QUESTION 1 (35 marks)

Michael Peterson, a 58-year old South African resident, is married out of community of property to Linda Peterson. Michael has a deep passion for education and has been employed as a Senior Lecturer at Westbridge College, a recognised institution, for the past 25 years. His receipts and accruals during the 2024 year of assessment were as follows:

• Michael receives a monthly salary of R60 000 from Westbridge College. Instead of paying him, the University pays his wife Linda.
• Michael owns a townhouse in Green Point, Cape Town. He entered into a lease agreement with Mr. Ben on 1 June 2023 for a period of 12 months. Michael rented the house to Mr. Ben, fully furnished. Under the lease agreement, Mr. Ben was required to pay Michael the following amounts:
o An upfront lump sum of R15 000 upon signing the lease agreement.
o Monthly rental of R25 000 payable on or before the 1st of each month.
o A rental deposit amounting to R50 000, equivalent to two months’ rent, to cover any damages such as breakage of cutlery, appliances or furniture. The deposit will be held in a separate trust bank account.
• Mr. Ben voluntarily made improvements to the value of R30 000 to the leased townhouse.
• Westbridge College held a competition within its Business and Economics faculty to recognise the best lecturer, as voted by students through an online survey. The top prize was a cash award of R20 000. Michael Peterson was the fortunate recipient of the R20 000 cash prize.
• Michael provided assessment grading and moderation services to a neighbouring university, Eastwood University, which concluded on the 29th of February 2024 for a fee of R5 000. Payment is only due a month later.
• During the 2024 year of assessment, Michael was transferred by Westbridge College from their Cape Town campus to their Gauteng campus. The college covered his relocation transport costs of R40 000 and paid R60 000 for temporary accommodation for the first three months while he searched for a permanent home.

• Michael chose to pursue a doctoral degree at Westbridge College. The college awarded him a bona fide bursary of R70 000 on 1 January 2024 to support his studies. The bursary includes a stipulation: if Michael does not complete his doctoral degree, he must repay the amount to the college. Committed to earning his degree, Michael agreed to this condition.
• Michael earned interest on a tax-free investment, as defined in section 12T(1), of R30 000.
• Michael received a dividend of R8 000 from his investment in a company registered in America. He holds 15% of the equity shares and voting rights of the company.
• Michael began receiving a monthly annuity of R10 000 starting on the 1st of August 2023. The capital portion of the annuity amounts to R3 000 per month.
• Michael received a fully subsidised laptop for working purposes. The laptop remains the property of Westbridge College, and Michael must return it if he ever decides to resign. According to the 7th Schedule, the cash equivalent of this benefit is R15 000.

REQUIRED:

Calculate Michael Peterson’s income for his 2024 year of assessment.
• Include the applicable section of the Income Tax Act as part of your answer and show all calculations.
• If an amount is excluded, state this fact and provide a brief reason for your answer.
• Ignore any capital gains tax implications, if an amount is capital in nature, only state the fact.
(35 marks)

QUESTION 2 (14 marks)

Jamie, a 42-year-old graphic designer, has been freelancing for Coastal Design Studio (CDS) and aims to secure a full-time position there. Jamie always dreamed about owning shares in CDS. Jamie is a resident of South Africa.

Jamie inherited a bachelor’s flat with a market value of R600 000 from his late mother on 1 January 2020. He initially planned to keep the flat as a long-term investment. Over the years, he maintained the flat but decided to sell it when he realised that it could help him achieve his goal of investing in CDS.

Jamie sold the flat on 10 February 2024 for R900 000, and with the proceeds, he purchased shares in CDS.

REQUIRED:

Discuss whether the profit made by Jamie when he sold the bachelor’s flat will be regarded as income or capital in nature in his 2024 year of assessment.

Your discussion only needs to refer to the “income or capital in nature” elements of the general definition of “gross income” as defined in section 1(1) of the Income Tax Act.
• Do not perform any calculations.
(14 marks)

QUESTION 3 (16 marks)

Susan Taylor, a 66-year-old South African resident, is planning to relocate to Canada on 10 October 2023. After the recent passing of her husband, and given that she is currently renting a home, her children have encouraged her to move closer to them in Canada. Since she only owns a few assets, the move will not be too difficult.

Susan reached out to you for advice on what the tax implications will be when she emigrates to Canada.

Below is a list of Susan’s assets and the market value of these assets on the date of emigration:

1. Susan invested R600 000 in a fixed deposit with the local Northstar Bank on 1 June 2023, using funds she inherited from her late husband

2. Susan bought Krugerrands in 2012 for R250 000. She is a collector of old coins. She is not a trader in old coins.

3. In 2016 Susan bought 20 000 listed shares in a South African company, Pinnacle Ventures Limited, for R300 000. Susan held these shares as a long- term investment.

Susan has an assessed capital loss of R100 000 brought forward from the 2023 year of assessment.

REQUIRED:

Calculate the taxable capital gain or loss for the 2024 year of assessment to be included in the taxable income of Susan.
• Show all calculations.
• You can ignore all VAT implications.
• Support your answer with references to the Income Tax Act.
(16 marks)

QUESTION 4 (35 marks)

After being retrenched from Synergy Limited, a South African company, David Mitchell (66-years old) and his family decided to relocate to Australia on 1 January 2023. David had a promising opportunity to launch his own technology firm, Alpha Digital Solutions Limited (ADS), in Australia.

The family secured permanent residency in Australia once they settled in Sydney, Australia. In Australia, David and his family rented a home, purchased a car, joined a local community group, acquired office space for the business, and registered with Australian Social Services. During the 2024 assessment year, they visited South Africa three times, with each visit lasting four weeks. They also maintained their house in South Africa, keeping it available for their use during these trips.

David had the following receipts for the 2024 year of assessment:
• Total interest of R100 000 for the year was received on a fixed deposit with a South African bank (this is not from a tax-free investment according to section 12T(1)).
• Dividends of R55 000 from his investment in ADS.
• R250 000 on 15 March 2023 as compensation for the termination of his employment with Synergy Limited, the South African company where he worked.
• A total salary of R780 000 received from ADS.

REQUIRED:

Discuss whether David is ordinarily resident in South Africa for the 2024 year of assessment according to the Income Tax Act. Rely on relevant case law to support your discussion.
• No need to specify the names of case law in your answer.
(14 marks)

Calculate David’s taxable income for the 2024 year of assessment.
• Assume that David is not a resident of South Africa; he is a resident of Australia.
• Include the applicable section of the Income Tax Act as part of your answer and show all calculations.
• If an amount is excluded, state this fact and provide a brief reason for your answer.
(10 marks)

Assume that David had a taxable income of R250 000 for the 2024 year of assessment. Calculate David’s total tax payable for the 2024 year of assessment.
(7 marks)

David is uncertain about what is meant by “average tax rate.” Calculate David’s average tax rate and explain the concept of average tax rate. Please round all answers to the nearest percentage.
Assume the following for David’s 2024 year of assessment:
• Taxable income – R250 000
• Tax payable – R19 353
(4 marks)
Answers to Above Questions on Taxation

Answer 1: Michael Peterson’s income for his 2024 year of assessment is calculated as follows:

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