QUESTION 1 (27 marks)
Danny (46 years old) lives in Melbourne, Australia, and only holds an Australian passport. Danny has never been an ordinarily resident for South African income tax purposes. Danny works in the renewable energy field and travels worldwide for his renewable energy projects and research. Due to one of Danny’s project and research affiliates being situated in South Africa, he is required to travel to South Africa on a regular basis.
Danny’s passport indicates that he was in South Africa for the following periods over the last number of years:
|Year of assessment
|Number of days spent in South Africa
Danny owns two immovable properties that were bought for investment purposes, and he therefore receives rental income from these properties.
Property 1 is a house situated in Durban, South Africa, which Danny bought at the end of 2022. Danny concluded his first rental agreement for the Durban house on 1 February 2023 for a period of 24 months. In terms of the rental agreement, the initial rental income was R15 000 per month and will increase by 8% annually.
Property 2 is an apartment in Melbourne, Australia, which Danny bought in 2016. The current rental agreement was concluded on 1 March 2022 for a period of 24 months. In terms of the rental agreement, the initial rental income was R12 000 per month and will increase by 10% annually. You can assume the rental amount is correctly converted to Rand.
Discuss whether Danny qualifies as a resident of South Africa for the 2023 year of assessment in terms of the requirements of the physical presence test according to the Income Tax Act.
In your answer, remember to first state the requirements of the physical presence test, whereafter, you apply the facts in the scenario to the requirements of the physical presence test.(15 marks)
Assume that Danny is a non-resident for South African income tax purposes for the 2023 year of assessment. Discuss the impact that this will have on the gross income he receives from his rental properties during his 2023 year of assessment.
QUESTION 2 (37 marks)
Leonie (65 years old) is a South African resident and was employed by Purple Plum. She retired at the end of December 2022 and had the following receipts for the 2023 year of assessment:
1. She received a monthly salary of R50 000, and her contract clearly states that an annual bonus (equal to one month’s salary) will be received in December of each year.
2. She received a rental income of R7 500 per month for the full year of assessment.
3. Total interest of R45 000 for the year was received on a fixed deposit with a South African bank (this is not from a tax-free investment).
4. She received a dividend of R4 500 from her investment in a local South African company.
5. She received a dividend of R6 300 from her investment in a company registered in Zambia. She holds 5% of the equity shares and voting rights of the company.
6. Purple Plum paid Leonie R125 000 in order for her not to continue to trade or use the knowledge she gained while working for Purple Plum for a period of 18 months.
Calculate Leonie’s income for the 2023 year of assessment. Include the applicable section of the Income Tax Act as part of your answer and show all calculations. (19 marks)
Assume that Leonie had a taxable income of R725 550 for the 2023 year of assessment. Calculate Leonie’s total tax payable for the 2023 year of assessment. Round all answers to the nearest Rand. (7 marks)
Leonie is confused between the meaning of an “average tax rate” and the “effective tax rate”. Calculate Leonie’s average and effective tax rates and explain the difference between the two terms. Round all answers to the nearest Rand.
Assume the following for Leonie’s 2023 year of assessment:
• Income – R885 500
• Taxable income – R725 550
• Tax payable – R178 128
QUESTION 3 (20 marks)
Bona fide bursary
Sippi is a part-time student studying BAcc at Boston City Campus.
After passing her first year with flying colours, her employer noted her hard work and as a reward awarded her with a bona fide bursary of R80 000 in January 2023.
One of the conditions of the bursary is that should she fail to complete her studies, she will be required to repay the bursary to her employer. Seeing as Sippi is determined to qualify as a CA(SA), she agreed to this requirement.
Assume that Sippi received a remuneration of R525 000 from her employer for the 2022 year of assessment.
Chris works as a car salesman and his employer gives him a specific uniform that contains the company’s logo and branding, which he is required to wear to work. The uniform given to Chris cost the company R1 000.
Stephen was transferred by his company from their Cape Town branch to their Gauteng branch. The company paid for his transport to relocate and his first month’s rent in his new home. Stephen signed the rental agreement for his new home before he relocated so that he did not have to look for accommodation when he arrived in Gauteng.
With reference to the information under Bona fide bursary, discuss the tax implications that the bona fide bursary will have for Sippi during the 2023 year of assessment.(10 marks)
With reference to the information under Uniform, discuss whether the amount paid on behalf of Chris for the uniform is exempt from Chris’s normal tax assessment. Clearly state your reason(s).(5 marks)
With reference to the information under Relocation, discuss whether the amounts paid on behalf of Stephen for his relocation are exempt from Stephen’s normal tax assessment. Clearly state your reason(s).(5 marks)
QUESTION 4 (16 marks)
Simon (35 years old) is a South African resident who owns shares in Purple Rain Construction (PRC).
One of Simon’s friends, Lisa, owns shares in Leaf Capital Holdings (LCH). As Lisa always wanted to own PRC shares, she approached Simon with a proposition to swap some of her LCH shares for some of his PRC shares.
Simon then agreed to swap 1 000 of his PRC shares for 1 000 of Lisa’s LCH shares and the share swap happened on 5 February 2023. The share price of both the PRC and LCH shares was R15 per share on the day of the share swap.
LCH declared a dividend of R5 per share on 7 January 2023 to all shareholders registered on 20 February 2023, and the dividend will be paid out on 15 March 2023.
Discuss, with supporting dates, whether the LCH dividend declared would be included in Simons’ gross income and for which year of assessment (2023 or 2024).
Your discussion only needs to refer to the “received by or accrued to” and “year of assessment” elements of the general definition of “gross income” as defined in section 1(1) of the Income Tax Act.(15 marks)
Communications skills: layout and logical argument (1 mark) Total: (16 marks)
Get Answers on Above Questions on Taxation on Individuals
Answer 1: It is important to evaluate the number of days Danny has spent in South Africa in order to evaluate whether a person is resident in South Africa. A person is considered as resident in South Africa if the person is physically present for a period of 91 days in a particular tax year, and a period exceeding 91 days in total during each of the 5 years of assessment preceding the tax year under consideration. The situation of Danny indicates that he was present for 120 days in South Africa in 2023, and for the last 5 years, he has been in South Africa for more than 100 days in each of the years.
Get completed answers on the above questions on taxation on individuals from the accounting assignment help experts of Student Life Saviour.
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