Source: Questions on SA Tax 2017 - Question 12.

14
Solution 2.1

Imports
Output VAT is levied on the importation of goods.

The amount of VAT on this transaction is calculated as follows: (410 400 (½) + (10% (½) x 410 400) + 5 900 (½)) x 15% (
As the imported goods will be used for making taxable supplies, R68 601 will be claimed back as input VAT.

Sales
Output VAT is levied on the supply of goods and services.
The sale of toys are taxable supplies and VAT will be levied on at the standard rate of 15%
(796 600 (½) - 10 000 (½)) x 15/115) (½) = 102 600
Export sales are zero rated and output VAT of R0 will be levied on the sale to Australia

Interest
The interest earned of R7 890 is a financial service and an exempt supply.
No VAT is levied on exempt supplies

Assets purchased

Computers purchased from a vendor will be used to make taxable supplies and thus Input tax can be claimed at the standard
(5 000 x 2) x 15/115 = 1 304
The computers purchased from the non-vendor are second hand goods as defined and thus notional input can be claimed
The VAT fraction is applied to the lower of the consideration (R5 000) or market value (R4 200)
Notional input tax can only be claimed to the extent that payment is made.
As total consideration has been paid on the transaction date, the full notional input tax can be claimed on 15 March
(4 200 x 3) x 15/115 = 1 643
The television purchased has been placed in the staff break room and is thus considered to be an entertainment asset
Input VAT is thus denied on the purchased of the television

Vehicles
The delivery vehicle is not a motor car as defined
Thus input VAT can be claimed: R87 500 x 15/115 = R11 413
The VW Polo Playa is a motor car as defined.
Input VAT is denied and no amount may be claimed back from SARS.
Fuel is a zero rated supply and thus input VAT of R0 is claimed on the purchase of fuel.

Sale of computer
The sale of the computer is a taxable supply and VAT will be levied at the standard rate of 15% regardless of whether the b
not (1) 2 500 x 15/115 = 326 (1)

Repairs
Repairs to the roof is a taxable supply and input vat can be claimed at the standard rate (1): 21 000 x 15/115 = 2 739 (1)

Salaries and wages

No VAT is levied on salaries and wages as this is excluded from the defintion of an enterprise
 1

2
1

1
1
1.5
1

1
1
1
1
1
1
1
1
1

1
1
1
1
1

27.5
25
Source: A Students Guide to the Value-Added Tax Act 2017 Question 5
Solution 2.2

Output VAT Input VAT

Cash sale of goods: 86 640 x 15/115 11,301 1
Credit sale of goods: 129 960 x 15/115 16,951 1
Income received in advance: VAT levied on the earlier of
payment or invoice (1) 14 260 x 15/115 1,860 1
Interest received: financial service thus an exempt supply - 1

Salaries and wages: no VAT - excluded from the definition of an

enterprise - 1
Bank charges: 485 x 15/115 63 1
Water and electricity: 1 210 x 15/115 158 1
Telephone: 795 x 15/115 104 1
Purchases: 109 300 x 15/115 14,257 1
Entertainment of customers: input VAT denied - 1
Purchase of delivery vehicle: 62 700 x 15/115 8,178 1
Purchase of new motor car: input VAT denied - 1
Petrol: zero rated - 1
Repairs and maintenance: 1 510 x 15/115 197 1

30,112 22,957

Net VAT payable to SARS (30 112 - 22 957) (1M) 7,156

Available 16
Maximum 15

Debit Credit
R R
Bank 86,640
Output vat (½) 86 640 (½) x 15/115 (½) 11,301
Sales (½) 75,339 (½)
VAT raised on local cash sales at the standard rate (½)

Debtors 129,960
Output VAT (½) 129 960 (½) x 15/115 (½) 16,951
Sales (½) 113,009 (½)
VAT raised on local credit sales at the standard rate (½)

Bank 14,260
Output VAT (½) 14 260 (½) x 15/115 (½) 1,860
Income received in advance (½) 12,400 (½)
VAT raised on the earlier of payment or invoice (½)

Bank 1,800
Interest received (½) 1,800 (½)
Interest received is a financial service and thus an exempt
supply (1)

Salaries and wages (½) 41,500 (½)

Bank 41,500 ###
No VAT on salaries as it is excluded from the defintion of an
enterprise (1)
Bank charges (½) 422 (½)
Input VAT (½) 485 (½) x 15/115 (½) 63.26 ###
Bank 485
Input VAT claimed on bank charges (½)

