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TAX621S - TAXATION 202 - 2ND OPP - JAN 2020 |
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NAMIBIA UNIVERSITY
OF SCIENCE AND TECHNOLOGY
FACULTY OF MANAGEMENT SCIENCES
DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE
QUALIFICATION : BACHELOR OF ACCOUNTING
QUALIFICATION CODE: 07BACC
LEVEL: 6
COURSE: Taxation 202
COURSE CODE: TAX621S
DATE: January 2020
SESSION: Theory, Calculation
DURATION: 180 Minutes
MARKS: 100
Examiner:
SECOND OPPORTUNITY
Mr. A Ketjinganda and Ms Z Maritz
Moderator:
Ms. Yolande Andrew
INSTRUCTIONS TO CANDIDATES
This paper consists of 7 pages including appendix A (Including cover page).
You are reminded that answers may NOT be written in pencil. NO tippex may be used.
The marks shown against the requirement(s) for every question should be regarded as an
indication of the expected length and depth of your answer.
4.
Answer the questions by the use of:
- Effective structure and presentation; clear explanations;
- Logical arguments; and clear and concise language.
5. Show all calculations clearly.
6.
Round all amounts to the nearest Rand.
Question
1
2
3
4
Total
Marks
15
17
40
28
100
Time allocated (minutes)
27
31
72
50
180
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Question 1
15 Marks
You are employed at a student clerk at an accounting firm to assist with various
accounting and tax matters at JW accounting firm. Following your study on fringe
benefits for employees, Jack Wallis would like to know from you on the matters below:
Fifteen statements on the taxation of fringe benefits and tax payable follow:
1. lf a fringe benefit is subject to normal tax under paragraph (i) of the definition of
‘gross income’, it is not subject to normal tax under paragraph (c) of the
definition of ‘gross income’.
For an employee who is away from home on business in South Africa for at
least a night, his employer may award him R416 a day ‘tax free’.
Medical aid contribution paid by the employer on behalf of the employee does
not constitute a fringe benefit.
A ‘long service’ award as defined will have a ‘nil’ taxable value if is a non-cash
award and its cost to the employer was more than R5 000.
If a motor car bought by the company and utilised by the company itself for
more than 12 months, then granted to employee to use, its determined value
must be depreciated by 16%.
If employer trading stock is provided to an employee, it is a fringe benefit to be
included at market value.
The factor used in the determination of the taxable benefit for the use of a motor
vehicle fringe benefit is reduced to 3.25% a month when the motor vehicle is
the subject of a maintenance plan.
8. The value of the taxable benefit for the use of motor vehicle fringe benefit is
reduced on assessment when the employee travels in it for business purposes.
9. Annuity receipt is not subject to inclusion in gross income as it is of capital
nature.
10. If taxpayer is above 65 years qualifies for primary rebate only of R14 067.
Required:
State whether the above statements are true or false. Provide brief reasons where it
is false.
(15 Marks)
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QUESTION 2
17 MARKS
Alex Nawa is a 2™ year B. Acc student at the Namibia University of Science and
Technology (NUST). Alex is currently performing very well in his studies and is
amongst the top students in his class. Alex grew up in the small village, Mgwali, in
Eastern Cape, South Africa. He goes home to Mgawali every holiday where his
community is very proud of what he is achieving at NUST. As he has a keen interest
in taxation, he is often asked to assist with tax queries from people in his community.
During the September recess, Alex has received the following queries:
Issue 1:
3 marks
Mama Selma, his next-door neighbor, has recently received an amount of R35 000 as
payment for work that her daughter, Ndishi, has done when working as a hostess on
the Bluewaves cruise ship. As the cruise ship is at sea a lot, Ndishi has asked for her
salary to be paid into her mother’s bank account in order to assist with living expenses
her family has to cover back in Mgwali while she is at sea.
REQUIRED:
Mama Selma is worried that she will be taxed on the money being paid into her
account. Explain to Mama Selma whether the money she has received will be taxable
in her own name. Refer to case law in your answer or case principle.
Issue 2:
4 marks
Alex’s grandmother, Mama Sophia, owns a flat in Port Elizabeth (PE) where she used
to live when she was still employed by the local municipality in PE. Mama Sophia has
since retired and has moved back to Bulungula. She now wants to sell her flat in PE
but she is worried about the tax implications as she is going to make a substantial
profit on the sale as the value of property in the neighborhood has soared since she
acquired the property. She has recently been in contact with an ex-colleague of hers
who has complained that he has been in a dispute with SARS regarding the disposal
of 5 flats he owned. The ex-colleague has a knack for identifying run down flats, fixing
them up and then selling them to make a quick profit.
