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    12 views18 pages

    Chapter 16 Fringe Benefits Questions

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    Zwivhuya Maimela

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    © All Rights Reserved
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    CHAPTER 16 FRINGE BrNErirs (15 minutes) its on the taxation of fringe benefits follow: loyer to an empk ive is cash award from an employ. ployee for long service is subj jormal tax under I fe finge benefits’ legislation, being paragraph (i) of the defaiian Geo ae Seenth Schedule tothe Income Tax Act, Bross Tnooms’ sad the 4 tong service is defined as an intial unbroken period of 10 years sh award specifically purchased by an employer and gi ‘qualifying’ employee Pins service is valued at ‘nil’ if its market value oe not ao Ron i ‘An employee may enjoy the free private use of more than one moti i + imarily for business purposes. In these circumstances the abe ar ae eect yalued with reference to the motor vehicle that has the highest determined value. 5, Anemployee may enjoy the free use of two motor vehicles — the s wife. In these circumstances the value of the fringe benefit is deter ofthe use of each motor vehicle. 6 Ameal enjoyed by an employee in an employees’ canteen and provided to him free of charge byhis employer is a taxable fringe benefit, but at a ‘nil’ value, econd vehicle for use by his mined by adding the benefit 2, Ameal enjoyed by an employee and paid for by his employer, while entertaining a client of his employer is a taxable fringe benefit, but at a ‘nil’ valve. & The ‘official rate of interest’ is used to determine if an interest-free or low-interest loan is a taxable fringe benefit. 9, Ifa ‘new’ employer settles a ‘study’ loan of a new employee to an ‘old’ employer and he contracts himself to his ‘new’ employer for the balance of the contract period that he owed his “old’ employer, then the value of this fringe benefit is ‘nil’ 10. If an employer pays an employee’s telephone account it is a taxable fringe benefit and it is valued at the amount paid. Il. If an employee’s medical scheme contributions are paid by an employer a taxable fringe benefit arises, 12. An employer’s contribution to a non-contributory retirement fund (a pension or provident fund) is a taxable fringe benefit. 13. An insurance premium paid by an employer under an insurance policy for the benefit of an employee that relates to an event arising solely out of and in the course of his employment is @ taxable fringe benefit. : 14. fan employee and the motor vehicle he has the use of are transferred between al employers then the fringe benefit of the use of this motor vehicle is determined with reference toits cost to the “first” employer, and not its cost to the ‘second’ employer. 'S. The Value of the fringe benefit for residential accommodation to be inchnded i ‘708s income depends upon his remuneration in the current year of ssbooarre 2 is ng ‘ You are required to answer ‘true’ or ‘false’ to the above 15 statements. Give a brief comment 1 Your answer if necessary. in an employee's 359 ™ Sn Tne ————— {GRADED QUESTIONS ON INCOME TAX IN SOUTH ARICA ayy Z rovided with free or cheap housing by their respec is ed alae They are all residents of the Republic, live employers: The house is own by eT Cie! = Apartment Shack Wes Three-roomed Six-roomed Nine-roomed Tyret nion provided No fumiture furnished house, furnished houye ad no power, No free power. with fice power, id a month by the employee : Peoria ‘of the accommodation Rent-free RI 000 RS 000 ‘Employee's ‘remuneration proxy” R90 000 R191 250 R491 250 You are required to determine the amount of the taxable benefit to be derived from the provision of five or cheap housing to be included in each employee's gross income mG (30 minutes) [[ifis question texts the fringe benoit ‘travel allowance’ as provided for in section 8(1), "al Adolf Benz ‘Adolf Benz is a resident of the Republic. His motor car is held by him under an ‘instalment credit agreement’ and the ownership of it will be acquired by him on the termination of the lease. Its cash value was R276 000 (including R36 000 value-added tax) at the time the lessor purchased it. He enjoyed a travel allowance of R66 000 from his employer during the 2023 year of assessment. He travelled 25 000 kilometres in it during the 2023 year of