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D22 TX ZAF Final

Jasper provides engineering consultancy services and his invoices totaled R940,000 for the last 12 months. He is not currently registered for VAT but his anticipated turnover for the coming year will exceed R1 million so he must register for VAT. Archway Ltd built additional storeys on a commercial building it purchased. It later sold one storey and can claim a recoupment of R200,000 and commercial building allowance of R1,100,000. During a SARS audit of Bee Ltd, it was found insufficient employees tax was withheld. The employer is liable to SARS for the employees tax not withheld and has a claim against the employees.

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0% found this document useful (0 votes)
41 views14 pages

D22 TX ZAF Final

Jasper provides engineering consultancy services and his invoices totaled R940,000 for the last 12 months. He is not currently registered for VAT but his anticipated turnover for the coming year will exceed R1 million so he must register for VAT. Archway Ltd built additional storeys on a commercial building it purchased. It later sold one storey and can claim a recoupment of R200,000 and commercial building allowance of R1,100,000. During a SARS audit of Bee Ltd, it was found insufficient employees tax was withheld. The employer is liable to SARS for the employees tax not withheld and has a claim against the employees.

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munyaradzi
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© © All Rights Reserved
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Section A

1. Jasper offers engineering consultancy services. His invoices for these services totalled
R940,000 for the last 12 months.

He recently renovated his office, selling all the current equipment for R70,000 and purchased new
equipment for R150,000.

He is not currently registered for value added tax (VAT). He anticipates a similar volume of work
for the coming 12 months but will be increasing his fees by 7%.

Which of the following statements is CORRECT?

A. Jasper has taxable supplies exceeding R1 million and became liable to register for VAT at the
end of the month in which the threshold was exceeded.
B. Jasper must only register for VAT if, in the income tax year of assessment, he exceeds the
R1 million threshold. He must then register for VAT for the start of the next year of
assessment.
C. Jasper must register for VAT as his anticipated turnover for the coming 12 months will
exceed the R1 million threshold.
D. Jasper must wait until he crosses the R1 million threshold and only then will he be liable to
register for VAT at the end of the month in which the threshold is exceeded.

2. Archway Ltd purchased a commercial building in the 2021 year of assessment for R14,000,000.
It comprised of four storeys.

The company built a further three storeys on to the building at a cost of R4,000,000 per storey and
rented each of the seven floors to separate tenants.

In the 2022 year of assessment, a sectional title register was opened, and the top (new) storey
was sold to the tenant on the first day of the 2022 year of assessment for R5,000,000.

Which of the following options reflects the correct recoupment and commercial building
capital allowance for the 2022 year of assessment?

Option Recoupment Allowance


1 R200,000 R400,000
2 R200,000 R1,100,000
3 R60,000 R180,000
4 R60,000 R120,000

A. Option 1
B. Option 2
C. Option 3
D. Option 4
3. During a routine employees’ tax audit conducted on Bee Ltd by the South African Revenue
Service (SARS), it was found that for the last six months, insufficient employees tax was withheld
from the amounts paid to employees.

No employees tax certificates have yet been issued in respect of these amounts.

Which of the following statements is CORRECT?

A. The employer and employee are jointly and severally liable for the employees tax not
withheld and owing to SARS.
B. The employer is liable to SARS for the employees tax not withheld. The employer then has a
claim against the employee.
C. If SARS believes that there was an intention by the employer to evade tax, the employer is
absolved from the liability as the amount can be recovered from the employee.
D. The employer can issue the employees tax certificates even if the employee has not refunded
the employer for the employees' tax not withheld.

4. Naledi runs a hobby business in addition to her part-time employment. Her hobby business is
registered with the South African Revenue Service (SARS) as a micro business.

During the 2022 year of assessment, she earned:

• R400,000 from her employment;


• foreign dividends of R4,000; and
• R320,000 in turnover from the hobby business.

On 1 April 2021, she refunded R15,000 to a customer for a defective product purchased from her
during the 2021 year of assessment.

Naledi also sold a machine used in her business for R10,000 on 1 May 2021. It had a base cost of
R25,000.

What is Naledi’s taxable turnover in respect of her hobby business for the 2022 year of
assessment?

A. R310,000
B. R334,000
C. R290,000
D. R320,000
5. Dial Ltd has excess cash resources and would like to use some of the cash to repurchase some
of its shares from the shareholders, in proportion to their shareholdings.

Which of the following statements is CORRECT?

