SUPPLEMENTARY ONLINE SUMMATIVE ASSESSMENT

PROGRAMME Bachelor of Commerce in Accounting

MODULE Taxation for Corporate Activities
YEAR Three (3)
INTAKE July 2024 Semester One (1)
DATE 15 January 2025
TOTAL 100
Answer ALL questions below. [100 MARKS]

QUESTION 1 (35 Marks)

Explain, with adequate consideration of the Income Tax Act and all the accompanying schedules,
whether you agree or disagree with the following statements. Include all calculations (where applicable).
1.1 The South African Airways is a public entity that operates both cargo planes as well as domestic (2 Marks)
carrier planes. Assuming the South African Airways wants to sell one of its 2-ton cargo planes, the South
African Revenue Services would not subject the sale to Capital Gains Tax.
1.2 A capital gains tax liability will arise when Mr. Smith sells his 9m-long yacht for R2,5 million whilst it (2 Marks)
was purchased for R1,8m three years ago.
1.3 The definition of capital assets includes all coin collections. (2 Marks)
1.4 T1 (Pty) Ltd is a resident company in South Africa. The directors declared a dividend of R1 per share (4 Marks)
on 1 September 2023. Of the 150 000 issued shares, 100 000 shares are held by a collective investment
scheme, Happy (Pty) Ltd. T1 (Pty) Ltd calculated the dividend withholding taxes as R30 000.
1.5 Oasis (Pty) Ltd received income of R1,25 million during the year of assessment. Of this income, (4 Marks)
R260 000 is exempt and R275 000 was incurred as allowable deductions. Oasis (Pty) Ltd sold equipment
during the year of assessment, and after applying the 80% inclusion rate, the taxable capital gain was
calculated as R350 000. With an assessed loss of R150 000 carried over from the previous year of
assessment, the total tax payable for the current assessment year amounts to R247 050 if the company
is taxed at 27%.
1.6 Bedford (Pty) Ltd sold equipment for R400 000 during the current year of assessment, that was (5 Marks)
purchased several years ago (before 1 October 2001). The allowable improvement expenditure between
1 October 2001 and the date of sale was calculated at R60 000. Bedford (Pty) Ltd should include R217
600 in the taxable income calculations for the current year of assessment.
1.7 King (Pty) Ltd paid the following donations to qualifying public-benefit organisations during the current (6 Marks)
year of assessment and received the appropriate receipt therefore: On 1 September 2023 a donation of
R2 500 was paid to Thrilled, on which date the taxable income before the donation was processed
amounted to R55 000. On 15 January 2024, the taxable income before a donation payment, amounted to
R15 500. On this date, a donation of R1 850 was paid to the local dog shelter, Wagtails. The bookkeeper
calculated the total S18A deduction for the year at R4 350.
1.8 Andy Limited issued 135 equity shares to each of its 18 employees as part of a broad-based (6 Marks)
employee share plan. Employees are required to pay R100 per share, while the market value of each
share was R180 at the time of issuance. The total deduction allowed in terms of Section 11(IA) for the
current year of assessment was calculated at R243 000.
1.9 Crust Limited has 100,000 authorized shares, of which 30,000 have been issued at a par value of R3 (4 Marks)
each. Crust Limited awarded 500 shares at par value to each of its eleven permanent staff members,
while the market value per share at the time of the grant was R6.50. Although there are no restrictions on
these shares, employees who resign within twenty-four months are required to sell all their shares back
to the company at the market value on the date of acquisition. Employees are granted full dividend and
voting rights. The IRP 5 of each employee will include a fringe benefit of R3 250 while the company can
claim a deduction of R9 750.
QUESTION 2 (20 Marks)
HAT Trading (Pty) Ltd presented the following abridged Statement of Profit or Loss and Other
Comprehensive Income for the year of assessment ended 28 February 2024:

Gross Profit 375 650

Other Income 55 250

Other expenses (143 550)