assessment. He kept accurate records of his business and private travelling. His distances travelled were ‘+ 11 000 private kilometres, and * 14.000 business kilometres. Adolf Benz did not keep details of his actual expenditure incurred. It was used by him for the entire 2023 year of assessment. Abel Ballade Abel Ballade is a resident of the Republic. He purchased a second-hand motor car from a not vendor for R150 000 (R150 000 cash . Been Price plus value-added tax of nil) on 1 June 2022. On this same day he was promoted to a more senior position b ion te is equred to undertake a fair amount of business Careline fee cme cnt allowance business travelling, H Hlowance of R13 500 from lling, He enjoyed a travel allow his em ith period from | June 2022 to 28 February 2023 (@ of the expenditure he incurred on it business purposes. He did not keep accurate records Trevor Fox : (ios ny 361 4,30 per kilometre for the 2500 ki tin during the five-month period 1 October 2022 to ee in his motor car for business purposes Fox uses a motor car that he had purchased sbrunry 2023, Miged tax of R13 500). for R103 500 (R90 000 cash price plus value- Lionel Kadett 24.000 kilometres were for business purposes, Te aaessment, OF the 42 000 kilometres travelled, *, : He did You are required to determine the amount to be included in each I = i arising from the travel allowance that he was awarded, oh cemployeey aciable, jaca = eee (60 minutes) [This question tests the fringe benefits ‘holiday accommodation’, “residential a subsistence allowance, ‘cheap assets’ and ‘low-interest’ loans, It al ao low-interest’ loans. It also tests the definition Cliff Beach Cliff Beach is married with two children. He was given by his employer the free use of a holiday cottage for two weeks (14 days) in December 2022. His employer does not let this cottage to non-employees, but if it were to do so, its rental would be R575 a day (for the cottage). Tan Holmes Ian Holmes was provided by his employer with a five-roomed house from | June 2022. It is owned by his employer. He pays a rental of R500 a month for it. He also pays for the water and lights. It ‘was supplied unfurnished. He took up employment with his present employer on 1 January 2022. His salary for January 2022 and February 2022 was R12 000 a month. His salary from 1 March 2022 was R12 500 a month. Neil Myles Neil Myles, a representative, earned a salary of R14 400 a month. He also received a subsistence allowance of R900 a month to compensate for expenses incurred when he is away from home on business. He must then pay for his own meals. During the 2023 year of ‘assessment he spent 21 days away from home. He also received an entertainment allowance of R500 2 month to cover his occasional entertainment expenses. His actual entertainment expenses for the 2023 year of assessment were RS 175. The Commissioner is satisfied that his employment (being a representative) is of such a nature that his duties regularly and necessarily involve incurring expenditure on entertainment. Leslie Keys Leslie Keys earns a salary of R27 000 a month. She pu trades in computer equipment for R6 000. Its cost price selling price is R7 500. chased a computer from her employer who to her employer was R6 500. Its normal Clinton Bondless is Ip finance the cost of building a swimming pool. The loan was grante him to his employer throughout the i A for R60.000, Interest on the loan of R240 a month was Lt him paid by hiro during the 2023 2023 year of assessment. No part of his loan from his emp i a ie eliaataa GRADED. QUESTIONS ON INCOME TAX IN SOUTH 32 Ay 5 | rate of interest is 6,5% for the entire 2 that the ‘official 023 Year year of assessment. (Assume of assessment.) Pickerel & Herring (Pty) Limited kay d for R9O 000. It the e imi ed a plot of land for en erected on i Pickerel & Herring (Pty) pene iperet Fotompletion; on | September 2022, it mia e tte. bedroomed house at a 7 Minist ‘an employee of it, for its cost of R390 000, despite ity house Packie ag AS 100. His ‘remuneration proxy’ as defined in section 1(1) of the Curren, Tax Act is R240 000. come Moses Sole : imi for R100 000. It then : Limited purchased a plot of land f erected on pees et ‘a cost of R330 000. On its completion, on 1 September 2022, jt Sold house (land and buildings) to Moses Sole, an employee of it, for three-bedroomed house and land's cost of R430 000, despite its current market