QUERY 1 (27 marks)
I (Kimberley Naidoo) am 52 years old and a single mother of 2 children. I am a registered VAT vendor and run my own business as a sole proprietor. I bake from home for the local home industry. I employ my eldest daughter (Samantha 28 years old). Samantha is married and has a son. Samantha bakes for me for 18 hours a week (at anytime during the week,whenever she can fit it in). I paid her a market related salary of R30 000 a month for the full year of assessment. I do not receive a salary myself. I use the profits of the business as my salary. I am currently tax compliant and have also registered as an employer. This is the first time that Samantha is working, so she has never been a taxpayer before. Samantha only works for me, the remainder of her time she is a full-time mom.
Samantha provided you with the following regarding the savings plan that she has, as she does not contribute to any retirement fund:
Investment (money inherited from her late father):
Balance at end of day – 28 February 2021 R1 894 304 Annual rate of interest earned capitalised on 1st day of every month* 7.5% per annum Monthly contributions towards investment made on 1st day of every month 5% of salary Balance at end of day 28 February 2022 R2 060 000 Extracts from bank records of monthly interest earned for respective periods reflected the following:
Month ended 28 February 2021 R10 899*
Month ended 31 March 2021 R12 145*
Month ended 28 February 2022 R11 852*
Month ended 31 March 2022 R13 207*
*Paid in on 1st day of the following month.
Samantha has the following operating expenses:
Average monthly electricity account R8 000
Gas for the stove for the 2022 year of assessment R16 000
She has copies of all her municipal accounts and gas bills as proof of these amounts.
On 1 June 2021, during the current year of assessment, I gave Samantha a new big gas stove so that load-shedding does not affect her. The stove cost me R22 000 including VAT. I never used the stove. The stove was on a promotional sale and its normal price was R24 000 including VAT, the company delivered it directly to Samantha at a cost of R500 (I paid for the delivery). She only uses this stove for the baking she does for me (she keeps it in her garage).
a) 2022 year of assessment ,
address all amounts in the question and support with reasons.
b) Please explain at what rate Kimberley should withhold tax (if any) from
c) Discuss whether Samantha will be able to deduct any expenses for income
tax purposes. You do not need to provide a calculation.
d) Give Samantha advice on how her affairs could be structured more tax efficiently (based solely on the above information) and solely on the decreasing of taxable income.
1 mark will be awarded for communication skills.
Refer to the mark allocation as an indication of the length of your response.
Please note that only application of the income tax legislation will be awarded marks.
QUERY 2 (12 Marks)
Jody (aged 60), works as a photographer. She is divorced and has two sons, Lionel aged 15 and Tyronne aged 18. She has sole custody of her sons. Her father also lives with her as he is not well and is dependent on her for financial support. Please reply to the following email from Jody.
TO: Student FROM: Jody Subject: Tax query Dear Student
Thank you so much for being willing to assist me. I have calculated my taxable income as R300 000. You can accept this as correct, as I did tax through Unisa as part of my studies. I am, however, uncertain as to how to treat the following amounts for income tax purposes:
I joined Medibest medical aid fund in 2021. I am the main member of the fund and my two sons are registered as dependents. I made contributions of R500 per month for the full current year of assessment. My employer also contributed R3 000 in total to the fund on my behalf. During the current year of assessment, I had the following expenses:
R3 800 for first aid supplies such as bandages, cotton wool, and disinfectants which I paid for. My sons are both avid soccer players and they get injured on a regular basis. I need to have these supplies on hand to save us the cost of going to hospital casualty every time.
I had my tonsils removed this year. Medibest paid R56 000, which represented 72% of the cost of the operation, medicines and hospital stay.
Prescribed medicines of R900, which I paid for but claimed back from the medical fund. They paid 90% of this cost.
a chronic medication prescribed by a doctor. My medical fund refused to cover these expenses as my father is not a registered dependent on my medical fund. I personally covered this cost.
Kind regards Jody
advise Jody on the choices you made in this calculation in the form of notes.
b) For this part only, assume 000
and his employer contributes a further R5 000 per month.
C Please briefly advise Jody on the choices you made in this calculation in the form of notes.
QUESTION 2 (30 marks)
You are currently employed at Consultax Accountants as a tax consultant. The senior manager of the tax department asked you to handle the tax calculation of Jackie Kahn, a new client. Jackie requires your assistance with the calculation of her taxable income for the 2022 year of assessment.
The following information was given to you about Jackie Kahn:
Jackie (66 years old and married out of community of property) is a resident of the Republic of South Africa and is employed by XRS Solutions (Pty) Ltd (“XRS”) since 1 April 2021. Jackie was a house-wife prior to her becoming employed. As she became bored at home, she decided to pursue a career in spreadsheet design (Excel and Visual Basic). The following information relates to Jackie’s 2022 year of assessment:
1. Jackie earned an interest income of R130 000 from a personal investment at a South African bank, TecCapi Investments.
2. She currently earns a gross monthly salary of R20 000 from XRS. See notes 3 and 5. cash flow problems.
3. Jackie received the use of a company car from XRS from 1 April 2021 and used the motor car (as defined) until 28 February 2022. XRS originally bought the car on 1 March 2019 at a cost of R475 000 (including VAT of R58 650 and finance charges of R25 350). The car is subject to a maintenance plan and XRS bears the costs of the licensing. Jackie incurred the full costs of R45 000 for fuel and R750 per month for insurance, for the period that she received the benefit of using the car. Jackie travelled a total of 60 000 km for the 2022 year of assessment, of which 36 000 km related to business travel. Jackie also received a fixed travel allowance of R3 750 per month for the same company car from 1 January 2022. This travel allowance is not included in the salary in note 2.
