TAX3761/205/0/2023

Tutorial letter 205/0/2023

The Taxation of Business Activities and

Individuals

TAX3761

Year module

Department of Taxation

Solution – Test 4
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Dear Student

Enclosed please find the solution to Test 4. Please work through the solution in conjunction with the test
and your answers. This is a significant part of the learning process. It is important to understand why
marks were allocated to specific parts of your solutions.

You should identify any problem areas early in the semester and make every effort to understand all
aspects of the work that you have covered. We hope that you have found the test and questions stimu-
lating.

We would like to draw your attention to the following points again (which can be found in Tutorial letter
101):

1. The test marks obtained will be used to calculate your year mark. Your year mark will be calculated
as the average of your best three tests. If only one or two tests are written, the total marks of the
tests written will be divided by three to obtain the year mark. If no test is written the year mark will
be nil.

2. There are no special tests, and no tests are scheduled for cases of sickness or any
unforeseen circumstances. You need to ensure that you write at least three of the four tests during
the year. No sick letters or doctors’ notes will be accepted or considered.

3. Should you feel that marks were not awarded correctly during the marking process, you may do the
following:

• Email a copy of your test script to the following email address:

TAX3761-23-Y1@unisa.ac.za.

• Please note that you have a limited period to query your tests results. No test marks will be
adjusted after the expiry of this period. Students should request a test remark within 2 weeks
after the release of the test results on myUnisa.

• Include a cover letter in a report format explaining why you would like your test to be rechecked,
as well as an indication of instances where you were not awarded marks according to the sug-
gested solution (the suggested solution will be made available on myUnisa). Your script will not
be rechecked if you fail to provide the necessary cover letter.

Please note:

When you send your test for a recheck, the test in total will be evaluated and not
only certain sections. Should you receive a lower mark on the recheck, your test
mark will be adjusted accordingly.

Kind regards

TAX3761 Lecturers
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SUGGESTED SOLUTION: TEST 4

SOLUTION: QUESTION 1 – PART A (30 marks)

a) Calculation of the normal income tax payable by Brian Kunene for the 2023 year of
assessment.

R R
Salary 935 000
Consulting fees 125 000 (1)
Right of use of motor vehicle (R276 000 x 3.25% (1) x 10 months (1)) 89 700
Less: Business use of company car (7 610 km / 8 950 km) (1) x R89 700 (76 270) 13 430
Cash payment - long service award 35 500 (1)
RSA Interest – Brian Kunene 48 300 (1)
Married in community of property (50% x R48 300) (24 150)
24 150
Less: Exempt portion (23 800) (1) 350
Foreign Interest – Brian Kunene 8 950
Married in community of property (50% (1) x R8 950 (1)) (4 475) 4 475
Net rental income 52 900 (1)
Add: Capital improvement – not deductible 16 200 (1)
Adjusted net rental income 69 100
Less: Married in community of property (R68 100 x 50%) (34 550) 34 550
Big RP – Pension fund contribution (R140 250 x 40%) 56 100 (1)
Big RP – Medical scheme contribution 32 000 (1)
Foreign dividends – Brian Kunene 8 450
Less: Married in community of property (R8 450 x 50%) (4 225) (1)
Net foreign dividends 4 225
Less: foreign dividend exemption (R4 225 x 25/45) (1) (2 347) 1 878
Taxable income before retirement fund deduction 1 238 283
Less: Retirement fund contributions
Pension fund contribution – Brian Kunene (R140 250 x 60%) 84 150
Pension fund contribution – Big RP (R140 250 x 40%) 56 100
Retirement annuity contributions for 2023 36 000
176 250 (1)
Limited to lesser of:
• R350 000 (1); and
• 27.5% x the higher of
Remuneration of R1 148 300, and
Taxable income before retirement fund contributions of
R1 238 283
Therefore 27.5% x R1 238 283 (1) = R340 528; and
• Taxable income before this deduction – R1 238 283
Therefore, limit is R340 528, contributions are allowed in full (176 250) (1)
Taxable income 1 062 033

Tax [((R1 062 033 – R817 600) x 41%) + R239 452] 339 670 (1)
Tax on lumpsum pension ((R2 250 000 – R1 050 000 – R15 200) (1) x 36%) 557 028 (1)
+ R130 500]

Less: Primary rebate (16 425) (1)

Medical scheme fees tax credit [(R347 x 2) + R234] x 12 (11 136) (1)
Additional medical expense tax credit (17 014)
((R52 500 (1) + R32 000 (1) – (3 (1) x R11 136) x 33.3% (1))
Foreign tax credit (section 6quat rebate)
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(R1 989 / R1 062 033) x R339 670 = R636 (1), Limit to actual (423) (1)
amount paid (1) (R845 x 50% (married in community of
property)
851 700
Less: Prepaid taxes
PAYE (825 876) (1)
Provisional tax paid for 2023 (12 200) (1)
Normal income tax liability for 2023 13 624

Marks [33]
Total [30]
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SOLUTION 1 – PART B (10 marks)

FROM: 12345678@mylife.unisa.ac.za
TO: brian.kunene60@gmail.com
SUBJECT: THE LUKA KUNENE TRUST

Dear Brian and Thandeka

Your email dated 15 September 2023 refers. Below is my response to your three questions relating to the
Luka Kunene Trust to be set up.

1. In terms of section 56(2) of the Income Tax Act No. 58 of 1962 a natural person may donate
R100 000 (1) per tax year, exempt from donations tax. As you will each donate R500 000,
R400 000 will be subject to donations tax at the rate of 20% (1). You and Thandeka (as the donors)
will be responsible (1) for the payment of the donations tax to SARS, 30 days after the end of the
month in which the donation was made.

2. The R85 000 interest received by the Luka Kunene Trust from the investment, if distributed to Luka
Kunene will be taxed in the hands of Luka Kunene (1). She will however qualify for the annual
interest exemption of R23 800 (1), provided the interest distribution from the Luka Kunene Trust is
not in the form of an annuity in which case the interest received will lose its identity in terms of the
conduit principle.

3. Luka Kunene should register as a taxpayer (1) with SARS since she will be receiving gross interest
income of R85 000 and consulting income of R100 000 per annum and she will thus also have to
register as a provisional taxpayer as well (1) since her taxable income for the 2023 year of
assessment will exceed the tax threshold of R91 250 and she will be deemed to be carrying on a
business for generating consulting income (1).

I trust that you will have more clarity regarding the tax issues pertaining to the planned setting up of the
Luka Kunene Trust.

Kind regards

Student

Marks for presentation (1) and communication skills (1)

Marks [10]

UNISA
CC/AS
TAX3761_2023_TL_205_0_E