value being R450 000. His “remuneration proxy” gg defined in section 1(1) of the Income Tax Act is R312 000. Cherry Salmon Pickerel & Herring (Pty) Limited purchased a plot of land for R110 000. It then erected on ita fow. bedroomed house at a cost of R400 000. On its completion, on | September 2022, it sold this house (land and buildings) to Cherry Salmon, an employee of it, for the four-bedroomed house and land's cost of R510 000, despite its current market value being R550 000. Her ‘remuneration proxy’ as defined in section 1(1) of the Income Tax Act is R180 000. Pearl Perch Pickerel & Herring (Pty) Limited purchased a plot of land for R80 000. It then erected on it a one- bedroomed house at a cost of R180 000. On its completion, on | September 2022, it sold this house (land and buildings) to Pearl Perch, an employee of it, for the one-bedroomed house and land’s cost of R260 000, despite its current market value being R240 000. Her ‘remuneration proxy’ as defined in section 1(1) of the Income Tax Act is R360 000. Jack Hamlet Pickerel & Herring (Pty) Limited purchased a plot of land for R250 000. It then erected on ita five- bedroomed house at a cost of R750 000. On its completion, on 1 September 2022, it gave the use of this house (land and buildings) rent-free to Jack Hamlet, the supervisor employed by it at its freshwater farm. It was provided to him unfurnished. But Pickerel & Herring (Pty) Limited pays ft te Pn of electricity and water (power or fuel) relating to it. Had Pickerel & Herring (Pty) Limited shay horas (land petit) it would have sold for R1 200 000. His ‘remuneration ba section 1(1) of the I i i i eon. ¢ Income Tax Act is R1 891 250. Due to this house being in'@ ied by him, Pickerel & Herrin i it ical fi ; d ig (Pty) Limited would find it diffi — tenant to whom it could be let. It is likely that if Pickerel & Herring (Pty) Limited be is house, it would eam a rental of R15 000 a month from it Dory Silver i x A ‘ckerel & Herring (Pty) Limited purchased a house at a cost of R225 Marlin White ; ota white commenced working for Pickerel & Herring (Pty) Limited on 1 December 2022. He eo salary from it ‘of R18 000 a month. He also enjoys a housing benefit from it. Since it did cash . ie . ion available for him, it leased a furnished bachelor flat consisting of have accommodati rooms at a rental of R4 500 a month. It also pays the cost of its electricity and water (power or ree uired to determine the amount to be included in the relevant employee’s 2023 taxable req) oe ‘each of the above situations. of fringe benefits including a “low-in ‘scheme contributions, a cell phone all loans. It tests sections 6A, 6B, &(1)(a), 10(1)(F), 8, 11, 12A and 16 of the Seventh Schedule. Dumas Pernod Dumas Pernod, Limited. His remuneration package from it includes, amongst other ben benefits: + Atravel allowance of R3 000 a month. + The free use of a four-bedroomed house that it hires from a third party at 9 monthly rental of 9.000, His ‘remuneration proxy’ for the 2023 year of assessment is R191 250. He pays for the power and fuel for this house. He has furnished it himself. + Anon-contributory medical scheme: Under the rules of this medical scheme, it is liable for the full monthly contribution to the medical scheme. In the 2023 year of assessment it contributed R14 400 (being 12 months at R1 200 a month) for his membership of the medical scheme. Dumas Pemod enjoyed the above three benefits from it throughout the 2023 year of assessment. You are required to explain and determine the normal tax treatment of the above three benefits for Dumas Pernod for the 2023 year of assessment. Boozer Breweries (Pty) Limited Boozer Breweries (Pty) Limited is a resident of the Republic, It carrcs on business as a manufscturer of beer. It is considering introducing the following three fringe benefits for its employees: * A cell phone allowance of R1 000 a month to rei personal cell phones for business purposes. * A free case of beers for each employee at the end of the month is met, a resident of the Republic, is the marketing manager of French Liqueurs (Pty) fits, the following three mburse those employees who use their own the month provided a budgeted profit for * An incentive scheme when the ‘employee of the week’, as yoted by the supervisors, is given two Tugby tickets to watch the local rugby game from its rugby box. The employee, and his partner, will be