QUESTION ONE [55]
Lunga Dlamini, aged 56, is a resident of the Republic. Lunga is married out of community of property. He is currently employed at Quantico (Pty) Ltd. The following information relates to Lunga for the year of assessment ended 29 February 2023:
1. Lunga earned a basic salary of R92 500 per month for the 2023 year of assessment. On 1 December 2022, Quantico (Pty) Ltd paid him a gross bonus equal to one month’s salary, to reward him for his excellent work performance.

2. Lunga earned local dividends of R24 200 and local interest of R52 450 from his investments. He also earned the equivalent of R14 940 in foreign dividends (Lunga holds 2% of the equity shares in the foreign company).

3. Lunga’s pension fund contributions for the year of assessment totalled R110 000. Quantico (Pty) Ltd contributed an additional amount of R83 250 to the pension fund on Lunga’s behalf.

4. Lunga is a member of Momento Medical Aid. His wife (Busi) is his only registered dependent. Quantico (Pty) Ltd and Lunga each contributed an amount of R1 500 per month towards the medical aid membership. During the 2023 year of assessment, Lunga paid R12 210 in medical expenses not covered by the medical aid. Neither Lunga, nor his wife have a disability as defined.

5. Lunga receives a monthly travel allowance of R6 250 for using his car for business purposes. Lunga pays all the expenses for the car but has not kept accurate records of expenditure for the 2023 year of assessment. He has maintained a logbook which reflects that his opening odometer reading on 1 March 2022 was 30 750 kilometres, and his closing odometer reading on 29 February 2023 was 56 100 kilometres. Total business travel is recorded as 5 200 kilometres. Lunga’s car cost him R609 500 (including VAT of R79 500).

6. From 1 March 2022, Lunga and his wife were granted the use of a residential home owned by Quantico (Pty) Ltd. The house has 5 rooms in total and is unfurnished. Quantico (Pty) Ltd pays for all power/fuel supplied. Neither Lunga, nor any of his relatives own any shares in Quantico (Pty) Ltd. Lunga’s remuneration proxy is R925 000.

7. During the year of assessment, Quantico (Pty) Ltd gave Lunga trading stock with a market value of R10 620, free of charge. The stock cost Quantico (Pty) Ltd R9 000.

8. Quantico (Pty) Ltd runs a canteen for all their staff. On average, Lunga eats there one meal a day, 5 days a week, 49 weeks a year. He saves approximately R25 per meal compared to the price he would have paid at a public restaurant.

9. Lunga and his family enjoyed a 10-day holiday at a luxury resort. Quantico (Pty) Ltd owns a time-share scheme in the resort and allows employees to utilise this benefit at a 50% discounted rate. The holiday accommodation could normally be let at a flat rate of R2 000 per day.

10. Lunga receives an entertainment allowance of R1 600 per month to entertain clients of Quantico (Pty) Ltd. He has kept records of his actual expenditure on entertainment, which totalled R15 000 for the 2023 year of assessment.

11. Lunga spent a total of 5 days away from home when he was sent on a business trip. Quantico (Pty) Ltd provided him with an allowance of R600 per day to cover meals and incidental costs. He did not kept records of his actual expenditure incurred on the trip.

Required: Calculate Lunga’s normal tax liability for the year of assessment ended 28 February 2023. Assume remuneration of R1 554 230 for the purposes of calculating the section 11F pension fund deduction. Round off to the nearest Rand. Show ALL workings. (55 marks)

QUESTION TWO [45]
Kyle Naidoo, a resident of the Republic, sells and repairs household appliances from a shop he leases in a local shopping centre. Kyle operates a sole proprietor and is registered for VAT on the invoice basis. He makes solely taxable supplies.
An analysis of Kyle’s income and expenditure for the two-month tax period ending 28 February 2023 is set out below. Unless otherwise stated, all amounts are inclusive of VAT, where applicable. All transactions are with registered VAT vendors, unless otherwise stated.

Notes
1. The indemnity award of R23 000 was received from Kyle’s insurer for trading stock that was stolen from his shop in January 2023 when he had a break-in.

2. Bad debts of R10 350 were written off, comprising of:
• R7 130 owing by a long-standing customer on a credit sale. This customer has since emigrated and Kyle has been unable to trace him.
• R3 220 was lent to an employee, who left town without repaying the loan.

3. Depreciation (for the two-month tax period) is charged for the following assets:

4. Insurance premiums are made up as follows:

5. Purchases comprise as follows:

6. Rentals are for the following:

Required: Calculate the net VAT due to or refundable from SARS for the January/February 2023 tax period. Use a VAT rate of 15%. Round off to the nearest Rand and show ALL workings. Where there is a nil VAT effect, state a brief reason why. (45 marks)

Answers to Above Questions on Financial Accounting

Answer 1: The calculation of Lunga’s normal tax liability for the year of assessment ended 28 February 2023 is performed as follows:

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