TAXN7311 and TAXN6212 Principles of Taxation
Question 1 (Marks: 15)
Mrs. Pheiffer, aged 61, emigrated to New Zealand on 1 May 2015. She has provided you with the following information for the year ended 28 February 2019:
- She earned a royalty income of R 185 000 from a South African publisher. This was paid by the publisher on 1 July 2018.
- She earned a rental income of R 147 000 from an Australian property.
- She is an active member of a South African CC and received member’s remuneration of R 142 000. She has paid employees’ tax of R 11 925 on this amount.
- She received interest from a South African money market account of R 16 330. This interest was paid to her on 28 February 2019.
- She spent 195 days in South Africa in total during the current tax year.
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Calculate the amount of South African tax (income and withholding) for which Mrs. Pheiffer will be liable for the year ended 28 February 2019.
Question 2 (Marks: 50)
Anika Pillay, 45 years of age, runs her events management business as a sole proprietor. The following information is relevant for tax purposes for the year ended February 2019:
1. Her business, “Balloon Events”, had the following income and expenses during the 2019 tax year.
- Fee income R 568 950
- Client entertainment R 42 540
- Cell phone R 48 000
- Computer expense R 9 850
- Assistant’s salary R 72 000
- Motor vehicle expenses (excluding wear and tear) R 16 450
- School fees for her daughter R 28 0002. Anika purchased her motor vehicle on 4 May 2016 for an amount of R 159 500 including 15% VAT. She kept a logbook during the tax year, according to which she traveled a total of 22 370km, 7 015km was for private purposes. SARS accepts a 5 year write off period on motor vehicles.
3. Anika purchased office furniture costing R 14 500 on 30 June 2016. SARS accepts a write off period of 6 years for furniture.
4. Anika uses a study in her house as her office. Her office is 15m2 and her entire house is 175m2. She has used this area exclusively as her office since 1 March 2015. The following expenses related to the entire house for the 2019 tax year:
- Electricity R 10 452
- Rates R 14 800
- Bond interest R 63 150
- Security services R 4 5005. Anika sold her house on 30 June 2018 for an amount of R 2 265 000. She had originally purchased the house for R 1 200 000 on 1 July 2006. In addition, she incurred the following expenses during her ownership:
- Transfer duties on purchase R 60 000
- Costs of adding a scullery to the kitchen R 54 500
- Agent’s fees on the sale R 90 600
- Bond repayments R 299 000
- Legal fees on the sale R 6 9856. Anika donated shares to her sister on 15 July 2018. The shares had a market value of R 96 850. She had purchased these three years earlier at a cost of R 63 500. She paid donations tax of R 19 370 on this donation.
7. She sold three Krugerrands on 1 November 2018 for R 15 600 each that she had inherited from her grandmother three years earlier. The market value at the date of inheritance was R 16 000 each.
8. She had an assessed capital loss of R 6 500 carried forward from the previous year.
9. Anika based her 2 nd provisional tax payment on the basic amount, and during the 2019 tax year made the following provisional tax payments:
31 August 2018 R 14 750
28 February 2019 R14 750
Calculate Anika Pillay’s tax owing for the year ended 28 February 2019.
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Question 3 (Marks: 35)
Wezandla Manufacturing (Pty) Ltd (Wezandla) is a company resident in South Africa in the business of making carpets and rugs from local materials. It is not a small business corporation. The following information is relevant for tax purposes for the year ended 28 February 2019:
1. Wezandla had the following income and expenses during the 2019 tax year:
- Sales R 5 422 315
- Interest income R 214 250
- Dividends received (1 March 2018) R 86 740
- Cost of sales (R 2 680 230)
- Salaries and wages (R 718 554)
- Communications (R 64 220)
- Audit fees (R 54 890)
- Computer expenses (R 32 840)
- Rental (R 159 600)
- Motor vehicle expenses (excluding wear and tear) (R 78 618)
- Fine for overloading delivery vehicle (R 1 750)
- Insurance on the life of director (R 42 650)
- Donations to Public Benefit Organisations (R 154 740)2. On 1 March 2015 Wezandla entered into a five-year lease for new factory premises. In terms of the lease agreement, Wezandla was required to make improvements to the property limited to a cost of R325 000. Wezandla completed these renovations on 1 September 2018 at a cost of R 341 635.3. Wezandla had a list of doubtful debts of R 42 300 and bad debt write off of R 8 741 for the year. SARS had allowed an S11(j) allowance of R 8 649 in the previous tax year.
4. Wezandla purchased computer software at a cost of R 46 200 on 1 August 2018. SARS accepts a write off period of three years on computer software.
5. Wezandla sold a vehicle, which it had purchased on 1 March 2017 for an amount of R 178 500, for an amount of R 75 000 on 30 November 2018. SARS accepts a write off period of five years for motor vehicles.
6. Wezandla purchased used weaving looms, to be used in the process of manufacture, on 1 June 2015. The looms cost R 282 400. Wezandla also incurred moving costs of R6 750, transporting these weaving looms to its factory on 1 July 2015.
7. On 30 April Wezandla purchased part of a new factory from a property developer for an amount of R 1 534 000.
8. Wezandla made the following provisional tax payments during the 2019 tax year:
31 August 2018 R 108 940
28 February 2019 R 345 200
9. The sole shareholder of Wezandla, Mr. Baloyi, owed the company an amount of R 150 000 as at 28 February 2019, this amount has been outstanding since 1 October 2018. No interest is charged on this loan. Assume that the official rate of interest is 7.5%.
10. Wezandla declared and paid a dividend of R350 000 on 31 August 2018 to its sole shareholder, Mr. Baloyi.
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Q.3.1 Calculate the tax liability/refund owing of Wezandla Manufacturing (Pty) Ltd for the year ended 28 February 2019. (30)
- Round off all workings to the nearest Rand.
- Ignore VAT.Q.3.2 Calculate the dividends withholding tax paid by Wezandla on dividends and deemed dividends paid during the year ended 28 February 2019. (4)
Q.3.3 Calculate the net dividend paid to Mr Baloyi. (1)
[TOTAL MARKS: 100]
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