QUESTION ONE ( 30 Marks)
Sandra Cruise is an ordinary resident in a northern-hemisphere country. She has been retired for a number of years. She is 69 years old. She does not enjoy the cold northern-hemisphere winter and has therefore, each year, travelled to Cape Town where she stays in a holiday cottage from 1 October each year until 31 March the following year. She purchased this holiday cottage primarily for this purpose since she enjoys the warm weather that Cape Town experiences during that time of year. She made her first trip to Cape Town in the 2017 year of assessment when she stayed in South Africa from 1 October 2016 till 31 March 2017. She has made the same trip every year since then.

Sandra’s receipts and accruals for the 2023 year of assessment were as follows:
● A social security pension the equivalent of R100 000 from the country that she is a resident of.
● An annuity the equivalent of R80 000 from her former employer as a result of the 30 years employment that she had with it. None of these years were spent in South Africa.
● Rentals of R36 000. The rentals are earned from her holiday cottage in Cape Town. She lets it to tenants at a market-related rental for the six months of the year that she is not in Cape Town. For this six month period she incurred in the determination of her taxable income deductible expenditure of R15 000 in earning these rentals.
● Interest of R45 000 from a bank in South Africa. It is not from a ‘tax free investment’. The interest accrues to her annually in arrears on the last day of February.
● Local dividends from listed South African companies of R17 000.

Required:
Determine if Sandra Cruise is a resident of the republic for the 2023 year of assessment. (10)
Calculate her South African taxable income for the 2023 year of assessment. (20)

Question 2: ( 10 marks )

A summary of income and expenses for the 2023 tax year of assessment for Dorothy, a 46 year old resident of South Africa is presented below:

Commission received 360 000
Rent from property in South Africa 20 000
Annuity from SA insurance company 3 600
Dividends from South African public company 800
Interest received from SA bank 1 300

EXPENSES on property
Rates and taxes 1 700
Insurance 1 000
Additions to property 20 000
Water and electricity 3 500
Repairs 5 000
Wages 4 000

Required:
Calculate the Taxable Income of Dorothy for the 2023 year of assessment.

QUESTION 3 ( 30 Marks )

DTN (Pty) Ltd (DTN) is the fourth largest cellular network industry in South Africa, providing call and data services to customers around the country as well as other African countries. It has an extensive customer base, which has been created over the past few years. The current financial year ends on 30 June 2023. DTN is a registered VAT vendor and all amounts exclude VAT unless otherwise stated.

The following information relates to DTN’s activities for the current financial year:

1. Gross income from SA customers amounts to R3 790 000 (including VAT), while sales from customers outside SA amounted to R505 400 (including VAT).

2. DTN’s employees belong to the company’s pension fund and medical aid fund. DTN contributes to these funds on behalf of the employees. During the year, contributions on behalf of the employees to the pension fund amounted to R132 000 and to the medical aid fund R156
000. DTN’s total remuneration approved by the Commissioner is R1 422 000.

3. The financial manager, Miss Rhodes, resigned on 31 July 2021. To prohibit her from trading in direct competition to DTN, the company paid her an amount of R650 000 as compensation for his restraint of trade for the following 5 years. The full amount was included in Miss Rhodes’ income on his 2022 income tax return.

4. Legal fees to the amount of R98 000 were incurred. This was made up of R48 000 for the collection of outstanding trade debtors and R50 000 in respect of employee remuneration claims. (Note: employee remuneration is deductible for purposes of this question.)

5. Penalties and interest paid to SARS amounted to R12 500 in respect of the current year of assessment.

6. Bad debts written off consist of R53 000 in respect of a loan to an employee and R711 000 in respect of trade debtors.

7. The following prepaid expenditure was incurred:
– Rental of the switchboard system for head office for the period 1 July 2023 to 31 January 2024 was 46 000 (including VAT).
– Deposit for the purchase of a motor car that will be delivered on 1 June 2023 amounted to 85 000.
– Insurance paid for the vehicle above was R17 328 (including VAT) for the period 1 June 2023 to 31 May 2024.

8. A patent was purchased for R17 900 on 6 May 2023 and a trademark was renewed at a cost of R19 700.

9. An employee with a disability as defined and an NQF level 10 qualification entered into a two- year learnership agreement with DTN on 1 April 2021. The employee continued with the learnership agreement until 31 March 2023, when he successfully completed it.

