Tax Tl108 2022 0 B Lecture Note To Help With Studying and Practice Questions

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Tax TL108 2022 0 b - Lecture note to help with studying and

practice questions.
Applied Taxation (University of South Africa)
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TAX4862/108/0/2022
NTA4862/108/0/2022
Tutorial letter 108/0/2022
APPLIED TAXATION (CTA level 2)
TAX4862
NTA4862
YEAR MODULE
Department of Financial Intelligence
IMPORTANT INFORMATION:
This tutorial letter contains information on exam preparation and learning
unit 21.

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CONTENTS
I. INTRODUCTION .........................................................................................................3
II. THE OCTOBER 2022 EXAMINATION ........................................................................3
III. REVISION LECTURES DURING SEPTEMBER 2022.................................................4
IV. LEARNING UNIT 21: TAX ADVICE AND PLANNING ................................................5
V. INTEGRATED QUESTIONS .....................................................................................18
QUESTION 1 .........................................................................................................................................20
October 2020 Paper 1 Question 1 (50 marks) .......................................................................................20
QUESTION 2 .........................................................................................................................................24
QUESTION 3 .........................................................................................................................................30
QUESTION 4 .........................................................................................................................................34
QUESTION 1 - SUGGESTED SOLUTION ...........................................................................................39
QUESTION 2 - SUGGESTED SOLUTION ............................................................................................44
QUESTION 5 .........................................................................................................................................57
October 2021 Paper 1 Question 1 (100 marks) .....................................................................................57
QUESTION 6 .........................................................................................................................................62
October 2021 Paper 2 Question 2 (100 marks) .....................................................................................62
ANNEXURE: MONETARY AMOUNTS TO BE PROVIDED IN THE OCTOBER 2022 AND JANUARY
2023 SUPPLEMENTARY EXAMINATIONS ..........................................................................................87

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I. INTRODUCTION
In this tutorial letter we provide you with:
• Information regarding the October 2022 examination;

• Information regarding the planned revision lectures in September 2022;
• Learning unit 21: Tax advice and tax planning; and
• Revision questions to assist you in your final preparation for the year-end exam.
The main purpose of this tutorial letter is therefore to assist you in preparing for the summative
assessment of this module.
II. THE OCTOBER 2022 EXAMINATION

The October 2022 examination will be an online assessment. The examination will consist of 2 papers
of 100 marks each. It is therefore a 200-mark, 5-hour examination for both papers.
Take note that marks will also be awarded for communication skills and layout, as is the case in the
SAICA ITC Part 1 examination (no more than 5% of the total marks will be awarded for this). In addition,
it is important to note that, every exam paper will contain some integration with other disciplines
included in your studies, this integration will however be limited to a maximum of 20%. This is in
preparation for the SAICA ITC examination next year, where you can expect integration throughout the
papers that you will write.
Since it will be an online assessment, please ensure that you have all adequate resources (internet
connectivity, a device with the applicable invigilation application, pdf converter/scanner app) to ensure
minimal disruptions during the assessment.
The examination is a limited open-book examination: You are allowed to use ONE COPY of the
2021/2022 version of the SAICA Student Handbook (volume 3) or any version published in one of the
previous years. You should note that the taxation exam is set and marked according to the legislation
contained in the 2021/2022 version of the SAICA Student Handbook. We strongly recommend that you
obtain and use the latest version (2021/2022).
 Please refer to tutorial letter CASSALL2/301/2022 for the Open book and calculator policy
as set out in 3.2
The above policy will be applied strictly. Although it will be an online assessment, any transgression
with any Unisa policy will be subject to disciplinary action.
The cut-off date for taxation legislation examinable in the Initial Test of Competence (ITC) for 2023
is as follows:
Amendments promulgated by 31 January 2022 and which are effective for the 2022 year of
assessment, will be examinable. All amendments effective for years of assessment 2023 or later are
not examinable. The UNISA syllabus is also based on these dates. Any amendments effective after
these dates will therefore not be incorporated into our study material.
UNISA as well as the SAICA ITC 2023 will therefore assess individuals with a 2022 year of assessment
and non-natural persons with a December 2022 (or earlier) year of assessment.
Regarding individuals’ rates of normal tax, rebates and monetary thresholds, the monetary values
are incorporated in the SAICA Student Handbook 2021/2022 book. An annexure with the monetary
rates was provided in Test 3 and will also be provided in the year end examination.

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We would like to extend our best wishes to you with your preparation for the forthcoming examination. We
as lecturers trust that you will use the following weeks effectively in preparing for the year end examination.
Be assured of our continued support during this time. As stated previously, we always prefer to receive
queries via e-mail:
tax4862@unisa.ac.za
however you may contact any of the tax lecturers during your preparation period.
For all administrative queries please phone the administrative officer, Mr Maxwell Mapheda, on
012 429 2947.
III. REVISION LECTURES DURING SEPTEMBER 2022
The provisional schedule for TAX4862 revision lectures, to be held during September 2022, in
preparation for the upcoming examination, is listed below:
Date Time Content

Wednesday, September 14, 2022 15H00 - 17H00 Study School (exam revision 1)
Saturday, September 17, 2022 13H00 - 14h00 Study School (exam revision 2)
Wednesday, September 21, 2022 16H00 - 18H00 Study School (exam revision 3)
TBC 16H00 - 17H00 Pre Exam Q&A
More information will be provided via either a CASALL2 tutorial letter and/or announcements on
myUnisa/SMS’s.
Slides and videos have been provided for each tutorial letter during the year. Due to the limited time
available, the revision lectures will focus on exam technique by working through questions selected
carefully from TL103 – 108. More information on this will be provided via an announcement on myUnisa
in due course.

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LEARNING UNIT 17
COMPANIES AND CLOSE CORPORATIONS
IV. LEARNING UNIT 21: TAX ADVICE AND PLANNING
21.1 BACKGROUND
In this learning unit, you will receive guidance on how to apply the knowledge you gained in this module to a
practical tax advice and/or tax planning situation. There are no specific references to the various Taxation
Acts or to SILKE that you need to study in this learning unit since this learning unit encompasses your whole
syllabus. This learning unit is, in effect, an application of all your tax knowledge in an advisory situation.
Questions requiring you to provide tax advice will normally entail a comparison of different alternatives, for
example, should a taxpayer accept a travel allowance or utilise the right to use an employer-owned vehicle.
The tax implications of these alternatives and the after-tax cash flows, in particular, would have to be
calculated in coming to a conclusion (and providing advice) in this regard.
21.1.1 UNGC Principle 10
The UNGC principles were introduced in TL102. Compliance with laws and regulations is the basis on
which the taxation legislation is founded.
UNGC principle 10 states that businesses should work against corruption in all its forms, including extortion
and bribery. The definition of corruption includes dishonest or fraudulent conduct; thus, tax evasion would
fall within the ambit of corruption. UNGC principle 10 encourages entities to find a balance between the
social obligation to pay taxes and tax planning, to minimise the ‘cost’ of these taxes for an entity within the
ambit of the law. Situations may arise where entities embark on tax planning with an intent to evade tax.
It is important to take note of the UNGC principle 10 when studying this learning unit, since you will be
providing tax advice or doing tax planning for a client but you will always need to keep the UNGC principle
10 in mind when doing the planning and trying to find a balance between the social obligation to pay taxes
and tax planning.

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21.2 OUTCOMES OF THIS LEARNING UNIT
After studying learning unit 21, you should be able to meet the following
outcomes:
• Understand and be able to consider the factors relevant when tax
planning is done, or tax advice is provided in a practical situation.
• Be able to apply the tax knowledge obtained in this module in a practical
situation by considering all options available to a taxpayer and providing
sound tax advice or tax planning options.
The following notes are based on information provided in the book, “Tax Strategy” by EB Broomberg and
Des Kruger and have been updated for subsequent amendments to legislation.
21.3 TAX PLANNING IN GENERAL
There is virtually no economic act or agreement, which is devoid of tax implications. Accordingly, if tax
planning is done in good time, positive tax savings can be achieved. The failure to plan in good time leads
to catastrophe. Tax advisors must have a thorough knowledge of tax law in order to provide their clients
with sound tax planning advice. When providing clients with advice, the difference between tax avoidance
and tax evasion must be well understood.
Tax evasion involves using unlawful ways to pay less to no tax, whilst the methods used are usually
fraudulent, for example, under declaration of tax income, or falsifying records. Tax avoidance on the other
hand includes legal means aimed at paying less to no tax. In Duke of Westminster V IRC 1953(UK), Lord
Tomlin held that ‘Every man is entitled, if he can, to order his affairs so that tax attaching under the
appropriate act is less than it otherwise would be’.
Sound ethical principles must be applied at all times to ensure that accountants and clients are legitimately
paying less tax than their fellow taxpayers in like circumstances. For instance, the retrospective signing
contracts or agreements is not tax planning, usually it would constitute fraud. Always consider ethics when
providing tax advice.
21.3.1 Approach to tax planning
Parties to an agreement often find themselves in an adversarial position (meaning a position characterised
by possible conflict or antagonism). The agreement may totally favour one person from a tax perspective,
for example, the one party may obtain a capital gain (subject to CGT) but the other party may not be able
to obtain a corresponding deduction, which increases the “cost” of the acquisition. Ideally, the tax benefits
(and disadvantages) of both parties must be identified and quantified and be shared equally. This is
achieved by hard bargaining between the parties.
The (adverse) tax considerations must never be allowed to distort a sound commercial bargain. However,
adverse tax considerations may compel the rushing of a proposed transaction.
In effect, the approach to tax planning involves isolating and identifying the factors that give rise to a tax
liability and then neutralising these factors as far as possible.

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Factors that determine tax liability
• Factor of incidence
The factor of incidence means identifying the person that will be liable for tax. Is it, for example, a legal
entity, i.e. an existing company, a company to be formed, a trust or an association of persons, or is it a
natural person?
The method to decrease the tax liability entails the varying of the incidence of taxation from a highly taxed
person (natural person or legal entity) to a lower taxed person.
➢ Consider the normal tax rates of individuals and special trusts (maximum marginal rate 45% for
taxable income of more than R1 656 600), small business corporations (differentiated rates up to a
maximum of 28%), other companies (a flat rate of 28%, which will decrease to 27% for years of
assessment commencing from 1 April 2022), and trusts (a flat rate of 45%). (Refer to TL107 for the
different corporate entities). In order to distribute profits from a company, a dividend must be
declared. Dividends tax is payable on dividends declared / deemed to be declared by a company at
a rate of 20%. The effective normal tax rate of a company (excluding a small business corporation),
on assumption that all profits available for distribution are in fact distributed, is an effective rate of
42,40%. (Taxable income of R100 less R28 for normal tax, leaves R72 to be distributed as a
dividend. Dividends tax is then R72 x 20% = R14,40. Therefore, the total tax paid is R28 plus R14,40
= R42,40.) A natural person younger than 65 years of age with a taxable income of R1,7 million will
pay R591 409 (R607 123 less the primary rebate of R15 714) normal tax, giving an effective/average
rate of 34,79% (R591 409 / R1 700 000).
➢ Consider the effective capital gains tax rates for individuals (maximum 18% (45% x 40%)),
companies (22.4% (28% x 80%)) and trusts (other than a special trusts) (36% (45% x 80%)) for the
2022 year of assessment.
➢ Consider the tax disadvantages of companies:
i) Hostile legislation (personal service providers and labour brokers) (Section 23(k) together with
Interpretation Note 35 (ISSUE 4 of 26 March 2018)).
ii) Assessed losses. Section 20(1) precludes a company with an assessed loss from carrying
forward that assessed loss if the company ceased to trade in any tax year. This restriction is
not applicable to individuals (or trusts). Section 20A, however, ring-fences certain trade losses
for individuals.
iii) Refusal to recognise groups of companies. There is no group relief (except for Part III in the
Income Tax Act) and intra-group transactions are closely scrutinised for non-arm’s length inter-
company charges.
iv) Business tendency of company. Assets purchased by a company and later sold, are more
likely to be regarded by SARS as revenue in nature. The onus on the taxpayer is greatly
increased in these circumstances.
v) Extraction of capital profits from a company. A company is subject to an effective 22.4% (80%
x 28%) capital gains tax rate as opposed to a maximum marginal rate of 18% (40% x 45%) for
an individual.
vi) Also note that certain exclusions from capital gains would only apply in the case of natural
persons and special trusts, e.g. the annual exclusion.
vii) Furthermore, section 64E (loans to shareholders, deemed to be dividends in certain circum-
stances) could present a problem.

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➢ Consider the advantages of companies:
i) Non-fiscal considerations
• limited liability
• perpetual succession
• status
ii) Utilisation of assessed losses but be careful of trading in assessed losses - section 103(2).
iii) Able to change the year-end of the company (to take advantage of new tax rates, etc.). Also
refer to Interpretation Note 19 (issue 5 of 18 November 2020).
➢ The use of trusts for business purposes, so-called business trusts:
i) Non-fiscal considerations:
• limited liability
• can have perpetual succession
• assets of trust are distinct from the personal assets of the trustee and founder
• control and administration may be cumbersome
• difficult to dispose of a beneficial interest in a trust as opposed to the sale of shares in a
company - however, a trust deed can make a provision for beneficiaries to be substituted
• the loss of control and/or freedom of action by the founder of the trust
ii) Anti-avoidance provisions aimed at preventing a taxpayer from diverting income to another,
less heavily taxed taxpayer - see section 7(2) to 7(8) (note that sections 7(2)(a), 7(4), 7(6),
7(7), 7(8)(aA) and 7(11) are excluded from the SAICA syllabus) and section 25B as well as the
attribution rules in the Eighth Schedule.
iii) Taxed at a flat rate of 45% which is higher than the normal tax rate for a company (but the
same rate as the maximum rate of an individual). The inclusion rate of the net capital gain is
double that of any natural person (80% versus 40%).
iv) No loss of the identity of income received by a trust (conduit-pipe principle) and distributed to
a beneficiary, but where distributed in the form of an annuity, the sections 10(1)(h), 10(1)(k),
10B(2) and 10B(3) exemptions will not be available.
• Factor of timing
When considering tax as part of the planning process the timing of the transaction can be an important
factor. The date of the transaction can result in a tax saving if there is a change in legislation favouring the
taxpayer, for example a reduction in the tax rate for small business corporations. Some changes in
legislation can, however, have a negative impact on transactions for example the increase in the CGT
inclusion rate.

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Since tax years ending on or after 1 April 2008, the maximum tax rate for companies has been 28% (and
will decrease to 27% for years of assessment commencing from 1 April 2022), however Dividends Tax
was increased from 15% to 20% from 22 February 2017.
The effective CGT rate for companies is 22.4% (80% X 28%) since the 2017 year of assessment (18.7%
2016 y.o.a). On 1 April 2018 VAT increased from 14% to 15%.
The status of the taxpayer may alter (from resident to non-resident or vice versa) which might result in
certain CGT or normal income tax consequences.
Tax provisions may change (e.g. the recent restructuring of the taxation of retirement benefits for
individuals).
Methods that can be used to decrease the tax liability is to defer the recognition of income to a later period
(discounted cash flow and time-value of money considerations) or to speed-up the claiming of a deduction
or allowance.
• Factor of residence
Where is the person resident?
The residence of a person can influence his/her tax liability. In certain instances, a person’s tax liability
can be reduced if he/she does/does not become a resident in a particular country. The existence of any
double tax agreement must be considered. The taxpayer can utilise the exemptions for income earned
from a source outside South Africa (section 10(1)(o)(ii)). (For the year of assessment ended 28 February
2022, R1.25 million in respect of remuneration will be exempted if certain criteria apply.)
• Factor of nature
Is the amount received or accrued of a capital or revenue nature? Does the amount fall within the definition
of a dividend?
It is essential to determine the true nature of an amount because if the amount is regarded as a capital
receipt rather than a receipt of a revenue nature, less tax will be payable (e.g., the effective rate applicable
to capital gains of individuals is 18% and for companies it is 22.4%, whereas the normal tax payable on
revenue amounts are much higher). Determining whether an amount received is interest or a dividend is
also of importance. Interest received may be partly (section 10(1)(i)) or fully ((section 10(1)(h) for foreign
residents) and section 12T) exempt from normal tax, whereas local dividends might be subject to dividends
tax at 20%.
21.3.2 General and specific considerations in tax planning
21.3.2.1 Tax rates
• Normal tax rates (company rate of 28% (which will decrease to 27% for years of assessment
commencing from 1 April 2022) versus maximum marginal rate of 45% for a natural person);
• Natural persons also qualify for a tax rebate, but companies do not, therefore the threshold for an
individual < 65 years of age = R87 300 (thresholds for those between 65 and 75 is R135 150 and
75 years or older is R151 100) for the 2022 year of assessment;
• Dividends tax of 20%;
• CGT rate (company effective rate of 22.4% versus the individual’s maximum rate of 18%, with an
annual exclusion of R40 000 as well as being taxed on a progressive rate);

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• Withholding tax on non-residents (interest @ 15%) and a pre-payment of withholding tax on the sale
of fixed property acquired from a non-resident if the fixed property was bought for more than
R2 million – (ranging between 7.5% and 15%).
• Donations tax - 20% (aggregate amounts above R30 million at 25%);
• Estate Duty - 20% (amounts above R30 million at 25%);
• VAT - 15% ( from 1 April 2018) or zero-rated or exempt;
• Transfer duty at rates ranging from 0% (value of property less than R1 000 000) to a maximum rate
of 13% (value of property above R11 million).
• Securities transfer tax (STT) is payable, from 1 July 2008, at a rate of 0,25% on the greater of the
consideration, closing price or market value on the transfer, cancellation or redemption of any listed
or unlisted share or members’ interest in a CC or the cession of a right to receive distributions from
a company or CC. STT is not applicable to foreign companies not listed on the South African stock
exchange. The acquisition of the shares in certain (residential) property owning companies is subject
to transfer duty on the value of the property at the applicable rate and not to STT. Note that only
section 2 and 8 form part of the SAICA ITC Examinable Pronouncements 2022.

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 Integrated Example:
Use of company car vs travel allowance
You are a tax manager in an accounting firm, and you have received some tax queries from one of your
main clients. The client, Vision Manufacturing Limited (‘Vision’), is a South African resident company, and
its business is the manufacture of ceramic tiles. Vision has a December year-end and is a registered
category C VAT vendor. Mr Angus Jacobs became the managing director of Vision on 1 March 2021.
The following information is relevant to the query you have received from the company:
As part of Angus’s remuneration package (from 1 March 2021), Vision expects to spend R14 000 per
month on motor vehicle costs. There are two options in this regard:
(a) Vision acquires the motor vehicle in terms of a lease (other than an operating lease) and grants the
free use to Angus. The cash cost of the car (and the retail market value per the Minister’s Regulation)
is R456 000 (including VAT and excluding finance charges). The lease payments on a three-year
lease will be R14 000 per month, inclusive of VAT and Vision will pay all the maintenance costs; or
(b) Vision pays Angus a travel allowance of R14 000 per month. Angus then leases the vehicle on pre-
cisely the same terms as those outlined in (a) above.
Angus will maintain an accurate logbook of kilometres travelled for business purposes.
Angus expects to travel a total of 28 000 km per annum, of which the private component is expected to be
21 000 km. The total actual cost of petrol is expected to be about R36 000 per annum, which Angus will
pay himself. All other costs, like maintenance and licence fees, will be covered by Vision.
REQUIRED:
Advise Angus, based on tax cash flows, which of the two options will be better for him – compare the
monthly PAYE amounts as well as the additional payment or refund upon assessment. Show all
calculations and accept that Vision will make use of any possible election that will legally minimise Angus’s
PAYE liability.
• Assume that there is no maintenance plan on the vehicle.
• Assume that total finance costs amount to R48 000 for the 3-year lease period.
• Assume Angus pays tax at the maximum marginal tax rate.
• Assume Angus kept an accurate logbook.
(18 marks)
(QE 2012 – adapted)

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SUGGESTED SOLUTION
Company Travel
Car Allowance
R R
Monthly taxable amount:
Company Car (R456 000[RMV] x 3.5% x 80%) 12 768 (1)
Travel Allowance (R14 000 x 80%) 11 200 (1)
PAYE @ 45% (i.e. monthly cash Outflow) 5 746 5 040 (1)
x 12 months 68 952 60 480
Annual taxable value:

Company Car
Annual value of usage (R456 000 x 3.5% x 12 months) 191 520 (1)
Less: Business travelling portion
[R191 250 x 7 000km/28 000 km] (47 880) (1)
143 640
Less: Cost of private fuel (21 000km x 145.3c) (30 513) (1)
Maintenance costs 0
Annual taxable value 113 127
Note the lease is not an operating lease as set out in
par 7(4)(a)(ii), thus par 7(8) of the Eighth Schedule can be
applied.
Travel allowance
Annual allowance amount (R14 000 x 12 months) 168 000 (1)
Less: Cost of business travel
Actual cost: Cash Cost (provided) R456 000
Wear & tear (R456 000/7) R65 143 (1)
Finance cost (R48 000/3) R16 000 (1)
Fuel cost (provided) R36 000 (1)
Maintenance cost Rnil
R117 143
Actual cost per km (R117 143/28 000km) R4.184 (1)
Deemed cost: Fixed cost per table R114 781

Fixed cost per km (R114 781/28 000km) 409.9c (1)
Fuel cost per table 145.3c (1)
Maintenance cost R0.00
Total deemed cost per km 555.2c
Therefore, elect deemed cost R5.552 (1)
Attributable to business travelling ((555.2c x 7 000 km)/100) (38 864) (1)
Annual taxable value 129 136

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R R
Tax at 45% 50 907 58 111 (1)
Annual total of monthly PAYE deduction (x 12) (68 952) (60 480)
Additional refund upon assessment 18 045 2 369 (1)
Conclusion:
Based on the annual taxable value, the company car option is favoured over the travel allowance.
This is because the overall tax liability of a company car is lower than that of the travel allowance
option. (1)
 NOTE:
Due to the fact that the normal tax rates of an individual works on a progression basis, you
should always use the maximum marginal tax rate (i.e. 45%) when required to provide tax
advice in a test or examination question, unless specifically instructed otherwise. Only when
you provide tax advice in practice, will you consider the effective or maximum marginal normal
tax rate applicable to that specific individual.
21.3.3 Specific issues relating to either purchasing the shares of a company or rather purchasing the
assets of that company
• Recoupments (sections 8(4) and 22(8));