Net profit 287 350

Notes:
1. The company earned R32,500 in interest from its bank account, generated from its savings or other
interest-bearing accounts during the financial period. The balance was recorded as part of other
income reported.
2. Included in other income is the profit realised on the sale of an asset. The sale of equipment on 1
December 2023 generated a recorded profit of R5,200, with a capital gain of R6,500 realized since
the sale price exceeded the original cost. Per SARS regulations a recoupment of R8,500 was
recorded.
3. Depreciation on assets for the year was recorded at R15,625 as other expenses in the financial
statements. However, for income tax purposes, the wear and tear allowance, representing the
reduction in asset value, is calculated at R21,300.
4. The total salaries and wages for the period amounted to R30,000, covering all compensation paid to
employees. This includes base salaries, hourly wages, as well as any additional earnings such as
overtime, bonuses, or commissions. The accountant reported the expense as part of other expenses.
5. Included in other expenses is a provision of R18,000 for doubtful debts, with no such provision made
in the prior year. SARS permits a 25% allowance on the total debtor balance.
6. Research and Development costs of R12 500 in respect of designing costs, already recorded in the
financial system, relates to a purchase made on 2 November. The design was registered and brought
into use in the same month. Section 11(gC) allows for a 10% allowance for research and
development costs.
7. The company entered into a twelve-month learnership agreement with several employees, starting on
1 June 2023. Samuel holds an honours degree, Ishmael has completed a master's degree, and both
Amin and Erin graduated from high school in December 2022. Samuel and Amin are both classified
as having defined disabilities.
8. Provisional tax payments of R21,000 each were made on 31 August and 26 February.

It can be assumed that all items included in the gross profit are calculated in accordance with tax
regulations and VAT implications can be ignored. The company is taxed at 27% and does not carry on a
process of manufacturing.

Required:
Calculate the tax liability for the year of assessment ended 28 February 2024 of HAT Trading (Pty) Ltd.
Detail all calculations.
QUESTION 3 (15 Marks)
Z1 Traders (Pty) Ltd reported the following results for the year of assessment ended 28 February 2019:

Statement of Profit or Loss and Other Comprehensive Income for the year of assessment ended
February:
Income R

Sales 915 000

Recoupment of bad debts 16 500

Doubtful debt allowance - 2018 5 750

Interest received on current account 8 200

Closing stock - 28 February 2019 94 550

1 040 000

Expenses

Purchases 380 000

Opening stock - 1 March 2018 82 000

Sundry expenses - tax deductible 155 000

Rent paid 65 000

Employer contributions 6 000

Annuities 116 000

Doubtful debt allowance - 2018 3 750

Patents 27 000

Restraint of trade payment 55 000

889 750

Profit 150 250

Notes:
1. Monthly rent of R5,000 is paid in advance on the 1st of each month in respect of a sixty-month lease
agreement for office premises commenced on 1 November 2018. The rent for March 2019 was paid
early, on 27 February 2019. All rental payments have been recorded as expenses in the financial
records.
2. Z1 Traders' annual contribution to the provident fund on behalf of its employees totals R6 000.
3. SARS permits a 25% allowance on the doubtful debt balance, while Z1 Traders applies a 12%
allowance on the total doubtful debts. The debtors' book at the financial year-end includes total
doubtful debts of R15,000. In the previous year, doubtful debts were R23,000.
4. In the assessment year, Z1 Traders acquired Patent R1 for R10 00 on 30 September 2018, and
Patent R2 for R17,000 on 15 December 2018.
5. A four-year restraint agreement came into effect on 1 March 2018 when Z1 Traders paid R55,000 to
its former HR manager as a restraint of trade payment. The employee was taxed on R15,000 of this
amount.
6. Z1 Traders paid the following annuities during the current year of assessment: Mrs Blue retired at the
age of 65 and received R23 000. Mr Golding received R75 000. He was the husband of the Legal
executive who died during a motor vehicle accident during the current year of assessment. Annabel
and Peter, children of Mrs. Blue each received R9 000.
7. Provisional tax of R20 000 was paid on 31 August 2018, and R25 000 on 25 February 2019. The
company is taxed at 27%
8. The recoupment of bad debts relates to bad debt written off in the 2017 assessment period.