REQUIRED:
Explain to Mama Sophia if the substantial profit she makes will result in SARS
including the proceeds of her sale in her gross income. Refer to case law and relevant
principles in your explanation.
Issue 3:
4 marks
Alex's cousin, Tangeni, has recently opened up a new spaza shop in Bulungula. The
biggest part of his business will be the selling of a variety of cool drinks in 2 litre glass
bottles. Tangeni has negotiated with his supplier to return empty glass bottles to them
in exchange for a refund of R3,50 as a deposit per bottle. Tangeni will subsequently
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offer his customers a refund of R3,50 of the original selling price per bottle of cool drink
that they return to his store. Tendani does not keep the R3.50 he receives from his
customers upon the initial sale of a cool drink as a deposit in a separate bank account
but includes it with the rest of his sales.
REQUIRED:
Assist Alex in compiling a short summary of what the issue is, judgment and
subsequent principles established in the Pyott vs CIR court case in order to explain
the tax consequences of the receipt of the R3.50 (deposit) per bottle of cool drink by
Tangeni.
Issue 4:
3 marks
Alex’s uncle, Jossy, owns a workshop where he does motor vehicle repairs as a
mechanic. During March, an electrical fault caused the wiring of his entire workshop
to collapse. Uncle Jossy was forced to close his workshop for an entire week in order
for an electrician to come and rewire the building. Luckily, uncle Jossy has an
insurance policy that covers loss of income due to unforeseen events.
REQUIRED:
Uncle Jossy wants to know whether he has to include the money he received from the
insurance payout in his gross income. Refer to case law or principle in your answer.
Issue 5:
3 marks
Alex’s brother, Dexie, is a successful investment banker in Sandton, Johannesburg.
As a student he won Naspers shares worth R60 000 as a prize for the best performing
Investment Banking student in his final year. This was more than 10 years ago. The
value of the shares has since grown substantially. Dexie has recently left his job as an
investment banker to start trading in shares permanently. In his 2018 year of
assessment he has made a profit of R400 000 by actively trading in shares. Dexie
argues that because he owns his Naspers shares for such a long time, it is proof of
his share trading activities being capital in nature.
REQUIRED:
Advise Dexie on whether the profits from his share trading activities are of capital or
revenue in nature. Refer to case law or principle in your answer.
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Question 3
40 Marks
This question consists of two unrelated parts.
PartA
(15 Marks)
Joe stein was a lecturer employed by the Wits University, in South Africa. For the past
15 years Wits has had a lecturer exchange program in partnership with the University
of Sydney in Australia. This exchange program provides lecturers with the opportunity
to spend extended periods of time at the partnering universities. During the periods
abroad the monthly salaries of the lecturers partaking in this program is covered by
the university they are visiting.
Joe has made use of this opportunity and has spent increasing amounts of time at the
University of Sydney over the last couple of years. Since 2019 Joe has relocated his
wife and two children to Australia permanently. His children attend an international
school in Sydney and his wife volunteers at a shelter for abused animals across the
road from their children’s school on a permanent weekly basis. In January 2019 Joe
was offered a full-time lecturing position at the University of Sydney and has
subsequently quit his position at Wits University in order to pursue this full-time
position in Sydney. In February 2019 Joe sold their family home in Northcliff and
shipped all their furniture to Australia.
Joe deems himself not to be ordinarily resident in South Africa anymore, but he is
worried about his tax residency based on the physical presence test.
The amount of time Joe has spent in South Africa over the last couple of years are as
follows:
2014 — 235 days
2015 — 220 days
2016 — 185 days
2017 — 153 days
2018 — 122 days
2019 — 92 days
REQUIRED:
a) Advise Joe on whether he will be taxed in South Africa on his worldwide income for
the 2019 year of assessment based on the physical presence test requirements and
its application thereof.
(10)
(b) Explain whether Joe will be taxed on any income in South Africa if he is found NOT to be
a South African tax resident for his 2019 year of assessment.
(1)
(c) State two law cases and their principles that led to the meaning of ‘ordinarily resident’.
(4)
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Part B
(25 Marks)
Listed below are 10 receipts or accruals that various taxpayers have either received
or which have accrued to them in the circumstances indicated:
1. Cash stolen by a pickpocket.
2. From the result of a bet on the outcome of a rugby match.
3. As a restraint of trade payment received by a natural person in respect of
employment.
As compensation for damages to an office block owned by a property
investor.