Water and electricity (½) 1,052 (½)

Input VAT (½) 1 210 (½) x 15/115 (½) 157.83
Bank 1,210 ###
Input VAT claimed on water and electricity (½)

Telephone expense (½) 691 (½)

Input VAT (½) 795 (½) x 15/115 (½) 103.70
Bank 795 ###
Input VAT claimed on telephone expenses (½)

Inventory/ Trading stock (½) 95,043 (½)

Input VAT (½) 109 300 (½) x 15/115 (½) 14,256.52 ###
Bank 109,300
Input VAT claimed on purchase of inventory (½)

Entertainment expense (½) 2,650 (½)

Bank 2,650 ###
Input VAT denied on the purchase of entertainment (1)

Vehicles/ Property, plant and equipment (½) 54,522 (½)

Input VAT (½) 62 700 (½) x 15/115 (½) 8,178.26
Bank 62,700 ###
Input VAT claimed on purchase of delivery vehicle (½)

Vehicles/ Property, plant and equipment (½) 45,600 (½)

Bank 45,600 ###
Input VAT denied on the purchase of a motor car (1)

Petrol/ Fuel expense (½) 540 (½)

Bank 540 ###
Fuel is zero rated supply (VAT raised at 0%) (1)

Repairs and maintenance (½) 1,313 (½)

Input VAT (½) 1 510 (½) x 15/115 (½) 196.96
Bank 1,510 ###
Input VAT claimed on repairs and maintenance (½)

Available 37 ###
Maximum 35

Sales
Output VAT is levied on the supply of goods and services. 1

The company only makes taxable supplies and thus both cash and
credit sales will be subject to VAT at the standard rate of 15% 1
(86 640 (½) + 129 960(½)) x 15/115 (1) = 28 252 2 28,252

Income Received in advance

VAT is levied on the earlier of receipt or invoice 1
Although the goods were only delivered and invoiced on 6
November, the company received payment for the amount
during the VAT period ending 31 October 1
Thus VAT will need to be accounted for in the October VAT
period 1
14 260 x 15/115 = 1 860 1

Interest
The interest earned of R1 800 is a financial service and an exempt
supply. 1
No VAT is levied on exempt supplies 1

Salaries and wages

No VAT is levied on salaries and wages as this is excluded from the
defintion of an enterprise 1

Other costs
The following expenses are taxable supplies and VAT is claimed at the
standard rate of 15% 1
Bank charges: 485 x 15/115 = 63 1
Water and electricity: 1 210 x 15/115 = 158 1
Telephone: 795 x 15/115 = 104 1
Purchase of inventory (locally): 109 300 x 15/115 = 14 257 1
Repairs and maintenance: 1 510 x 15/115 = 197 1

Entertainment

Entertainment of customers is considered to be entertainment

as defined and input VAT is denied on this expense 1

Vehicles
The delivery vehicle is not a motor car as defined 1

Thus input VAT can be claimed: R62 700 x 15/115 = R8 178 1

The other vehicle purchased is a motor car as defined. 1

Input VAT is denied and no amount may be claimed back from SARS. 1
Fuel is a zero rated supply and thus input VAT of R0 is claimed on the
purchase of fuel. 1

Petrol
Petrol/ fuel is a zero rated supply and VAT of R0 will be claimed
on the purchase of fuel. 1

Available 24
Maximum 20
Source: A Students Guide to the Value-Added Tax Act 2017 Question 6
Solution 2.3

Output VAT Input VAT

Local Sales 136 800 x 15/115 17,843 1
Export sales - zero rated supply - 1
Interest on overdue account - financial service thus it is an
exempt supply - 1
Discount received 3 648 x 15/115 476 1
Bad debts recovered:
Local debtors: 1 595 x 15/115 208 1
Export debtor: zero rated supply - 1
Raw materials - Imported from:
Botswana: 50 000 x 15% 7,500 1
UK: (29 800 (½) + (29 800 (½) x 10%(1)) + 2 380(1)) x 15%
(1) 5,274 4
Salaries - no VAT as it is excluded from the definition of an
enterprise - 1
Petrol - zero rated supply - 1
Motor vehicle repairs and maintenance 3 534 x 15/115 461 1
Insurance of motor vehicles: 1 995 x 15/115 260 1
Motor vehicle purchases:
Citi golf: Motor car as defined thus notional input VAT is
denied - 1
Toyota Hilux: 114 000 x 15/115 14,870 1
Motor vehicle depreciation: not a supply -
Printing and stationary: 3 876 x 15/115 506 1
Discount allowed on local sales: 3 920 x 15/115 511 1
Bad debts:
Local debtor: 2 850 x 15/115 372 1
Export debtor: zero rated supply - 1

