Question 1 [34 marks]
Read the scenarios below for the year ending 28 February 2023 and answer the following question.
A. The following is the income statement of Axe Ltd for the financial year ending 28 February 2023:
|Sales from services rendered||R950 000|
|Cost of services rendered||R400 000|
|Other operating income||R95 000|
|Exempt income||R15 000|
|Operating expenses||R300 000|
|Non-deductible expenses||R65 000|
|The taxable portion of capital gains||R40 000|
|Provisional tax paid during the year||R85 000|
B. Paul is a 50-year-old mechanical engineer employed for the full year. Paul had the following income and expenses during the year:
Gross income R165 000
Exempt income (interest received) R22 000
Allowable deductions R16 000
Employees’ tax paid to SARS during the year R11 000
C. Maria is a 19-year-old trainee bookkeeper employed from 1 June 2022 to 31 December 2022. Maria had the following income and expenses during the year: INCOME
Gross income R80 000
Exempt income R1 200
The portion of capital gains taxable R3 000
Allowable deductions R4 500
Employees’ tax paid to SARS during the year R2 000
Calculate the net normal tax payable/refundable for each taxpayer above for the year ending 28 February 2023.
Question 2 [39 marks]
Bravo Ltd manufactures wooden doors and tables in Durban. As a student with tax knowledge, you have been approached by the managing director to assist in calculating the taxable income of Bravo Ltd for the financial year ending 28 February 2023. The managing director has provided you with the following information for the financial year ending 28 February 2023:
|Cost of sales||250 000|
|Salaries and wages||220 000|
|Vehicle costs (excluding wear and tear)||25 000|
|Lease fees on factory building and machinery||150 000|
|Pension fund and medical aid contributions on behalf of employees||35 000|
|Accounting fees||8 000|
• On 01 December 2022, Bravo bought a part of the new factory from a property development company at the cost of R2 000 000.
• On 01 February 2023, Bravo paid R45 000 to lease a freeway billboard for 12 months.
• Bravo paid a monthly annuity of R600 for the spouse of a former employee and R500 for the child of the same employee from 01 March 2022 onwards.
• On 01 May 2022, Bravo bought a vehicle for R200 000. The vehicle was stolen on 31 October 2022, and the insurance paid Bravo R120 000.
• Bravo bought a new wood-cutting machine on 15 February 2023 for R60 000 and immediately brought the machine into use.
• On 01 May 2022, Bravo completed the construction of the factory’s extension for R230 000. The construction was required in the factory’s lease agreement to extend the premises. The lease agreement stipulated that the work should cost R200 000. The lease was signed on 01 March 2022 for a 10-year period.
• Bravo had a debtors’ list of R8 000 (of these, R2 000 were less than 60 days, R 1 500 were aged 61-120 days, and R4 500 were older than 120 days). Bravo does not apply IFRS 9. SARS had a Section 11(j) allowance of R1 000 in the previous year.
From the above information, calculate Bravo Ltd.’s taxable income for the financial year ending 28 February 2023 (ignore VAT implications).
N.B. Round-off calculations to two decimal places.
Question 3 [15 Marks]
Your uncle, David, heard that you are studying a taxation module and requests your assistance in calculating his taxable income for the financial year ending 28 February 2023. You are presented with the following information in relation to David:
• David was 41 years old on 28 February 2023 and was an ordinary resident in South Africa during the 2023 tax period.
• David received R40 000 in interest on his Capitec bank fixed savings account and R8 000 on his USA fixed savings account.
• On 31 August 2022, David was retrenched by his employer. He received a salary of R110 000 from 01 March 2022 to 31 August 2022.
• David submitted a claim with the Unemployment Insurance Fund (UIF). David received, in total, R35 000 on 30 October 2022.
• David purchased an annuity on May 2022 for R20 000. In terms of his contract, he received an annuity of R300 from the end of November 2022, and this monthly annuity would run for a period of seven years.
• On 01 June 2022, David received dividends of R7 000 from a JSE-listed company.
Calculate the taxable income of David for the financial year ending 28 February 2023.
Question 4 [12 Marks]
Study the following case studies independently and answer the question that follows.
I. Chris, aged 55, runs a sole trader business and recently decided to retire early and sell his business to spend time with his grandkids. He wanted to sell his business for a one-million-rand lump sum and could not find a willing buyer to pay this amount. He sold his business to a friend Lydia, who paid him a cash amount of R400 000 and undertook to settle the balance by paying him R10 000 per month for the rest of his life.
II. Anne, who was a guesthouse manager in Cape Town, inherited a house on the death of her aunt. The house is located in Durban, and she has no wish to relocate and live in Durban. She decided to list the property for sale, and much to her delight, the property was sold within a week. She received R1 000 000 from the sale of the house.
III. Alvis is a car dealer with 20 demo cars in his showroom. The arrival of new models required space, and Alvis decided to sell 4 of his demo cars at a discounted price of R200 000 for each vehicle. All four cars were sold during the same tax period.
IV. Gibson loves dogs and purchased 2 German Shepherd dogs in July 2017 for R6 000 each. In September 2022, the dogs had eight puppets. Gibson decided to keep two puppets and sold the other six for R32 000 in total during the same tax period.
V. Siya, who is a financial broker, was an owner of a restaurant bar in the city of Johannesburg. A large restaurant chain approached him to sell his restaurant, and he accepted the offer. The deal was for R800 000, and the sale price was made of trading stock worth R250 000, fixed assets valued at R300 000, and goodwill of R250 000. In terms of the sale agreement, the amounts for fixed assets and trading stock were to be paid in cash on signing, while goodwill will be paid in annual installments of R35 000 for the rest of his life.
Examine the above scenarios with reference to the gross income definition, and advise which amounts will be included or excluded as part of gross income.
Get Answers on Above Questions on Taxation
Answer 1: The net normal tax payable/refundable for each taxpayer above for the year ending 28 February 2023 is calculated as follows:
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