A. No shares may be repurchased as an unlisted company may not buy back its shares
B. The shares may be repurchased and held as a capital asset for resale for tax purposes
C. The shares may be repurchased, but the shares repurchased must be cancelled
D. The shares may not be repurchased, but the company can declare a dividend and return
some of the contributed tax capital

6. Andile’s daughter, Lerato, turned 18 on 15 July 2021. On that date, Andile gave her
Krugerrands (gold coins).

The coins had an original cost of R224,000 when purchased on 1 May 2010.

They are now worth R560,000. Donations tax of R92,000 was paid by Andile on this donation.

What is Andile’s total capital gain before any exclusions are applied?

A. R0
B. R280,800
C. R244,000
D. R336,000

7. Lend Ltd made a loan of R1,000,000 on 1 April 2021.

The loan is repayable on 31 May 2023 with an amount of R1,162,500.

All interest due is paid on redemption of the loan, no interest payments are required during the
term of the loan.

Lend Ltd has a year of assessment ending 31 March each year.

Which of the following statements correctly reflects how the gross income for the 2022
year of assessment from the loan will be determined?

A. There is no gross income as no amount is received in the 2022 year of assessment.


B. The R162,500 will be recognised evenly over the loan period.
C. The full amount is capital in nature and generates no gross income. A capital gain of
R162,500 will be recognised in 2023.
D. The interest will be calculated on a yield to maturity basis and recognised as gross income
over the period of the loan.
8. Nhlanhla runs a value added tax (VAT) registered business consulting practice.

During the current VAT period, he earned R150,000 in fee income. He also incurred the following
expenditure:

Expenditure R
General office expenses 30,000
Exhibition booth at a business conference to hand out promotional materials 10,000
Taking clients to dinner during the conference 9,000
Hotel accommodation and his own meals during the conference 3,000
University fees for his research degree which is of direct relevance to his consulting
11,000
business

He has retained all necessary supporting documents.

All amounts above are exclusive of VAT charged.

What is Nhlanhla’s VAT liability payable to the South African Revenue Service (SARS) for
the current VAT period?

A. R14,700
B. R16,050
C. R16,500
D. R13,050

9. Josephine works in the finance section of a manufacturing company, ABC (Pty) Ltd.

She annually prepares the company’s tax return before it is reviewed by the financial director and
submitted.

She prepares no other tax returns and is in full time employment with ABC (Pty) Ltd.

Which of the following statements is TRUE?

A. Josephine must register as a tax practitioner as she assists in preparing a tax return
B. Josephine need not register as a tax practitioner as long as the financial director to whom she
reports is registered as a tax practitioner
C. Josephine and the financial director must register as tax practitioners
D. Neither Josephine nor the financial director must register as tax practitioners
10. Certain periods of absence from a primary residence may be deemed to qualify as periods of
ordinary residence in a primary residence.

Which of the periods of time described below would NOT be deemed to be a period of
ordinary residence in a primary residence?

A. The property was flooded during a natural disaster and was left vacant for one year while the
taxpayer had repairs carried out.
B. The taxpayer is seconded overseas for four years and rents the property out. The taxpayer
had lived in the property for more than one year, both before and after the rental period.
C. The taxpayer had used the property as a place of business exclusively for one year before
using it as a primary residence.
D. The property was empty for five months as the taxpayer had moved to a new primary
residence and was struggling to sell this property.

11. Vend Ltd owns a number of vending machines throughout South Africa. Some machines stock
food and drinks, and others stock small toys.

Vend Ltd has a number of employees who collect the money from the machines and restock the
machines on a weekly basis.

Which of the following options correctly reflects the time of supply rules for both the
supplier, Vend Ltd, and recipient of the goods from the machine, the customer?

Option Vend Ltd Customer


When the customer at the
When the customer at the vending machine inserts
1 vending machine inserts
the money
the money
When the money is
When the customer at the vending machine inserts
2 collected by the
the money
employee of Vend Ltd
When the customer at the
When the money is collected by the employee of
3 vending machine inserts
Vend Ltd
the money
When the money is
When the money is collected by the employee of
4 collected by the
Vend Ltd
employee of Vend Ltd

A. Option 1
B. Option 2
C. Option 3
D. Option 4
12. Mighty Ltd is classified by the South African Revenue Service (SARS) as a small business
corporation.

During the year, it sold one manufacturing machine on 1 February 2022 for R2,000,000 that it had
purchased on 1 July 2020 for R3,000,000.

Mighty Ltd purchased a new manufacturing machine for R5,000,000 on 1 Feb 2022 and brought it
into use the same day. It also bought a new coffee machine for the office on 1 March 2022 for
R16,000. No roll over was elected. Wear and tear for these assets (where no specific allowance is
applicable) is applied over a period of five years by the Commissioner.

