COLLEGE OF ACCOUNTING SCIENCES

DEPARTMENT OF TAXATION

FASSET CLASS - TEST 1: 21 APRIL 2023 [ADAPTED FOR 2024 YOA]

TAX3761

TAXATION OF BUSINESS ACTIVITIES AND INDIVIDUALS

(40 marks)

2 hours (including 15 minutes download and 30 minutes upload time)

THIS PAPER CONSISTS OF SIX (6) PAGES

IMPORTANT INSTRUCTIONS:

Assumptions:
1. All amounts exclude Value-Added Tax (VAT) unless specifically stated otherwise.
2. All persons mentioned are residents of the Republic of South Africa unless stated otherwise.
3. SARS = South African Revenue Service.
4. All transactions are conducted with registered VAT vendors, unless specifically stated otherwise.
5. Valid tax invoices and required documentation are obtained for all transactions.

The answering of this paper:

1. This is a closed-book test.
2. This paper consists of one (1) question with two (2) parts, i.e., A and B.
3. All questions and sub-sections must be answered.
4. Each sub-section must be commenced on a new (separate) page.
5. All workings, where applicable, must be shown. Where an amount is subject to a limitation,
clearly indicate the application of the limitation. Where any item does not form part of gross income,
is exempt from tax or not allowable as a deduction, this must specifically be indicated, and a short
reason should be provided.
6. All amounts must be rounded to the nearest Rand.

Honesty Declaration:

By submitting my solution to the test, I declare that:

• I know what plagiarism is, that plagiarism is wrong and that disciplinary steps can be taken against me if I
am found guilty of plagiarism.
• This solution, submitted by myself, is my own work;
• I have not assisted any other student in any manner, and I have not had the assistance of any other
person, in completing this test.
• I will not assist any other student in any manner, and I will not obtain the assistance of any other person,
in completing this test.
• I know that if I am found to be in violation of this declaration, I will receive 0% for this test.
Please note: You do not have to sign the declaration. By submitting your solution, you automatically declare that
you adhere to all the above with regards to this specific assessment.
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FASSET class - Test 1
QUESTION 1

PART A (32 marks, 44 minutes)

Letsatsi (Pty) Ltd (‘Letsatsi’) is a company listed on the Johannesburg Stock Exchange. The primary
business of Letsatsi is the manufacturing of solar panels and inverters. The financial year ends on the last
day of February.

The company is registered as a Category B, Value-Added Tax (VAT) vendor making 100% taxable
supplies.

The accounting system operated by Letsatsi has provided the following information for the tax period end-
ing on 29 February 2024. All amounts are inclusive of VAT, where applicable, unless specifically indica-
ted otherwise.

1. A motor vehicle was purchased on 31 January 2024 for R168 500 to be used by the managing
director. The managing director had the sole use of this motor vehicle and the company bears the
full cost of any repairs and maintenance.

2. On 1 January 2024, Letsatsi placed an order for trading stock with Powerhouse Solutions (‘Power-
house’), a non-resident company trading in Switzerland, for ₣12 500 (translated to R243 750). The
trading stock was expected to be delivered on 1 February 2024 and Letsatsi paid a non-refundable
deposit of ₣5 000 (translated to R97 500) to Powerhouse Solutions on 1 January 2024. The
balance owing (₣7 500 translated to R146 250) was payable on 31 March 2024 and was settled on
that date.

The trading stock was delivered, and control of the trading stock passed to Letsatsi on
1 February 2024. The customs duty value of the trading stock was R250 0000 (excluding VAT).
Import duties of R12 000 (excluding VAT) were paid on the trading stock on 10 February 2024.

3. On 10 January 2024, Letsatsi’s marketing division spent R16 000 (excluding VAT) on the deve-
lopment of a website and video presentation to promote the solar panels and inverters.

4. Letsatsi signed a contract with Makhadu (Ltd) situated in Botswana on 1 February 2024. Letsatsi
had previously supplied and installed several solar panels and inverters for Makhadu and had to
render maintenance services to some of the previously installed solar panels. The cost of the
maintenance services amounted to R135 000, and the maintenance was rendered on
15 February 2024.

5. Letsatsi manufactured and sold R1 200 000 (excluding VAT) worth of solar panels and inverters to
the local market during the two-month tax period ending on 29 February 2024. The company also
purchased local raw materials to the amount of R550 000 during the same period.

6. On 1 February 2024, the company purchased a second-hand solar battery from a non-vendor for
R176 000. The open-market value on the date of sale was R188 000.

7. The company paid R350 000 towards salaries and R25 000 towards bank charges for the two-month
tax period.
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FASSET class - Test 1
PART A (continued)

REQUIRED: MARKS

a. Discuss, with supporting calculations, the VAT consequences for Letsatsi (Pty) Ltd ari-
sing from the first two transactions. 12

Note:
• Remember to discuss both input and output tax implications as well as the time and
value of the supply.

• Support your answer with references to the relevant sections of the Value-Added
Tax Act No. 89 of 1991.

b. Calculate the VAT payable by, or refundable to Letsatsi (Pty) Ltd for the tax period that
ends on the last day of February 2024. 10

Note:
• References to the relevant legislation (i.e., section numbers) are not required.

c. Discuss, whether the expense (Determine the total amount) with respect to the trading
stock (Transaction 2) will be deductible from Letsatsi (Pty) Ltd’s gross income for the
2024 year of assessment. Refer to relevant case law. 10

Note:
• References to the relevant legislation (i.e., section numbers) are not required.

PART B (8 marks, 16 minutes)

You are the newly appointed tax manager for Letsatsi Ltd. The following is an email that you received
from the company’s financial director, Mrs. Catherine Zeely, a few days after you joined the company:

From: Czeely@letsatsi.co.za
Sent: 26 February 2024
To: Taxmanager@letstatsi.co.za
Subject: Special inclusions

Dear Tax Manager

I trust this email finds you well and a warm welcome once more to Letsatsi Ltd. I have a few questions
regarding the following scenario and trust you will be able to assist me.

Mrs. Sindiziwe Mkhize, CEO of Letsatsi Ltd, owns a plot of land in the Thabazimbi area. She entered into
a lease agreement with Mrs. Amber Drew that included the following conditions:

1. Mrs. Drew was to pay Mrs. Mkhize a premium of R60 000 on the signing of the agreement. This
was conducted on 1 April 2023 and payment was made on the same date.
2. The lease was for a period of 20 years.
3. A monthly rental of R5 000 was payable to Mrs. Mkhize commencing on 1 April 2023.
4. Mrs. Drew was obliged to erect a five-bedroom house on the site. A minimum of R2 000 000 was to
be spent by Mrs. Drew on erecting this house. The house was completed at a cost of R2 200 000
on 1 February 2024. Mrs. Drew and her family immediately occupied the house.
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FASSET class - Test 1
I am uncertain of how these transactions should be treated for income tax purposes and need your advice
on the best way forward.

I trust you find it in order. Please do not hesitate to contact me should you have any questions.

Regards,
Catherine Zeely

REQUIRED: MARKS

Write an email to Mrs. Catherine Zeely and discuss whether the amounts referred to in the
email will be included in Mrs. Sindiziwe Mkhize’s gross income for the year of assessment
ending 29 February 2024. 6

Note:
• Support your answer with references to the to the relevant sections of the Income
Tax Act No. 58 of 1962.

Communication, layout and presentation. 2

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