given free meals and refreshments during and after the game. You are required to discuss the normal tax implications for Boozer Breweries (Pty) Limited’s ‘mployees, should it introduce these benefits. Stout (Pty) Limited Until 28 February 2022, Adelaide Cooper was the sole They are both residents of the Republic. shareholder and director ‘of Stout (Pty) —_— ;OME TAX GRADED QUESTIONS ON INCOME TAX IN SOUTH ARICA - ised 100.000 shares with a nomi ni inal Ee aes) coed share on 28 February 2022 (a Val op a Stow 00 | Mins jmited’s issued 1 (Pry) Lint Piet "The market value of Pe. wn vel (Pty) Limite = si to Adelaide Sera Her Irish and Terry Beamish. in SS y : , 0 shares. These shares were j Catherine Guin «rad jggued a further 10 00 issued as oon 1 March 2022 Stout P) Ee tebe ‘This scheme satisfies all the requirements of of its newly-creal lee) Hnoentive scheme” as Set ut in section 8B of the Income Tax Ag, fi definition of @ “broad bi of its four full-time employees (other than Adelaide Cooper) at Ri then sold these shares to eac! ber of its shares, the market value of a share in jt they i the num! i share, Beeause of bat ee was then given an interest-free loan by it to pay for her shares, yl : es recorded in the journal of Stout (Pty) Limited as follows: ‘The arrangs _ wii Loan to Catherine Guinness Pt 4.00) Loan to Empress Mackerson > 3000 Loan to Tayler Irish Dr 2000 Loan to Terry Beamish To Share capital Being ee of shares under the ‘broad based share incentive scheme’, the purchase price of the shares being settled out of the proceeds of interest-free loans granted to the qualifying employees. Catherine Guinness and Empress Mackerson ‘As far as employees Catherine Guinness and Empress Mackerson were concemed, no furtie transactions took place during the 2023 year of assessment. Tayler Irish Namely, 10.000 After a short illness, employee Tayler Irish died on 31 August 2022. The market value ofa share in Stout (Pty) Limited ‘was then R4,50, Adelaide Cooper then purchased her 2 000 shares in it from Pete executor for R9 000. Tayler Irish’s executor then repaid her R2 000 loan from Stout Terry Beamish Emy ployee Terry Beamish left its employment on 31 December 2022. The market value of ase in Stout (Pry) Limited was then R5, 10. 10. She sold her 1 000 s ide Cooper for R51 She repaid her R1 000 loan from it on 31 December 2022 ni are required to determine th Bic to Stout (Py) Limited, and teeny and Terry Beamish, ane Malt ‘d tax consequences of the above transactions as far a8 and its employees Catherine Guinness, Empress Mackerson, Tayler + Current his sala + Medical contribu fund for + ‘Qualify scheme. + He made + Amonth He pays. tax of Rz incurred, 14000 ki * On 31D employer * He was j Mesident T March 2022 Kane Malt, resi he borrowed R9O 000 at 9% from a bank. He us! Part of his purchase consideration. ‘The balance of the pure employer to him, that would be p Kane Malt’s loan from the bank : “d all the interest due of R8 100, (ans “PAid by him by a son 2023 ‘year of assessment.) 90. (Assume that a “ene 2 Feary he re required 10 determine what effect the above tra a income. msc Wl ho Kang iad _Ihtests gross income, exemptions from including the general deduction whose receip ing the 2023 year of assessment Dion Ellman, a resi aa eens relating to his employment: Fesident of the Republic, had the « Asalary of R270 000 and an annual bonus of R22 500 acerued to him, : + Current pension fund contributions of R21 600 (8% of his R270 his salary. 000 salary) were deducted from + Medical scheme contributions of R8 100 were also deducted from his salary. His employer also contributed R32 400 to this medical scheme. These contributions are for the membership of this fund for Dion Ellman, his wife and their two children. a + ‘Qualifying medical expenses” of R19 836 were paid by him and not recovered from the medial scheme. + He made a retirement annuity fund contribution of R18 000. + Amonthly travel allowance of R3 250 from his employer for using his own car for its business. He pays all its expenses. His car had cost him R161 000 (cash cost ‘of R140 000 and value-added tax of R21 000) on 1 December 2021. He kept no record of the motor ear expen that he had incurred. His total distance travelled in it for the year was 40.000 kilometres of which 14.000 kilometres were for business purposes. ae ae MiG Devember 2022, on the occasion of completing his ice Aiea amas ae employer, he was awarded a cell phone by his employer. Iteost his employer Ré ce * He was invited to participate in his employer's share inci ae Iesident of the Republic.) On 1 October ‘2022 he was ae a 10000 shares in it at their current market value of R7 each. NO T°? 