1 TAX2601/2022/Semester 2/Assessment 5

ASSESSMENT 5

2022/10/24

TAX2601
Sphamandla Goqo
50907875
Question 1

1. Rental Sales from the Tenant

• it is revenue it is included in gross income.

• The amount received is therefore capital in nature and should be excluded from gross income.
• Therefore R11 570 000 should be in the in Investprops (Pty)Ltds income as define in the Income Tax Act.

2. Amount Received from XP (Pty) Ltd.

• R 240 000 should not be in the in Investprops (Pty)Ltds income as define in the Income Tax Act because
the money received is not for Investprops but its Miniprops tenants and its being paid thru Investprops.

3. Dividends Received

• A dividend is from a South African source if it is a ‘dividend’ as defined in section 1 of the Income TaxAct
(section 9(2)(a))
• Therefore R500 000 should be in the in Investprops (Pty)Ltds income as define in the Income Tax Act.

4. Leasehold Improvements

• An improvement is the creation of a better asset, and the associated costs of the improvement cannot be
deducted under section 11(d).
• R 860 000 should not be in the in Investprops (Pty)Ltds income as define in the Income Tax Act.

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PRINCIPLES OF TAXATION
Question 2

Taxable income of MXO (Pty) Ltd for its 2022 year of assessment R 5 529 340

1. Fixed Assets
a. s12E: New Manufacturing Asset (R 1 000 000)
b. s12E: Second-hand Manufacturing Asset (R 400 000)

NB: Section 12E allows a deduction of 100% of the cost of manufacturing plant and machinery brought into use
by a small business corporation.
c. s12E(1A): Non-New Manufacturing Assets (R750 000*50%) (R 375 000)
d. s12E(1A): Non-new Second-hand Manufacturing Asset ( R300 000*50%) (R 150 000)
NB: Section 12E(1A) provides that non-manufacturing assets (i.e. assets which are not written off 100% in terms
of section 12E(1)) may be written off either in terms of section 11(e) or over 3 years
e. s12C: Moving Cost (R21000*1/12) ( R 1 750)
NB: Where the moving costs are incurred in respect of an asset that is still being written off under
section 12C, the deduction is made in instalments over the number of years that the asset is
still to be written off.

2. Office space.
a. s13quat: New developed office space ( R500 000*55/100) (R 302 500)
NB: A section 13quat allowance may be claimed on the purchase price of a building or part of a building if it was
brought into use on or after 21 October 2008, and if the requirements above are met.
b. s11(e) (R 11 000)
c. Sprinkler system (an improvement) does not qualify for section 11(d) deduction (replacement ) ( - )

3. Patents and Trademarks

a. S11(gC) Patents 5% ( R95 000*5/100) ( 4 750)
NB: Section 11(gC) provides for an allowance in respect of expenditure actually incurred (in a year commencing
on or after 1 January 2004).

4. Research and development.

a. S11D Government Grants ( - )
b. New Machinery (R1 000 000*30/100) (R 300 000)
c. Salaries (R 2000 000)
d. Marketing cost (R56 000)

5. Insurance Contract
NB: Section 23(c) disallows as a deduction of any loss or expenditure to the extent that it is recoverable under
any contract of insurance, guarantee, security or indemnity. ( - )

6. Donation
a. In terms of s18A a deduction (subject to a 10% limit of taxable income) R25000*10) ( R 2 500)

7. Bad Debts
a. A bad debts deduction is allowed in terms of section 11(i) (R9300 *100/115) ( R 7 905)

8. Doubtful Debts
NB: Section 11(j) provides for a deduction of debts that are doubtful. The allowance is only made in respect of
debts that would have been allowed as a deduction had they become bad.
If IFRS 9 is not being applied (i.e. for persons other than companies), the taxpayer can claim 40% of debt 120
days or more in arrears, and 25% of debt 60 days or more in arrears (excluding the debt 120 days or more in
arrears).
a. Doubtful Debts 25% of 35700 ( R 8925)
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PRINCIPLES OF TAXATION
 9. Legal Fees

the underlying is not deductible, hence no section 11(c) 0

10. Restraint of trade payment

Restraint of trade payment – section 11(cA) deductible over the PERIOD OF 4YEARS (R750 000/4) (R 187 500)

Taxable Income x28 of R 721 510

Tax Payable 721510*28/100 = 202022.80

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PRINCIPLES OF TAXATION