• Assessed losses (sections 20 & 103(2));
• Income for dividend swaps (section 103(5));
• Hybrid instruments (sections 8E and 8F) – section 8E is excluded from the SAICA examinable
pronouncements;
• VAT issues;
• Deductibility of interest on borrowed funds (purchase shares of a company versus purchase of
assets out of a company);
• Lock, stock and barrel sales; CIR v Niko, 11 SATC 124: The purchase price received by the seller
of a business, even if expressed as a lump sum, must be allocated to the individual items making up
the business, including goodwill, stock, etc. The price received and allocated to items of a revenue
nature (for example, stock) remains revenue in nature even if purchased under a lock, stock and
barrel sale. Similarly, the price allocated to an item of a capital nature (for example, goodwill, trade
receivables (debtors) or fixed assets) remains capital in nature (but capital gains tax may be
applicable and recoupments can come into play);
• Anti-avoidance measures in terms of section 24BA, application of section 40CA as well as the relief
provided in section 42 and section 45 (read with section 41).
21.3.3.1 Other considerations
• Tax skeletons of the company versus the cost of forming a new company. Generally, assessments
only remain open for three years after the date of original assessment (or five years in respect of
self-assessment (section 99 of the TAA - see also TL106 for more information on this), if there was
no fraud, misrepresentation or non-disclosure of material facts (and certain other circumstances –
see section 99(2)(c), (d) and (e)). In other specific instances these periods may be extended by
SARS (see section 99(3) and 99(4)).
• Cost of agreement and legal fees. Who will bear the cost? Usually, the contract stipulates who will
bear the cost of the agreement. From a tax planning point of view, the person who can obtain a tax
deduction for the cost of the agreement should bear the total cost of the agreement with a
corresponding adjustment to the purchase price. For example, in a lease agreement, if the lessee

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must bear the cost of the lease agreement, he will not be able to obtain a deduction for such expense,
as such expense is regarded as capital in nature. On the other hand, should the lessor bear the cost
of the agreement, he would be able to obtain a deduction for such expense as it is revenue in nature
and is incurred in the production of income.
• Commercial considerations. Always consider the present as well as the possible future commercial
considerations which may outweigh the immediate potential tax benefits.
• Time value of money. This aspect is very important in evaluating a transaction and must be
considered in deciding which route to follow. This is especially so in cases of evaluating alternatives,
for example, whether to purchase or lease equipment and whether to invest an amount in a reti-
rement annuity fund or in collective investments schemes or in shares listed on a stock exchange or
in property.
• An important point to note is that the comparison must be made at the after-tax cost level. As the
cash outflows (or inflows) are likely to vary under different options, tax implications must be
considered. The time value of money should also be considered - although many tax questions
require you to ignore this aspect.
21.3.3.2 Investment decisions
What is an investment?
An investment is not an asset which is purchased for resale for a profit but an asset obtained to hold and
earn a return. It is the proverbial tree (capital) which bears the fruit (CIR v Visser). Generally, the intention
of the taxpayer would determine its status (Natal Estates). Different types of investments are for example,
interest-bearing securities or cash deposits, dividend-yielding shares, rent-producing properties and
assets generating rental income. Typically, investments yield passive income, e.g. interest, dividends and
rental income.
The tax treatment of an investment will depend on the type of investment, as the returns on different
investments are treated differently in the Act. For example, certain expenses are tax deductible for certain
types of investment income; an investor holding equity shares for at least three years (section 9C), will be
deemed to have disposed of a capital asset, etc. Also, a distinction is made between the tax treatment of
the distribution by a collective investment scheme in property and a collective investment scheme in
securities.
Assets that do not produce passive income, generally complicate the classification of the capital vs
revenue nature of the yield on these items. These are so-called hard assets, like paintings, works of art,
stamps, jewellery, antiques, coins, Kruger Rands and diamonds (not set into jewellery). As the only “in-
come” from them could arise when they are sold/disposed of at a profit, it would be up to the taxpayer to
prove that these assets were of a capital nature to prevent the proceeds from falling into gross income.
The intention of the taxpayer in acquiring and holding these assets and his conduct in relation to them,
rather than the mere nature of the assets, will determine the taxability of any profit.
The proceeds on the sale of assets of this nature bought as part of a collection, to be used as ornaments,
jewellery, for interior decoration or for the personal enjoyment of the taxpayer, will generally not be taxable
(not even subject to CGT (personal-use asset)) unless they are coins made of gold or platinum.
When determining whether the proceeds from the sale of Kruger Rands are revenue or capital in nature,
case law needs to be taken into consideration. Our interpretation is that Kruger Rands should be subjected
to the same “tests” as other assets for determining a capital or revenue classification. See more information
on this in Silke 3.6.5.
Note that cryptocurrency have been added to the definition of a ‘financial instrument’ in section 1 of the
Act and can be either capital or revenue in nature, depending on the intention of the taxpayer.

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Factors to consider when making an investment decision
An investment decision usually involves a comparison between two or more options. Therefore, a uniform
base needs to be selected to make a realistic comparison - usually it would be the after-tax returns that
should be compared.
Tax entity to be utilised
The tax entity to be utilised will influence the rate at which the income from the investment will be taxed.
The effective tax rate of a corporate taxpayer is 42.4% whereas for an individual taxpayer, the maximum
marginal rate of tax of 45% is usually used unless the circumstances indicate otherwise. In the case of a
trust, a rate of 45% is used.
Also, remember that the basic interest exemption is only available to natural persons.
There is a great temptation for an investor to operate through a company because the corporate tax rate
is 17% lower than the maximum marginal rate (45%) of an individual taxpayer. However, the company’s
income after tax still has to be diverted to the individual by way of:
• dividends on which an additional 20% dividends tax will be borne by the shareholders, and/ or
• a salary, provided that the individual provides a legitimate service to the company and that the
company can deduct the salary for tax purposes, that is, it is carrying on a trade, etc. (the salary, in
turn, is taxable in the recipient’s hands).
Be careful of the potential excessive remuneration practice of SARS. This practice should not be a problem
especially where the individual taxpayer is already paying tax at the maximum marginal rate of 45%.
Tax-free income
The tax treatment of income from investments depends upon various factors but the most important factor
is whether the amount is tax free (for example, tax free investments (see below)). Natural persons are
exempt from tax on the first R23 800 of interest if under the age of 65 (R34 500 if older than 65 years).
Furthermore, the residence of a taxpayer is also important in determining whether an amount is tax free
or not. In addition, you need to consider the tax deductions that may be claimed.
In the case of an individual (natural person), the starting point is the R23 800 basic interest exemption for
a person under the age of 65 and R34 500 for a person 65 years or older. One should always try to ensure
that the taxpayer earns at least interest equal to the exemption in order to obtain the maximum benefit.
For example, an investment in an interest-bearing investment yielding 8% per annum, by a person (older
than 65 years), of R431 250 (R34 500 / 8%) will yield R34 500 in interest which will be tax-free due to the
annual interest exemption. To earn an equivalent amount from some other type of taxable investment,
the individual would need to earn a 14.5% (8% / 55%) yield before tax. A natural person can also invest
R36 000 annually (with a life-time limit of R500 000) in a (section 12T) tax-free savings account. This
investment can take any form, i.e. cash, shares, unit-trusts etc. Any yield from these tax-free saving
accounts will be tax-free.
Although merely earning passive interest income is not included in the definition of carrying on a "trade“,
which means that interest paid on funds borrowed to invest in an investment that earns passive income,
will not be allowed as a deduction in terms of section 11(a) (general deduction formula), SARS follows
Practice Note 31 and the decision taken in the Scribante court case which provides for interest paid to be
allowed as a deduction provided that more interest is received than is paid or the amounts of interest paid
and received are the same. This means that no loss can be created. Practice Note 31 creates a trade
argument for section 11(a) purposes – not for section 24J. Where section 24J(2) is applicable (see below),
Practice Note 31 will not be applicable in respect of the deduction of interest.

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Be conscious of whether the taxpayer is resident or non-resident in the Republic. If the investor is non-
resident in the Republic, then in terms of section 10(1)(h), the interest which he receives on investments
in the Republic may be tax free provided that the provisions of that section are met.
If the investor is resident in South Africa, he is taxed on his worldwide income with a foreign tax rebate.
Dividends received from a foreign company might be taxable in South Africa (refer to section 10B). Always
consider double tax agreements as well.
The after-tax returns on other investments may not be the same each year. This can occur, for example,
if an initial or higher tax allowance is granted on assets purchased in the first year.
Income instruments
Not all taxpayers receiving interest from instruments will necessarily be affected by the provisions of
section 24J. As far as the accrual of interest is concerned, and only in the case of non-corporate taxpayers,
the ambit of this section is limited to instruments defined as “income instruments”. Included in the definition
of instruments are instruments whose term will or is likely to exceed one year and which are issued or
acquired at a discount or premium or which bear deferred interest.
Examples of instruments, which do not fall within the scope of section 24J, are
• savings accounts
• call accounts
• fixed deposits not exceeding one year
• fixed deposits (the term of which is longer than one year, but the rate of interest is fixed and paid
annually).
For a company, an “income instrument” is any “instrument” (irrespective of its period).
Interest does not accrue from day-to-day (unless it is deemed to do so because it is an “income instrument”
as defined (see above)) but only when it becomes payable in terms of the contract. Therefore, various
types of interest-bearing securities will have different terms and conditions as to when interest accrues.
• In the case of fixed-deposit investments, the interest only accrues when the fixed deposit matures,
unless any other conditions have been provided for in the investment contract.
• In the case of mortgage and other bonds, the interest accrues on the dates provided for in the bond.
• The interest earned from government or municipal stocks or debentures accrues according to the
terms of the issue.
Deductions available against investment income
Section 11(a) allows the deduction of expenditure incurred (as defined) in the production of income in the
carrying on of a trade. The passive earning of interest, dividends, pensions and annuities do not form part
of the definition of carrying on a trade. However, Burgess states that trade should be given a wide
interpretation. If the borrowing of money and re-lending it at a higher rate of interest is a venture, thereby
making a profit, it could constitute the carrying on of a trade (Scribante and MTN case read with Practice
Note 31).

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Interest paid on funds borrowed for the purposes of lending them out at a higher rate of interest will, in
terms of section 11(a) of the Act, constitute an admissible deduction from the interest so received by virtue
of the fact that this activity constitutes a profit-making venture. According to the PE Electric Tramway the
interest incurred should be closely connected to the production of income. It is important to always consider
other sections of the Act as well. In terms of section 23B(3), no deduction may be allowed under
section 11(a) where a deduction or allowance may be granted under a specific provision. Therefore,
section 11(a) must not be considered if for example section 24J(2) will be applicable.
While it is evident that a person (not being a money lender) earning interest on capital or surplus funds
invested does not carry on a trade and that any expenditure incurred in the production of such interest
cannot be allowed as a deduction, it is nevertheless the practice of SARS to allow only interest incurred in
the production of the interest to the extent that it does not exceed such income to be claimed as a
deduction. The above practice is allowed even where funds are borrowed at a certain rate of interest and
then invested at a lower rate.
In respect of interest incurred to earn local dividends, which is normally exempt from normal tax, you need
to keep section 24O in mind. This section allows a deduction of interest incurred to obtain an interest in an
operating company.
21.4 SUMMARY OF LEARNING UNIT 21
This learning unit provided some guidance on which factors will be relevant when tax planning is done, or
tax advice is provided in a practical situation. This learning unit also introduced you to ways in which to
apply the tax knowledge obtained in this course in a practical situation by considering all options available
to a taxpayer and providing sound tax advice or tax planning options. Remember to take a look at the
additional resources available for this learning unit on myUnisa and YouTube.
21.5 LIST OF REFERENCES OF LEARNING UNIT 21
• SAICA. 2022. SAICA Student Handbook 2021/2022 Volume 3, Durban, LexisNexis.

• Stiglingh, et al. 2021. Silke: South African Income Tax 2022, Durban, LexisNexis.
• Broomberg, E.B. & Kruger, D. 1998. Tax Strategy, Third Edition, Durban, Butterworth’s. Lawrence: University
Press of Kansas.
____________________________________
END OF LEARNING UNIT 21

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V. INTEGRATED QUESTIONS
Tests focuses on specific topics in tax and tests your knowledge, examination questions integrate the
taxation topics in a specific question. This section contains the October 2020 and October 2021
examination papers with the solutions. The questions are integrated on a level that is expected from
you as CTA student in your year-end assessment.
The Taxation Acts as well as the SAICA Taxation Examinable Pronouncements are amended annually,
changes may have been made to some of the original questions, where necessary to take these
amendments into account.
If there are further questions that are loaded on myUnisa, these will be brought to your attention in an
announcement on myUnisa.
 Proposed self-assessment method:
The formative (tests) and summative (examination) assessment of this module is done
at 1.5 minutes per every one mark. Therefore, for a 50 mark question you will have
75 minutes available to answer.
First attempt a question without checking the proposed solution. This will ensure that you
first think through the specific issue and come up with your own solution to the whole
question. Only then should you consult the proposed solution and then use that to
indicate areas where you must revise or update your knowledge.
Apply the following method regarding the time allocation:
Read the information given in the question carefully. Do not 15 minutes for
read the REQUIRED yet. This is the same method that was every hour
applied in the tests. It will also be followed in the examination.
Attempt the Question but commence with reading the 75 minutes for a
REQUIRED. 50 mark question
Assess your answer with the help of the proposed solution. Where you made an
error, refer back to the legislation and/or SILKE by making use of the references
provided in the solution in order to update your knowledge and understanding and
interpretation of the legislation.
After completing the integrated questions in the time limits provided you
should be able to
• demonstrate that you are competent to pass the summative assessment
relating to the topics covered in your syllabus.

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QUESTION CONTENT AND NOTES

MARKS/TIME
October 2020 examination
October 2020 examination Paper 1
1 Individual, taxable income, fringe benefits, business income,
remuneration, capital gains tax, normal tax payable, employees’ tax, 50/75
provisional tax.
2 Tax Administration Act (understatement penalties), VAT, non-
50/75
resident, normal tax, withholding tax and double tax agreements.
3 Local dividends received, interest on hybrid debt instruments,
acquisition of trading stock not sold or included in closing stock at
year-end, foreign exchange transactions, incurral of interest, 50/75
concession or compromise (waiver) in respect of debt, thin
capitalisation and VAT on imports.
4 Corporate rules, dividends, legal expenses, capital allowances and
specific deductions, trading stock, PBO section 18A, trusts, deceased 50/75
estates, Eight Schedule.
Suggested solution to the October 2020 examination – Questions 1 - 4
October 2021 examination
5 Individual, taxable income, fringe benefits, capital gains tax, normal
tax payable, s 6A, s 6B, employees’ tax, withholding tax, provisional
tax, deductibility of home office expenditure, instalment credit 100/150
agreement and leases, IFRS 16 journals, VAT implications for sale of
a going concern
6 Companies (ss 24C, 24J, 12H, 11(j), 12C and 11(o)), debt reduction
(s 19 read with par 12A of the Eighth Schedule, trusts (ss 25 and 7),
100/150
deceased estate (s 9HA, CGT), corporate rules (ss 42 and 24BA),
integrated risk, deemed donation (s 7C(1B), (3))
Suggested solution to the October 2021 examination – Questions 5 and 6
Total time 10 Hours

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QUESTION 1
October 2020 Paper 1 Question 1 (50 marks)
Mathew Smith turned 60 on 25 February 2022. He is ordinarily resident in South Africa and is not married.
Mathew is not registered as a VAT vendor. He requested you to take care of his tax affairs and, also required
your opinion on certain matters. He provided you with the following information:
1. Mathew has been employed by a civil engineering company (Civilcon Ltd), a registered VAT vendor
since 1 April 2010. He accepted a voluntary severance package that was offered only to him and not to
all the employees of the company. He received a severance amount of R516 400 (net amount after
R3 600 was withheld for employees’ tax) on 30 June 2021, his last day at work. For the four months
ending 30 June 2021 he earned a basic salary of R400 000 in total.
2. Civilcon Ltd also paid Mathew’s full monthly retirement annuity fund contribution of R4 500 directly to the
fund. 60% was paid on his behalf and the other 40% was his own contribution that was deducted from
his monthly salary. From 1 July 2021 until Mathew retired from the fund, he paid the full contribution of
R4 500. Refer to note 6.
3. Mathew was granted the use of a company owned vehicle (a double cab bakkie) from 1 April 2020 (also
the date of purchase). The “determined value” of the vehicle is R320 000 (RMV including VAT). There
is no maintenance plan on this vehicle. The company paid all costs relating to owning, maintaining and
running the vehicle, however, Mathew had to pay the first R800 of fuel every month. Mathew kept a
detailed logbook, at the insistence of Civilcon Ltd, for employees’ tax purposes. On 30 June 2021 he
purchased the vehicle from Civilcon Ltd for a total consideration in cash of R100 000 when the open
market value of the vehicle amounted to R287 500. This was his only vehicle which he used for both
private and business purposes throughout the year of assessment. (The purchase of the vehicle by
Mathew from Civilcon Ltd was in no way related to his retrenchment.)
The logbook information for the entire 2022 year of assessment is as follows:
Period Private Business

km km
1 March 2021 – 30 June 2021 (business travel for Civilcon Ltd) 8 400 9 400
(Assume evenly travelled throughout the period)
1 July 2021 – 31 October 2021 1 020 0
1 November 2021 – 28 February 2022 (business travel on behalf of Consult)
(refer to note 7 below) 7 580 2 600
Total 17 000 12 000
4. On 1 April 2017 Mathew was granted an option to acquire 1 000 shares in Civilcon Ltd for a consideration
of R120 per share when the share price was R180 per share, subject to a condition that he may not sell
the shares until a period of three years from the date that the option is exercised has lapsed. He exercised
the option on the same date that it was granted and obtained the 1 000 shares. Civilcon Ltd has 1 million
issued shares. The value of the shares on 31 March 2021 was R210 per share. Mathew decided to sell
his shares in Civilcon Ltd when he left the employment of the company. The sale took place on
8 July 2021 at a value of R170 per share.

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QUESTION 1 (continued)
5. Due to Mathew’s extensive experience in building dam walls, he was consulted by a foreign company
(situated in Argentina), to provide on-site advice and assistance with a specific issue that was
encountered while constructing a dam. He visited Argentina from 15 July 2021 until 31 October 2021
(109 days outside South Africa) and provided the consulting advice while in Argentina as an independent
contractor during this period. Argentina has no double tax agreement with South Africa. He invoiced the
company for R350 000 for services rendered and was paid during November 2021. The parties had the
understanding that the Argentinian company will pay for all Mathew’s travel (R37 000) and living
expenses (R62 000). To enable him to do his work in Argentina, he purchased a laptop for R35 000
(including VAT) on 1 July 2021. He used the laptop to render consulting services during the time that he
was in Argentina (15 July 2021 to 31 October 2021). His data expenses while in Argentina amounted to
R6 500.
6. Mathew has been contributing to a retirement annuity fund for over 35 years. On 30 September 2021 he
made his last monthly contribution of R4 500 (refer to note 2) to the fund and retired from the fund on the
same date. Mathew’s full ‘retirement interest’ in the fund amounted to R4 200 000, but he chose to have
the full amount commuted to a living annuity. He consequently received a fixed monthly annuity from
1 November 2021 amounting to R17 580 (net after the deduction of R4 420 employees’ tax). On
1 March 2021 the total amount of contributions that had previously been disallowed, as it exceeded the
allowable deduction (unclaimed contributions), amounted to R120 000. Mathew has not received any
other lump sum benefits from any other retirement fund during the 2022 or any other previous year of
assessment.
7. As Mathew has built up very valuable contacts in the civil engineering industry over the years, he was
approached by a small private engineering consulting company (Consult) to join their company as a non-
executive director. Consult is not connected to or associated with Civilcon Ltd. He earned director’s
remuneration of R5 000 every time he attended a director’s meeting. He attended 12 meetings from
1 November 2021 until 28 February 2022. The last meeting for the 2022 year of assessment was held
on 27 February 2022 and he was paid for this meeting on 3 March 2022. Mathew also entertains current
and potential clients on behalf of Consult to promote the company’s business. Mathew expended R8 050
in total (including VAT) on entertainment expenses. He was reimbursed for the full amount by Consult
upon providing the necessary documentary proof of the expenditure. Mathew used his own vehicle to
wine and dine the clients. Consult reimburses Mathew at R5,00 per kilometre travelled for these
(business) purposes. Mathew kept a detailed logbook, but he does not keep record of travel expenses
incurred. For logbook details refer to note 3 above.
8. Mathew invested in listed shares on the Johannesburg Stock Exchange (JSE) many years ago. The
value of the shares increased during the current year of assessment from R1 360 000 on 1 March 2021
to R1 420 000 on 28 February 2022. On 31 January 2022 he received a foreign dividend from these
shares of R104 500 in his bank account after 5% foreign withholding tax (recoverable by Mathew) was
deducted.

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9. Mathew is not a member of a medical scheme. After he suffered a head injury in a freak accident on
25 January 2022, he experienced severe and permanent hearing loss in his one ear. You may assume
that this condition qualifies as a ‘disability’ as defined in section 6B(1) of the Income Tax Act, No. 58 of
1962 (as amended). He consequently provided information about his medical expenses in two separate
periods as he is under the impression that he may qualify for a higher deduction from 25 January 2022
onwards. During the period 1 March 2021 to 24 January 2022 he incurred qualifying medical expenses
of R6 220 and during the period 25 January 2022 to 28 February 2022 he incurred qualifying medical
expenses of R120 000. Of the expenses incurred in the last period, R15 800 were only paid on
12 March 2022.
Additional information:
• SARS allows a write-off period of three years on computer equipment in terms of Binding General Ruling:
No. 7.
• Mathew elected to use the simplified method of calculating travel costs in terms of paragraph 4 of the
Schedule that fixes the rate per kilometre in respect of motor vehicles.