99 was made in 8 these shares. He paid R10 000 of the purchase prics The tie interest at the prime loan from his employer to him repayable within 10Y°8 ei eg a te teal Overdraft rate from time to time, but the interest es va zi Mprary. The prime overrat Aarded on the shares during each year ended on the ls a Tale for the relevant period was 9% @ year. Local dividends * His employer has a housing-loan scheme with i ‘sessment he was charged interest at 5% a Year Of aa ete nancial institution. His interest amounted to RP Smployer paid an equal amount of interest (also tion. (Assume that the ‘official rate of i” , ‘eessment.) His His employer ach one of his two children # USI aga Rios Peis School fees, while iis So ol The wr bet junior school fees. Only children of er ose’ sete te issioner regards this bursary S° yeme 85 able income te required to determine Dion Eliman’s 2028 2% ep QUESTIONS ON INCOME TAX IN SOUTH AFRICA ap GRA (45 minutes) i. accepted the position of sales manager of q ‘Bamalot, a resident of the peu Peary and a ‘bonus’, but it is awarded to him jy = ana ee ‘amount. The cost to his employer of employing him ’ ea tt) [tis awarded to him as follows: R668 000 (R620 000 Salary 620.000 feeueees employment benefits: 120 000 ‘ons tional house cost of R2 000 000 at 67 (note 1) 20 Hose mies cost a 40 000 “Company car’ (1 12 000 Entertainment (note 4) 9 600 Home telephone (note 5) om Night-watchman wages (note 6) am Defined-contributions pension fund contributions (note 7) 9.000 Clothing scheme (note 8) 18.000 ‘Club subscriptions (note 9) 10 000 ‘Educational grant (note 10) 48 000 350.000 “Cash’ salary 270.000 Bonus Total bonus package ‘Less employment benefits: bles Abroad travelling costs (note | Expenses on hofiday fein " 25 000 *Cash’ bonus 12.000 ie Benny Eamalot has approac 1 News hed you for help in relation to his 2023 tax return The blow; A he following ‘notes provide additional information ji 1 Benny mao i ‘is the owner of th “el ood 5 oe 1 wthich he resides. He pays the entire R120 000 be 2 Beany F due by him to it and Pa tition for his mortgage bond. The R12000 ©XPENSES inch 36 000 to Bticin Some of his mortgage bond capital from it. Svimaing pool ge PY es, nsuan 8 Other expenses in relation to his house. TS® L Bony an the arden, * the painting and maintenance costs of his houss MS Ost his oe O00 eye R230 in relation to the benefits that Benny Eamalot enings, he is awarded R800 a mot east exceeds R800 a month, enny Earnalot’s employer also Pays th & cd at his house each evening © Salary of a Dight- watch nt} h towards hig home t acount, His telephone eo an ‘A R9 000 contribution is made by his employer Who Works as 4 security "him. He does not make a contribution to jt, Bach year Benny Earnalot’s employer g clothes are owned by his employer, but employee who can wear them. Pends R18 999 on clo since he is an eos? extremely large = by him. The he is Benny Earnalot is a member the Retailers Sal 3h member of this professional body. His annual is employer requires him to be : ; R10 000; 0, Benny Eamalot’s employer pays R48 000 a year to St Peer 900s paid by his employer towards his son’s school fees. 8 boys school, as a contribution les Institution, fj Subscription of II, Benny Earnalot’s wife and himself are given a holiday employer pays R25 000 towards their travelling costs they incur while on holiday abroad by his employer each year. His and R12 000 wards ther expe tt Other receipts, accruals and expenses Aloan of R180 000 at 5% was given to Benny Earnalot on 1 March 2021 to purchase shares in his employer-company (a resident of the Republic) under a share incentive scheme trust created by his employer. There are no restrictions on him in relation to these shares. Annual local dividends of R720 accrued to him, but are set off against the interest owing by him. He settled his remaining interest owing out of his cash reserves. (Assume that the ‘official rate of interest is 6.5% for the tative 2023 year of assessment.) Tom You are required to determine Benny Eamalot’s 2023 taxable income, Provide bef reasons 1 ‘Support your determinations. 