4. Efraim, Jackie’s son, decided to study Drama, an NQF level 5 qualification, at a registered university. Jackie’s husband refused to pay Efraim’s registration fees of R10 500 because he said it was too expensive. XRS awarded Efraim with a bursary of R10 500 to pay for the registration fee at the university, Jackie is not required to repay this amount.
5. Jackie needed to constantly update her knowledge of Visual Basic and she required a laptop with internet access for this. She leased a laptop from BuyB from 1 July 2021 for this purpose. The laptop is leased under an operating lease agreement for R800 per month. Jackie received an allowance, included in the abovementioned salary (which at 1 July 2021 was increased to its current amount of R20 000, in total, per month), of R1 200 per month from XRS from 1 July 2021 for this purpose. She uses the laptop 65% for business purposes. The value of the laptop is R11 500.
6. The total provident fund contributions, i.e. aggregate of employee and employer contributions amounted to R33 000 for the tax year ended February 2022. Further to this, you ascertained that Jac employer (who contributed the remaining balance).
7. Jackie, further to her retirement planning, made retirement annuity fund contributions (via debit order from her private local bank account) of R1 000 per month. She started this plan 15 years ago and has not adjusted the monthly amount. She has not informed her employer of these contributions. On 31 December 2021, she made a once-off contribution of R5 000 into the fund after the sale of her yacht (see note 9).
In the event of any retirement funding contributions qualifying as a tax deduction, any remuneration amount (as determined in your calculations) may be ignored and an assumption must be made that the remuneration amount is R290 000 for the current tax year in determining the amount of retirement funding contributions that may be deductible for tax.
8. XRS required Jackie to travel to Durban for a work week (i.e. 4 nights and 5 days) away from home to attend a conference on Visual Basic. XRS paid an allowance of R700 per day for accommodation, meals and other costs (incidental) she may incur. Jackie kept a record of her actual expenses that amounted to R2 800 for meals and accommodation, R499 for alcoholic beverages and R200 for private telephone calls.
9. On September 2021, Jackie sold her 8m yacht for R45 000 to her sister Trish. She originally purchased the yacht for R50 000 on 30 June 2018 and only used it for private purposes.
Compute Jackie .
Your calculation must show gross income clearly.
Provide brief reasons for any choices you make and for all non-inclusions or non- deductible items.
Round all final amounts off to the nearest rand. 30
Greg Berrein retired on 28 February 2022 at the age of 60 years. Salient personal information relating to Greg includes:
He is married to Lerato in community of property.
They moved into a retirement village during March 2022 after they disposed of some of their assets.
The timeline of transactions relating to the assets acquired and disposed of are as follows:
|1 October 2001||Lerato received 1 000 shares when Lansam demutualised||20 000|
|28 February 2005||Purchased a 5-hectare plot land||3 500 000|
|Purchased house on the plot (their primary residence)||400 000|
|1 January 2006||Commenced extensions to include home office|
|28 February 2006||Cost of home office for Greg and brought into use||300 000|
|31 January 2022||Lerato sold her Lansam shares for||25 000|
|15 February 2022||Sold primary residence proceeds on the house||800 000|
|15 February 2022||Proceeds on land||6 200 000|
The office space comprised 5% of the property and was used for business purposes. Lerato is not considered a share dealer/trader.
Sipho Koekemore is a 65 year old taxpayer, married in community of property. He manufactures safety devices for vehicles as a sole trader.
The following financial information for tax purposes has also been received:
|Assessed Tax||Calculated Taxable Income
assessment was issued
|2022||R3 885 000||30 April 2022|
|2021||R2 850 000||25 August 2021|
|2020||R2 640 000||25 August 2020|
|2019||R2 250 000*||25 April 2019|
*The 2019 year of assessment has not been assessed yet, but the taxable income was calculated on 25 April 2019.
|Calculate the following in respect of the 2022 year of assessment: Clearly state by which date each of the payments must be made to SARS. Briefly substantiate any choices you make.
a) First provisional tax payment; and
Provide a brief reason for determining the basic amount
|b) Second provisional tax payment||
c) Third provisional tax payment, advise Sipho if he needs to make a third payment and if so, calculate how much, if not, give detailed reasons.
An overall presentation mark will be allocated to assignments that are scanned as follows:
1. Pages are numbered and in the correct order.
2. Pages are all facing the same orientation (not one upside down and one sideways).
3. Pages are visible.
Answers to Above Questions on Taxation
An analysis of all amounts in question indicates that there are many such amounts related to different transactions performed by Samantha. One such transaction is about Samantha’s salary which is R30000 per month and it will be R360000 per year. Another amount is in relation to interest earned on investment which shows that there is a balance of R2060000 by the end of February 2022.
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