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Test 1 suggested solution (Q3)

The document outlines the tax effects for AGW (Pty) Ltd regarding a machine acquisition and subsequent donation, detailing calculations for VAT, capital gains tax, and allowances. It specifies the financial figures involved, including costs, tax values, and adjustments based on the company's taxable supply percentage. Additionally, it highlights the implications of making 100% versus 70% taxable supplies on VAT claims and adjustments.

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13 views

Test 1 suggested solution (Q3)

The document outlines the tax effects for AGW (Pty) Ltd regarding a machine acquisition and subsequent donation, detailing calculations for VAT, capital gains tax, and allowances. It specifies the financial figures involved, including costs, tax values, and adjustments based on the company's taxable supply percentage. Additionally, it highlights the implications of making 100% versus 70% taxable supplies on VAT claims and adjustments.

Uploaded by

lebogangmothiba160
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Question 3 (20 marks)

a. If you assume that AGW (Pty) Ltd makes 100% taxable supplies, calculate the tax effects of the above transaction for AGW (Pty) Ltd in respect of its year of
assessment ended 29 February 2024.

AGW (Pty) Ltd R R


Cost of the machine would be: R 1 200 000 (1 mark) + R4 000 (1 mark) + R15 000 (1 mark) = 1 219 000 3
VAT @ 182 850
15% =
Acquisition open market value less actual VAT (R1 500 000 - R182 850) s23C 1 317 150 1
s12C(2) market value determined on the date of acquisition 1 April 2023
use lesser s12C(2) therefore s12C(1) R1 450 000 × 20% (243 800) 1
s12C allowances claimed from the date asset is brought into use \ 15 May 2023

Transport and installation in respect of Jenkins


It is submitted that these costs cannot be claimed in terms of S12C(6) since they were not incurred for the purpose of the continued use of 1
the asset by AGW.

1/8/2023: Tax value = R1 219 000 – 243 800 = R975 200 1


s8(4)(k) 100
OMV less VAT arising on s18(1) change in use adjustment prior to donation (R1.6m × /115) limited to cost 1 219 000 1
proceeds
deemed to
be market
value
Tax value 1 219 000 − 243 800 ( 975 200)
s8(4)(a) recoupment 243 800

Lecturer comment: Donations tax and par 22 have not been dealt with yet and is not taken into
account for the purpose of this question.

Capital gains tax


Proceeds para 38 (R1 600 000 × 100/115) excl. VAT 1 391 304 1
s18(1) VAT on MV
less s8(4)(k) (243 800) 1
1 147 504

Base cost para 20(1)(a) 1 219 000 1


less 12C(1) para 20(3)(a) (243 800) 1

975 200
Base cost ( 975 200)

Capital gain 172 304


x 80% 137 843 1
Total 13
Max 13
b. If you assume that AGW (Pty) Ltd only makes 70% taxable supplies, calculate the VAT consequences of the above transaction for AGW (Pty) Ltd in respect of its VAT
period ended 29 February 2024.

Initial purchase:

Input claimable on purchase, transport and installation costs:


(1 200 000 (0.5 mark) + 4 000 (0.5 mark) + 15 000 (0.5 mark)) x 15% (0.5 mark) x 70% (0.5 ( 182 850) 2,5
mark)

Donation to Jenkins:
Sec 18(1) adjustment: 1
Output payable:
OMV x 15/115 = 1 600 000 x 15/115 = 206 897 1

Sec 16(3)(h): 1
Additional input:
15/115 (0.5 mark) x 1 219 000 (lower of adjusted cost or OMV) (0.5 mark) x 30% (0.5 mark) = ( 47 700) 1,5

Total 7
Max 7

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