168 ea Fpaluding an ene | his question tests certain benefits of employment ae It tests the d olor Vehicle, use of holiday accommodation are the Seventh al Section 23(m) and paragraphs 2(c), 2(d), 7.94) am Billy Button, a resident of the Republic, #8 emPlO}. Manufacturer, It is his duty to call on the buyers pe He Bi tis q jnment ey Button is paid a basic salary of R25 000 ae month as an enerlin ion houses. The ily Button’s employer also awards him R75 ari 0 a mon yes from ¥ ‘and Tired to use this R750 a month on entertaining i at be mst a kept fle : of ana pend issioner is satisfied that his employment 1S °° ociginment XPT eg, The mole himself in entertainment activities incurring ber entertaining a bs Ail the dockets he has received as receipts > sage wos pace Oop Big et the 2023 year of assessment is RTO" vay i Ml i i ust ‘4 button is provided with the exclUsine "employe hecing i ae Pie une 8 “ployer 20 8 ‘ . ithe Kiloenettes 229.709 ing for R198 000 on 1 February 2022. Me is allowed Snploygy" BEM it purchased this motor vehicle, Tose cost HE took dl 2 jute towards 0 oy kept ‘employet ight and He does not have to contribute % ie has one Oy Se he has n’ #80 has unlimited weekend use aay couee joined Nm tay travelled, se of # bes atest eaten! i u Button, who is not married, was #1¥°R Ty 2025 the first two weeks (14 days) of iding him with fee. loyer was not providing ie ottage for the (0 week holida His ead has not let this cottage to more frthere dois DORE ay per perso. aa eter or accrual from his employer comprised two bonuses, other receipt iday. Since his and ement of R12 750. Jes achiev " + abonus based on na pilly Button on 31 December 2022. j Both bonuses were paid {0 © the amount to be included in Billy Button’s taxable income fuk termine if pram ibe the benefits as detailed above. ‘employment 7 definitions of gross income’, ‘income’ and a eon normal tax and deductions in the determin general deduction formula (section 11(a) and section 23(g)) a “| ‘employee me enjoys certain fringe benefits from his employer. {t ; A), 1(1 Vi), HF, 23(a) and 23(b) and paragraphs 7, 11 and 9 of the § Ee ki he SS Heerengracht, a cargo ship ome 444 years, is the chief engineer on t Pee pa ini, ath Afican company with its head office in Cane Towns Theta residents of the Republic. . ail i blower is usually away from his home in The S$ Heerengraclt plies world-wide and Jack Horn , Te etre rola a yeas (but never ‘for a period or periods exceeding 183 dyin aggregate during a year of assessment’), Since he is unmarried, he has arranged with Seafight Limited fo be paid his salary of R20 000 a month atthe first port his ship docks at after the endo each month. During the 2023 year of assessment his salary was paid to him in Mumbai (an month), Sydney (one month), Hong Kong (one month), Tokyo (one month), New York (oe ), Sydney ), ig ig month), and Cape Town (seven months) In addition to Jack Homblower's salary, he enjoyed the following employment benefits fom Seafreight Limited: * A.uniform allowance of R500 a month, ~ Tie fee use of a furnished bachelor flat in Cape Town, Seafreight Limited pays its rental of R7 500 a month. It als © Pays R750 a month for electricity. During the 2023 year of assessmett he used the flat for 219 days. (His ‘Temuneration proxy’ is R221 250.) * The use of a ‘company car’ when he is j 2023), (Its cost, 0 in Cape Town (219 days in 2023). (Its iL cay see its 184 000 (R160.000 plus 15% value-added tax of R24 000) He mua as ao Limited pays all other expenses. While he is at sea, Seafreight Limited we it Meese Purposes. He travelled a total of 15 000 kilometres in it during bs was R18 000, His private kilometres travelled were 12 000 kilometres. His fuel * Free accommodatio mn al * Limited determined tat teat of aoe meals aboard SS Heerengracht - Seafreight Lim als provided to him in the 2023 year of assessment a ‘wines (hampers) re oe at Cape Town, he is always given some provision 4 Pskitchen. In the 2023 year of assessment, these bampers imiieat 000 at an inte tnited’s employment, Mee of 5% a year. It the “oth is repayable when he leaves Seale cial rate of interest is 6,5% forthe entre 2025 the 2023 year of assessment Jack Hornblower had and : wad the following additional receipts + Interest of R6 000 on a Joan of R4 that he mad V0 R40 000 ade months’ salary received while he was in Tokyo and in Hong Khe tn TOV out Of iis wo 2. + Local