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QUESTION 1 - REQUIRED
REQUIRED MARKS
Sub- Total
total
(a) Calculate Mathew Smith’s taxable income for his 2022 year of assessment.
Assume that, for purposes of part (a) of the required only, Mathew’s total
remuneration (as defined), only for purposes of section 11F, amounted to R680 000 35
(correctly determined) for his 2022 year of assessment.
Clearly indicate all Rnil effect items and support each Rnil effect item with a brief
reason. For any capital loss, provide brief reasons on how it must be treated. Also
calculate or indicate the amount of any aggregate capital loss, where applicable.
Communication skills – presentation

1 36
(b) Calculate Mathew’s normal tax payable for the 2022 year of assessment based on
the assumption that, for purposes of this part of the required only, Mathew’s taxable
income for the 2022 year of assessment amounted to R1 105 800 (correctly 5
determined).
Show all calculations.

(c) Mathew required your opinion on whether or not Consult should deduct employees’
tax from the amounts paid or reimbursed to him. Refer to note 7.
Provide your opinion to Mathew on the employees’ tax consequences of the

director’s fees, the reimbursement of business kilometres travelled and the
reimbursement of entertainment expenses by Consult. Your discussion should
include the reason for a possible inclusion in ‘remuneration’ and then, if applicable, 5
any relevant and specific exclusions.
Present your answer in an e-mail format and support your opinion with relevant
references to legislation.
Communication skills – layout and structure 1 6

(d) Indicate, supported with brief reasons or relevant references to legislation, whether
or not Mathew had to submit provisional tax returns in respect of his 2022 year of
assessment. 3
TOTAL FOR QUESTION 1 50
(MP/TO)

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QUESTION 2
Mr Eddie Mmatli is a 45-year old South African registered chartered accountant (CA(SA)) and a registered
tax practitioner. He conducts his tax consulting services through a resident company, Eddie’s Tax Consulting
Services Incorporated (Eddie’s Inc.), that he established in March 2019. Eddie’s Inc. is a registered category
A value-added tax (VAT) vendor and has a 30 September financial year-end.
Eddie’s Inc. has received the following tax queries from different clients. As a junior consultant recently
employed by Eddie’s Inc., you need to prepare the answers to the queries on behalf of Eddie’s Inc., for
submission to Mr Mmatli for his review.
Query 1 (18 marks)
John, an old friend of Eddie, who is also a registered chartered accountant, has requested a tax opinion from
Eddie’s Inc. John has been selected by the South African Revenue Service (SARS) for an audit on his
assessment for 2021. John prepares and completes his own annual income tax return (ITR12). John identifies
investment opportunities and invests large sums of money accordingly. Every year John works through his
bank statements to identify the various entries and transaction codes for purposes of completing his tax
return. In completing his 2021 ITR12, John decided to omit a certain amount of income reflected on the one
bank statement. John was not familiar with the particular transaction code reflected against the entry, but he
ran out of time and decided to omit the amount without making any enquiries as to the origin and nature of
the amount. Considering the upcoming SARS audit, John is concerned that the omitted amount is taxable
and that he understated his normal tax liability for the 2021 year of assessment. John will give his full co-
operation during the audit, but he does not want to act in advance and alert SARS to the omitted amount. He
has never dealt with an issue like this in the past.
John wants to know if he will be penalised and if so, what the penalty implications would be if SARS identifies
the amount as being taxable. In the event of this happening, John wants to submit an argument to SARS that
he completed his return with reasonable care and that he, at the time of preparing his tax return, decided to
omit the amount from his tax return because of his lack of knowledge and experience. John, however,
admitted to Eddie’s Inc. that he intentionally decided not to investigate the origin of the amount to determine
its nature and willingly opted to rather omit the amount from his tax return.
John is in a taxpaying position and is taxed at the marginal tax rate of 45%. He has no refunds owing to him
by SARS and no assessed loss brought forward from a prior year of assessment.
Query 2 (17 marks)
Mr and Mrs Knight are the owners of All-About-You Caterers, a small business corporation that specialises
in all types of catering and event management. All-About-You Caterers is registered as a Category B VAT
vendor on the invoice basis. All-About-You Caterers’ main business, i.e. 90%, comprises catering and event
management, whereas 10% of its business relates to the letting of its fixed property (house) to Mr and Mrs
Knight at a monthly (market-related) rental (see note 1 below), which they use as their primary residence for
residential purposes.
Due to the adverse economic climate and after several months of hardship, Mr and Mrs Knight decided to
close their business and they have approached Eddie’s Inc. to assist with the deregistration of All-About-You
Caterers for VAT purposes.
All-About-You Caterers was deregistered on 15 March 2022. On 1 March 2022 the following list comprised
the assets and liabilities of All-About-You Caterers:

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Note Cost (excluding VAT) Open market value

at time of acquisition on 1 March 2022
R R
Assets
Sale of residential property (house) 1 1 150 000 1 300 000
Single-cab bakkie purchased in
July 2020 and used solely for delivery
purposes in the catering and event
management business 2 330 000 280 000
Debtors 3 ? ?
Liabilities
Creditors 4 ? ?
Notes:
1. All-About-You Caterers has been trading from the residential property since its inception in June 2019.
This residential house was purchased from a non-vendor for an amount of R1 150 000 and registered in
the name of All-About-You Caterers on 5 June 2019. All-About-You Caterers paid transfer duty of R9 000,
and the full purchase price was paid on the date of registration. All-About-You Caterers claimed the
notional input tax to which it was entitled to in respect of the purchase in its tax period ending 30 June
2019. The house was occupied and used for All-About-You Caterers’ business operations, i.e. 90% of its
business relating to the catering and event management and 10% relating to the letting of the residential
property to Mr and Mrs Knight (at a monthly (market-related) rental of R10 000 until 28 February 2022).
Mr and Mrs Knight resided in the house. On 2 March 2022, All-About-You Caterers sold this house to a
non-vendor at the open market value of R1 300 000. The full selling price was paid into All-About-You
Caterers’ bank account on 8 March 2022 and the registration in the name of the new owner was finalised
two weeks later, on 22 March 2022.
2. The open market value of the single-cab bakkie remained at R280 000 on 15 March 2022.
3. The following is the debtors’ age analysis on the services that All-About-You Caterers rendered on credit,
in its catering and event management business:
30 days 60 days 90 days Total

Amount (R) including VAT 35 995 32 890 23 230 92 115
All-About-You Caterers was of the opinion that the 90 days outstanding debtors amounting to R23 230
were irrecoverable and wrote the amount off on 3 March 2022. No interest was charged on any
outstanding accounts.
4. The following is the creditors’ age analysis:
30 days More than Total

365 days
Amount (R) including VAT 42 205 38 870 81 075
All creditors were vendors and none of the supplies were exempt or zero-rated. No VAT adjustment has
been accounted for yet on any of the outstanding creditors.

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Query 3 (15 marks)
One of Eddie’s Inc.’s non-resident clients, Mr Aamir, is 38 years old and is a resident of Mauritius. Mr Aamir
received and incurred the following amounts relating to his South African investments, during the 2022 year
of assessment:
R
(i) Rental income from immovable property (house) in Sea Point, Cape Town 360 000
(ii) Repairs and maintenance incurred in respect of the house in Sea Point (18 780)
(iii) Interest earned in respect of bonds issued by South African companies and
listed on the Johannesburg Stock Exchange (JSE) 125 000
Mr Aamir visits South Africa every year for 10 days during December; other than this period, he has not been
in South Africa, and he also has no permanent establishment in South Africa.
Eddie’s Inc. prepares Mr Aamir’s annual South African tax return, considering the aforementioned information
and the relevant articles of the Double Taxation Agreement between South Africa and Mauritius (the relevant
extracts are set out below):
ARTICLE 3
GENERAL DEFINITIONS
1. In this Agreement, unless the context otherwise requires -

(c) the terms “a Contracting State” and “the other Contracting State” mean Mauritius or South
Africa as the context requires;
ARTICLE 6
INCOME FROM IMMOVABLE PROPERTY
1. Income derived by a resident of a Contracting State from immovable property, including income
from agriculture or forestry, is taxable in the Contracting State in which such property is situated.
2. The term “immovable property” shall have the meaning which it has under the law of the
Contracting State in which the property in question is situated. …
3. The provisions of paragraph 1 of this Article shall apply to income derived from the direct use,
letting or use in any other form of immovable property.
4. The provisions of paragraphs 1 and 3 of this Article shall also apply to the income from immovable
property of an enterprise.

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ARTICLE 11
INTEREST
1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may
be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises and according
to the laws of that State, but if the beneficial owner of the interest is a resident of the other
Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the
interest.
…
3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be
exempt from tax in that State if –
(a) – (d) …
(e ) the interest arises in respect of any debt instrument listed on a recognised stock exchange.
4. For the purposes of paragraph 3(e), the term “recognised stock exchange” means –
(a) …
(b) in South Africa, the Johannesburg Stock Exchange;
(c) …
5. The term “interest” as used in this Article means income from debt-claims of every kind, …, and
in particular, … income from bonds …
6. The provisions of paragraphs 1, 2 and 3 of this Article shall not apply if the beneficial owner of the
interest, being a resident of a Contracting State, carries on business in the other Contracting State
in which the interest arises, through a permanent establishment situated therein, and the debt-
claim in respect of which the interest is paid is effectively connected with such permanent
establishment. …

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QUESTION 2 – REQUIRED
REQUIRED MARKS
Sub- Total
total
QUERY 1
(i) Eddie’s Inc. has been requested to provide a tax opinion to John to advise
if SARS will impose a penalty if it is found that the omitted amount is
taxable and, if penalised, what the amount of the penalty would be if it is
assumed that the understated tax does not constitute a ‘substantial
understatement’. Furthermore, John wants to know if it would make any
difference to the imposition of a penalty by SARS if he were to notify
SARS of this potential additional tax liability prior to the upcoming audit. 14
Respond to all John’s queries by providing a tax opinion. Support your

opinion with references to the relevant provisions of the Tax
Administration Act, 2011 (Act 28 of 2011), as amended.
Communication skills - clarity of expression 2 16

(ii) Indicate, with a brief reason, whether or not your answer under (i) will
differ if John was a person who had no commercial training or knowledge
or experience in financial matters (meaning neither a CA(SA) nor a
registered tax practitioner) and accidentally omitted the amount from his
2021 ITR12 tax return based on the understanding that it was not relevant
to the tax return. 2 2
TOTAL FOR QUERY 1 18

QUERY 2
Calculate All-About-You Caterers’ input tax and output tax for the April 2022 tax
period arising from the information provided in Query 2. Address all transactions
relating to All-About-You Caterers’ assets and liabilities in the relevant tax period.
Also, address any items not subject to VAT. Show all workings and support all
your calculations with references to the relevant legislation. Round off all amounts
to the nearest Rand.
Mark allocation:
• Calculations 10
• References to legislation 7 17

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QUESTION 2 – REQUIRED (continued)
QUERY 3
Discuss, supported with calculations, Mr Aamir’s South African tax liability in
respect of his 2022 year of assessment. 14
Consider and refer to any South African tax legislation and/or case law principle(s)
that are applicable, as well as the Double Taxation Agreement between South
Africa and Mauritius (“the DTA”), if applicable.
Communication skills – layout 1 15

(MP/PM)

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QUESTION 3
This question consists of two related parts, namely Part A and Part B.
RheumX Ltd (‘RheumX‘) is a resident, non-listed company that manufactures two topical medical products,
Xflamix and Xpain, to be used for chronic joint pain and inflammation. The company sells its products both
locally and abroad. The South African Revenue Service (SARS) classifies the process of manufacturing
topical medication as a process of manufacture.
RheumX has a December financial year-end and is a Category C registered value-added tax (VAT) vendor.
All amounts in the question exclude VAT (where applicable), unless specifically stated or implied otherwise.
All valid tax invoices and the requisite supporting documents are in place.
On 1 January 2022 the holders of shares (“shareholders”) of RheumX were as follows:
Holder of shares Number of shares held Shares acquired for Refer transaction
R
Pharmaquip (Pty) Ltd 250 25 000 5
Pack & Art (Pty) Ltd 250 25 000
Ziza Plc 250 25 000 3
Citri Plc 250 25 000 2&4
TOTAL 1 000 100 000
RheumX has an authorised share capital of 1 250 shares at R1 000 each, of which 1 000 shares were issued
before 1 January 2022. Voting rights are conferred to each holder of shares in proportion to its equity
shareholding.
Part A: (42 marks)
During RheumX’s 2022 year of assessment the following transactions, that have not been taken into account
in the calculation of the company’s preliminary taxable income of R10 500 000, occurred:
1. On 30 June 2022 RheumX received a cash dividend of R50 000 in its bank account from MedMart (Pty)
Ltd, a company registered and managed in South Africa. RheumX did not submit the declaration or written
undertaking in terms of section 64G(2) of the Income Tax Act, 1962 (Act 58 of 1962), as amended, by
the date determined by MedMart (Pty) Ltd.
2. On 1 October 2022 RheumX ordered 20 kilogram of Valencene D from Citri Plc (a non-resident company
in France that has a December financial year-end) for €18 700 (an arm’s length market-related price).
The Valencene D was shipped free on board on 31 October 2022. Although RheumX had paid for the
product on the day that the order was placed, the company had not yet received the Valencene D on
31 December 2022.
3. On 1 August 2022 RheumX ordered 100 kilogram of Vetiweryl Acetate from Ziza Plc to be used in the
manufacturing of Xpain. Ziza Plc is a non-resident company in France and has a December financial
year-end. The Vetiweryl Acetate was invoiced at a cost of €40 000 (an arm’s length price and were
shipped free on board (FOB) on 10 August 2022. On 31 August 2022 the Vetiweryl Acetate were cleared
for home consumption and delivered at RheumX’s premises after the company paid the import duty of
R60 000 on the customs duty value of R770 000. Ziza Plc agreed that RheumX could pay the entire
amount owing to it on or before 31 January 2023.

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On 31 August 2022 RheumX entered into a 5-month forward exchange contract to hedge the entire
settlement of the debt on 31 January 2023.
On 31 December 2022, 40% of Vetiweryl Acetate that was ordered from Ziza Plc on 1 August 2022 has
not yet been used in the manufacturing process.
4. Citri Plc granted RheumX a loan of R1 000 000 at an interest rate of 20% per annum on
1 September 2022. RheumX used the entire loan to purchase ingredients to manufacture Xflamix. After
applying at several independent financial institutions, it was evident that RheumX could only qualify for
a loan of R600 000 at an arm’s length interest rate of 15% per annum. Citri Plc does not carry on
business through a permanent establishment in South Africa. All interest is compounded annually. All
interest rates are equal to the effective interest rates (correctly determined in terms of section 24J).
5. RheumX purchased a new and unused ultrasonic mixer bin from Pharmaquip (Pty) Ltd (a resident
company) for R200 000 during the company’s 2021 year of assessment. The ultrasonic mixer bin was
immediately brought into use in the manufacturing of Xflamix. Pharmaquip (Pty) Ltd agreed that RheumX
could pay 20% of the purchase price annually on 31 December until the debt is settled. No interest is
payable on the debt. RheumX made the agreed payment on 31 December 2021 but could not make the
payment on 31 December 2022 due to financial losses suffered as a result of the effect of the COVID-
19 pandemic on its sales. Pharmaquip (Pty) Ltd agreed that RheumX could make a final payment of
R10 000 and it would then discharge the entire outstanding amount of the full debt. RheumX agreed and
made a payment of R10 000 on 31 December 2022.
Part B: (8 marks)
Due to the financial difficulties that RheumX is facing, the directors of the company (after discussions with
the directors of Pharmaquip), in a bid to obtain funding, are considering to issue debentures to Pharmaquip
that may be converted into ordinary shares in RheumX, to obtain funding. By issuing this instrument, it will
give RheumX the flexibility of being able to settle the debentures should it have funds available, or to
capitalise the loan by converting it into shares. This will qualify as an arrangement as defined in terms of
section 80L.
If the debentures are converted into ordinary shares, it will be at a ratio of 1:1. On the date of conversion the
market value of the shares will not be equal to the amount owed in terms of the instrument at the time of
conversion or exchange. The debentures will be issued at face value of R250 000 on 1 January 2023. The
coupon rate on these debentures will be 8% per annum. Interest will be payable annually in arrears from
31 December 2023. You may assume that the interest, as defined in section 24J(1), incurred by RheumX for
its 2023 year of assessment will amount to R8 000 (correctly calculated).

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ADDITIONAL INFORMATION TO PART A AND PART B:
• Assume that there is no double taxation agreement (“DTA”) in place between South Africa and France
that will have an effect on any of the transactions.
• The following ruling exchange rates are applicable:
Date Spot rate 5-month 1-month

€1 = R forward rate forward rate
1 August 2022 ................................................ €1 = R19.15

10 August 2022 .............................................. €1 = R19.20
31 August 2022 .............................................. €1 = R19.22 €1 = R19.35 €1 = R19.26
1 October 2022............................................... €1 = R19.25
31 October 2022............................................. €1 = R19.28
31 December 2022......................................... €1 = R19.30 €1 = R19.45 €1 = R19.33
31 January 2023............................................. €1 = R19.35
Average for the 2022 year of assessment ..... €1 = R19.10
Average for the 2023 year of assessment ..... €1 = R19.40

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PART A
REQUIRED Marks
Sub- Total
Total
(a) Calculate the effect of transactions 1 to 5 on the taxable income of RheumX Ltd
for the company’s 2022 year of assessment. Address all transactions. Clearly
indicate and provide a reason if any transaction has no effect on the taxable
income. Provide reference to legislation only for transaction 5. 25
(b) Calculate the value-added tax (VAT) consequences for RheumX Ltd in respect of
transaction 3. Clearly indicate whether each amount calculated represents input
tax, output tax, VAT or no VAT. 5
(c) Discuss, supported with calculations and references to legislation, the dividends
tax consequences in respect of transaction 4. Indicate who is liable for the
dividends tax and when it needs to be paid in order to avoid penalties and interest
imposed by SARS. 11
Communication skills – Clarity of expression 1 12

TOTAL FOR PART A 42
PART B
REQUIRED Marks
Sub- Total
total
Discuss the implications in terms of the Income Tax Act, 1962 (Act 58 of 1962), as
amended, that Part B will have on both:
• RheumX Ltd’s; and 4

• Pharmaquip (Pty) Ltd’s 3
companies’ 2023 years of assessment. Assume that the 2022 income tax legislation will
be applicable to their 2023 year of assessment.
Communication skills – logical argument 1 8

TOTAL FOR PART B 8
(PV/MM)

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QUESTION 4
This question consists of two related parts, namely Part A and Part B.
Part A (33 marks)
Medi-engineering (Pty) Ltd (‘Medi’) is a small engineering firm that research and innovate new technology in
the medical equipment field. Medi was registered at the end of 2019 by three top scientists, who are the
shareholders and directors of the company. Each shareholder subscribed to one-third of the 100 000 equity
shares issued by contributing R100 000 each. The shares of Medi are not listed on an exchange as defined
in section 1 of the Financial Markets Act.
The company conducts engineering projects in ICU upgrades and pure research in the field of ventilators.
Due to the rapid increase in COVID-19 cases, South Africa was in a race to build more ventilators for critically
ill patients. In March 2022 Medi invented a new proto-type that fulfilled all the requirements of the World
Health Organisation (WHO) and the ventilator was duly registered under the Patents Act, 1978 (Act 57 of
1978) on 1 April 2022. Patent registration costs (in addition to the lawyers’ fees (refer to note 2.1)) of
R250 000 was paid. The new prototype ventilator is unique in that patients do not need to be intubated
(process of inserting a tube), but a tight-fitting oxygen mask is used to provide oxygen to the patients. The
production of ventilators is a process similar to a ‘process of manufacture’ as defined in Practice Note No. 42
to the Income Tax Act.
The company registered as a Category A vendor for value-added tax (VAT) purposes on 1 May 2022. All
amounts exclude VAT, unless stated or implied otherwise. All valid tax invoices and the requisite supporting
documents are in place. The company’s financial year ends on 31 July 2022.
1. New shareholder – Dr Philani Motseko
The directors of Medi decided to invite Dr Philani Motseko, a renowned scientist, to join the team as he
specializes in the manufacturing of self-inflating, elastic resuscitation bags. Dr Philani (not a registered VAT
vendor) agreed to subscribe to 20 000 equity shares in the company. Dr Philani will, after his subscription,
hold 20 000 of the 120 000 equity shares which equals 16.67% of the shareholding). The auditor of Medi
estimated that the 16.67% shareholding was worth R230 000 on 30 April 2022. Dr Philani did not have the
necessary cash available and the directors agreed that he would subscribe for his shareholding in the
company in exchange for the company assuming ownership of all his laboratorial equipment, worth R200 000
(originally purchased for R150 000 during 2021), fairly valued on 30 April 2022. Dr Philani purchased the
equipment for private use and has not claimed any tax allowances on the equipment. The company issued
the 20 000 equity shares to Dr Philani on 30 April 2022.
On 30 April 2022, Medi had taxable income of R45 000 (correctly determined) before the following contract
was obtained:

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2. Contract with government
In May 2022 Medi tendered and was awarded the tender from the National Health Department to produce
1 500 ventilators at R110 000 each. In terms of the National Health Department’s tender policy, 70% of the
total tender price is paid upfront on 15 May 2022 and the residual amount will only be paid 30 days after the
delivery of the last ventilator. Production of the new ventilators started on 1 June 2022. The directors
produced and delivered the first 1 000 ventilators on 30 June 2022 and the residual ventilators were
completed and delivered on 30 July 2022.
Medi’s accountant put together the following direct costs as an estimate for the 1 500 ventilators to be
produced:
Description Note R
Salaries and labour of technicians 2.1 14 893 200
Materials for self-inflating elastic resuscitation bag 16 400 000
Depreciation on laboratory equipment as per accounting policy 2.2 300 000
Valves, machinery and monitors 2.3 66 000 000
Purchase of loose tools to assemble ventilators 6 800
Rental of laboratory (20% of floor space) and factory (80% of floor space)
space 2.4 1 400 000
Total 99 000 000
Note 2.1: Salaries and labour cost

The salaries and labour cost of R14 893 200 includes R500 000 that was paid to the patent lawyer to prepare
and register the patent. Each director receives a salary of R80 000 per month for the duration of the tender
and the residual amount has been paid to highly specialized contract technicians. On 1 August 2022 each
director received an additional R1 million bonus as recognition for the successful execution of the tender as
per tender agreement. This bonus is not included in the amount of R14 893 200. None of the directors
received any salary from Medi in the month of May as there was no cash to pay them, due to the lockdown
regulations.
Note 2.2: Depreciation

In addition to the laboratory equipment transferred by Dr Philani (see note 1), Medi purchased new laboratory
equipment for R1 200 000 on 1 June 2022 and immediately brought it into use. Binding General Ruling No.
7 allows a five-year write-off period on laboratory equipment.
Note 2.3: Valves, machinery and monitors

The valves, machinery and monitors, used in the manufacturing of the ventilators, were ordered and imported
from Germany (a non-connected supplier). The non-refundable import cost of R1 980 000 and VAT on
importation of R10 890 000 (correctly determined) was paid on 15 June 2022. These amounts are not
included in the R66 million. The effect of any foreign exchange gains and/or losses is already correctly
included in the R66 million.
Note 2.4: Rental of assembly space (factory)

As Medi urgently required a clean working space, it paid a lease premium of R1 million (to Maxprop Ltd, a
registered VAT vendor) on 1 June 2022. The lease contract was signed on the same date for a period of two
years as Medi is confident that the next government tender will be allocated to them, due to the high demand
for this unique ventilator. The monthly rental amount to be paid from 1 June 2022 is R92 000 (VAT inclusive).

