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number: 2001/HE07/008.

Date: Thursday, 15 February 2024, 3:25 PM

COTXA2-11 Assessments (2024)

COTXA2 Assignment

1. Assignment / Project

Faculty: Commerce and Law

Module Code: COTXA2

Module Name: Taxation 2A

Content Writer: Jackie Arendse

Internal Moderation: Community of Practice

Copy Editor: Xolisile Mkhasibe

Total Marks: 18

Submission Week: Week 6

This module is presented on NQF level 6.

5% will be deducted from the student’s assignment mark for each calendar day the assignment is submitted
late, up to a maximum of three calendar days. The penalty will be based on the official campus submission
date.

Assignments submitted later than three calendar days after the deadline or not submitted will get 0%. [1]

This is an individual assignment.

This assignment contributes 25% towards the final mark.

[1] Under no circumstances will assignments be accepted for marking after the assignments of other students have been marked and returned to

the students.

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 2. Instructions to Students

1. Please ensure that your answer file (where applicable) is named as follows before submission: Module
Code – Assessment Type – Campus Name – Student Number.
2. Remember to keep a copy of all submitted assignments.
3. All work must be typed.
4. Please note that you will be evaluated on your writing skills in all your assignments.
5. All work must be submitted through Turnitin. The full originality report will be automatically generated
and available for the lecturer to assess. Negative marking will be applied if you are found guilty of
plagiarism, poor writing skills, or if you have applied incorrect or insufficient referencing. (See the
"instructions to students" book activity before this activity where the application of negative marking is
explained.)
6. You are not allowed to offer your work for sale or to purchase the work of other students. This includes
the use of professional assignment writers and websites, such as Essay Box. You are also not allowed
to make use of artificial intelligence tools, such as ChatGPT, to create content and submit it as your own
work. If this should happen, Eduvos reserves the right not to accept future submissions from you.
7. One group member should be nominated to submit the assessment on behalf of the group. Multiple
submissions by various group members will result in an inflated similarity index on Turnitin.

3. Section A

Section A

Learning Objective

The purpose this assignment is to test the student's ability to:

Advise a client (the taxpayer) in a professional manner (tax advisory);

Apply principles of the Income Tax Act (No. 58 of 1962) to a realistic scenario;
Apply principles of case law relating to provisions of the Income Tax Act (No. 58 of 1962);
Calculate Income Tax Liability (tax technical).

Assignment Topic

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 Income Tax Case Study

Scope

This is a comprehensive assignment which covers all topics done up to the chapter on fringe benefits as per
the module guide.

Technical Aspects

There are three parts to the assignment. The mark allocation is as follows:

Marks

Question 1 40

Question 2 20

Question 3 10

Layout and 10
referencing

Total marks 80

Technical Aspects

Use Arial, font size 12.

There is no page number limit however clearly outlined tax calculations must be submitted for Part 1. Clear
written responses must be submitted for Parts 2 and 3, with references to relevant case law.

Marking Criteria

Marks will be awarded for the above-mentioned technical aspects and general presentation including
references to the legislation and case law.

3.1. Question 1

Question 1 40 Marks

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 Study the scenario and complete the questions that follow:

You are a junior tax clerk at a firm of tax practitioners and your manager has asked you to attend to the
following email:

From: Kayla Cook

To: FirstInTax

Subject: Tax assistance required

Good day and thank you so much for your offer to help us sort out our tax affairs. Neither my husband nor I
are financial people and we don't really know very much about tax, so we are very grateful for your
assistance. Len and I are married out of community of property and we have three children aged 4, 7 and
11.

My husband Len is a marketing executive at a large cellphone company. Len earns a fixed monthly salary
and he is a member of his employer’s pension fund and medical aid fund. Len’s employment contract
states that he must pay 7,5% of his monthly salary to the pension fund and his employer will pay 10% of
his monthly salary to the fund. Len’s employer pays the medical aid contributions every month. Len usually
pays our medical expenses although sometimes I pay if I take one of our children to the doctor and I don’t
have his credit card.

Len has the full use of a motor car owned by his employer. It is a Hyundai Tucson that cost R899 000
(including VAT and a 3-year full maintenance plan) when his employer purchased it in November 2021. Len
does not have to pay anything for the use of the car. Len also receives an entertainment allowance of R1
000 per month, which he uses to entertain clients, although he is not required to keep any of his slips or
proof of expenses.

In July 2023, Len installed a solar system on our house. The total cost of the solar installation was R220
000 (including VAT), which included the cost of eight 275W solar panels that cost R5 000 (including VAT)
each.

Len is very good at managing our finances and he has some savings from which he earns interest, as well
as a small share portfolio from which he earns dividends. He didn’t sell any shares during this year.

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 I am a professional chef and I have my own catering business, although I am not registered as a VAT
vendor. I provide lovely food and platters for special events, such as for people who entertain at home and
for office functions. I employ a part-time child minder to look after the children when I am busy running my
business.

I work from home and I have a room in our house that I use specifically for my trade. I also sometimes use
my home kitchen when I need to cook hot food but usually, I use my special preparation room that I've set
up with two large preparation tables, a dedicated fridge and catering equipment such as knives, plates, and
so on. No-one else is allowed to use my preparation room. The total floor area of our house is 250 square
metres. The area of my preparation room is 12,5 square metres and the area of our kitchen is 16 square
metres.