dividends of R2 400 from South Afric be gos bis conc frican shares that he purchased with R40 000 of th ie Jack Hornblower incurred the following expenditure: “Qualifying medical expenses’ paid in Cape Town “Qualifying medical expenses’ paid in Mumbai (the equi 19 900 Mnienance of his two-year-old son in Sydney (the mnie a an “Qualifying medical for his son paid in Sydney (the equival 19 200 Maintenance of b mother (the equivalent of) quivalent of) 11000 Contributions to thi ight Limited pension fund — 10% of his ‘cash’ 24 000 Life insurance premiums hind = 10%6 on ae 24 000 1200 You are required fo determine Jack Homblower’s taxable income for the 2023 year of ase 2 ssment. 16.10 (40 minutes) This question tests various benefits of emplo Z . yyment. It tests paragraph (c) of the definition of “gross income’, sections 10(1)(7A) and 11F, paragraphs 2, 8(3)(6), 9, 10(2 ? > i A Om and Seventh Schedule. (2)(c), 12A, 12€, and 16 of the Flienne Saint, a resident of the Republic, is employed by Gabriels Limited (also a resident of the Republic). One of its policies is to employ happy and contented employees. It therefore endeavours to provide its employees with as many ‘comforts’ as possible. During the 2023 year of assessment it did the following for him, It paid premiums of R6 000 on an insurance policy for his benefit. It paid premiums of R144 000 on a group life and disability policy. In the event of one of its employees becoming disabled, the insurer ‘ill pay this disabled employee a lump sum equal to twice his annual salary. If an employee dies the insurer will pay (© the employee's estate a lump sum equal to five times his ‘annual salary, He is one of its 120 ‘employees covered in this group life and disability policy. Itpaid premiums of R36 000 on a funeral policy. In the child dying, the insurer will pay the employee R6 000 to its 120 employees covered by this policy: It paid medical scheme contributions of membership of the scheme. This medical sch employer (Gabriels Limited) is responsible | and himself are the only members of his fam! It contributed R4 500 to a defined-contributions pro defined-contributions provident fund has bee) © ited) is responsible for making © es event of an employee's spouse or minoe assist with funeral costs. He is one of 224.000 to a medical scheme for his wife's and his ‘eme has been structured on the basis that solely the for making contributions t0 the scheme, (His wife ly who are beneficiaries of this medical scheme.) + his membership. This wident fund fo that solely the employer i i i ‘dings free of charge. Its king bay in one of its buildings free | i ‘ot providing this parking bay for him is R120 a year. hosts a ‘tea ja for all oh’ si i hot ‘i it purchases division. A secretary emp! by it y shop: ‘These snacks are then served with (ea 370 GRADED QUESTIONS ON INCOME TAX IN SOUTH aRRicy ae veranda that adjoins the offices occupied by the division. She (this secretary) has estimated ry the snacks eaten by him at the Friday ‘tea party’ cost R27 each week. . ivision Head used surplus funds that had been allocated to his division to aye the employees ney in the division. Each man was given two pai three short-sleeved shirts. These clothes are not distinguishable from ordinary clothing. They cost R7 500 per employee. His Division Head likes his employees to wear these clothes to but is not in a position that enables him to demand that his employees wear thes ¢ clothes, Had he not been given these clothes, he simply would have worn his ordinary (domestic) clothes to work, Purchase irs of Jon, His Division Head allows each employee employed in the division to take one off each month — the employee leaves work at 12h00 (instead of the contract and can spend the afternoon attending to domestic matters. This ‘afternoon- against the employee’s leave entitlement. He has determined that he earns hi! R600 an afternoon. He lives in Durban. On one Saturday morning a year he is required to work for his employer in Cape Town. It allows him to spend the rest of the weekend in Cape Town at its expense. It also Pays for his wife to accompany him on this trip. His wife is not an employee of it. The airfare Pa done R4 150 and the combined cost of their accommodation and meals paid by it was R4 800. Friday aftemoon fed time of 16h30) off’ is not debited is salary at a rate of Etienne Saint has consulted you with regard to