Overdraft interest - financial service thus it is an exempt supply - 1

Bank charges 56 1
Entertainment and subsistence
Staff tea and coffee: entertainment thus input VAT denied - 1
Golf club: Club subsription thus input VAT denied - 1
Hotel costs: 1 140 x 15/115 149 1
Rental of premises: 11 400 x 15/115 1,487 1
Rental of computers: 1 710 x 15/115 223 1

18,527 31,668

Net VAT refundable (31 668 - 18 527) (1M) (13,141)

Available 29
Maximum 25

Debit Credit
R R
Bank/ Debtors Control 136,800
Output vat (½) 136 800 (½) x 15/115 (½) 17,843.48 ###
Sales (½) 118,956.52 (½)
VAT raised on local cash sales at the standard rate (½) ###
Bank/ Debtors Control 43,200
Sales (½) 43,200 (½)
Export sales are a zero rated supply (VAT raised at 0%) (1) ###

Bank 456
Interest received (½) 456 (½)
Interest received is a financial service and thus an exempt
supply (1) ###

Creditors Control 3,648 ###

Output VAT (½) 3 648 (½) x 15/115 (½) 476 ###
Discount received (½) 3,172 (½)
VAT raised on discount received (½) ###

Bank 2,059
Output VAT (½) 1 595 (1) x 15/115 (½) 208
Bad debts recovered (½) 1,851 (½)

VAT raised on bad debts recovered on local sales of R1 595(1).

Export sales are a zero rated supply (VAT raised at 0%) (1)

Inventory/ Trading stock (½) 50,000 (½)

Input VAT (½) 50 000 (½) x 15% (½) 7,500
Bank 57,500
Input VAT claimed on import of inventory from a BLNS country
(1) ###

Inventory/ Trading stock (½) 29 800 (½) + 2 380 (½) 32,180

Input VAT (½) (29 800(½) + (10% (½) x 29 800(½)) + 2 380
(½))x 15% (½) 5,274
Bank 37,454
Input VAT claimed on import of inventory from a country other
than BLNS country (1) ###

Salaries and wages (½) 45,400 (½) ###

Bank 45,400
No VAT on salaries as it is excluded from the defintion of an
enterprise (1) ###

Petrol/ Fuel expense (½) 2,468 (½)

Bank/ Creditors Control 2,468 ###
Fuel is zero rated supply (VAT raised at 0%) (1)

Repairs and maintenance (½) 3,073 (½)

Input VAT (½) 3 534 (½) x 15/115 (½) 461
Bank/ Creditor 3,534 ###
Input VAT claimed on repairs and maintenance (½)

Insurance expense (½) 1,735 (½)

Input VAT (½) 1 995 (½) x 15/115 (½) 260
Bank/ Creditors Control 1,995
Input VAT claimed on insurance expenses (½) ###

Vehicles/ Property, plant and equipment (½) (100 000 (½) + 40

000(½)) 140,000
Input VAT (½) 114 000 (½) x 15/115 (½) 14,870 ###
Bank/ Creditor 154,870
Input VAT claimed on purchase of bakkie (1). Input VAT denied
on purchase of motor car (Citi Golf) (1)

Depreciation (½) 5,260 (½)

Accumulated depreciation (½) 5,260 ###
No VAT raised on depreciation - it is not a supply (1)

Printing and stationary (½) 3,370 (½)

Input VAT (½) 3 876 (½) x 15/115 (½) 506
Bank/ Creditors Control 3,876 ###
Input VAT claimed on printing and stationary costs (½)

Discount allowed (½) 3,409 (½)

Input VAT (½) 3 920 (½) x 15/115 (½) 511
Debtors Control 3,920
Input VAT claimed on discount allowed (½) ###

Bad debts (½) (2 500 (½) + 1 783(½)) 4,261 (½)

Input VAT (½) 2 850 (½) x 15/115 (½) 372
Debtors Control 4,633

VAT claimed on bad debts on local sales of R2 850(1). Export

sales are a zero rated supply (VAT claimed at 0%) (1) ###

Interest paid (½) 2,486 (½)

