Type OTP from The Invigilator App

1.1 Students will get ONE of the following MCQ’s: (1)

A. Which of the following is NOT an element of the positive test under

section 11(a) for deductions:
a. From carrying on any trade
b. Expenditure and losses
c. Actually incurred
d. In the production of income
e. Not of a capital nature
f. None of these
B. Which of the following is NOT a component of the general deduction formula:
a. Trade test
b. Positive test
c. Negative test
d. Prepaid expenditure
e. Total amount in cash or otherwise
f. None of these
C. The provisions for the limitation of deduction for prepaid expenditure will be
applicable if:
a. The benefits from the expenditure will only be enjoyed after the year end
b. The goods or services are supplied within 6 months from year-end
c. The expenditure is a liability imposed by legislation
d. The aggregate of the list of prepayments that cannot be deducted is less
than R100 000
e. The payment relates to a benefit already received in the current year of
assessment
f. None of these

1.2 The accountant requested that you supply the correct case law and principle
to assist with whether or not the following payments will be deductible for
Income Tax purposes in the 2021 year of assessment:
(8 marks)

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1.2.1 During the 2021 year of assessment, there was a burglary at the TLC factory
outlet shop, and R10 000 of cash was stolen. TLC is not insured again cash
robbery.
Case law: [a]
Principle: [b]
1.2.2 Every year in December TLC pays a bonus to the best employee of the year.
For the June 2021 year TLC provided R50 000 in respect of the bonus to be
paid in December 2021.
1.2.3 TLC signed a contract with a farmer to provide TLC with 500 kg of lavender
flowers during August 2021. TLC will pay R1 000 per kg, if the flowers meet
certain conditions.
1.2.4 TLC did not pay its e-toll bill, and is part of a group waiting for a court case to
determine whether the e-toll is constitutional or not. The e-toll bill for the 2021
year of assessment amounts to R120 000.
1.2.5 The accountant found a statement for the 2020 year of assessment that was
never captured in the accounting records for R15 000.
1.2.6 One of the factory workers was stung by a bee while working with flowers to be
used in the products. He is allergic to bees, and had to be admitted to hospital.
TLC paid his medical bill of R83 000.
1.2.7 One Friday afternoon the quality control officer wanted to go away for the
weekend and did not check the acid levels in the salt. The acid levels were to
high, and a customer is claiming R50 000 in terms of medical bills due to acid
burn.
1.2.8 On a monthly basis TLC sends the employee of the month to the local spa for
a massage and lunch. TLC pays R4 000 per month to the local spa.
1.2.9 TLC purchased a new stainless steel silo to store fresh flowers for R300 000.
1.2.10 TLC incurred R500 000 for a presentation and tour to Woolworths Ltd to obtain
a contract to be the sole provider of dishwashing liquid to Woolworths.

1.3 The accountant made a few payments toward the end of the year of
assessment, and needs your advice with regards to the amounts that can be
deducted in the 2021 year of assessment. (4 marks)

What amount, if any, can be claimed for the 2021 year of assessment?

Description
1 On 1 April 2021, TLC paid its annual membership of the Chemical
Manufacturing Industry. By law TLC has to be a member of the institution.
Membership is annually from 1 April to 31 March.
2 On 1 May 2021 TLC prepaid the rental for the photocopier for 1 May 2021 – 30
April 2022 for R120 000
3 On 1 June 2021 TLC paid the insurance for the period 1 June 2021 – 31
October 2021 for R80 000.
4 TLC rents a big copier/printer machine from Nashua. On 1 January 2021 TLC
renewed the rental contract for 2 years, and paid the rental for the 2 years
(R72 000) immediately to get a 10% discount.

QUESTION 2 (7 marks)

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Dominique Farnworth (age 66), a South African tax resident, retired on

29 February 2020. He held the position as Brand Sales Director at BMW South Africa
from 1 January 2000, until the date of his retirement.

The following additional amounts were included in his gross income for the 2021 year
of assessment:

Required:
Indicate the exemption (if any) for each of the line items below for his 2021 year of
assessment:

You can ignore VAT.

Please note:
- Round all amounts to the nearest Rand.
- Do not type R in front of the amount
- Do not use spaces or “,” between hundreds and thousands (e.g.1000)
- Use “-“ for amounts that will reduce taxable income (deductions and
exemptions) (e.g.-1000)
- If an amount is 0, then use 0, DO NOT write Nil or Zero.
- If the transaction has no effect, then indicate that with a 0, AND do NOT
provide a reason as you would have done in a normal written assessment.

1. Dominique earned interest amounting to R35 000 from his local investments.
2. Dominique earned interest from his offshore investments amounting to R40
000.
3. Dominique invested in numerous offshore (foreign) companies. He earned R60
000 in dividends. He does not own more than 10% equity in any of these
companies
4. On 1 May 2020, Dominique purchased an annuity of R10 000 per month for 10
years. He paid an amount of R250 000 and the expected return of the annuity
is R500 000. The capital portion is thus 50%.
5. On 9 June 2020, while driving on the N1 highway, Dominique was involved in
a serious accident with his brand-new BMW M4 Competition. He sustained
several injuries and received a lump sum from the Road Accident Fund of R150
000 as compensation.
6. Dominique earned gross dividends from his South African investment portfolio
amounting to R65 000.
7. Dominique received a monthly pension of R20 000, effective from 1 March
2020, for the entire 2021 year of assessment.
8. Sadly, Dominique and his spouse, Bianca got divorced on 23 August 2020. As
part of the divorce order, Bianca is obligated to pay a monthly amount of
R10 000 to Dominique, effective from 1 September 2020.
9. Dominique received a lump sum of R400 000 from a pension fund in Germany,
while working at the BMW headquarters in Munich from 1990 to 1999.

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10. Dominique earned income amounting to R10 000 from his Tax-free investment
account at Nedbank.

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