these ‘comforts’ of his employment. He is concerned that they are taxable “fringe benefits’ of his employment. But it seems to him that he is hot being subjected to normal tax on them since their values do not appear on his salary slip You are required to advise him as to whether a value for these ‘comforts’ must be included in his | taxable income. | j 16.11 (40 minutes) This question tests the normal tax model (the definitions of ‘gross income’, “income” and “axable income’), It tests gross income, exemptions from normal tax and deductions in the determination of taxable income including the general deduction formula (section 11(@) and section 23(g)) as far as they apply to an employee who has enjoyed certain benefits of employment. It tests sections 5, 6, | 6B, 8(1\(c), 1O(1\(mA) and 23(m), Paragraphs 5(2), 5(4), 9, 9(4), 10, 11 and 13 of the Seventh je Schedule and the judgment from COT» @ (1981 (4) SA 167 (ZA), 43 SATC 159), Alec Smart, 42 years old, and a resident of the Rey 2 , Public, is employed by his brother, Knotso Smart, ‘oun Knotso’s Durban-based business, namely, Campus eee 4 Ace Smart enjoys a monthly salary of R20 000. Hi if to anything belonging to Campus College except Ys Baonerhi ah cade aie a i During the 2023 year of assessment Al; in his ; en Be et ot aaa lec Smart, in his capacity as manager, arranged the following R361 250. This ‘converted Iwas occupied forthe entire year of assexan He peediks ns B29 Sc he enti year. This mator car had cost Campus College R172 id for by i Ory alte Added tax) on I Maren nea All fuel and maintenance Barnet for by it: OF the 24.000 kilometre ns init business purposes, use was occupied by himself it. ace BENET am jes consumed by himself and his family were pai + Grocene The cost to its canteen of these greeric” PY, CAMPUS College through it marks-up its stock by 25% when it sells the stock to ite ao, OM | On average the nea 'S customers (being its employees on! March 2022 he borrowed R30 000 from Camy On pecember 2022 it reduced the rate of inteeet ov Hes fees account rest on this I rie 30-000 in a private ‘stock car’ venture (being a hobby of his) es mel ind i this ‘investment’. As a result of this loss he suffered, Campus College agreed to saape Pe jo ainterest-fee loan, and to backdate this change to 1 March 2022, I howency dng ee tolethim off repaying the R30 000 capital sum of this loan owing by him tot (Assure monte cefical rate of interest is 6,5% for the entire 2023 year of oe ‘assessment,) + His two children received free tuition from Campus College worth R180 000 (R90 000 each). It did not cost it anything extra to provide the tuition since his two children merely ‘sat-in’ and listened to the lessons. + He spent R4 000 on Campus College’s account entertaining his friends. It paid the R4 000. And he spent R5 000 on its account entertaining potential clients. It also paid this R5 000. + He, his wife, and their two children spent three weeks (21 days) at Campus College’s holiday home. It is normally let at a rental of R50 a person a day to its employees and at a rental of R120 person a day to non-employees. He did not pay any rental. * Despite the fact that he was not authorised to do so, he used stationery that had cost ‘Campus College R500 for his private purposes. (Because of Knotso Smart’s nature, his wife believes that Knotso Smart would bring a criminal charge against him, if his use of its stationery was ever discovered.) * During the 2023 year of assessment he spent 20 days on business in Pretoria. He received R15000 from Campus College to cover his meals and other out-of-town expenses. His accommodation cost R18 500. It was paid for by it. * He was obliged to undergo extensive laser treatment for his left eye. By making use of Campus College’s buying order, and its general good name in the community, he was able to obtain the treatment for only R44 700. The same treatment had cost a friend R55 875. He paid the R44 700 himself. Neither he, nor his family, paid any other medical expenses during the year. * He took a cycad (a protected indigenous plant) from Campus College’s grounds and transplanted it in a plot of land that he had recently purchased. It had cost Campus cn R500, but was worth R900 when he removed it. Sadly it did not survive its transplanting, died shortly before the end of the 2023 year of assessment.

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