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3. Additional information:
• Voting rights are conferred to each holder of shares in proportion to its equity shareholding.
• Due to the high demand for ventilators, Medi produced five extra ventilators in June 2022 at a cost of
R50 000 each (not part of the tender) and donated these ventilators to the Red Cross (a registered public
benefit organisation) and received a valid section 18A-receipt. The lower cost per unit is due to the fact
that none of the laboratory technicians and directors invoiced the company for their overtime to build
these ventilators as they regarded this as their social contribution to our nation’s health.
• Medi realised an assessed loss of R40 000 for normal tax purposes during its 2021 year of assessment.
Part B: (17 marks)

Motseko Trust
The Motseko Trust is a testamentary trust that came into being when Mthokozisi Motseko (a resident of the
Republic of South Africa and a widower) died and bequeathed his whole share portfolio to the Motseko Trust.
Mthokozisi Motseko is the father of Dr Philani Motseko (45 years old and married out of community of property
to Ncumisa). The trustees of the trust are Mthokozisi’s attorney and his accountant.
The beneficiaries of the Motseko Trust are, Mirabelle (the sister of Dr Philani) and the children of Dr Motseko
(grandchildren of Mthokozisi), Khaya and Sihle, who were eight years old and six years old respectively (both
resident in the Republic of South Africa) at the end of February 2022. For the purposes of this question,
assume that the trust is not a special trust as defined.
The trust will dissolve when Sihle reaches the age of 21 years and all the undistributed income and capital
assets will be distributed equally between the beneficiaries. If one of the beneficiaries were to die before Sihle
reaches the age of 21, the trust will dissolve and the total undistributed income and capital will be distributed
to the surviving beneficiaries.
Dr Philani Motseko
The COVID-19 pandemic brought forth some soul searching for Dr Philani. He wants to make his life simpler
by selling his primary residence in Durbanville and moving to a small town in the Karoo. His family homestead
is on a 5-hectare plot and has been valued by a sworn appraiser at R18 million (of which the 4-hectare land
had a market value of R14 million and the family homestead on the 1-hectare R4 million) on 1 August 2022.
Dr Philani initially purchased the house on 1 January 2015 for the amount of R6 million (of which the land
was worth R4 million) and used 30% of the house as his own laboratory from the date of purchase. All
allowable tax deductions and income of small development projects that Dr Philani completed after-hours
while he was still working for his previous employer, were declared by Dr Philani in his tax returns (ITR12s)
for the past 6 years.
Dr Philani is considering the following two options regarding his family homestead:
Option 1:
Dr Philani plans to sell his residence at its market value to the Motseko Trust on 1 August 2022 and move to
a rental house until his retirement. The sale to the trust will be financed with an interest-free loan. If the house
was sold to a property developer for R18 million, the money could be re-invested at a market rate of 4,75%
per annum (the same as the official rate of interest, published by SARS on 1 December 2021). Dr Philani
does not want to transfer any of his other assets to the trust and made no other donations since 1 March
2018 up to the end of his 2023 year of assessment as determined by Binding General Ruling No. 40.

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Option 2:
Dr Philani will not sell his residence. He will reside in his residence but considered the implications if he was
to die. He contacted his executor who advised him that in the event of his death, he should:
• Transfer his residence (on the 1-hectare plot) separately to the Motseko Trust in his valid will so that Dr
Philani’s family will still be able to reside there. The transfer cost of the residence by the deceased estate
to the trust will be R185 000.
• the deceased estate should sell the land (4-hectares) to a property developer at an estimated value of
R15 million. The estimated estate agent’s commission will be 5% of the selling price of the land and the
lawyer’s cost to divide the property, R60 000. Transfer duty of 8% will be levied on the sale of the land
as it is not excluded in terms of the Transfer Duty Act, 1949 (Act 40 of 1949), as amended.

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PART A
REQUIRED Marks
Sub- Total
Total
(a) Discuss, in respect of note 1, the tax implications in terms of the Income Tax Act,
1962 (Act 58 of 1962), as amended, for Medi-engineering (Pty) Ltd of the
subscription of 20 000 shares by Dr Philani Motseko in exchange for the laboratory
equipment. 12
1 13
Communication skills – logical argument
(b) Calculate the income tax liability of Medi-engineering (Pty) Ltd for the company’s
2022 year of assessment. Clearly indicate all items that have no effect on the
taxable income. Provide brief reasons for each item in your calculation. 20
TOTAL FOR PART A 33
PART B
REQUIRED Marks
In this part of the required you must assume that the 2023 tax legislation will be Sub- Total
identical to that for the 2022 year of assessment. Total
(i) Discuss the donations tax implications for Dr Philani Motseko if he decides to use
option 1 and sell his residence to the Motseko Trust on 1 August 2022. 6
Support your discussion with calculations.
(ii) Calculate the ‘net capital gain’ or ‘assessed capital loss’ (as defined) implications
in terms of option 2 on the residence, that will form part of Dr Philani’s capital gains
tax calculation for his 2023 year of assessment, if Dr Philani was to die on 1 August
2022. 4

(iii) Draft a memo to Dr Philani Motseko in which you explain the capital gains
implications for his deceased estate if Dr Motseko was to die on 1 August 2022 and
option 2 in the question was executed by the executor of the deceased estate.
5
1 6
TOTAL FOR PART B 17
(PV/TO)

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QUESTION 1 - SUGGESTED SOLUTION
(a) Calculation of taxable income for the year of assessment ended 28 February 2022
Lump- Other
sums
R R R
1. Severance amount received
Qualifies as a severance benefit as Mathew is > 55 years of age.
Therefore, it is a lump sum and taxed separately at severance benefit
scales. (1)
(Par 9(c) of SCHEDULE I Rates of Normal Tax) (R516 400 + R3 600) 520 000 (1)
1. Salary paid by Civilcon Ltd for 4 months (amount given) 400 000 (1)
2. Retirement annuity fund contributions paid by employer on behalf of
employee
Fringe benefit (gross income, s 1, par (i) read with par 2(h) or (l)
of the 7th Schedule). Cash equivalent ito par 13(1) or par 12D.
(R4 500 x 60% x 4m) 10 800 (1)
3. Use of company owned car
Fringe benefit ito par 2(b) of the 7th Schedule.
Private use ito par 7(4). (R320 000 x 3,5% x 4m) 44 800 (2)
Less: Consideration given by employee (Fuel not allowed
(par 7(2)) 0 (½)
Cash equivalent of the value of the taxable benefit ito par 7(2). 44 800
Less: Par 7(7) reduction on assessment.
(9 400km / 17 800km x R44 800) (23 658) 21 142 (1)
No par 7(8)(b) deduction for fuel, as not paid in full by Mathew 0 (½)
3. Obtain vehicle for consideration less than its value
Fringe benefit ito par 2(a) of the 7th Schedule. Cash equivalent
ito par 5(2). R287 500 – R100 000 187 500 (1)
4. Vesting of Civilcon Ltd shares in Mathew on 31 March
2021
Section 8C(1)(a)(i) and 3(b)(i). MV R210 – Cost R120 = R90 per
share x 1 000 shares (to be included in income) 90 000 (2)
5. Consulting fees received - Argentina (independent
contractor)
Gross income 350 000 (1)
Mathew is ordinarily resident in South Africa and therefore taxed on his world-wide
income.
Note: Section 10(1)(o)(ii) not applicable as Mathew is not employed by the
Argentinian company, or the invoiced amount does not constitute “remuneration” as
referred to under s 10(1)(o)(ii)).
5. Travel and living expenses (1)
Not a fringe benefit as Mathew is an independent contractor and there is no employee-
employer relationship.
There is an argument for a par (c) gross income inclusion as it can be seen as a barter
transaction, as there is a causal link between the benefit received and the services
rendered. However, if included in gross income, it is also deductible.
(R37 000 + R62 000)

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QUESTION 1 - SUGGESTED SOLUTION (continued)
Lump- Other
sums
R R R
5. Wear-and-tear s 11(e) allowance on laptop
Laptop used for purposes of trade. S 11(e) allowance may be
deducted. R35 000 (including VAT) / 3y x 109/365 days (or
3,5m) (3 484) See below (2)
5. Data costs
Deductible ito s 11(a) as Mathew is carrying on a trade and
the expense is incurred in the production of income and not
of a capital nature. (6 500) See below (1)
6. Living annuity received
Gross income (par (a) of GI def). (R17 580 + R4 420) = R22 000 x 4m 88 000 (1½)
6. Section 10C exemption
Less: Section 10C exemption 2022 yoa (88 000) (1)
Note: (Previously disallowed retirement fund contributions of R120 000 limited to
R88 000. Hence, R32 000 will be first utilised under s 11F below. Any possible
unutilised portion will be carried forward to be utilised against annuities received in
the 2023 year of assessment).
7. Director’s remuneration received (Consult)
Gross income (par (c) of GI def.) (R5 000 x 12 meetings) 60 000 (1½)
(Note: Amount of last meeting accrued on the date of the meeting. Need to include
in gross income on the earlier of received or accrued)
S 7B not applicable as Mathew is not an employee.
And/or director’s remuneration is not included in the definition of ‘variable
remuneration’ as defined in s7B(1).
8. Listed shares and foreign dividend received
Increase in value of shares on 28/2/2022 (R1 420 000 – R1 360 000 = R60 000) -
This does not represent an amount received by or accrued to Mathew, so no need
to further mention that it may be capital.
Dividend received - ‘Gross income’, s1, par (k) (R104 500 x 100/95) 110 000 (1)
Less: Section 10B(2)(d) exemption (110 000) (1)
INCOME 1 119 442
Less: Deductions (including capital allowances)
Wear-and-tear – see note 5 (3 484)
Data costs – see note 5 (6 500)
1 109 458
Add: Specific inclusions in taxable income:
7. Re-imbursement of entertainment expenses
No inclusion in taxable income as Mathew provided proof of expenditure and was
reimbursed by Consult. (R8 050) (s 8(1)(a)(ii)). 0 (1)
7. Travel costs reimbursed
S 8(1)(b)(iii) read with Point 4 of the SCHEDULE to Fixing of rate per kilometre in
respect of motor vehicles [GN 170].
2 600 business km x R5 13 000 (1)
Less: Allowable expenditure (R3,82 x 2 600km) (9 932) 3 068 (1)

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Lump- Other
sums
R R R
Subtotal 1 112 526
Add: Taxable capital gains (s26A)
4. Capital gain/loss with selling of Civilcon Ltd shares
Proceeds – R170 x 1 000 shares = R170 000
Less: Base cost – R210 x 1 000 shares
(par 20(1)(h)(i)) = R210 000 = capital loss of R40 000 (40 000) (2)
Mathew is not a connected person to the company as he does not hold at least 20%
of the shares in Civilcon (Def. of ‘connected person’ – s1(d)(iv)), therefore par 39
does not apply (not a clogged loss).
As there are no other capital gains or losses the aggregate capital loss is R40 000. (1)
The capital loss must be reduced with the annual exclusion of R40 000 (par 7(b) of
8th Schedule). 0 (1)
Taxable income including capital gains 1 112 526
2. Less: S 11F(2) deduction for contributions to retirement funds
Unclaimed contributions – balance brought forward on
1/3/2021
This amount is deemed to be contributed in the current year
(s 11F(3)) 120 000 (1)
Less: Section 10C exemption 2022 yoa (used above) (88 000) (1)
Add: Current year contributions (fringe benefit) (R4 500 x
60% x 4m) 10 800
Add: Current year contributions made by Mathew
(R4 500 x 40% x 4m) + (R4 500 x 3m)) 20 700 (2)
Available for deduction ito s 11F(3) 63 500
11F Deduction is limited to the lesser of:
 R350 000; or (½)
 27,5% x greater of: (½)
• Remuneration (given as R680 000); and
• taxable income – R1 112 526 (including taxable capital gains)
Thus, 27,5% x greater (R1 112 526) = R305 945; or (1)
 Taxable income (excluding taxable capital gains) R1 112 526
Therefore – R305 945, but limited to actual (63 500) (1)
Taxable income 520 000 1 049 026 (1)
Marks 37
Max 35
Communication – presentation
(Capital gain calculation followed by section 11F deduction last.) (1)
Max 36

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(b) Calculation of net normal tax payable R
Normal tax per rates on R1 105 800 (taxable income given in required) 361 765 (1)
Less: Primary rebate (s 6(2)) (15 714) (½)
Add: Normal tax on lump sums received
(Par 9(c) of SCHEDULE I Rates of Normal Tax)
(R520 000 - R500 000) = (R20 000 x 18%) + R0 3 600 (1)
(No provision for deducting balance of unclaimed contributions from severance
benefit lump sum. It is not a lump sum received from a fund, but from an
employer).
Less: Section 6A credit (Rnil as no medical scheme membership) 0
Less: Section 6B credit
33,3% of medical expenses actually paid (not only incurred) (s 6B(3)(a)(ii))
(R6 220 + (R120 000 – R15 800 (R104 200)) = R110 420 x 33,3% (36 770) (2½)
Normal tax payable 312 881
Marks 5
(c) Employees’ tax consequences of the director’s fees, the reimbursement of business
kilometres travelled and the reimbursement of entertainment expenses paid by Consult.
Name: Student@gmail.com
To: Mathew@gmail.com
Date: xxxxxxxxx
Topic / Subject: Deduction of employees’ tax from director’s fees and reimbursement of travel
costs and entertainment expenses
Communication skills – Layout and structure (must be able to identify email format) (1)
To determine whether or not employees’ tax needs to be withheld from an amount paid to a person,
it must be established whether that amount is ‘remuneration’ as defined in par 1 of the Fourth
Schedule to the Income Tax Act. (1)
Once it has been established that an amount is in fact remuneration, then the definitions of
employer and employee must be considered to determine whether there is a specific exclusion
that may apply.
Director’s fees paid:
The director’s fees paid by Consult is a fee and is paid in respect of services rendered by Mathew
to Consult (par (c) of definition of gross income in s 1) and therefore could fall within the inclusion
of par (a) of the definition of ‘remuneration’,
However, the directors’ fees are excluded from remuneration (exclusion (ii)) of the definition of
remuneration) since Mathew, as a non-executive director, is carrying on a trade independently of
Consult (regarded as an independent contractor). (1)
Reimbursement of travel costs incurred:
The reimbursement of travel expenses (s 8(1)(b)(iii)) could also potentially be included in
‘remuneration’ in terms of par (cC) of the definition of ‘remuneration’.
The amount paid (R5,00) to Mathew as exceeds the rate per kilometre for the simplified method in
the notice (R3,82) multiplied with the actual distance travelled (2 600km). (R5,00 – R3,82) x
2 600km = R3 068. (1)
However, the reimbursed travel costs are excluded from remuneration (exclusion (ii) (1)) of the
definition of remuneration) since Mathew, as a non-executive director, is carrying on a trade
independently of Consult (regarded as an independent contractor). (1)
Binding General Ruling (Income Tax) No. 40 also accepts that resident non-executive directors
are not common law employees and that no control or supervision is exercised over the way they
perform their duties or their hours of work.

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Reimbursement of entertainment expenses:

The reimbursement of entertainment expenses paid by Consult is specifically excluded from the
definition of ‘remuneration’ in exclusion (vi) that states that any amount paid to an employee wholly
in reimbursement of expenditure actually incurred by such employee in the course of his
employment. (1)
It would be moot to argue that the reference to employee in (vi) disqualifies the exclusion, as
exclusion (ii) will then be applicable, which will also exclude the reimbursement from being
remuneration.
Conclusion:
Consult should not deduct employees’ tax from directors’ fees, reimbursement of travel costs and
entertainment expenses paid to Mathew.
Marks 6
(d) Obligation to submit provisional tax returns
The definition of “provisional taxpayer” in par 1 of the Fourth Schedule applies.
In terms of sub-par (a)(ii) of the definition Mathew is regarded as a provisional taxpayer as he
derives:
- income that does not constitute remuneration (consulting fees and director’s remuneration);
OR
- income that constitutes an allowance in terms of s 8(1) (travel costs reimbursed by Consult). (1)
None of the exclusions in sub-par (aa) – (ff) applies.
Also not (dd)(B)(AA) or (BB) as his business income exceeds the tax threshold (or passive income
> R30 000). (1)
Conclusion: Mathew needed to submit provisional tax returns for the 2022 year of assessment. (1)
Marks 3

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Query 1
(i)
In order for SARS to raise an understatement penalty, there must be an “understatement”
as defined in section 221 of the Tax Administration Act, No. 28 of 2011 (as amended) (“the (1)
TAA”).
An “understatement” is defined as “any prejudice to SARS or the fiscus as a result of –...
(inter alia) an omission from a return (par (b) of the definition of an “understatement” in
s 221).
In the facts under review, there was an omission from John’s 2021 tax return. It follows that (1)
there is an “understatement” in question.
In the event of an “understatement”, the taxpayer must pay, in addition to his tax liability for
the relevant tax period, an “understatement penalty”, unless the “understatement” results
from a bona fide inadvertent error (s 222(1) of the TAA). (1)
In the facts under review, it is submitted that the omission by John was not the result of a
bona fide inadvertent error, but he intentionally decided not to investigate the origin of the (1)
amount to determine if it is taxable or not, and instead chose to omit it from his tax return.
Accordingly, the “understatement penalty” must be determined as it will be applicable. (1)
In terms of section 222(2) of the TAA, the understatement penalty is the amount resulting
from applying the highest applicable understatement penalty percentage in accordance with (1)
the table in section 223 to each shortfall determined under subsections (222)(3) and (4).
The shortfall in question is calculated in terms of section 222(3)(a) – (c) of the TAA, i.e. the
sum of (a) to (c): (1)
(a) the difference between the amount of “tax” properly chargeable for the tax period and the (1)
amount of “tax” that would have been chargeable for the tax period if the “understatement”
were accepted and
(b) and (c) – but there is no refund or assessed loss to take into account,
multiplied by the tax rate determined under subsection 5.
John will be taxed on the shortfall determined at his maximum tax rate, i.e. 45% (given). (1)
(s 222(5)).
In terms of the percentage table in section 223 of the TAA, it is submitted that the (1)
understatement penalty will be based on the behaviour under item (ii) of the table, i.e. John
did not take reasonable care in completing his 2021 tax return. (1)
Alternative: behaviour (iii), i.e. “no reasonable grounds for tax position taken”; or (v) “gross
negligence” of the penalty percentage table in the circumstances under review.
Based on the facts, it is a standard case in accordance with the table (it is not an obstructive (1)
or repeat case and John also did not voluntary disclose the information to SARS before or
after being notified of the audit) and the understatement penalty that SARS is likely to
impose is 25% to the shortfall determined. (1)
Alternative: for behaviour (iii), penalty is 50%; or if (v), penalty is 100%.
It is important to remember that the burden of proving the facts on which SARS will rely to
impose an understatement penalty rests with SARS in terms of s 102(2) of the TAA. (2)
Regarding the question on whether or not it will make any difference to the imposition of a
penalty by SARS if John were to notify SARS of the potential additional tax liability prior to the
upcoming audit, the answer is yes, it will make a difference to the percentage penalty that (1)
SARS is likely to impose.
Based on the penalty percentage table, the percentage penalty for the behaviour under item
(ii) of the table (i.e. reasonable care not taken in completing the return) will be 15% (compared (1)
to the above 25%) if a taxpayer voluntary discloses the information after notification of the (1)
audit.
Alternative: for the behaviour under (iii), the percentage penalty will be 25%, or 50% in the
case of behaviour (v) if the information is disclosed voluntary after notification of the audit.
Communication skills - clarity of expression (2)
Available 20
Max 16

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(ii)
Yes, although the omission from the return will constitute an “understatement” as defined,
John will not be liable for an “understatement penalty”, because the omission of the amount (1)
from the return resulted from a bona fide inadvertent error (s 222(1) of the TAA). (1)
Total 2
Query 2
Output tax Input tax

R R
1. Sale of house:
15
/115 x R1 300 000 x 100% taxable supplies 169 565 (1)
Section 7(1)(a) / Section 8(16) deemed supply (no (1)
apportionment)
Section 16(3)(h) input tax adjustment: (1)
Lesser of adjusted cost (R1 150 000 x 115/100 = (1)
R1 322 500) and OMV (R1 300 000), therefore
R1 300 000 x 15/115 x 10% (non-taxable supplies) 16 957 (3)
(Note: upon acquisition of the house, All-About-You
Caterers claimed notional input tax of 90% of the purchase
price (= taxable supplies); can now claim on balance of
10%.)
2. Single-cab bakkie:
Deemed supply in terms of s 8(2) on ceasing to be a vendor (1)
(time of supply is immediately before ceasing to be a vendor
ito s 9(5)): (1)
Lesser of cost incl. VAT (R330 000 x 115/100 = R379 500) (1)
and OMV (R280 000) (s 10(5)), therefore (1)
R280 000 x 15/115 36 522 (1)
3. Debtors – irrecoverable debts (output tax previously

levied)
R23 230 x 15/115 3 030 (1)
Section 22(1) (1)
(Not section 22(1A) that relates to factoring of debtors)
Remaining debtors
No deemed supply in terms of section 8(2), as output tax
already accounted for on issue of invoice. - (1)
4. Creditors older than 12 months:

R38 870 x 15/115 5 070 (1)
Section 22(3) – output tax adjustment as result of non- (1)
payment for 12 months and no adjustment yet accounted
for.
Creditors – balance of creditors
R42 205 x 15/115 5 505 (1)
Section 22(3) proviso (ii)(dd)(BB) – immediately before (1)
ceased to be vendor.
19
Max 17

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Query 3
R
Normal tax liability:
Mr Aamir is a non-resident (given) and will be liable for tax in RSA on his RSA
source income. (1)
Rental income:
There is no statutory source rule relating to rental income in section 9 of the
Income Tax Act and therefore common law principles as established in case
law need to be applied.
To establish the source of income, the originating cause must be determined. (1)
(Lever Brothers and Unilever Ltd case)
The originating cause of rental income earned from the letting of immovable
property is where the property is used, which in this case is Sea Point, Cape (1)
Town, South Africa.
The rental income of R360 000 is thus derived from a South African source and
constitutes gross income as defined in section 1 (par (ii) of the definition). (1)
As the income is subject to tax in South Africa (SA), regard must be had to the
DTA between SA and Mauritius, because the DTA has the effect of law (1)
(overrides the common law or statutory rules) (section 108(2) of the Income (½)
Tax Act). The question to answer is if the DTA between SA and Mauritius
prevents Mr Aamir from being taxed in SA on the rental income?
In terms of paragraph 1 of Article 6 of the DTA, income derived by a resident (½)
of a Contracting State (i.e. Mr Aamir is a resident of Mauritius) from immovable
property is taxable in the Contracting State in which such property is situated.
The house (immovable property) is situated in SA and therefore, Mr Aamir will
be taxed on the rental income in SA. 360 000 (1)
Repairs & maintenance:
Mr Aamir can deduct the repairs and maintenance in terms of section 11(d) as (18 780) (1)
the property is situated in SA and the rentals will be taxed here.
Interest earned in respect of JSE listed bonds:
The interest of R125 000 received by Mr Aamir is from a South African source
in terms of section 9(2)(b) of the Income Tax Act, because it is received in (1)
respect of the utilisation or application in the Republic of funds or credit
obtained and constitutes gross income as defined in section 1 (par (ii) of the 125 000 (½)
definition).
The interest is, however, exempt from normal tax in terms of section 10(1)(h) (125 000) (½)
of the Income Tax Act, because Mr Aamir has only been present in SA for 10 (½)
days during the year (not exceeding 183 days during the 12-month period (½)
preceding the date of receipt of the interest) and he also does not have a
permanent establishment in SA. (½)
Since the interest is exempt, there is no risk of double taxation and thus no
need to consider the provisions of the DTA between Mauritius and SA. (1)
Taxable income 341 220
Normal tax per tax table [R70 532 + 31% x (R341 220 – R337 800)] 71 592 (1)
Less: Primary rebate (15 714) (½)
Normal tax liability 55 878
Withholding tax liability:

There is no withholding tax applicable to rental income in SA. -
There is withholding tax on interest in terms of section 50B(1) of the Income (1)
Tax Act. However, the interest in question is exempt from withholding tax,
because it is paid in respect of listed debt (section 50D(1)(a)(ii)). - (1)
Communication skills – layout (1)
17
Max 15

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PART A:
(i) Calculate the effect of transactions 1 to 5 on the taxable income of RheumX Ltd for the
company’s 2022 year of assessment. Address all transactions. Clearly indicate and 25
provide a reason if any transaction has no effect on the taxable income. Provide
reference to legislation only for transaction 5.
R R
1. Income tax payable
Preliminary taxable income (given) 10 500 000
1 Transaction 1:
Local dividend received R50 000 x 100/80 = R62 500 62 500 (1)
(section1, definition of gross income, par (k))
Local dividend received exempt (section 10(1)(k)(i)) (62 500) (1)
2 Transaction 2:
Section 11(a) - €18 700 x R19.28 = R360 536 (360 536) (1)
Trading stock in transit – not yet received 360 536 (1)
[section 23F(1)]
Foreign exchange gain (€18 700 x (R19.25 – R19.28)) 561 (1)
= R561 gain[section 24I]
Transfer pricing [section 31] is not applicable as the -
international transfer takes place at arm’s length prices.
Hence, not an ‘affected transaction’ as defined.
3 Transaction 3:
€40 000 x R19.20 = 768 000 (1)

Plus: Import duty [s 22(3)(a)(i)] 60 000 (1)
Input tax – already claimed in full [s 23C] - (1)
Acquisition of trading stock [s 11(a)] 828 000 (828 000)
Section 22(1) Closing stock: 40% x R828 000 331 200 (1)
Foreign exchange differences – section 24I:
Exchange item - Debt:
€40 000 x (R19.20 – R19.30) R4 000 exchange loss (4 000) (2)
Exchange item - FEC:

€40 000 x (R19.35 – R19.33) R800 exchange loss (800) (2)
Transfer pricing [section 31] is not applicable as the
international transfer takes place at arm’s length prices.
Hence, not an ‘affected transaction’ as defined.
Although the parties are connected persons, the
deferral of recognising exchange differences under
section 24I(10A) is not applicable as the debt is hedged
and represents a current liability.

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QUESTION 3 – SUGGESTED SOLUTION (continued)

R R
4. Transaction 4:
Loan of R1 000 000 received – no effect as capital in - (1)

nature (section 1, gross income definition)
R600 000 x 15% x 122/365 = R30 000 (sections 24J(2)
and 31(2)) (30 082) (3)
OR:
R1 000 000 x 20% x 122/365 (section 24J(2)) 66 849
Less: R400 000 x 20% x 122/365 (section 31(2)) (26 740)
Less: R600 000 x 5% x 122/365 (section 31(2)) (10 027)
30 082
Acquisition of trading stock [s 11(a)] (1 000 000) (1)

[entire loan used to acquire trading stock
(ingredients) from an independent third
party)]
5. Transaction 5: R
Base cost of Ultra mixer bin:

Cost 200 000
Section 12C (2021) R200 000 x 40% (80 000) (1½)
Section 12C (2022) R200 000 x 20% (40 000) (40 000) (1)
80 000
Debt amount written-off:

Original debt 200 000
Payment 2021 – 20% x R200 000 (40 000)
Payment 2022 – R10 000 (10 000)
Debt written-off 150 000 (1)
Reduce base cost in terms of par 12A of (80 000) (80 000) (1½)
the Eighth Schedule
70 000 Nil (1P)
Recoupment in terms of sections 19(6) (70 000)
and 8(4)(a) 70 000 (2)
Taxable income 8 998 879
Available 26
Maximum 25

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(ii) Calculate the value-added tax (VAT) consequences for Rheumix on transaction 3. Clearly 5
indicate whether the amount calculated represents input tax or output tax.
(ii) Transaction 3:
R R
VAT payable on importation of goods [s 7(1)(b)]:

Customs duty value 770 000 (1)
Import duty 60 000 (1)
10% of custom duty value (France not a BLNS country) 77 000 (1)
(R770 000 x 10%)
Total 907 000
x 15% (1)
VAT payable / Import VAT levied (at border/customs) 136 050
Input tax to be claimed on the VAT return (VAT201) 136 050 (1)
5
(iii) Discuss, supported with calculations and reference to legislation, the dividends tax
consequences in respect of transaction 4. Indicate who is liable for the dividends tax 11
and when it needs to be paid in order to avoid penalties and interest imposed by 1
SARS.
Communication skills – Clarity of expression
12
In terms of section 31, transaction 4 between Rheum Ltd and Citri PLC qualifies as an
‘affected transaction’ as defined, because: (1½)
The transaction is between a resident company (RheumX Ltd) (given) and a non-resident (1)
company (Citri Plc) (given) that are connected persons in relation to each other as Citri (1)
Plc holds more than a 20% (namely holds 25%) in RheumX Ltd; and
Note: Because the loan represents “financial assistance” the requirement that no holder of
shares holds the majority voting rights” is not applicable in the context of a connected person
as defined under section 31(4).
The transaction between RheumX Ltd and Citri Plc is not an arms’ length transaction as
Citri Plc granted RheumX Ltd a bigger loan (R1 000 000 instead of R600 000) at a higher (1)
interest rate than what an independent party would have granted RheumX Ltd (20% instead
of 15%).
It is an affected transaction whereby RheumX Ltd obtains a tax benefit as RheumX Ltd will
have a greater interest deduction of R36 667 in terms of section 24J(2). (1½)
R1 000 000 x 20% x 122/365 days = R66 849 (see part (i) of the required) (1)
R600 000 x 15% x 122/365 days = R30 082 (see part (i) of the required) (1)
Tax benefit = R36 767 [Primary adjustment/section 31(2)]

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In terms of section 31(3) [Alternative: the secondary adjustment] the difference (½)
between the interest on an arms’ length transaction (R30 082) and the actual interest (1)
paid (R66 849) will be deemed a dividend in specie. Thus R36 767 will be deemed a
dividend in specie.
Dividend tax will be paid at 20% on the dividend in specie (or R36 767 x 20% = (1)
R7 353) (section 64E(1)(a)(i)). (½)
In terms of section 31(3) RheumX will be liable to pay the dividend tax on the last day (1)
of the period of 6 months following the end of the year of assessment, thus on or before (1)
30 June 2023.
Available 13
Maximum 11
Communication skills – Clarity of expression 1
(Discussion supported by calc and ref to legislation)
Total 12
PART B:
Discuss the implications in terms of the Income Tax Act that Part B will have on both:
• RheumX Lts’s, and 4
• Pharmaquip (Pty) Ltd’s 3
for both companies 2023 year of assessment. Assume that the 2022 income tax legislation 1
will be applicable to their 2023 year of assessment.
Communication skills – Logical argument
8
In terms of section 8F(1) the debentures are instruments as it is an interest-bearing
arrangement and the instruments will be issued by a resident company. (1)
As RheumX Ltd is entitled to convert the instruments into shares (at a market value
that will be different from the amount owed in terms of the instrument at the time of
conversion or exchange due to the fact that on the date of conversion the market value of
the shares will not be equal to the amount owed in terms of the instrument at the time of
conversion or exchange), the instruments are hybrid debt instruments. (1)

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RheumX Ltd:
As the instruments are hybrid debt instruments the interest of R8 000 incurred by
RheumX will be deemed to be a dividend in specie paid on the last day of the year of
assessment, therefore on 31 December 2022 (section 8F(2)). (2)
As the interest paid is deemed to be a dividend in specie it will not be deductible as
interest in terms of section 24J(2) (section 8F(2)(b)). (1)
Dividends paid is also not deductible for income tax purposes as it is not in the
production of income (or it is paid out of after taxed profits). (1)
There will therefore be no effect on the income tax for RheumX Ltd. (1)
Pharmaquip (Pty) Ltd:

Pharmaquip will include dividends of R8 000 in its gross income in terms of section (1)
8F(2)(b)
The dividend of R8 000 will be exempt in terms of section 10(1)(k)(i). (1)
The income tax effect will thus be zero (1)
Available 10
Maximum 7
Communication skills – Logical argument - Logical flow 1
Total 8

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PART A
a.)
Dr Philani transfers laboratory equipment at a higher market value than its original cost to Medi-
engineering (Pty) Ltd, a resident company (“asset-for-share transaction” s 42(1). (1)
Dr Philani holds 16,7% of Medi’s equity shares and voting rights which is more than the required
10% of the equity shares and voting rights at the close of the day after the transaction
or
he is a full-time employee, section 42 in terms of an asset-for-share transaction can apply (roll-
over relief). (1)
Medi acquires the laboratorial equipment as a capital asset (used in the manufacturing of self-
inflating, elastic resuscitation bags, where Dr Philani also held it as a capital asset). (1)
Conclusion:
All the requirements of section 42 are met and the roll-over relief provided for under this provision
could be applicable. (1)
However, the market value of the laboratory equipment (R200 000) is lower than the value of the
equity shares received, thus it is an asset-for-share transaction that is not arm’s length (s24BA(2))
that would have applied between independent persons. (1)
As Dr Philani is not a connected person before or after (equity shares less than 20%) the
transaction, par 38 of the 8th Schedule is not applicable and s 24BA(4)(b) will not apply. (1)
The issue of shares by Medi is not a disposal ito par 11(2)(b) of the 8th Schedule. (1)
The contributed tax capital (CTC) of Medi will increase with the consideration received, thus with
R200 000. (1)
Application of s 24BA
As the value of the shares (R230 000) immediately after the issue exceeds the market value of the
asset (R200 000), a deemed dividend (dividend in specie) of R30 000 arises (s 24BA(3)(b)(i)) (1)
Medi will be liable to pay dividends tax of:
(R30 000 x 20%) = R6 000 under s64EA(b) (1)
(Dr Philani is a natural person and no exemption in terms of s 64FA(1) is available). (1)
The dividend in specie will be deemed to have been paid on 30 April 2022, the date of the issue of
the shares (s 24BA(3)(b)(ii)) (1)
Medi will need to pay the dividends tax by 31 May 2022 (the end of the month following the month
in which the dividend was paid in terms of s 64K(1)(b)) (1)P
In terms of s40CA the base cost of the asset for Medi will be deemed to be equal to the market
value of the shares immediately after the transaction, R230 000 (1)
Available 14
Maximum 12
Communication skills – logical argument
Logical structure of ideas 1
Total 13

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b) Calculations R
R
Taxable income on 30 April 2022 – provided 45 000
Sales: Included in terms of gross income
definition - 70% R110 000 x 1500 x 70% 115 500 000 (1)
Reason: Not unconditionally entitled to the other 30%
30% (Mooi case) NIL (1)
Salaries and labour: (1)P
Reason: As the lawyer’s legal fees were to
protect an existing patent, s 11(c) will not apply. R14 893 000 less R500 000 (14 393 000) (1)
Reason: Bonuses paid to directors: section 7B

applies as its variable remuneration NIL (1)
only deemed incurred once actually paid.
Materials for self-inflating elastic resuscitation (16 400 000) (1)
bag (s 11(a) read with s 22)
Depreciation per accounting policy – NIL (1)
Reason: not a tax deduction ito legislation
Laboratory equipment: New & unused (s 12C) R1 200 000 x 40% (480 000) (1)
Laboratory equipment: Base cost equal value R230 000 x 20% (46 000) (1)P
of the shares R230 000 (s 24BA read with
s 40CA(1)(a)(ii))
Valves, machinery and monitors (s 11(a)) R66 m + R1,980 m (67 980 000) (1)
Reason: Input tax on R10 890 000 on import will
be claimed by company, thus not added or NIL (1)
capitalised or Alternative: s 23C applies
Loose tools: less than R7 000, claim full amount R6 800 – R1 (6 799) (1)
(s 11(e)) limited to R1
Lease premium (s 11(f)) (R1 m /24) x 2 months (83 333) (1)
Alt: (R1 m/2) x 2/12
Lease (s 11(a)) R92 000 x 100/115 x 2 (160 000) (1)
Registration cost of patent – fully deductible R250 000 + R500 000 s (750 000) (1)
Reason: legal fees not deducted ito s 11(c) 11(gB) (1)
added to the cost of patent registration
Trading stock: 50 xR50 000 produced (250 000) (1)
Recoupment of trading stock: s 22(8)(C) -
donation 250 000 (1)
Assessed loss brought forward – 2021 (s 20) (40 000) (1)
(note: no mark if after s 18A donation)
Subtotal 15 205 868
Donation ito s 18A at cost:
Value of donation: 5 x R50 000 = R250 000 Fully deductible (250 000) (1)
Reason: Limited to 10% of R15 205 868 =
R1 520 587 (1)
x 28% (1)
Tax liability 4 187 643
Available 22
Maximum 20

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PART B
In this part you must assume that the 2023 tax legislation will be identical to that for the 2022 year
of assessment.
i)
The interest-free loan made to the Motseko Trust with the sale of the primary residence is a
deemed donation made by Dr Philani in terms of section 7C. (1)
Donations tax will be payable by Dr Philani on a deemed amount of interest at the official rate of (1)
interest as Dr Philani is a connected person to the Motseko Trust.
Part of the interest-free loan relates to the primary residence, but as Dr Philani did not reside in (1)
the house for the whole year of assessment, section 7C(5)(d) will not apply.
The amount of the donation is the difference between the actual interest rate of 0% (as it is an
interest-free loan) on the loan and the official rate of interest at year-end, thus 4.75% (1) x (2)
R18 million x 212/365 days (1) = R496 603
(Days must be used to calculate the interest due to the application of section 7D(b) indicating that
interest needs to be determined as simple interest calculated daily.)
The amount of the donation must be reduced by the R100 000 annual exemption in terms of
s 56(2)(b). (1)
Donations tax in terms of section 54 will be levied at a rate of 20% because the total ‘value of all
donations’ since 1 March 2018 does not exceed R30 million (i.e. R396 603 < R30 million)
in terms of section 64 (read with draft Binding General Ruling on Donations tax, paragraph 2) as (1)
follows: (R496 603 – R100 000) x 20% = R79 321
The donations tax needs to be paid at the end of the month following the month in which the
donation was made, thus by 31 March 2023 in terms of section 60,
as the donation is deemed to have been made on 28 February 2023 (the last day of the year of
assessment of the trust) in terms of section 7C(3) read with the definition of “year of assessment” (1)
in section 1.
Available 8
Limited to 6

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ii) Total Land not Primary R

R qualifying residence
Section 9HA disposal on 3 ha 2 ha
date of death
Proceeds 18 000 000 14 000 000 4 000 000 (1)
Less: base cost
**Land of R6m x 2ha/5ha (6 000 000) (3 600 000) **(2 400 000) (1)
(par 46)) 12 000 000 10 400 000 1 600 000
Less: 30% used for trade

purposes (par 49(b))
(R1.6m x 30%) (480 000) (480 000) (1)
11 520 000 1 120 000
Par 45(a): R2m limited to (1 120 000) (1 120 000) (1)
Aggregate capital gain 10 880 000 10 880 000
(R10.4m+480k)
Less: Annual exclusion (par 5) (300 000) (1)
Net capital gain 10 580 000
Available 5
Max 4
Comm 1
Limited to 5

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iii)
Memo to Dr Motseko
Re: Advice on CGT implications of transfer of house and sale of plot in case of death
Date: xxxx 2022
From: CTA student
The estate of a deceased person is a separate person for income tax purposes.
The deceased estate of Dr Motseko is treated as having acquired the house and land for an
amount of expenditure incurred equal to the market value of that asset at the date of death (as (1)
contemplated in section 9HA(1) and section 9HA(3)) in terms of section 25(2)(a)), thus
R18 million.
The transfer cost of R185 000 will be added to the base cost of the residence (R4 million) in (1)
the hands of the deceased estate in terms of section 25(3)(a) read with par 20(1)(c)(ii) of the
Eighth Schedule.
The residence will be transferred to the trust at the same amount as the base cost
(R4 185 000) in terms of s 25(3)(a) and there will be no CGT. (1)
When the land is disposed of to the property developer by the deceased estate, the proceeds
will be R15 million. (1)
The base cost will be equal to the market value on date of death, thus R14 million (s 25(2)(a))
plus 5% commission on R15 million (R750 000) plus legal fees of R60 000 (par 20(1)(c)(i) and (1)
(iii) of the 8th Schedule).
Transfer duty is payable by the property developer.
As the deceased estate is seen as a natural person (section 25(5)), the annual exclusion will (1)
be R40 000 in the deceased estates’ CGT calculation (par 5(1), Eighth Schedule) that will be
deducted from the capital gain or loss. (1)
Available 7
Max 5
Communication mark: presentation 1
Limited to 6

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QUESTION 5
This question consists of three related parts, namely PART A, PART B and PART C.
PART A (67 marks)
Xavier Benson is 48 years old and was a resident of South Africa for normal tax purposes as on
1 March 2021. He is the financial manager at Coldage (Pty) Ltd (‘Coldage’) where he had been employed
since 2017.
Xavier requested your assistance with his personal tax affairs and provided you with the following information:
1. Xavier earned a basic monthly gross cash salary of R30 000 until his voluntary resignation on
31 October 2021.
2. Coldage also made contributions for the benefit of Xavier, in terms of Xavier’s employment contract.
Coldage contributed 100% of his total contribution to a provident fund amounting to R5 000 per month
up to 31 October 2021. Coldage contributed 60% of Xavier’s total medical scheme contributions which
amounted to R2 800 per month (60%). Xavier contributed the other 40%. For November 2021 and
December 2021 Xavier paid 100% of his medical scheme contributions himself (also see note 12 for
additional information on medical expenses). Xavier’s membership at the medical scheme ceased on
31 December 2021.
3. The company also provided him with the exclusive use of a laptop for Coldage’s business. He estimates
his private use of the laptop at around 10% of its total use. The laptop was purchased by Coldage for
R23 000 (including VAT) on 1 February 2021 and the use thereof granted to Xavier on the same date.
Xavier returned the laptop to Coldage upon his resignation.
4. As part of Xavier’s remuneration package, Coldage granted Xavier an option to acquire 10 000 equity
shares in Coldage on 1 April 2018 for a consideration of R20 per share when the shares were valued
at R35 per share. Once Xavier exercises the option, he may not sell the shares for a period of 3 years.
Xavier exercised the option on the same date it was granted to him. On 1 April 2021 Coldage’s shares
were valued at R45 per share. Xavier holds these shares on capital account. He sold all 10 000 shares
on 31 August 2021 when the shares were valued at R62 per share.
5. Coldage purchased a new vehicle on 1 February 2021 from Opportune (Pty) Ltd (‘Opportune’) (a car
dealership, not a connected person in relation to Coldage and a registered VAT vendor) at a cash cost
of R494 500 (retail market value) with no maintenance plan and granted the exclusive use to Xavier on
the same date. Xavier bears no cost in respect of the vehicle, but had to keep a valid and accurate
logbook, which he duly did. However, since lockdown was introduced due to the COVID-19 pandemic,
Xavier worked from home and therefore only travelled 1 200 km for business purposes and 2 300 km
for private purposes during the period 1 March 2021 until 31 October 2021. Xavier returned the vehicle
to Coldage upon his resignation.
6. On 1 April 2021, all Coldage employees that were allowed to work from home during the COVID-19
lockdown (also see note 7) received an allowance of R3 500 each to purchase an office chair to use at
home for business purposes. Proof had to be provided to Coldage that the allowance was in fact used
to purchase an office chair, however, the office chairs became the property of the employees.

