Jako Uys

14447347

TAX3761

Assessment 1

22/04/2024
Question 1
Part A

1.
Mr Ayob being the majority shareholder is a connected person to Tuppy Plastics (Pty) Ltd.
The Asset is also sold to Mr Ayob at an amount lower than the open-market value.
According to section 10 of the Value-added Tax Act, VAT will be calculated on the open-market value.
Thus, the VAT consequence is:
R95000/115*15=R12391.30

An output tax amount of R12 391.30 will be payable by Tuppy Plastics (Pty) Ltd.

2.
As the factory building is considered second-hand goods and Tuppy Plastics (Pty) Ltd is a VAT vendor,
Tuppy will be able to claim a notional input tax. This amount however exlcudes the transfer duties.
Thus, the VAT consequence is:
R4200000/115*15=R547826.09

A notional input tax amount of R547 826.09 may be claimed by Tuppy Plastics (Pty) Ltd.

3.
Tuppy acquired a motorcar for R650,000. The VAT-inclusive cost is R650,000.
Since the motorcar is intended for business use, Tuppy can claim input VAT.
However, input VAT can only be claimed to the extent that the motorcar is used for business purposes.
As the vehicle was assigned to the marketing manager and no mention was made regarding private
use of the motor vehicle, we will assume that it is used 100% for business purposes.
Thus, the VAT consequence is:
R650000/115*15=R84782.61

An input tax amount of R84 782.61 may be claimed by Tuppy Plastics (Pty) Ltd.

4.
Since the equipment is sold to a customer in Zimbabwe and is consigned and delivered by Tuppy to the customer’s
factory in Zimbabwe, it qualifies as an export of goods under Section 11 of the VAT Act. Therefore, this transaction
is zero-rated for VAT purposes.
Thus, the VAT consequence is:
R230000/100*0=R0

No output tax amount will be payable by Tuppy Plastics (Pty) Ltd.

5.
As the stolen truck was used for delivery which is considered a business purpose, an Input Tax amount
mush have been claimed on the truck.
This means that VAT should be paid on the indemnity award of R150 000 (Excl) received
from the insurance company in cash.
Thus, the VAT consequence is:
R150000/100*15=R22500

An output tax amount of R22 500.00 will be payable by Tuppy Plastics (Pty) Ltd.
Question 1
Part B

Transaction Accounts Dr Cr
Accounts Receivable - All Stores Ltd R 52 500.00
1. Output VAT R 6 847.82
Sales R 45 652.18
[(R350*150)/115*15=R6 847.82]
Fringe benefits - C Nkomo R 12 000.00
2.
Bank R 12 000.00
[No VAT as this relates to a residential property)
Accounts Payable R 247 250.00
3.
Bank R 247 250.00
[Transaction relates to payment of account and not purchase of goods, thus the effect of the
VAT is ignored (other than to calculate the ammount owed before payment)]
Security expense R 6 956.52
4. Input Vat R 1 043.48
Bank R 8 000.00
[Payment of R8000 includes VAT of R1 043.48]
Accounts payable - Service station R 16 000.00
5.
Bank R 16 000.00
[Transaction relates to payment of account and not incurring an expense, thus the effect of the
VAT is ignored (Fuel is also exempt from VAT)]
Question 1
Part C

MEMORANDUM

To: Ms. Nelisiwe Chaba

From: Jako Uys SU:14447347
Date: 22 April 2024
RE: Deductibility of entertainment expenses

Dear Ms. Chaba,

I hope this memo finds you well. I am writing to discuss the deductibility of entertainment expenses incurred by Tuppy Plastic (Pty) Ltd
during the 2024 year of assessment, specifically regarding business lunches and paddle tennis club subscriptions.

Entertainment expenses are subject to specific rules outlined in the Income Tax Act. According to the general deduction formula read
with Section 23 of the Income Tax Act, expenses incurred for the purposes of trade may be deducted from the taxable income of a
company, provided they are not of a capital nature and are not specifically disallowed by the Act.

1. Business Lunches:
The R35,000 spent on business lunches falls under entertainment expenses. According to Section 23 of the Income Tax Act, only 50% of
entertainment expenses are deductible for tax purposes. Therefore, Tuppy Plastic (Pty) Ltd can claim a deduction of R17,500 (50% of
R35,000) for business lunches.

2. Paddle Tennis Club Subscriptions:

The R6,000 spent on paddle tennis club subscriptions, which form part of the contractor's remuneration package, is also considered an
entertainment expense. As per the same provision, only 50% of these subscription fees are deductible.

3. The personal clothing expense of Mrs. Chaba

This expense in no way relates to the production of future taxable income or in any way relates to a business expense, therefore, this
expense is not deductible

In conclusion, Tuppy Plastic (Pty) Ltd can claim a deduction of 50% of the total entertainment expenses incurred during the 2024 year of
assessment, as per Section 23(m) of the Income Tax Act.

Should you require further clarification or assistance, please do not hesitate to contact me.

Yours sincerely,

Jakobus Johannes Cornelis Uys

SU: 14447347
14447347@mylife.unisa.ac.za