What recoupment must be recognised in taxable income and what total allowances may be
claimed by Mighty Ltd for its year of assessment ended 31 March 2022?

Option Recoupment / (loss) Total allowance


1 (R1,000,000) R666,933
2 R200,000 R2,600,267
3 R2,000,000 R5,008,000
4 R2,000,000 R5,016,000

A. Option 1
B. Option 2
C. Option 3
D. Option 4

13. Jenny’s taxable income for the 2022 year of assessment was R400,000.

She pays medical aid contributions of R2,000 monthly in respect of herself and her minor, disabled
son.

She incurred additional qualifying medical expenses of R25,000 during the year, mainly in respect
of her son’s disability.

What additional medical credit may Jenny claim against her normal tax payable?

A. R8,365
B. R7,968
C. R16,333
D. R4,282
14. Zebra Ltd has a taxable income of R5,000,000 for the 2022 year of assessment.

It has an assessed loss of R600,000 from the previous year of assessment.

The company paid provisional tax of R1,110,000 for the 2022 year. No provisional tax penalties or
interest have been levied.

What is the amount of normal tax outstanding, or assessed loss to be carried forward, for
Zebra Ltd for the 2022 year of assessment?

Option Amount Tax outstanding / assessed loss


1 R310,000 Assessed loss
2 R122,000 Tax outstanding
3 R921,200 Tax outstanding
4 R489,200 Tax outstanding

A. Option 1
B. Option 2
C. Option 3
D. Option 4

15. For the 2022 year of assessment, Arthur has taxable income from his employment of
R1,800,000.

He also made a profit of R22,000 from his rental properties.

He has a ring-fenced loss brought forward from 2021 from his rental property trade of R30,000.

Which of the following options correctly states the amount on which normal tax will be
calculated and how the loss will be treated?

Option Amount applicable to normal tax Treatment of ring-fenced loss


1 R1,822,000 Deducted from normal tax liability
2 R1,792,000 Deducted from taxable income
3 R1,822,000 Carried forward in full
Utilised against profit from rental trade
4 R1,800,000
and R8,000 carried forward

A. Option 1
B. Option 2
C. Option 3
D. Option 4
Section B
1. This scenario relates to two requirements.

Deal ’n’ Autos Ltd (DAL) is a company that buys and sells used cars. DAL is a registered value
added tax (VAT) vendor rendering monthly returns. For the VAT period February 2022, the
following information is relevant:

(1) Sales of used cars to customers amounted to R1,700,000.

(2) Repairs conducted on sold cars returned with defects (this cost is borne by the company in
terms of its one-year warranty on purchase):

(i) Spare parts R50,000


(ii) Labour R40,000

(3) One car was removed from the lot on 1 February 2022 to be used as a company car for the lot
manager. It had cost R100,000 when purchased used, and carries a sale price of R150,000.

(4) In January 2022, the VAT invoice received on the purchase of marketing materials had
incorrect details and the VAT input claim was denied. A corrected invoice was received in
February 2022 reflecting a total amount of R7,000.

(5) A bad debt, written off in November 2021, was partially recovered. The amount of R5,000 was
received.

(6) Caterers for the monthly staff get-together invoiced the amount of R6,500.

(7) Wages and salaries amounted to R350,000 for the month.

(8) A web media consultant was paid R8,000 to improve the company website. The consultant is
not a registered VAT vendor.

(9) Used cars purchased from non-vendor sellers amounted to R350,000.

(10) Used cars purchased from car rental agencies amounted to R450,000.

The February 2022 return was filed on 31 March 2022 through e-filing and the VAT liability paid on
2 April 2022.

All amounts above exclude VAT where appropriate.

(a) Calculate the net VAT payable for February 2022 for Deal ’n' Autos Ltd (DAL).

Notes:
1. Your answer should deal with all items mentioned in the question, indicating by the use of a
zero (0) any items which do not impact the VAT calculation.
2. For every item you indicate with the use of a zero, you are required to supply a brief reason for
your treatment of that item.
(9 marks)

(b) Explain whether DAL will be subject to any penalties on submission of the return or by
reference to the date that payment was made.
(1 mark)

(10 marks)

2. This scenario relates to two requirements.

Beatrice is employed part-time as a senior manager at a retail firm. She earned R1,500,000 from
this employment from which R507,673 was withheld as employees tax in the year of assessment
2022.