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7. Xavier, together with many of Coldage’s other employees, was granted formal permission by Coldage
to work from home during the COVID-19 lockdown as he could execute his duties from home. Xavier
worked from home for Coldage from 1 April 2021 until the date of his voluntary resignation. Xavier used
a room in his house (see note 11 below) that comprises 5% of the total area of the house and which is
specifically equipped to be used as his home office. Xavier’s City Council utility bill amounted to
R31 500 from 1 April 2021 until 31 October 2021. Xavier used the allowance given by Coldage (see
note 6 above) and purchased an office chair on 15 April 2021 at a cost of R6 670 (including VAT) and
used it exclusively in his home office for the full period that he was still employed by Coldage.
8. Xavier was newly appointed as an employee by an Australian incorporated company and he had to
commence working in Australia on 1 December 2021. However, due to delays with travel restrictions
attributed to the COVID-19 pandemic, he was only able to commence working in Australia on
20 January 2022. He earned AUD$11 250 (R118 000 equivalent) in total from 20 January 2022 up to
28 February 2022. Xavier decided to officially emigrate from South Africa once he left the country on
5 January 2022.
9. Xavier earned interest of R93 750 during the period 1 March 2021 until 4 January 2022 on a five-year
fixed deposit at a South African bank that had a capital balance of R1 250 000 on
4 January 2022. The money was transferred to and invested at an Australian bank on 5 January 2022.
The investment earned interest of AUD420 (R4 400 equivalent) up to 28 February 2022.
10. Upon his voluntary resignation from Coldage and in anticipation of his emigration to Australia, Xavier
withdrew his funds from his South African provident fund. The fund paid an amount of R2 820 000 into
his bank account on 25 December 2021 after deducting normal tax of R860 000. Xavier transferred
these funds to an Australian bank on 5 January 2022. Based on the fact that provident fund
contributions were never allowed as a deduction for normal tax purposes in South Africa until
29 February 2016, R175 000 of Xavier’s contributions to his provident fund up and until
29 February 2016 have never qualified for a deduction for normal tax purposes. However, all his
provident fund contributions from 1 March 2016 and thereafter have fully qualified for a deduction for
normal tax purposes.
11. With the slow housing market in South Africa, Xavier only managed to sell his house situated in Pretoria,
South Africa (in which he lived until 4 January 2022) on 15 February 2022. The property was sold for
R2 600 000, and Xavier had to pay agent’s commission amounting to R78 000. He purchased the
house in 2017 for R2 300 000 and paid the purchase price and R74 250 transfer duty in cash. Assume
that Xavier did in fact claim home study expenses on 5% of the property for the first time ever during
the 2022 year of assessment. He owned the property for 60 months in total and used a portion for his
home as a home office for seven months.
12. Xavier incurred R18 200 medical expenses for himself for the 2022 year of assessment (until
4 January 2022) that the medical scheme did not refund. Of this amount, R15 000 was paid in cash
and the balance was still owing to medical practitioners by 28 February 2022. Xavier also paid his
mother’s medical scheme contributions of R2 230 per month during her full 2022 year of assessment
as well as R62 000 medical expenses (paid during August 2021) that were not refunded by her medical
scheme. Xavier’s mother, who has a physical impairment that qualifies as a “disability” as defined in
section 6B(1) of the Income Tax Act, 1962 (Act 58 of 1962), as amended, is dependent on him for
family care and support.

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PART B (28 marks)
Coldage is a registered VAT vendor that makes 100% taxable supplies and is not a small business
corporation as defined for normal tax purposes. The company has a February financial year-end. Coldage
has been trading since 2001 and provides long-term and short-term cold storage facilities to customers. The
company is dependent on a constant supply of electricity which has not been the case since load shedding
was introduced by Eskom in South Africa.
Coldage decided to invest in photovoltaic solar panels (less than 1 megawatt). The panels were purchased
and delivered at Coldage’s premises on 1 May 2021. The installation was finalised on 15 May 2021 and the
panels were brought into use on the same day. The purchase amount (cash value) included the installation
costs and amounted to R2 587 500 (Present Value). It was financed by a lease agreement with DEF Bank (a
local South African bank) and the bank settled the purchase price on 1 May 2021.
The lease agreement was entered into subject to the following terms and conditions:
• The lessee accepts the full risk of destruction or loss of the solar panels and assumes all obligations
arising in connection with the insurance, maintenance and repair of the panels while the agreement
remains in force;
• At the end of the lease contract, ownership of the solar panels will pass to Coldage;
• Coldage measures solar panels and right of use assets by applying the cost model and accounts for
depreciation on the straight-line method over a period of 10 years;
• the lease agreement carries interest at 7% per annum;
• the rent is paid in monthly instalments of R51 236 over a period of 60 months commencing from
31 May 2021; and
• Finance charges (interest expense) for the period 1 May 2021 until 28 February 2022 is R141 301. The
capital repaid for the period 31 May 2021 until 28 February 2022 amounts to R371 055 (correctly
calculated).
PART C (5 marks)
Opportune (see Part A, note 5) is a registered VAT vendor that makes mixed supplies. Opportune purchased
a business as a going concern at the zero-rate for a purchase consideration of R750 000. Included in the
purchase consideration are assets with a value of R120 000 that will be used by Opportune to make 100%
taxable supplies. Also included in the purchase price, is a motor car (as defined in section 1 of the VAT Act)
with a value of R85 000. The use of this motor car will be given to an employee of Opportune. The original
cost price of the motor car was R135 000. The rest of the assets will be used by Opportune to make 45%
taxable supplies.

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The required consists of three related parts namely PART A, PART B and PART C.
PART A
REQUIRED Marks
Sub-
Total Total
(c) Calculate and indicate the effect of the transactions under PART A on Xavier’s
taxable income for his 2022 year of assessment.
Ignore the effect of the transactions under note 4 (share options) and note 7 (home
office expenses).
Provide reasons or references to legislation for Rnil items including the transaction
under note 6.
For purposes of determining any retirement fund contribution deduction, assume
that the amount of “remuneration” (as defined in paragraph 1 of the Fourth
Schedule to the Income Tax Act, 1962 (Act 58 of 1962), as amended) is R378 690
and that the taxable income before and after any taxable capital gain is R450 000
25
(correctly determined).
(d) Calculate the normal tax consequences of note 4 for Xavier for all the years of
assessment wherein there is a normal tax consequence. Clearly indicate the tax
consequences for each year of assessment separately.
Indicate which amount (if any) will be subject to employees’ tax in Xavier’s hands
during his 2022 year of assessment.
Support your answers with relevant references to legislation.
Assume that the 2021/22 tax legislation applies to all the relevant years of
12
assessment.
(e) Xavier read an online news article that mentioned that employees working from
home would be entitled to deduct home office expenses for normal tax purposes.
Compile an e-mail to Xavier and provide your opinion on the deductibility of all the
expenditure under note 7 in respect of his 2022 year of assessment. Address each
expense separately, without duplicating arguments. Support your opinion with
relevant references to legislation, as well as calculations. 12
Communication skills – layout and structure; logical argument 2 14

(f) Calculate any withholding tax that Xavier may be liable for during his 2022 year of
assessment. Support your calculation with a relevant reference to legislation. 3
(g) Calculate the medical tax credits that Xavier will qualify for (if any) in respect of his
2022 year of assessment. Assume that Xavier’s taxable income for his 2022 year
of assessment is R600 000 (correctly determined). 9
(h) Briefly discuss, whether or not Xavier is liable to submit provisional tax returns
(IRP6’s) in respect of his 2022 year of assessment. Provide reasons, or relevant
references to legislation, to support your answer. 4
TOTAL FOR PART A 67

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QUESTION 5 – REQUIRED (continued)
PART B
REQUIRED Marks
Sub- Total
Total
(a) Provide a brief discussion on whether or not the lease agreement qualifies as
an instalment credit agreement as defined in the Value-Added Tax (VAT) Act,
1991 (Act 89 of 1991), as amended.
Also calculate and indicate the VAT consequences and the time of supply of
this transaction, for Coldage (Pty) Ltd. Support your answer with relevant
references to VAT legislation. 9
Communication skills – clarity of expression 1 10

(b) Prepare all the journal entries to account for the lease in the financial records
of Coldage (Pty) Ltd for the financial year ended 28 February 2022. Provide
one cumulative journal at financial year-end for any recurring journals.
Assume that the lease contract contains a lease as per IFRS 16 Leases.
Journal narrations and journal entry dates are not required. Ignore any normal
tax consequences. 10
Communication skills – presentation 1 11

(c) Based on the assumption that the lease agreement is a finance lease, briefly
discuss the normal tax consequences of this transaction for Coldage (Pty)
Ltd’s 2022 year of assessment. Support your discussion with calculations. 6
Communication skills – clarity of expression 1 7

TOTAL FOR PART B 28
PART C
REQUIRED Marks
Total
Calculate the VAT implications of the transaction for Opportune (Pty) Ltd.
Clearly distinguish in your answer between input tax and output tax. 5
TOTAL FOR PART C 5
(PM/AH)

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QUESTION 6
All references in the scenario below are to the Income Tax Act, 1962 (Act 58 of 1962), as amended,
unless stated otherwise.
Homecraft Furniture Ltd (‘Homecraft’) is a South African listed company that imports high quality material
from international sources and is renowned for its production of modern designs and eco-friendly furniture
parts. The company only use reputable dealers to source high quality material from China, Indonesia and
Malaysia to provide cost-friendly do-it-yourself (DIY) products to the South African public. The DIY furniture
is easy to assemble by the public, but as Homecraft uses the material to produce easily assembled furniture,
the South African Revenue Service (SARS) acknowledges the production of the furniture parts as a process
similar to manufacture as determined in Practice Note 42 issued by SARS
Homecraft is a company, both incorporated and effectively managed in South Africa, and has one million
equity ordinary shares in issue since incorporation which are widely held. It is a registered value-added tax
(VAT) vendor, a category C vendor (with monthly VAT returns). Its financial year ends on the last day of
December. Homecraft has obtained valid tax invoices as well as other necessary documentation for all its
transactions, where relevant. Homecraft obtained an annual ruling from SARS in 2022 to determine its input
tax in accordance with the turnover-based method where the ratio of taxable supplies to total supplies is
90:100 for Homecraft’s enterprise as a whole.
Notes:
1 Contract with Furn-Mart
Homecraft entered into a contract with Furn-Mart (Pty) Ltd (‘Furn-Mart’) (a resident company and VAT
vendor) on 1 December 2022 to produce 150 home office desks for it all to be sold to the South African
market. Furn-Mart will have the exclusive rights to sell these desks. Furn-Mart is not a connected
person in relation to Homecraft. The contract price for the 150 desks was R1 200 000 (excluding VAT)
of which Furn-Mart paid R800 000 on 1 December 2022. The remaining balance is payable on the
date of delivery of the desks. The desks were delivered on 15 February 2023. At 31 December 2022,
Homecraft incurred expenses of R130 000 (excluding VAT) in respect of the contract and the company
will incur further expenses (after 31 December 2022) of R250 000 (excluding VAT) to meet its
obligations in respect of the contract.
2 Order from China
Homecraft ordered 500 children’s beds, at a cost of ¥800 per bed, from their supplier in China on 7
November 2021. The beds were shipped Cost-insurance-freight (CIF) on 1 December 2021 and the
costs of the risks associated with the CIF will be borne by Homecraft from this date. On the same date,
Homecraft entered into a two-month forward exchange contract (FEC) with their local bank in order to
hedge the full purchase price. The beds arrived in South Africa on 17 December 2021 and were
immediately cleared and released by Customs for home consumption. Import duties of R17 200 were
paid, as well as the correct amount of South African VAT. 80% of the beds were still on hand at 1
January 2022, but none of the beds were on hand at 31 December 2022. The outstanding debt was
settled in full on 31 January 2022.

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The following exchange rates were applicable:
Date Spot rate

¥1 = R?
7 November 2021 ¥1 = R2.20
1 December 2021 ¥1 = R1.92
¥1 = R2.15 (forward rate under a two-month
FEC)
17 December 2021 ¥1 = R2.25
31 December 2021 ¥1R1.87
¥1 = R2.00 (forward rate under a one-month
FEC)
31 January 2022 ¥1 = R2.05
3. Other information
3.1 Herman (who is disabled) and Alec (not disabled) are both in the employ of Homecraft. Both these
employees entered into a six-month registered learnership agreement with Homecraft on 1 July 2022.
Both employees successfully completed the learnership agreement on 31 December 2022. On 1 July
2022, Herman held a National Qualifications Framework (NQF) level 7 qualification, while Alec held a
NQF level 6 qualification on the same date.
3.2 During Homecrafts’ 2021 financial year, the Commissioner allowed a doubtful debt allowance of
R22 000. Homecraft applies IFRS 9. During the 2022 year of assessment a total impairment loss
allowance (IFRS 9 loss allowance) of R85 000 was determined by Homecraft. It consisted of R30 000
measured at an amount equal to the lifetime expended credit loss and R55 000 measured at an amount
equal to the 12-month expected credit loss.
3.3 A calibrating sanding machine used solely in the production of furniture parts was damaged beyond
repair because of a power surge during load shedding on 4 June 2022. This machine was purchased
new and unused on 25 April 2020 at a cost of R950 000 (including VAT) and brought into use on 1 May
2020.
Homecraft’s insurance policy did not cover the damages relating to the power surge and as a result
they did not receive an insurance pay-out. Homecraft sold the damaged machine for R100 000
(excluding VAT) on 10 August 2022 to a manufacturer (not a connected person as defined in section
1), who will dismantle the machine for spare parts.
As the damaged machine was crucial to Homecraft’s production operations, the company immediately
purchased a new machine under a suspensive-sale agreement from a manufacturer situated in
Johannesburg on 11 June 2022 at a cash price of R1 380 000 (including VAT), plus finance charges of
R207 000 for the 36-months period from 11 June 2022 to 11 June 2025. As part of the installation of
the new machine and due to the sensitivity of the machine, a technician was required to setup the
calibration of the sanding machine for the machine to operate to precise measurements. The technician
sent an invoice to Homecraft for R92 000 (including VAT) on 12 August 2022. The new machine was
solely brought into use in the production of furniture parts on 13 August 2022.

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4 Investment in small business enterprises
Homecraft acknowledges the growing demand for home improvements in the local informal settlement
areas. To this end, Homecraft introduced a programme whereby small black-owned independent
businesses can buy wholesale from Homecraft. In addition, Homecraft provides mentorship to the
small business owners and provide financial support in the form of loans. None of these small
businesses are connected persons as defined in section 1 in relation to Homecraft. Homecraft
considers renting premises in Diepkloof Square, Johannesburg, as a depot for several small black-
owned independent businesses that buy wholesale from Homecraft.
Homecraft granted a loan of R1 500 000 to one of these businesses, People Projects (Pty) Ltd (‘PP’)
on 1 January 2022 at an interest rate of 8% per annum (capitalised annually). PP is not a registered
VAT vendor, nor a Small Business Corporation as defined in section 12E. PP’s year of assessment
ends on the last day of December. PP used the loan to purchase a new delivery truck at a cost of
R1 500 000 (excluding VAT) on 14 January 2022. The truck was brought into use on 1 February 2022.
PP experienced some serious cash flow problems and approached Homecraft to consider a
compromise of its debt. Homecraft discharged the R1 500 000 capital portion of the debt together with
the capitalized interest of R173 615 to Rnil on 1 June 2023. PP correctly deducted the interest paid for
income tax purposes during the company’s 2022 and 2023 years of assessment, respectively.
5 Shareholders of Homecraft
Some of Homecraft’s issued ordinary equity shares are held by the Plywood Trust, a resident trust (see
note 5.2 below) and Baren Birch (and ordinary resident in South Africa). Baren holds 10% of the issued
ordinary equity shares and voting rights as an investment since 2019), while the remaining issued
ordinary equity shares are held by numerous investors and share dealers of which none hold more than
1% of the ordinary equity shares and voting rights on their own at any given point in time. The following
information is available:
5.1 Plywood Trust
The Plywood Trust was founded during 2016 in terms of the valid will of Baren Birch’s father,
Beechwood Birch. Beechwood was born in South Africa and lived here the whole of his life. The trust
is discretionary as regards to both income and capital and not a VAT vendor as defined. The
beneficiaries of the Plywood Trust are Baren Birch (48 years old, divorced) and his two children, Pine
(25 years old and not a resident for South African tax purposes) and Cypress (16 years old and a
resident for South African tax purposes).
In his will, Beechwood bequeathed an offshore (i.e. foreign) share portfolio to the Plywood Trust. The
shareholding in the offshore share portfolio is less than 1% and none of the foreign companies are
dual-listed on the Johannesburg Stock Exchange (JSE). All dividends earned on the offshore share
portfolio are subject to a 10% withholding tax. Beechwood also bequeathed a small office block (market
value R3.2 million on date of Beechwood’s death) in Nasrec, Johannesburg to the Plywood Trust (see
note 5.2 below). The small office block was acquired from a property developer by Beechwood in 2007
at a cost of R1.5 million.

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Baren donated the capital amount in an interest-bearing long-term fixed deposit (held for investment
purposes) of R4 million held at a local bank to the Plywood Trust on 1 September 2021. On the same
date, Baren decided to transfer an eight-hectare plot (at market value) which he owned in Knysna,
Western Cape to the trust on an interest-free loan account. He acquired the plot of land in 2017 to build
his own retirement home, but due to financial constraints he decided that the plot of land is perfect for
the development of holiday apartments and that the trust would be the ideal vehicle for the
development. Baren purchased the plot of land for the amount of R4,5 million and it had an open market
value of R6 million on 1 September 2021. As the Plywood Trust did not have the necessary cash funds,
Baren paid R150 000 to his lawyer (on 30 September 2021) to sub-divide the vacant plot of land.
After the transfer of the above to the trust, Baren’s only asset is his house in Birchwood, Johannesburg.
He inherited this house in 2012 when it had an open market value of R4.4 million. On 1 October 2021
the house had an open market value of R5.4 million. Baren did not have an assessed loss or capital
loss during his 2021 year of assessment.
The income and distributions of the Plywood Trust for the year ending on 28 February 2022 were as
follows:
Income and distributions Received or R

accrued on:
Net foreign dividend income 30/04/2021 138 000 20%
Net rental received from the office block 01/03/2021 to
(accrued evenly) 30/09/2021 345 000 50%
Interest income (accrued evenly) 207 000 30%
Total net income Distributed on: 690 000 100%
Distribution, pro rata out of all income, to 30/09/2021 (100 000)
Baren
Distribution, pro rata out of all income, to 28/02/2022 (100 000)
Pine
Distribution, pro rata out of all income, to
Cypress 28/02/2022 (100 000)
Retained income 390 000
You may assume that the market-related interest is 5% and that the official rate of interest is 4,75%
during the entire 12-month period ending on 28 February 2022.
5.2 Acquisition of office block
On 1 October 2021 Homecraft acquired the office block (see note 5.1 above) for an amount of R3,8
million (market value) from the Plywood Trust. The office block had a base cost of R3,2 million on the
date it was acquired from the Plywood Trust. Homecraft financed the acquisition of the office block by
issuing 30 928 ordinary equity shares to the Plywood Trust. The Plywood Trust did not own any equity
shares in Homecraft before this transaction. However, after the transaction the Plywood Trust held a
3% interest in Homecraft’s ordinary equity shares and voting rights. Homecraft will lease the office
building to the small business owners mentioned under note 4 above, instead of renting the premises
in Diepkloof Square.
The market value of the Homecraft ordinary equity shares immediately prior to the transaction
amounted to R98 per ordinary share, while on 1 October 2021 the market value was R110 per ordinary
share.

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6 Equity shares
The Plywood Trust acquired a further 12% of the issued ordinary equity shares and voting rights of
Homecraft on 1 January 2022. Baren Birch also acquired a further 5% of the issued ordinary equity
shares and voting rights in Homecraft on 1 January 2022, as well as 20 000 cumulative preference
shares in Homecraft at their par value of R50 per preference share (representing a 4% interest).
Additional information:
• The Commissioner allows Homecraft to apply the gross profit percentage on a contract as the basis
for calculating future costs for normal tax purposes, where applicable.
• SARS’ Binding General Ruling No 7 provides for the following write-off periods:
o a six-year (6) write-off period for sanding machines.

o A four-year (4) write-off period on delivery trucks.
• Assume that Homecraft will elect any tax option available that will legally reduce its income tax liability.
• Apart from the information provided above, Baren Birch made no other donations or deemed
donations since 1 March 2019.