As a loss of profits insurance claim.
From the sale of shares held as investment.
From the sale of shares held as trading stock.
As inheritance from a deceased estate.
As lump-sum goodwill amount on the sale of a business.
0. From backing the winner of a major horse race.
REQUIRED:
a) State whether each receipt or accrual will constitute gross income or not. Give
reasons for your answer in each case.
(20 Marks)
b) List 5 (five) components of gross income as set out in Section 1 of the Income
Tax Act.
(5 Marks)
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Question 4
28 MARKS
Susan Rose is 30 years old and has been employed by JT Timbers Ltd (“JT Timbers”)
since 1 January 2018. She is married and has ason. On 1 October 2018 she gave
birth to a baby daughter. She was on maternity leave from 1 October 2018 until
31 January 2019. JT Timbers did not pay her any maternity benefits as it is their policy
to only pay maternity benefits to employees who are employed for more than one year.
Susan received the following from JT Timbers:
1. Salary of R40 000 per month (March to Sept 2018 and February 2019)
2. JT Timbers gave Suzie a wooden cot from their inventory when the baby was
born. The cost price of the cot is R1 500 (including VAT), and the market value
R3 700 (including VAT).
To assist with all the extra expenses a baby brings forth, JT Timbers gave Susan
a loan of R15 000 on 1 September 2018 at an interest rate of 4% per year. She
only paid it back on 1 April 2019. Assume official interest rate is 7.75%.
Susan is a member of the JT Timbers Provident fund and contributes 7% of her
salary per month to the fund. JT Timbers contributes 10% of her salary per
month to the fund. Both Susan and JT Timbers still contributed during the
months she was on maternity leave.
On 1 October 2018 Susan purchased an annuity of R2000 per month for herself,
for which he paid an amount of R216 000. The annuity will be paid for the rest of
her life. Her life expectancy as per table assume to be 16.042.
The company expect Susan to visit customers on a regular basis and pays her a travel
allowance of R9 800 per month. Susan has a VW Jetta that she had purchased on 1
February 2017 for R245 000 (including VAT). He has travelled 28 000 kilometres in total
for the 2019 year of assessment, of which 16 000 kilometres was for work purposes (per
her logbook).
Other information:
1. | She contributed R2 000 per month to the RMB Retirement Annuity Fund.
2. While she was on maternity leave, she received R5 700 per month from the UIF
fund.
3. | Since March 2017 Susan invests R30 000 on 1 March every year in the Alex
Ford Tax free investment. Interest for the 2019 year of assessment amounted
to R8 600.
REQUIRED:
a) Calculate Susan’s Income Tax Payable for the 2017 year of assessment.
(25 Marks)
b) State the components of general deduction formula/ (s11(a)). (3 Marks)
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Appendix A
Taxable income
RO — R195 850
R195 851 — R305 850
R305 851 — R423 300
R423 301 — R555 600
R555 601 — R708 310
R708 311 —R1 500 000
R1 500 001 and above
Rates of
Natural persons and special trusts — 2019
Rates
18% of taxable income
R35 253 + 26% of taxable income exceeding R195 850
R63 853 + 31% of taxable income exceeding R305 850
R100 263 + 36% of taxable income exceeding R423 300
R147 891 + 39% of taxable income exceeding R555 600
R207 448 + 41% of taxable income exceeding R708 310
R532 041 + 45% of taxable income exceeding R1 500 000
Tax
Rebates (Rand)
2019
Primary rebate (Persons under 65)
14 067
Secondary rebate (Persons 65 and under 75)
7713
Tertiary rebate (Persons 75 and above)
2 574
Annual interest exemption
Rand
2019
Persons under 65
23 800
Persons 65 and above
34 500
2018
13 635
7 479
2 493
2018
23 800
34 500
Where the value of
vehicle is
RO
— R85 000
R85 001 —R170 000
R170 001 — R255 000
R255 001 — R340 000
R340 001 — R425 000
R425 001 — R510 000
R510 001 — R595 000
Exceeding R595 000
Travel
Scale of values (2019 year of assessment)
Fixed Cost (R)
Fuel
Maintenance cost
cost
(c/km)
28 352
95.70
34.4
50 631
106.80
43.1
72 983
116.00
47.5
92 683
124.80
51.9
112 443
133.50
60.9
133 147
153.20
71.6
153 850
158.40
88.9
153 850
158.40
88.9
Meals and incidental costs
Incidental costs only
Ss
Subsistence
allowance
2019
416
128
Rand
2018
397
122