She also runs a separate business as a coach consultant from her home. After the tenants in the
flatlet attached to her home left on 1 April 2021, she decided to move her business from a single
room study in her home into the flatlet. She incurred significant costs refurbishing the flatlet to
transform it to her business premises. Beatrice is not registered as a value added tax (VAT)
vendor.

The details concerning her consultancy are included below:

(1) Consultancy fee income for the 2022 year of assessment – R800,000

(2) Building expenses for conversion of flatlet – R650,000

(3) New office furniture acquired on 1 June 2021:

(i) Chairs – R18,000 (consisting of a board room set costing R15,000 and an individual office
chair of R3,000)
(ii) Tables – R25,000 (board room table of R20,000 and office desk of R5,000)
(iii) Coffee machine – R12,000

(4) Other acquisitions and costs:

(i) Office supplies and other consumables – R9,000


(ii) Fees paid to change the property classification to both residential and business use – R3,000
(iii) Legal fees for the property classification change – R5,000

(5) The flatlet comprises 10% of the property area. The utilities provided to the property are by
single account. Beatrice incurred the following property costs:
(i) Municipal rates – R45,000
(ii) Water - R2,400
(iii) Electricity – R12,000
(iv) Garden service – R6,000
(v) Cleaning service – R12,000 (the cleaning service spend about 15% of their time in the office
space)
(vi) Building insurance – R11,000

Binding Private Ruling No. 7 provides that wear and tear for office equipment is spread over six
years.

Beatrice also paid R259,200 in provisional tax.

(a) Calculate the taxable income arising from Beatrice’s consulting business for the 2022
year of assessment.

Note:
1. You should list all items referred to in notes (1) to (5), indicating by the use of zero (0) any item
which does not impact the calculation.
2. For every item you indicate with the use of a zero, you are required to supply a brief explanation
for your treatment of that item.
(7 marks)

Beatrice would like to understand how much tax will still need to be paid for the 2022 year of
assessment.

(b) Calculate the normal tax payable after the primary rebate, employees’ tax and
provisional tax credits.
(3 marks)

(10 marks)

3. This scenario relates to two requirements.

Lindiwe owned a holiday house in equal shares with her husband. They bought the house for
R300,000 on 1 September 2001.

On 1 October 2001, the house was valued at R310,000.

In 2016, they renovated the house at a cost of R1,000,000. Lindiwe’s husband died in 2019 and
his share of the house transferred to Lindiwe. The property had been valued at R2,300,000 at the
time of his death.
On 1 July 2021, Lindiwe sold the holiday house for R2,900,000. The selling agent’s commission
was 4% of the selling price.

(a) Explain what consequence the death of Lindiwe’s husband had for Lindiwe's base cost
of the holiday house.
(1 mark)

(b) Calculate the taxable capital gain for Lindiwe for the 2022 year of assessment in respect
of the sale of the holiday house.

Note: Lindiwe had no other capital gains or losses during that year of assessment.
(9 marks)

(10 marks)

4. This scenario relates to two requirements.

Manufacture Ltd has a wholly owned subsidiary, Innovate (Pty) Ltd, that is funded by Manufacture
Ltd to conduct its research and development projects.

During the 2022 year of assessment, Manufacture Ltd paid R5,000,000 to Innovate (Pty) Ltd in
respect of a new research and development project.

Manufacture Ltd has an assessed loss of R1,000,000 carried forward from 2021, whereas
Innovate (Pty) Ltd is operating at a profit. The new project costs of R5,000,000 were to fund
R1,000,000 in administration costs, and the remaining R4,000,000 was all in respect of 'research
and development' as defined.

In addition to the above information, Manufacture Ltd notes the following relevant information:

(1) Gross income – R45,000,000

(2) Plant purchased for the R&D project (use is only granted to Innovate (Pty) Ltd)) – R15,000,000

(3) Manufacturing machines (purchased two years previously) – R8,000,000

(4) Non-manufacturing assets (the Commissioner accepts a spread over five years) all purchased
in the previous year of assessment – R900,000

(5) Purchases of raw materials – R13,000,000

(6) Opening stock – R4,000,000

(7) Closing stock – R3,000,000


(8) Salaries and wages – R7,000,000

(9) Other deductible costs – R6,000,000

(a) Explain whether one or both companies may deduct the accelerated allowances for the
research and development costs. If only one company can claim the deduction, make a
recommendation as to which company it should be and state your reason.
(2 marks)
(b) Assuming that Manufacture Ltd may not deduct the accelerated research and
development costs, but may claim a normal deduction for the amount paid to Innovate (Pty)
Ltd, calculate the tax payable by Manufacture Ltd (before any provisional tax credits).
(8 marks)

(10 marks)
5. This scenario relates to two requirements.