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REQUIRED MARKS
Sub-
total Total
(i) Calculate the effect that the transactions in Notes 1 to 3, will have on the
taxable income of Homecraft Furniture Ltd (‘Homecraft’) for the company’s
2022 year of assessment. Address each item and if any item or part of an
item has no effect on taxable income, it should be clearly indicated supported
by a reason. 28
For the purposes of this part of the required only, ignore the income tax
treatment of finance charges in terms of s 24J of the Income Tax Act, 1962
(Act 58 of 1962), as amended.
(ii) Discuss, supported by calculations and detailed references to legislation, the
income tax implications for People Projects (Pty) Ltd in respect of the
reduction of debt (see note 4) for the company’s 2023 year of assessment. 10
Assume that the reduction of debt is not a scheme to avoid tax nor does it
constitute a donation. Also assume that the Income Tax legislation for the
2022 year of assessment remains the same for the 2023 year of assessment.
Communication skills – clarity of expression and presentation 2 12
(iii) For note 5.1, calculate the taxable income of Baren Birch for his 2022 year of
assessment. Support each item in your calculation with the correct reason
and/or reference to Income Tax legislation. Assume that Baren Birch is not a
VAT vendor and that his taxable income, before taking into account the
information in note 5.1, amounted to R560 000 (correctly determined) during
his 2022 year of assessment. 19
(iv) Briefly discuss, supported by calculations if applicable, the changes, if any, in
his taxable income calculation (when compared to your answer in part (iii) of
the required) if Baren Birch passed away on 1 October 2021. Assume that his
valid will bequeathed all his assets to the Plywood Trust. Also assume that
his taxable “income” (as defined in section 1 of the Income Tax Act) from other
sources amounted to R448 000 (correctly determined) up until
1 October 2021 and before the information under note 5.1 was taken into 7
account.
1 8
(v) In respect of note 5.2:
Discuss, with supporting calculations, the income tax consequences for both
Homecraft and the Plywood Trust for the 2022 year of assessment. 15

(vi) For note 5.2, critically discuss the qualitative factors (ignore tax-related
factors), that Homecraft should have considered before taking the decision to
acquire the office building and letting it to the small business owners. 10
(vii) In respect of note 6:

Draft a memo to Baren Birch in which you explain, with supporting
calculations, all his donations tax implications (if any) during his 2022 year of
assessment. 6
Communication skills – presentation 1 7

TOTAL QUESTION 6 100
(AB/MP)

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PART A
(a) Taxable income
Taxable income as a resident 1 March 2021 – 4 January 2022 Add/

(deduct)
R
1. Monthly basic gross cash salary
R30 000 pm x 8 months 240 000 (½)

Inclusion ito par (c) of “gross income” (‘GI’) def. section 1
2. Contributions to benefit funds
Provident fund contributions – R5 000 pm x 8 months 40 000 (1)

Inclusion ito par (i) of GI def. Fringe benefit ito of par 2(l) & par 12D of the Seventh
Schedule.
Medical scheme contributions – R2 800 pm x 8 months 22 400 (1)
Inclusion ito par (i) of GI def. Fringe benefit ito par 2(i) & par 12A of the Seventh
Schedule.
3. Exclusive use of laptop
Private use portion is a fringe benefit, but with no value ito par 6(4)(bA) of the
Seventh Schedule as the laptop (R23 000) is used mainly (more than 50%) for the
employer’s business. - (1)
4. Vesting of share options
Ignore as per required
5. Exclusive use of motor vehicle

R494 500 x 3,5% pm x 8 months 138 460 (1½)
Less: Par 7(7) reduction R138 460 x 1 200km/3 500km (47 472)
Inclusion ito par (i) of GI def. Par 2(b) & 7 of the
Seventh Schedule. 90 988 (1)
6. Allowance received for office chair
Allowance received for office chair 3 500 (½)

Inclusion in taxable income ito (OR s 8(1)(a)(i)) (1)
Note: No deduction for the amount spent on the office chair (note 7) is allowed, as
ownership of the asset does not vest in the principal (employer), but in the
employee. Proviso to section 8(1)(a)(ii). - (1)
7. Work from home expenditure
Ignore as per required

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9. Interest received
Interest received from SA bank while ordinarily resident 93 750 (½)

Less: Interest exemption (section 10(1)(i)(ii)) (23 800) (½)
9, 10 & 11. Deemed disposal of assets upon emigration
Deemed sale of cash investments (notes 9 and 10):
Ito section 9H(2) Xavier is regarded as having disposed of all his assets on the
day before he emigrates to Australia, which is 4 January 2022. However,
currency is excluded from the definition of an “asset” in paragraph 1 of the
Eighth Schedule. (R1 250 000)
- (1)
Deemed sale of residential property in Pretoria, South Africa (note 11):
The source of the asset is SA in terms of section 9(4)(d) of the Income Tax Act.
Ito section 9H(2) Xavier is regarded as having disposed of all his assets on the
day before he emigrates to Australia, which is 4 January 2022. However, ito
section 9H(4)(a) immovable property situated in RSA is excluded from this
deemed disposal due to emigration. - (1)
10. Lump sum received from withdrawal of provident fund R
Net amount received 2 820 000 (½)

Plus: Tax deducted 860 000 (½)
Gross amount of lump sum (GI & Par 2(1)(b)(ii) of 2nd Schedule) 3 680 000
Less: Previous contributions not allowed as a deduction
deductible ito par 6(1)(b)(i) of the 2nd Schedule. (175 000)
(1)
The balance of unclaimed contributions cannot be considered
for s 11F deduction due to the fact that it does not meet the
stipulations of s 11F(3).
Taxable amount of lump sum withdrawal from provident fund. 3 505 000 3 505 000
Lump sum withdrawal is taxed separately at the normal tax rates that applies
to withdrawals from retirement funds. Included ito par (e) of the def of GI, s 1 (1)
Lump sum withdrawal received is excluded from capital gains in
terms of par 54 of the Eighth Schedule. (1)
Taxable income as a non-resident 5 Jan to 28 Feb 2022

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8. Salary earned in Australia
Xavier is a non-resident as he emigrated on 5 January 2022 when he left South

Africa. From 5 January 2022 he was not ordinarily resident in South Africa any
longer and will not be taxed on the Australian income in South Africa (OR: will
only be taxed in SA on SA source income). The physical presence test cannot
be applied during a year when a taxpayer was ordinarily resident in South
Africa. Source of Australian salary is place where the services were rendered
(originating cause principle – Lever Brothers & Unilever Ltd case principle)
which was Australia and not South Africa. (R118 000) - (1)
9. Interest received
Interest received from Australian bank

Xavier is a non-resident as he emigrated on 5 January 2022 when he left South
Africa. From 5 January 2022 he was not ordinarily resident in South Africa any
longer and will not be taxed on the Australian income in South Africa. The
physical presence test cannot be applied during a year when a taxpayer was
ordinarily resident in South Africa. The deemed source of the interest is
Australia and not South Africa in terms of section 9(4)(b) of the Income Tax
Act. (R4 400) - (1)
11. Sale of residential property (primary residence)
Proceeds [par 35] 2 600 000 (½)

Less: Base cost [par 20] (2 452 250)
Purchase price 2 300 000 (½)
Plus: Agent’s commission (not deduct from 78 000
Proceeds) (½)
Plus: Transfer duty 74 250 (½)
Capital gain 147 750
Less: Taxable portions:
Home study expense claimed as a deduction
R147 750 (capital gain) x 5% x 7m/60m (862) (2)
Period not residing in primary residence (i.e.
5 January 2022 to 15 February 2022) -
Note: Xavier is deemed to have resided in the primary
residence during the period that the residence was offered for
sale ito of par 48(a) of the Eighth Schedule.
146 888
Less: Primary residence exclusion (Par 45(1)(a) of the Eighth
Schedule) (R2 million limited to R146 888) (146 888) (1)
-
Capital gain (home study (business) portion) 862
Less: Annual exclusion [par 5] (R40 000 limited to R862) (862)
Net capital gain - - (½)

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Section 11F deduction

Actual contributions made to Provident Fund (paid by employer) – R40 000 (1)
Limited to the lesser of:
● R350 000 (not reduced for period of residence); or

(½)
● 27,5% of the higher of:
- Remuneration = R378 690 (given in required); and
- R450 000 (TI after taxable capital gain) (given in
required)
Therefore – 27,5% x R450 000 (1) = R123 750; or (1½)
● R450 000 (TI before taxable capital gain – given in
required)
(½)
Therefore, the lesser amount - R123 750, but limited to actual
contributions. (40 000) (1)
Total [27½]
Max [25]
(b) Share options R
Feb 2019 YOA:

(½)
Option granted and exercised on 1 April 2018
(R35 – R20) x 10 000 shares – 2019 yoa 150 000 (1)

Inclusion in GI, section 1, par (c) (by default) when option is granted and when (1)
exercised. Obtained due to employment, hence due to services rendered.
Less: exemption (in both instances) (150 000) (½)
Section 10(1)(nD) exemption as shares have not vested yet. The
conversion of one restricted equity instrument (option) into (1)
another restricted equity instrument (equity share) is not a
vesting event for purposes of section 8C [see section 8C(1)(b)(i)]
Inclusion in Income nil
Feb 2022 YOA:

(½)
Vesting of the shares on 1 April 2021 as the restriction falls away (sales
restriction is lifted) on 31 March 2021.
Market value on vesting date (R45 x 10 000 shares) – 2022 yoa 450 000 (½)
Less: Consideration paid (R20 x 10 000 shares) (200 000) (½)
Inclusion in income gain realised in terms of section 8C 250 000 (1)
Disposal of shares held on capital account: CGT consequences
Proceeds (R62 x 10 000 shares) (par 35 of the Eighth Schedule) 620 000 (1½)
Less: Base cost (R45 x 10 000 shares) (par 20(1)(h) of the Eighth Schedule) (450 000) (1½)
Capital gain (Eighth Schedule) – 2022 yoa 170 000
This capital gain will be aggregated with other capital gains/losses for the year of
assessment and annual exclusion deducted. (½)
Inclusion rate 40% (½)

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Amount subject to employees’ tax in 2022 year of assessment:
The full amount of the income gain inclusion in “income” in terms of s 8C will
be subject to employee’s tax / is remuneration. 250 000
Par (e) of the definition of “remuneration” in par 1 of the Fourth Schedule to the
Income Tax Act. (It is NOT a fringe benefit)
2 marks for students who calculate normal tax (with no deduction of rebates) (2)
Total [14½]
Max [12]
(c) E-mail – home office expense
Mail to: Xavier Benson

Mail from: CTA Student / Consultant
Subject: Deductibility of home office expense for the year of assessment ended
Date: 28 February 2022
1 mark for the e-mail format (1)
Home office expense (City Council utility bill):
For an expense to be deductible, it needs to meet the criteria of the general deduction (1)
formula in section 11(a) read with section 23(g) of the Income Tax Act.
(1)
Section 23(g) prohibits expenditure to the extent that such expense is not expended for the
purposes of trade.
Therefore, in terms of the general deduction formula, even though a portion of the City
Council bill is expended for private purposes, a portion of the City Council utility bill may
qualify for deduction as it is expended for trade purposes/production of income. (1)
Section 23(b) may prohibit the deduction of private or domestic expenses in connection with (1)
any dwelling, except in respect of such part as may be occupied for trade purposes.
The City Council utility bill is a private or domestic expense incurred in connection with a
dwelling. Xavier uses a 5% portion of his dwelling for trade purposes, therefore 5% of the
City Council utility bill may be deductible. (Mark given later)
Section 23(b) does NOT prohibit the deduction of 5% of the City Council utility bill, because:
(1)
5% of the floor space is specifically equipped for Xavier’s trade and was regularly and
exclusively occupied for his trade (Proviso (a) to section 23(b)); and (1)
His duties are mainly (more than 50%) performed in the specifically equipped portion
due to the fact that Xavier worked from home for the full period between 1 April 2021
and 31 October 2021. (Proviso (b) to section 23(b)).
(1)
However, due to the fact that Xavier’s income does not consist mainly of commission income (1)
(or consists mainly of salary), section 23(m) limits the deduction of expenses that qualifies
for deduction ito section 11, to certain types of expenditure. (1)
In terms of section 23(m)(iv), Xavier will be able to deduct the 5% of the City Council utility
bill as an expense in connection with any dwelling that is not prohibited by section 23(b). (1)
Xavier will be able to deduct R31 500 x 5% = R1 575 of the utility bill.
(1)

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Office chair
The expenditure incurred on the office chair does not meet the requirements of the general
deduction formula as it is capital in nature.
(1)
The office chair may qualify for a section 11(e) capital allowance. As the cost price is less (1)
than R7 000, the full purchase price (meaning 100%) will qualify for the allowance.
(1)
However, due to the fact that Xavier’s income does not consist mainly of commission
income, section 23(m) limits the deduction of expenses that qualifies for deduction ito
section 11, to certain types of expenditure.
In terms of section 23(m)(ii), Xavier will be able to deduct the capital allowance on the office
chair.
Xavier will be able to deduct R6 670 – R1 = R6 669 for capital allowance. (1)
Available [14]
Max [12]
Communication skills – layout and structure; logical argument (2)
Total [14]
(d) Withholding tax

Xavier will be liable for withholding tax on the sale of his primary residence situated in
Pretoria, South Africa in terms of section 35A of the Income Tax Act (1)
The buyer of the property must withhold the tax and pay it to SARS on behalf of the seller.
Because Xavier (the seller) is a natural person, the withholding tax rate is 7,5%. (1)
R2 600 000 x 7,5% = R195 000 withholding tax will be payable (not a final tax). (1)
Total [3]

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(e) Section 6A and section 6B medical tax credits
Section 6A credit:
Xavier’s mother qualifies as a “dependant” ito par (c) of the definition of

“dependant” in section 6B(1).
R332 x 10 months (s 6A(2)(b)(i)(aa)) for Xavier himself 3 320 (1½)
R332 x 12 months (s 6A(2)(b)(i)(aa)) for Xavier’s mother 3 984 (1)
Section 6A(2)(b) credit 7 304
Section 6B credit:
Medical scheme fees paid by Xavier
R2 800/60x100 = R4 667 x 10 months 46 670 (1½)
R2 230 x 12 months = R26 760 (mother) 26 760 (1)
73 430
Less: 4 x Section 6A(2)(b) credit (4 x R7 304 = R29 216) (29 216) (1)
44 214
Plus: Qualifying medical expenses paid by Xavier for himself 15 000 (1)
Qualifying medical expenses must be actually paid and not just
incurred or payable to qualify for deduction.
Qualifying medical expenses paid by Xavier on behalf of his mother 62 000 (1)
121 214
Less: 7,5% x R600 000 (given) = R45 000 (45 000) (1)
76 214
S6B credit – R76 214 x 25% 19 054 (1)
Total [10]
Max [9]
(f) Provisional tax returns
The definition of “provisional taxpayer” in par 1 of the Fourth Schedule applies. (1)
In terms of sub-par (a)(ii) of the definition Xavier is regarded as a provisional taxpayer as he
derives income by way of interest received that is not remuneration. (1)
The exclusion in sub-par (dd)(B)(BB) does not apply, as the taxable income of interest
received by Xavier amounts to R69 950 (i.e. R93 750 – R23 800) which exceeds R30 000.
(1)
Conclusion: Xavier is liable to submit provisional tax returns for his 2022 year of assessment. (1)
Total [4]
PART B
(a) Discuss ICA and VAT

Par (b) of the definition of “instalment credit agreement” in section 1 of the VAT Act: (1)
The photovoltaic panels are goods consisting of corporeal movable goods (½)
(b)(i) – the rent consists of a determinable amount of money payable periodically in
instalments over a period of 60 months; and (½)
(b)(ii) – the instalment payable includes finance charges; and (½)
(b)(iii) – The aggregate of the amounts payable to the lessor and any residual value of the
leased goods on termination of the lease, exceeds the cash value of the supply; and
OR - total amount payable (R3 074 160) > cash value of the supply (R2 587 500) (½)
(b)(iv) – Coldage (lessee) is entitled to the possession and use of the goods is for a period
of more than 12 months; and (½)
(b)(v) – Coldage (lessee) accepts the full risk of destruction or loss of the goods and assumes
all obligations arising in connection with the insurance, maintenance and repair of the goods
while the agreement remains in force. (½)

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Conclusion: Yes, the lease agreement is an instalment credit agreement.

(1)
Input tax: Input tax in claimable as the goods will be used to make taxable supplies, the VAT
paid on the solar panels qualify for an input tax deduction (definition of “input tax” in section (1)
1).
The input tax is claimable ito section 17(1) of the VAT Act. It is also not denied. (1)
Value: The consideration in money for the supply is the cash value of the supply. This is
the purchase price including VAT, which is R2 587 500, excluding finance charges. (Def of
“cash value” in section 1 and/or s 10(6)). As Coldage makes 100% taxable supplies, the
input tax must not be apportioned. (1)
Input tax = the value of the supply x the tax fraction = R2 587 500 x 15/115 = R337 500 (1)
Interest component is classified as a “financial service” (OR finance charges) which will be
an exempt supply for VAT purposes (s 2 read with s 12(a) of the VAT Act). (2)
Time: The time of supply is the earlier of the time of the delivery of the goods or the time
any payment is received, which in this instance is the same date. The input tax is claimable
in the VAT period in which May 2021 falls (Section 9(3)(c)) (2)
Available [13]
Max [9]
Communication skills – clarity of expression (1)
Total [10]
(b) Accounting journals

Dr/R Cr/R
1 May 2021
J1 Right-of-use asset (SFP) 2 250 000 (1½)
Input tax / VAT control account (SFP) 337 500 (1½)
Lease liability (SFP) (Initial measurement of the lease) 2 587 500 (1)
Recognition of the right-of-use asset
28 February 2022
J2 Lease liability (SFP) (R51 236 X 10 months)
(or R512 360) 512 356 (2)
Bank (SFP) 512 356 (½)
Recognise lease liability
J3 Interest expense (P/L) 141 301 (1½)
Lease liability (SFP) 141 301 (1)
Recognise interest expense
J2&3 Alternative:
Lease liability 371 055 (3)
Interest expense 141 301 (1½)
Bank 512 356 (½)
J4 Depreciation: Right of use Asset (P/L) 178 125 (½)

Accumulated depreciation: Right of use asset (SFP) 178 125 (½)
Recognise depreciation for the year
R2 250 000 /10y x 9,5m /12m = R178 125 (2)
Available [12]
Max 10
Communication skills – presentation (1)
Total [11]

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(c) Normal tax consequences – finance lease
The solar panels are not owned by Coldage as it was not purchased outright or financed by
way of an instalment sale agreement, therefore no capital allowances and no deduction for
finance charges.
Note: If the solar panels were purchased, Coldage would have deducted the finance charges
and a section 12B capital allowance of 100% (s 12B(2)(b), read with s 12B(1)(h)(ii)(bb)).
The solar panels are leased by Coldage and therefore the monthly instalments paid (excluding (1)
VAT) are deductible for normal tax purposes ito the general deduction formula (s11(a)) as it
constitutes rent paid for an asset used for trade purposes / in production of income.
(1)
As the finance lease agreement qualifies as an instalment credit agreement for VAT purposes,
the full VAT amount is claimable upfront as input tax / VAT must be excluded from each
payment.
Therefore, the VAT must be excluded from the monthly instalments (ito section 23C of the ITA)
in order to calculate the amount that is deductible for normal tax purposes. (1)
R2 587 500 x 15/115 = R337 500 / 60 (1) = R5 625 VAT in each payment.
Monthly payment (R51 236) less VAT (R5 625) (1) = R45 611 payment excluding VAT. (4)
Deduction for lease payments – R45 611 x 10m = (R456 110)
Available [7]
Max 6
Communication skills – clarity of expression (1)
Total 7
PART C
Input tax: (½)

Buying the business as a going concern (R750 000 x 0% / zero (0)
rated)) - given (1)
Output tax: (½)
Going concern adjustment (s 18A) R
Total purchase consideration of the business 750 000
Less: Value of assets used to make 100% taxable supplies (120 000) (1)
Less: Value of asset on which input tax was denied – motor car (85 000) (1)
Balance of assets that will be used to make mixed supplies 545 000
Non-taxable use percentage (100% - 45% = 55%)
Non-taxable use (R545 000 x 55%) = R299 750 299 750 (1)
Output tax on non-taxable use – R299 750 x 15% 44 963 (1)
Total 6
Max 5

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i) R R
(1) Contract with Furn-Mart
Part of contract price received 800 000 (1)
Remaining part of contract: R400 000 (R1.2 m - 0,8m),
not unconditionally entitled to as not accrued (Mooi case nil (1)
principle), as the desks needs to be delivered, thus further
obligations exists.
Expenses incurred – deductible in terms of section 11(a) (130 000) (1)
Section 24C allowance:
Gross profit percentage:
(R130 000 + R250 000)/R1 200 000 = 31.67% (1)
Costs relating to amount received:
R800 000 x 31.67% = R253 360 (1P)
(Alternative: R800 000 x 31.7% = R253 600)
(Alternative: R800 000 x 32% = R256 000)
Costs still to be recognized:
R253 360 (OR: R253 600; OR: R256 000) – R130 000 (123 360) (1P)
(2) Material imported

Cost of sales (s11(a) – 2021
(¥400 000 (i.e. 500 x ¥800) x R1.92 = R768 000) (s 25D)) +
R17 200 = R785 200 (2)
Opening stock (R785 200 x 80%) (s 22(2) – 2022) (628 160) (1P)
Note: There is no closing stock
Foreign exchange differences (s 24I)
Debt:
¥400 000 x (R2.05 – R1,87) (exchange loss) (72 000) (1)
FEC:
¥400 000 x (R2,05 – R2.00) (exchange gain) 20 000 (1)
Gains and loses must be correctly indicated 1P
(3) Allowances
3.1 Learnership agreement allowance – s 12H
Annual allowance
Herman (disabled) –NQF 7 (s 12H(2A)(b) read with s 12H(5A))
R50 000 x 6/12 (25 000) (1)
Alec – NQF 6 (s 12H(2)(b))
R40 000 x 6/12 (20 000) (1)
Completion allowance
Herman (disabled) NQF 7 (s 12H(3A) read with s 12H (5A)) (50 000) (1)
Alec – NQF 6 (s 12H(3)) (40 000) (1)

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3.2 Doubtful debt allowance – s 11(j) R R

Add back doubtful debt allowance – 2021 22 000 (1)
Doubtful debt allowance for 2022 is the sum of (s 11(j)(ii):
- 40% of R30 000 (measured at an amount equal to the lifetime (1)
expected credit loss) = R12 000 plus
- 25% of R55 000 ) measured at an amount equal to the 12
month expected credit loss) = R13 750) (25 750) (1)
3.3 Calibrating sanding machines

Old machine – 25/4/2020
Cost (R950 000 x 100/115) (used 100% for TS) 826 087 (1)
S 12C allowance
2020: (R826 087 x 40%) (330 435) (1)
2021: (R826 087 x 20%) (165 217)
2022: (R826 087 x 20%) (165 217) (165 217) (1)
Tax value: 165 218
Selling price (limited to cost – R826 087) 100 000 (1)
Less: Tax value (165 218)
(65 218)
S 11(o) scrapping allowance (65 218) (1)P