Required:
Calculate the tax liability of Z1 Traders (Pty) Ltd for the current year of assessment. Include all
calculations.

QUESTION 4 (20 Marks)

Stirling Limited is a registered VAT vendor and South African resident company. The company’s
assessment year ends on the last day of February and the company is not registered as a manufacturing
company. For the 2019 year of assessment the company is subject to 28% taxation. The bookkeeper
prepared financial records reporting a total operating profit of R1 250 000 before considering the following
transactions:

1. Annuities were paid to the following individuals during the assessment year:
Peter Retired employee R50 000
Anne Disgruntled employee R10 000
Cynthia Wife of deceased CEO R80 000
Stephen Son of Peter R5 000
Mary Ill health retirement R45 000

2. Stirling Limited secured an insurance policy for its financial director, covering death and illness, with
monthly premiums of R1,095 starting from 1 January 2012. On 1 June 2012, an addendum was
added to the agreement, and the company opted to apply Section 11(w)(ii). The policy is purely risk-
based, offering no cash or surrender value prior to maturity or the financial director's death. Stirling
Limited is both the policy owner and beneficiary.
3. Stirling Limited, with a February year-end, entered into a restraint of trade agreement following the
termination of its Marketing Director's employment. The company made a payment of R100,000 on 1
March, initiating a restraint period of twenty-four months. The payment is taxable to the employee.

4. Stirling Limited issued 50 equity shares to each of its 20 employees as part of a broad-based
employee share plan. Employees are required to pay R10 per share, while the market value of each
share was R85 at the time of issuance.

5. On 1 January 2016, Stirling Limited entered into two three-year learnership agreements with
employees. One employee, Amber, holds an NQF 6 qualification, and the other , Ella, holds an NQF
8 qualification. Ella has a defined disability, and both successfully completed their learnerships on 31
December 2018.

6. The following donations were made during the current year of assessment:
On 1 September 2018 a payment of R3 000 was made to a registered PBO and the appropriate
receipt was filed.
On 17 December 2018 a payment of R9 000 was made to a registered PBO and the appropriate
receipt was emailed.
On 1 February 2019, R2 000 was paid to a registered PBO but the receipt was lost.
Taxable income reported by the company includes Month ended 31 August 2018: R75 000; 16
December 2018: R62 000; month ended 31 January 2019, R115 000.

7. The local municipality bills trading companies annually for rates and taxes. A total of R50 000 was
paid in respect of services to be delivered for the period ending 31 August 2019.

8. During the audit of the tax records for the year of assessment ending 28 February 2018 the assessed
loss of R55 000 was confirmed.

9. The following expenses were incurred during the current year of assessment in respect of the assets
held and operated by the company. The office building was originally constructed for R3 750 000
during 2015.
Storm damages repairs to office building: Roof R35 000
Repainting of offices as a result of storm damages R15 000
Replacement of tiles with vinyl . The quotation obtained to replace the broken tiles
amounted to R13 000. R17 000

Required:
Calculate the total tax payable for the 2019 year of assessment. Include all calculations.

QUESTION 5 (10 Marks)

Peter and Andrew are partners in Fly Trading. Per their partnership agreement they are entitled to 3,5%
interest on positive capital contributions, before profit sharing, while all profits and losses are shared
equally. On 28 February 2024 the total capital contributed per partner amounted to R100 000. On 1
December 2023 Peter contributed R50 000 to his capital account while Andrew reduced his capital
contribution with R50 000 on 1 September 2023. For the year of assessment ending February 2024, the
partnership realised a profit of R500 000.
Notes:
1. Included in the profit, are salaries of R10 000 per month per partner.
2. Total interest of R60 500 was earned on cash balances and short-term investments held.
3. Total annuities paid by the partnership, to qualifying retired employees, amounts to R20 000 for the
year of assessment.

Required:
Calculate the resulting taxable income per partner derived from the operations of Fly Trading for the 2024
assessment year.

END OF PAPER