Andiswa, a resident of South Africa, works as a manager for a large retail store. In addition,
Andiswa is the author and self-publisher of a successful series of children’s books.

During the 2022 year of assessment, Andiswa was seconded to one of the retail stores in Zambia.
Andiswa was in Zambia from 1 April 2021 to 15 October 2021 (i.e. a total of 198 days). During that
time, she only returned to South Africa for 14 days on holiday.

The following is relevant in respect of the current year of assessment:

Employment
(1) Annual cash salary – R1,000,000

(2) The employer and employee each contribute 10% of the annual cash salary to the company
pension fund.

(3) Andiswa has medical aid contributions of R800 per month. She is the principal member and
has no dependents.

(4) The employer provided her with rental accommodation in Zambia. This cost the employer
R15,000 for the duration of her secondment.

(5) Andiswa received an annual bonus of R90,000 in December 2021. The bonus concerns
performance over the entire year of assessment.

Rental
(6) Andiswa rented out her home during her secondment from South Africa. She earned R60,000
in total for rent for six months.
(7) During the six months rental she paid R7,000 in municipal rates. Water and electricity were
paid separately by the tenants. She had to make repairs of R6,000 to the property on her return.

Book publishing
(8) Book income – R50,000

(9) Printing costs – R30,000

(10) Printing machine (original cost of R50,000 in the 2021 year of assessment) in second year of
use and for which the Commissioner permits a deduction over four years.

(a) Calculate the employees tax to be withheld by Andiswa’s employer, assuming that it is
agreed that the least possible employees tax should be withheld in respect of the
secondment and the duration of the secondment was known at the start of the year of
assessment.

Note: You should list all items referred to in the employment package, notes (1) to (5), indicating
by the use of zero (0) any item which does not impact the calculation.
(7 marks)

(b) Calculate the tax payable (after all rebates and tax credits other than any provisional
tax).

Note: You should list all items referred to in notes (6) to (10), indicating by the use of zero (0) any
item which does not impact the calculation.
(8 marks)

(15 marks)

6. This scenario relates to requirements (a) to (d).

Top Ltd has an assessed loss of R1,000,000 and an assessed capital loss of R40,000 carried
forward from 2021. The company has a year of assessment ended 31 March each year.

The following financial information is relevant for the year ended 31 March 2022:

(1) Gross income – R80,000,000.

(2) Cost of sales – R30,000,000.

(3) Wages and salaries – R17,000,000.

(4) At the start of the 2022 year of assessment, a key employee left (i.e. 1 April 2021). In addition
to the wages and salaries amount, the company paid an additional amount of R3,000,000 to
secure a restraint of trade over the employee for a period of two years.
(5) Machine Z was destroyed in a fire. It had originally cost R8,000,000 and had no remaining tax
value. The insurance company paid R1,000,000 to Top Ltd. Top Ltd used the insurance money
[net of value added tax (VAT)] and borrowed R12,000,000 from the bank to purchase a new
machine (including VAT) on 1 October 2021. The machine was immediately brought into use. The
bank charged R55,000 in interest on the loan for the 2022 year of assessment.

(6) The company earned some foreign dividends from its portfolio investments. The foreign
dividends received were R44,000. No foreign taxes were withheld.

The company declared dividends of R20,000,000 to its shareholders (comprising 60% South
African resident companies, 35% non-resident companies and 5% South African natural persons).

Top Ltd has excess cash reserves and would like to buy 100% of the equity shares in Catch Ltd,
which has a turnover of less than R20 million annually.

This scenario relates to requirement (e).

The South African Minister of Finance announced that the corporate income tax rate will be
decreased from 28% to 27% in respect of any year of assessment ending on or after 31 March
2023.

(a) Calculate the tax payable by Top Ltd for the 2022 year of assessment. You should also
calculate the minimum provisional tax that Top Ltd should have paid for the 2022 year of
assessment to avoid any penalties for underestimation.
(10 marks)

(b) Explain how the South African Income Tax Act determines the tax residence of a
company.
(1 mark)

(c) Calculate the dividends tax to be withheld by Top Ltd on the dividend declared to
shareholders.
(2 marks)

(d) If Top Ltd acquires Catch Ltd, explain whether Catch Ltd will qualify for the small
business corporate tax rates.
(1 mark)

(e) Following the South African Minister of Finance’s announcement, if a company has a
year of assessment ending 30 April each year, explain for which year of assessment the
new corporate tax rate would apply.
(1 mark)

(15 marks)

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