Question 1 (20 marks) Read the following fictitious scenario and answer the questions that follow:
On 22 February 2024, Tamia purchases an old house in Firgrove, a small suburb in Somerset West, for a total amount of R 500 000. Tamia bought the house after her friend Lindy, who works as an estate agent, told her that the houses in this suburb are selling at a fast rate, with remarkable profit rates. Tamia plans to renovate the house and reside in it for a period of three years; thereafter, she plans to sell the property for
a profit.

Required:

1.1. Discuss the importance of determining the original intention of the seller when acquiring immovable property under sale. In your discussion, provide an example of how determining the intention of the seller when acquiring the immovable property plays a significant role. (5 marks)

1.2. Identify and fully explain the nature of the property acquired by Tamia at the time of acquisition. In addition, explain what tax implications will be applicable when she finally decides to sell the property.

(15 marks)

Question 2 (28 marks)

Read the following fictitious scenario and answer the question(s) that follow: Sihle and Nthabiseng are business partners and own “Stella Beauty,” a beauty supply store which is situated at Stellenbosch Square in Stellenbosch Central. They opened “Stella Beauty” on the 1st of March 2023. “Stella Beauty” has been in operation as a partnership for six (6) months and has been doing well financially. “Stella Beauty”
makes a total turnover of R125 000.00 a month and has consecutively made a total of

R750 000.00 in turnover in the last six (6) months of operation. “Stella Beauty” receives an order from a large beauty salon franchise, “Sherbet Salons”, in terms of which they would supply each salon with products for the next six (6) months. “Stella Beauty” enters a written agreement with “Sherbet Salons” in this regard. In terms of this agreement, “Stella Beauty” would again earn R750 000.00 in turnover for the next six (6) months.

“Stella Beauty” is doing so well and has developed a great reputation within the industry that Sihle and Nthabiseng want to open another branch in Strand. However, Sihle will not be managing the Strand branch as it will be operated and managed by his business partner, Nthabiseng, who will be managing all matters, including the finances of that branch.

During one of their friendly conversations, Sihle was informed by Sizwe, who operates a crafts store next to “Stella Beauty” in Stellenbosch Square, that they would need to register their business as a Value-added tax (VAT) vendor at some point because their business is doing so well. Sihle comes to you, a tax expert, to ask for advice.

Required:

2.1. Fully explain to Sihle whether “Stella Beauty” will be required to register as a VAT vendor according to the Value-Added Tax Act 89 of 1991. Refer to legislation where applicable. (15 marks)

2.2. Explain to Sihle whether the branch that they plan to open in Strand will be required to register as a VAT vendor. (8 marks)

2.3. With reference to the facts contained in the scenario, explain whether “Stella Beauty” would be considered a micro business. Refer to legislation where applicable. (5 marks)

Question 3:

Read the following fictitious scenario and answer the question(s) that follow: Techno Fashion Distributions (Pty) Ltd. (Techno Fashions) specialises in the fashion and lifestyle industry. They provide distribution services for some of South Africa’s top fashion houses and shopping centres. As of late, Techno Fashions has been struggling financially. This has resulted in them not being able to provide efficient distribution services to their clients. In turn, they have struggled to pay their creditors for months. In January 2024, the company initiated liquidation proceedings in an attempt to meet its credit obligations. Mr. Mthembu, the majority shareholder of Techno Fashions, is of the personal opinion that business rescue is the appropriate solution for Techno Fashions. He approaches you as an expert for advice on the business rescue process.

Required:

3.1. Discuss the various ways business rescue proceedings may be initiated. Refer to legislation in your discussion. (10 marks)

3.2. With reference to the facts in the scenario above, advise Mr Mthembu on the appropriate manner and by whom business proceedings may be initiated under the circumstances. Refer to legislation in your answer. (10 marks)

3.3. Briefly explain the role and powers of the business rescue practitioner in the business rescue proceedings. (5 marks)

Question 4:

Read the following fictitious scenario and answer the questions that follow: Twain (Pty) Ltd. (“Twain”) is an engineering company that has two branches, one in South Africa and the other in Australia. It has four directors. Mr and Mrs Dlamini, who are two of the directors, both reside in Durban, South Africa, where Twain’s South African branch is located. The other two directors, Mr Swart and Mr Hendriks reside in Australia but frequently visit South Africa for directors’ annual strategic and general meetings at the South African branch. During these meetings, the directors usually discuss and make strategic company decisions.

John, who works for Twain as a civil engineer, is originally from Australia, where he currently resides with his family. John is sometimes required by the company to work on projects in South Africa for periods exceeding six (6) months at a time. For tax purposes, John is considered a non-resident of South Africa as per an existing double
taxation agreement (“DTA”) between South Africa and Australia.

Required:

4.1. Determine whether Twain (Pty) Ltd. is a South African resident in accordance with the Income Tax Act 58 of 1962 (“the Act”). Refer to the applicable section of the Act in your answer. (5 marks)

4.2. Discuss whether John’s remuneration will be subject to normal tax in South Africa.

Question 5:

What are the tax consequences when a capital asset becomes trading stock due to a change of intention, according to the Eighth Schedule and section 22 of the Income Tax Act 58 of 1962?

Note to students :

• You do not need to discuss Para 12(2)(c) in your answer.

Answers to Above Questions on Taxation

Answer 1: It is important to know the intention of the seller when acquiring an immovable property because it has multiple effects on a number of areas. As for example, it has a direct level of impact on the taxation principles while determining the tax liability from the transaction. A property that is acquired for personal purpose or business purpose have different implications on determining the taxation liability.