Alternative calculation:
Cost – (SP + allowances claimed)
= R826 087 – (R100 000 + R660 869) = R65 218.
CGT
Proceeds 100 000 - (1P)
Less: Base cost
(R165 218 – R65 218) 100 000 (1P)
Capital gain/loss
No amount will be included in taxable income via s26A
New machine – 12/8/2022

Cost
Purchase price (R1 380 000 x 100/115) 1 200 000 (1)
Calibrating costs (R92 000 x 100/115) 80 000 (1)
S 12C allowance (R1 280 000 x 40%) 1 280 000 (512 000) (1)
Available: 29
MAX 28

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ii)
As there was a concession or comprise in respect of a debt that was owed by a person (PP) and
the amount of debt was used directly to fund expenditure for which an interest deduction and (1)
capital allowance was granted in terms of the Income Tax Act, section 19 and paragraph 12A of
the Eighth Schedule will be applicable. (1)
As the interest of R173 615 was claimed as an income tax deduction, the provisions of (1)
section 19(5) will apply and the amount will be recouped in the 2023 year of assessment in terms
of section 8(4)(a). (1)
The R1 500 000 was used to finance the delivery truck (allowance asset), therefore section 19 (1)
together with paragraph 12A of the Eighth Schedule should be applied.
In terms of paragraph 12A of the Eighth Schedule the base cost of the asset as on the date of (1)
the debt benefit received should be reduced with the debt reduction amount.
The base cost of the delivery truck: R

Cost 1 500 000
Less: Section 11(e) allowance – 2022 (R1 500 000 x ¼ (or ÷ 4) x 11/12) (343 750) (1)
(apportioned)
(Alternative: (R1 500 000 x ¼ (or ÷ 4) x 334/365 = R343 151 – 2022)
Less: Section 11(e) allowance – 2023 (R1 500 000 x ¼ x 5/12) (156 250) (1)
(Alternative: (R1 500 000 x ¼ x 151/365 = R155 137)
Base cost 1 000 000
(Alternative, if days used = R1 001 712
R1 000 000 of the debt reduction of R1.5 million should therefore be applied to reduce the base
cost of the delivery truck by R1 000 000 to Rnil. (1)
The remaining capital portion of the debt reduction of R500 000 (i.e., R1.5 million less R1 million) (1)
will be applied to recoup the allowances claimed in respect of the delivery truck (allowance asset)
as a deduction for Income Tax purposes.
R1 500 000 – R1 000 000 = R500 000 will in terms of section 19(6) be deemed to be a (1)
section 8(4)(a) recoupment that needs to be included
in PP’s gross income, section 1, paragraph (n)) during PP’s 2023 year of assessment. (1)
No further section 11(e) allowances will be allowed to be claimed on the delivery truck in future
years of assessment, (1)
due to the section 19(7) limitation which is calculated as follows:
R
Aggregate expenditure incurred in acquiring the asset 1 500 000
Less: Debt reduction amount (1 000 000)
Less: Deductions and allowances previously allowed (500 000
Rnil
Available 13
Max 10
Communication skills - Clarity of expression (correct terminology in reference to Income Tax
legislation) and presentation (supported by applicable calculations) 2
Total 12

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iii) Calculations “Column

R R
Taxable income Baren Birch – provided 560 000
Distribution from trust: Included in terms of GI
definition, world-wide income and conduit pipe
principle:
20% foreign dividend R20 000 x 100/90 (WHT) (1)
= R22 223 +
50% net rental R50 000 + (1)P
30% interest income R30 000 102 223
Reason: Attained vested right ito s 25B(2) read with s
7(1) (1)
Exempt income:
Foreign dividend 25/45 x R22 223 (12 346) (1)P
Reason: s 10B(3) rebate on gross amount of foreign
dividend (1)
Distribution to children:
Pine: Interest 30% x R100 000 or 30 000 (1)
Reason: s 7(8) applies on donation of investment (to
non-resident) that would have constituted income in (1)
Pine’s hands if he was a resident
Cypres: Interest 30% of R200 000 (both 30 000 (1)
Reason: s 7(3) applies as Cypress is a minor and this beneficiaries)
income comes from a donation by Baren (Cypress’ (1)
father).
Note: s 25B applies on foreign dividend and rental
income
Local interest (23 800) (1)
Reason: Baren is 48 (i.e. younger than 65) / s 10(1)(i) (1)
Retained income in trust: R207 000 – R90 000 or 117 000 (1)
Reason: S 7(5) will tax retained income (interest) in (R390 000 x 30%)
the hands of the donor (1)
Expenses:
Lawyer expenses R150 000 -
Reason: Not deductible in terms of s 11(a) or 11(c)
as it was expensed in regards to a capital asset and (1)
not in the production of income (OR: Barren is no
longer the owner of the asset and this is a loan to the
trust.)

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CGT: Eighth Schedule –included in terms of s R (1)

26A
Local interest-bearing investment donated
Proceeds [Par 35] R4 million nil
Less: Base cost [Par 20] (equal to proceeds as
it’s a monetary asset) (R4 million) (1)
Capital gain/(loss) Nil
Cost of donation:
Consider par 22:
[(R4m - R4m)/R4m] x R780 000 = Rnil (thus, no
donations tax component to be added to the
base cost)
The donation of interest-bearing investment of
R4 million will be subject to donations tax at 20%.
The amount of the donation must be reduced by
the R100 000 annual exemption in terms of
s 56(2)(b). (2)
R780 000 ((R4 000 000 – R100 000) x 20%)
Disposal of 8 hectare plot:
Change in capital in nature
Proceeds: [Par 35] R6 000 000
Less: Base cost [Par 20] + lawyer expense (par
20(1)(c) (R4 650 000) (1)
Capital gain R1 350 000
Less: Annual exclusion [Par 5] (R40 000) (1)
Aggregate and net capital gain R1 310 000
Multiply with: CGT inclusion rate [Par 10] x 40% (1)
Taxable capital gain [s 26A] 524 000 524 000 (1)
Available 22
Max 19
Note: As no income was distributed (or received) in terms of the 8 hectare, Woulidge principle will not apply

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QUESTION 6 – SUGGESTED SOLUTION (CONTINUED)
iv)
On date of death (1 October 2021) all Baren’s assets will be deemed to be disposed of at
market value in terms of section 9HA. (1)
Baren will still be taxed on taxable amounts received until the date of his death on 1 October
2021, hence R448 000 will need to be included in his gross income. (1)
The R100 000 distribution he received from the trust was received before his death and there
is no change in the income included in his taxable income.
In terms of section 7 the interest income from the trust (distributed to his children) will be
included in his income until the date of his death. Any interest income received by his children (1)
after his death will be taxed in their own hands in terms of s 25B(2). (1)
Thus only R35 178 (30% of R200 000 x 214/365 days) or 215/365 will be included in his gross (1)
income in terms of s 7(8) and s 7(3).
Alternative: R17589 in terms of s 7(8) if student motivates the amount as ‘income’ and not
gross income. S 10(1)(i) should then not have been used before
The retained income in terms of section 7(5) will change to R68 597 (R117 000 x 214/365) (1)
(1)
but the full s 10(1)(i) interest exemption can still be used.
Expenses paid to his lawyer will still be of a capital nature (loan to the trust) and not deductible
in terms of s 11(a). – no change
There is no change in the capital gain with regards to the interest-bearing investment and the
8 hectare plot as the plot and investment were transferred (‘sold) to the trust before his death.
In addition there will be a CGT on his primary residence of:
Proceeds R5,4 million less base cost R4.4 million = R1 million and as it will qualify for the par (1)
45 primary residence exclusion (R2 million limited to R1 million), the aggregated capital gain (1)
will therefore not increase.
The annual exclusion in terms of paragraph 5 will change to R300 000 instead of the R40 000.
The inclusion rate will remain at 40%. – no change (1)
Available 10
Max 7
Communication skills - Presentation – awarded for using supporting calc. in answer 1
Total 8

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QUESTION 6 – Suggested solution (continued)
(v)
The Plywood Trust transfers the office block at a higher market value than its original cost (base
cost) to Homecraft, a resident company, thus an asset-for-share transaction in terms of s 42(1)
took place. (1)
Although Plywood Trust will hold 3% of Homecraft’s ordinary equity shares and voting rights,
Homecraft is a listed company, thus Plywood Trust will hold a “qualifying interest” as defined and
required in terms of section 42(1). (1)
Both parties hold the office building as a capital asset, (1)
thus all the requirements of section 42 are met and the roll-over relief provided for under this
provision are applicable, meaning that the Plywood Trust and Homecraft will be deemed to be one
and the same person (1)
Bur the market value of the office block (R3.8 million) is higher than the value of the ordinary equity
shares received (30 928 x R110 = R3 402 080), thus it is an asset-for-share transaction that is not (1)
at arm’s length (s24BA(2)) that would have applied between independent persons. (1)
None of the exemptions under s 24BA(4) will apply. (1)
Homecraft Furniture Ltd
The issue of ordinary equity shares by Homecraft is not a disposal ito par 11(2)(b) of the Eighth
Schedule. (1)
Homecrafts’ contributed tax capital would be increased by R3.2 million which represents the base
cost of the office block on 1 October 2021 (i.e. the date of the disposal of the office block by the
Plywood Trust) in terms of s 42(3A)(b). (1)
Homecraft is deemed to acquire the office block from the Plywood Trust at the base cost of the
office block at the time of the bequest, R3.2 million (given in note 5.1) (s 42(2)(a)(i)(aa)) (1)
Application of s 24BA
As the market value of the office block (R3.8 m) exceeds the value of the shares (R3 402 080)
immediately after the transaction, a deemed capital gain arises in the hands of the issuer of the (1)
shares (Homecraft) (s 24BA(3)(a)(i)).
A capital gain of R397 920 (i.e. R3.8 million less R3 402 080) will be added to the aggregated (1)P
capital gains and losses of Homecraft during its 2021 year of assessment
In terms of s 40CA(b) the base cost of the office block needs to be adjusted with the capital gain
that arose in terms of s 24BA (effective from 1 January 2021).
The cost is thus R3.2 million plus R397 920 = R3 597 920. This amount will also be the base cost (1)
of the asset.
Section 13quin will not apply as the office block is not a new and unused building (purchased in (1)
2007 and bequeathed to the trust) even though Homecraft and the Plywood Trust is deemed to be
one and the same person.
The Plywood Trust
The Plywood Trust is deemed to have disposed the office block to Homecraft for an amount equal
to the base cost of R3.2 million (s 42(2)(a)(i)(aa)). (1)
The ordinary equity shares in Homecraft acquired by the Plywood Trust will have a base cost of (1)
R3.2 million. However, as a result of the application of s 24BA(3)(a)(ii), the difference between the
market value of the asset and the market value of the shares immediately after the transaction,
reduces the expenditure (cost) of then ordinary equity shares.
and the shares will have a value of R3.2 million less R397 920 = R2 802 080. (1)P
Available 17
Maximum 15
Communication skills – layout and structure
1
Clear differentiations between taxpayers
Total 16

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QUESTION 6 – SUGGESTED SOLUTION (CONTINUED)
(vi)
Strategy and risk
• Does the purchase and rental of the office building align with Homecraft’s strategy and (1)
risk appetite / risk tolerance?
• Homecraft is renowned in a different industry and may not have the necessary industry (1)
knowledge, expertise and point of systems and internal processes to manage the
property, increasing the risk of the purchase.
• The property could bring about diversification from a strategy perspective thus (1)
complementing the furniture business.
• The purchase could possibly enhance Homecraft’s reputation, its standing within the (1)
community, social responsibility, shareholder relationships and risk assessment.
• Identification and evaluation of other similar properties and other available investment (1)
opportunities.
Investment decision making
• If the investment is intended to make a profit; then capital investment appraisal (1)
techniques should be applied to determine its bankability (profitability via NPV / IRR, etc.)
prior to making decision to purchase.
• Performance of proper due diligence on the office block property and its current (1)
performance: verification of leases, maintenance of property, contracts in place, demand
estimates, independent valuation on property etc.
• Additional financial strain on Homecraft as it is already providing financial support to (1)
business owners.
Financial
• How the property should/is financed, debt or equity? (1)
• Consideration to optimal capital structure should be given. 3% equity (currently used) is (1)
significant for a listed company.
• Risk of defaulting on lease could be high, as small business owner’s financial (1)
sustainability could be low (PP approached Homecraft to compromise its debt).
• Demand for office buildings is significant lower since the pandemic, as administrative (1)
workers work from home.
• Consideration to alternative ways of structuring the deal for example: rent to buy (1)
agreement option or instituting guarantees on rental income / deferment of payment of
purchase costs subject to sourcing of tenants
• Customer Credit Assessment and Management (New processes and procedures, (1)
Additional admin costs)
• Fixed property can be used as collateral for future funding: this increases the financial
flexibility and strengthens the balance sheet of HomeCraft. (1)
• Future considerations on the use of the offices for HomeCraft’s business / business
(1)
partners, sales offices or displays for their office furniture to potential customers, etc.

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Operational
• Is the office block suitable for the small business owners or could there be potential (1)
other costs involved such as, branding, tenant fitment, transfer costs, eco-cost etc.
• How will this office building be branded? The property’s current branding may enhance (1)
the continuity or Homecraft’s branding may increase or destroy value depending if project
succeeds.
• Maintenance and upkeep of the property. Does Homecraft have the competency or
access to a competent party to assume this role? (1)
• Is the office building eco-friendly and fitted with green technology, such as water and
energy efficiency. Homecraft is known for its commitment to eco-friendly furniture parts. (1)
Legal and compliance

• The purchase will require pre-purchase compliance with Companies Act, memorandum (1)
of incorporation, any existing shareholder agreements, and listing requirements
(compliance focus)
• Laws and regulations relating to property rentals such as SHE requirements, municipal (1)
business licence laws, rules, and regulations).
• Potential undue influence of Baren Birch on management as shareholder and property (1)
seller as a result of the proximity to management.
(1)
MAXIMUM 10

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vii)
Memo to Baren Birch
Re: Advice on the uptake of preference shares in Homecraft
Date: xxxx 2022
From: CTA student
Preference shares
Baren is a beneficiary of the Plywood Trust because any beneficiary of a trust is regarded as (1)
a connected person in relation to such a trust” (par (b)(ii) of the definition of “connected person”
in s 1 of the ITA.
Baren and the Plywood Trust jointly hold at least 20% (in this case 30%, namely: 15% + 15%)
of the ordinary equity shares of Homecraft. (1)
and no holder of shares holds the majority of voting rights in Homecraft as it is indicated that (1)
all other ordinary equity shares are held by share investors and share dealers of which none
hold more than 1% of the ordinary equity shares and voting rights on their own at any given
point in time.
The amount of R50 x 20 000 = R1 million is deemed to be a loan for the purposes of (1)
section 7C(3).
The official rate of interest would require Homecraft to pay interest of R1 000 000 x 4,75% x (1)
59/365 days [s 7D(b)] = R7 678 while the holder (Baren) of the preference share will be paid
4% x R1 000 000 x 59/365 days [s 7D(b)] = R6 466. Or (1)
R1 million x (4.75%-4%) x 59/365 days =R1 212 = 2 marks
The difference between the two of R1 212 (i.e. R7 678 – R6 466) will be deemed to be a (1)
donation in terms of s 7C(1B) on 28 February 2022 (i.e. the last day of the year of assessment
of the Plywood Trust).
As Baren has already utilised his basic annual exclusion (he donated his investment and house
to the trust on 1 September 2021), he is liable for donations tax of R242.40 (R1 212 x 20%) (1)
before/on 31 March 2022 (i.e. the last day of the month following the month during which the (1)P
donation was made).
Available 9
Maximum 6
Communication skills – presentation 1
Format must be in memo form
Total for question 2 (vii) 7

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ANNEXURE: MONETARY AMOUNTS TO BE PROVIDED IN THE OCTOBER 2022 AND
JANUARY 2023 SUPPLEMENTARY EXAMINATIONS
Tax thresholds
(point at which normal tax becomes payable)
Taxable income
Rand
2022 2021
Persons under 65 87 300 83 100
Persons 65 and under 75 135 150 128 650
Persons 75 and above 151 100 143 850
SCHEDULE I – RATES OF NORMAL TAX

For any natural person, deceased estate, insolvent estate or special trust
Year of assessment 28 February 2022
Taxable income Rates of tax
R0 – R216 200 18% of taxable income
R216 201 – R337 800 R38 916 + 26% of taxable income exceeding R216 200
R782 201 – R1 656 600 R229 089 + 41% of taxable income exceeding R782 200
R1 656 601 and above R587 593 + 45% of taxable income exceeding R1 656 600
Retirement fund lump sum withdrawal benefits

Lump sums accruing between 1 March 2014 – 28 February 2022
Taxable income from lump Rates of tax
sum withdrawal benefits
R25 001 – R660 000 18% of taxable income exceeding R25 000
R990 001 and above R203 400 + 36% of taxable income exceeding R990 000
Retirement fund lump sum benefits and severance benefits

Lump sums accruing between 1 March 2014 – 28 February 2022
Taxable income from lump Rates of tax
sum benefits
R500 001 – R700 000 18% of taxable income exceeding R500 000
R700 001 – R1 050 000 R36 000 + 27% of taxable income exceeding R700 000
R1 050 001 and above R130 500 + 36% of taxable income exceeding R1 050 000
Normal tax rebates

Rebates (Rand)
2022 2021
Primary rebate (Persons under 65) 15 714 14 958
Secondary rebate (Persons 65 and under 75) 8 613 8 199
Tertiary rebate (Persons 75 and above) 2 871 2 736
Annual interest exemption

Rand
2014 - 2022 2013
Persons under 65 23 800 22 800
Persons 65 and above 34 500 33 000

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Determination of the daily amount in respect of meals and incidental costs for purposes of
subsistence allowance
Rand
2022 2021
Meals and incidental costs (per day) 452 452
Incidental costs only (per day) 139 139
Fixing of rate per kilometre in respect of motor vehicles per regulation (travel allowance)
Effective from 1 March 2021
Where the value of vehicle Fixed Cost Fuel cost Maintenance
(including VAT) (R) (c/km) cost (c/km)
Does not exceed R95 000 29 504 104.1 38.6
exceeds R95 000 but does not exceed R190 000 52 226 116.2 48.3
Exceeds R190 000 but does not exceed R285 000 75 039 126.3 53.2
exceeds R665 000 156 711 172.4 99.6
Medical scheme fees tax credit

Rand
2022 2021
Taxpayer 332 319
Taxpayer and one dependant 664 638
For each additional dependant 224 215
Capital gains tax

2022 2021
Inclusion rate 40% 40%
Annual exclusion R40 000 R40 000
Exclusion in year of death R300 000 R300 000
Primary residence exclusion R2 000 000 R2 000 000
Estate Duty
On or after 1 March 2018:
- 20% on the first R30 million
- 25% on excess above R30 million
Fringe benefit on residential accommodation

2022 2021
Symbol B R87 300 R83 100
Scholarship or bursary granted to:

2022
A relative of employee without a A relative of employee with a
Effective from
disability disability
1 March 2018
Section 10(1)(q)(ii) Section 10(1)(qA)(ii)
Remuneration proxy: R600 000 R600 000
Grade R to 12 R20 000 R30 000
NQF1 to 4 R20 000 R30 000
NQF 5 to 10 R60 000 R90 000

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Small Business Corporation (as defined in section 12E)

Applies to any year of assessment ending during the 12 months from 1 April 2021 up to 31 March 2022
Taxable Income Rate of Tax
R87 301 – R365 000 7% of the amount above R87 300
R365 001 – R550 000 R19 439 + 21% of the amount above R365 000
R550 001 and above R58 289 + 28% of the amount above R550 000
Small Business Corporation (as defined in section 12E)

Applies to any year of assessment ending during the 12 months from 1 April 2022 up to 31 March 2023
Taxable Income Rate of Tax
R91 251 – R365 000 7% of the amount above R91 250
R365 001 – R550 000 R19 163 + 21% of the amount above R365 000
R550 001 and above R58 013 + 28% of the amount above R550 000
Master’s Fees (effective 1 January 2018)
R0 – less than R250 000 RNil
R250 000 – less than R400 000 R600
R400 000 and more R600 + R200 for every complete further R100 000 of estate value up
to a maximum fee of R7 000 (for estates valued at R3.6 million or more)
VAT rate
Up until 31 March 2018 14%
Effective from 1 April 2018 15%
_________________________________
END OF TUTORIAL LETTER
©
UNISA
2022

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Tutorial letter 108/0/2022

APPLIED TAXATION (CTA level 2)

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• Information regarding the October 2022 examination;

II. THE OCTOBER 2022 EXAMINATION

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III. REVISION LECTURES DURING SEPTEMBER 2022

Date Time Content

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COMPANIES AND CLOSE CORPORATIONS

IV. LEARNING UNIT 21: TAX ADVICE AND PLANNING

21.1.1 UNGC Principle 10

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21.2 OUTCOMES OF THIS LEARNING UNIT

21.3 TAX PLANNING IN GENERAL

21.3.1 Approach to tax planning

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Factors that determine tax liability

➢ Consider the tax disadvantages of companies:

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➢ Consider the advantages of companies:

➢ The use of trusts for business purposes, so-called business trusts:

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Where is the person resident?

21.3.2 General and specific considerations in tax planning

21.3.2.1 Tax rates

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Annual taxable value:

Deemed cost: Fixed cost per table R114 781

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• Recoupments (sections 8(4) and 22(8));

21.3.3.1 Other considerations

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21.3.3.2 Investment decisions

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Tax entity to be utilised

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For a company, an “income instrument” is any “instrument” (irrespective of its period).

Deductions available against investment income

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21.4 SUMMARY OF LEARNING UNIT 21

21.5 LIST OF REFERENCES OF LEARNING UNIT 21

• SAICA. 2022. SAICA Student Handbook 2021/2022 Volume 3, Durban, LexisNexis.

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 Proposed self-assessment method:

Apply the following method regarding the time allocation:

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QUESTION CONTENT AND NOTES

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Period Private Business

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Communication skills – presentation

Show all calculations.

Provide your opinion to Mathew on the employees’ tax consequences of the