10. Provisional tax of R276 000 was paid for the year.

REQUIRED
3.1. Calculate the tax liability of DTN (Pty) Ltd for the year of assessment ended 30 June 2023. Where an amount does not affect the taxable income calculation, provide a brief reason. (30)

QUESTION 4 ( 30 Marks)
Theobald St John is aged 38 years and his wife, Theodora St John, 35 years. They are both residents of the republic.
Theobald and Theodora St John’s earnings for the 2022 year of assessment were as follows:
Salary – Thoebald St John 240 000
Local dividends – Theobald St John 21 200
Local interest (not from a tax-free investment) – Theobald St John
47 400
Salary – Theodora St John 32 400
Local interest (not from a tax-free investment) 41 400

Theobald St John incurred and paid the following expenditure and made the following contributions
during the 2022 year of assessment:
• R24 000 towards the maintenance of his aged mother
• R6 000 each towards the support of an invalid uncle and aunt
• R3 000 toward a retirement annuity fund
• R14 400 to a pension fund (being 6% of his salary)
• R600 on life insurance premiums on his own life
• R20 465 “qualifying medical expenses” (he is not a member of a medical scheme).

Theodora St John was employed on a part-time basis and worked for only three months during the 2022 year of assessment earning R10 800 a month (see above).

REQUIRED:
4.1. Determine the 2022 normal tax liabilities of Theobald and Theodora St John. (30)

QUESTION 5 ( 30 Marks )

On Point Limited, a resident of the Republic, introduced a new accounting package on 30 September 2020 to provide financial data needed to complete its value-added tax returns.

For On Point Limited’s tax period 1 January 2021 to 28 February 2021 the following financial data was provided by its new accounting system. When appropriate, amounts include
value-added tax:
Supply of goods and services at the standard rate 402 500
Supply of goods and services at the zero rate 50 000
Supply of exempt goods and services 100 000
Input tax on capital goods (note 1) 45 000
Input tax on non-capital goods and services (note 2) 48 750
Second-hand goods purchased and paid for (note 3) 12 650
Value of fringe benefits subject to value-added tax 1 150
Credit notes issued (note 4) 13 800
Credit note received (note 4) 6 900
Bad debts written off (note 5) 9 200

The Commissioner has agreed with On Point Limited to a ‘turnover-based’ method of apportionment, and 80% has been agreed as the percentage applicable to the making of taxable supplies.

Notes

1. On Point Limited’s input tax on capital goods includes
• R750 value-added tax on the purchase of a coffee machine for its employees’ common room, and
• R9 000 value-added tax on the purchase of a delivery van for the delivery of its goods.

2. On Point Limited’s Input tax on non-capital goods and services purchased includes
• R360 value-added tax for membership fees paid to the local country club for its managing director’s membership, and
• R270 value-added tax for his subscription to a professional society.

3. On Point Limited purchased, and paid for, a second-hand machine from a non-vendor for R12 650.

4. On Point Limited’s credit notes issued, and received, all relate to supplies made at the standard rate of 15%.

5. Bad debts written off by On Point Limited relate to supplies made at the standard rate.

You are required to

Determine the value-added tax due to, or from, the Commissioner for its tax period 1 January 2021 to 28 February 2021. Provide brief reasons to support your determinations if necessary. (30)

QUESTION 6 (10 Marks)

Willie Jeep
On 1 March 2020, Willie Jeep was granted the use of a motor car as a fringe benefit of his employment. It was purchased by his employer for R345 000 (including value-added tax at 15%).

Willie Jeep travelled a total of 30 000 kilometres in it during the 2021 year of assessment. Of these total kilometres, 18 000 kilometres were for business purposes (evidenced by relevant details maintained in a logbook by him).

Willie Jeep paid
• R900 for its licence,
• R10 000 for its insurance, and
• R9 200 for its maintenance (it is not subject to a maintenance plan).
Willie Jeep actually incurred R39 000 on fuel for his private travelling in the motor car.

REQUIRED:
6.1. Determine the amount that is included in Willie Jeep’s 2021 taxable income for this fringe benefit resulting from his employment. (10)

Answers to Above Taxation Questions

Answer 1: The determination of whether Sandra Cruise is a resident of the republic for the 2023 year of assessment is performed as follows:

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