In the table below, I have provided details of Len's salary, income and expenses. I've also provided a
separate list of my income, expenses relating to my catering business, and some of my other expenses,
which I hope I can claim as tax deductions as well. If any of my expenses won’t be allowed as deductions,
please can you briefly explain the reasons to me?

Please would you tell me how much tax my husband and I owe for this year? I think Len won’t have to pay
in any tax as his employer withholds employees’ tax every month, but I hope you can confirm that for us.

Len’s income and expenses for the year ended 29 February 2024:

Salary (R80 000 × 12) 960 000

Year-end bonus paid in December 2023 85 000

Use of company vehicle 0

Entertainment allowance (R1 000 × 12) 12 000

Pension fund contributions paid by Len (R6 000 × 12) 72 000

Pension fund contributions paid by employer (R8 000 × 12) 96 000

Medical aid contributions paid by employer (12 000 × 12) 144 000

Medical expenses paid by Len and not reimbursed by the medical aid fund 3 800

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 Interest from SA bank savings account 23 145

Interest from tax-free savings account 3 940

Dividends from SA companies 13 200

Dividends from foreign companies listed on the JSE 4 150

Donation to the NSPCA (s18A certificate obtained) 2 500

Employees’ tax (PAYE) withheld by Len’s employer 468 513

Kayla’s income and expenses for the year ended 29 February 2024:

Catering income 165 000

Cost of food and consumables used directly in generating the catering income 67 000

Costs of travelling to clients to deliver food (I have all the documentation and a log-book) 3 400

Cost of my preparation table and catering equipment – purchased in 2022 (Note 1) 40 000

Wages and expenses paid to the child-minder 30 000

Medical expenses paid by Kayla and not reimbursed by the medical aid fund 1 900

Interest on the bond on our house 5% 000

Municipal costs paid on our house (rates, taxes, services, water and electricity) 51 000

Thank you so much for your assistance!

Regards

Kayla

Source: Arendse, J. 2024.

Note 1: assume that Binding General Ruling No. 7 allows these assets to be written off over 5 years.

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 Required:

a. Calculate Len’s normal tax liability for the year ended 29 February 2024.

(27 Marks)

b. Calculate Kayla’s normal tax liability for the year ended 29 February 2024.

(13 Marks)

[Sub Total 40 Marks]

End of Question 1

3.2. Question 2

Question 2 20 Marks

Study the scenario and complete the question(s) that follow(s):

a. True North (Pty) Ltd trades from rented premises in a large shopping centre owned by PropCo Limited.
PropCo undertook a renovation of the shopping centre, which interrupted True North’s trading
operations. PropCo consequently paid True North R500 000 as compensation for the loss of business
during the renovations. True North has a December year-end and the compensation was paid on 15
December 2023.
b. Werner Karr is employed by Weba Car Sales (Pty) Ltd (‘Weba’) as a car salesman. Werner is paid a
basic salary of R12 000 per month and he also earns commission based on the cars he sells. The
commission is based on the final annual sales figure, after allowing for any cancelled transactions or
bad debts. For the financial ended 29 February 2024, Weba’s accountant calculated the final sales
figure on 25 May 2024 and Werner’s commission was then determined at an amount of R52 000.
c. Landy Lord rents out two cottages that are on her property. One cottage is rented by Paul Owen and the
other is rented by Anne Beak. Both lease agreements provide that the monthly rental is due and
payable on the first day of every month.

On 26 February 2024, Paul paid Landy his rental for March 2024.
Anne is experiencing cash flow problems and she only paid her February rental on 15 March 2024.

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 Source: Arendse, J. 2024.

Required:

Explain whether each of the above transactions would give rise to an amount of gross income as defined in
the Income Tax Act (No. 58 of 1962) and if so, indicate the year of assessment in which such inclusion would
arise:

a. True North
(6 Marks)

b. Werner Karr
(7 Marks)

c. Landy Lord
(7 Marks)

[Sub Total 20 Marks]

End of Question 2

3.3. Question 3

Question 3 10 Marks

Study the scenario and complete the question(s) that follow(s):

Billy Vein, a construction worker for Candrat Construction Limited (‘Candrat’), overloaded his wheelbarrow
whilst working on the fifth floor of a construction site. The wheelbarrow became unsteady and Billy lunged to
steady it. This caused him to lose his balance and he plunged five floors to his death. His wife, devastated
by his death, sued the company for compensation.

In an out-of-court settlement signed on 13 January 2024, Candrat agreed to pay Billy’s wife a lump sum
payment of R1 500 000 as compensation. Candrat paid the amount on 15 February 2024. In defending the
case, Candrat incurred R180 000 in legal expenses.

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 Source: Arendse, J. 2024.

Required:

Explain which of the above amounts, if any, Candrat Construction Limited will be permitted to deduct in the
determination of its taxable income for the year of assessment ended 31 January 2024.

[Sub Total 10 Marks]

End of Question 3

4. Section B: Rubric

Section B: Rubric

Mark Allocation for Essays

Criteria Description Percentage Contribution

As per mark allocation in

Introduction State the aim and scope of the essay
memorandum
Define the topic that will be discussed

Logical order of information

As per mark allocation in
Body of Essay Text referencing
memorandum
Quality of the content
Understanding of the topic

As per mark allocation in

Conclusion Indicate your own perspectives and new
memorandum
insight based on the essay

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 Bibliography Correct referencing for different sources 5 Marks
(legislation and cases)
Number and quality of works consulted

Relevance
Overall Presentation Logical flow of argument 5 Marks
Length
Language and grammar

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