Bank 2,486 ###

Interest paid is a financial service and thus an exempt supply (1)

Bank charges (½) 376 (½)

Input VAT (½) 432 (½) x 15/115 (½) 56
Bank 432
Input VAT claimed on bank charges (½) ###

Staff refreshments (½) 684 (½)

Club subscriptions (½) 798 (½)
Hotel accommodation (½) 1,000 (½)
Input VAT (½) 1 140 (½) x 15/115 (½) 149
Bank/ Creditors control 2,631
Input VAT denied on the purchase of entertainment (staff
refreshments) and club subscriptions (1). Input VAT claimed on
hotel accommodation (1) ###

Rental paid - premises (½) 9,913 (½)

Input VAT (½) 11 400 (½) x 15/115 (½) 1,487
Bank/ Creditors Control 11,400 ###
Input VAT claimed on rental of premises (½)

Rental paid - computer (½) 1,487 (½) ###

Input VAT (½) 1 710 (½) x 15/115 (½) 223 ###
Bank/ Creditors Control 1,710 ###
Input VAT claimed on rental of computer (½) ###

Available 71
Maximum 70
Solution 2.4

Query 1
Output VAT is levied on the supply of goods and services.
Creating and selling an app is not a good, but is also not specifically excluded from the definition of goods and is
service
In particular this is considered to be an electronic service as it is a "service supplied by means of an electronic a
communication or the internet for any consideration"
The creating and selling of an "app" is also not an exempt supply or a zero rated supply
As JJ le Grange is a VAT vendor, VAT will be levied on the sale at the standard rate of 15%

Query 2
Even though the vehicle will be used for the delivery of goods, a double car bakkie is a motor car as defined.
Input VAT is denied on the acquisition of a motor car (no VAT may be claimed)
The canopy, however, is a separate supply that is attached to and not part of the structure of the motor car
Input VAT may be claimed on the purchase of the canopy: 14 400 x 15/115 = 1 878

Additional information per IN82: par 3.4 states the following:

3.4.1 Accessories regarded as part of the standard structure of a motor car at the
time of purchase
An input tax deduction is denied, under section 17(2)(c), to the extent that accessories form part of the standard
(accessories fitted to the motor car as it comes off the manufacturer’s production line) regardless of
whether they are separately specified on the tax invoice or not. Accessories that may be regarded as forming pa
a motor car include, amongst others, the alarm, spare wheel, bull bar, gear lock, tow bar, tinted windows, air
conditioner, rubberising and spot lights. In these instances, the accessories are regarded as forming part of the s
the input tax is denied under section 17(2)(c).
3.4.2 Accessories not forming part of the standard structure of a motor car
The provisions of section 17(2)(c) prohibiting the deduction of input tax on a motor car are not applicable if acces
invoiced separately from the acquisition of the motor car and do not form part of the standard structure of the
motor car when it is supplied. The accessories are regarded as not forming part of the vehicle structure if the acc
did not form part of the initial standard structure of the vehicle. Examples of such accessories are a fire
extinguisher, driver’s repair kit, roof racks and a first aid kit. The supply of these accessories is seen as separate
car and the VAT incurred may be deducted as input tax.
You may read more on this at: http://www.sars.gov.za/AllDocs/LegalDoclib/Notes/LAPD-IntR-IN-2015-02%20-%
%20on%20motor%20cars.pdf

Query 3
The provision of food, beverages and refreshments are entertainment as defined
Input VAT is thus denied on the purchase of lunch for the tax lecturers
An exception to this rule is where a vendor supplies entertainment to an employee and such taxable supplies of
charge which covers all the direct and indirect costs of entertainment
Input VAT can be claimed on JJ's portion of the cost (in his capacity as an employee) of 205 x 15/115 = 27

Query 4
The 3D printer purchased from the non-vendor is a second hand good as defined and thus notional input can be claimed
The VAT fraction is applied to the lower of the consideration (R56 000) or market value (R56 000) (question states it is the
Notional input tax can only be claimed to the extent that payment is made
Only 50% of the purchase price has been paid
56 000 x 15/115 x 50% = 3 652

Query 5
PART A
VAT is levied on the earlier of invoice or payment.
Although the budgeted price is R500 000, only R50 000 will be subject to VAT as it has been invoiced.
Ouput VAT must be raised on 1 Feb (earlier of 1 Feb or 15 Mar)
Should the amount be refunded input VAT will be claimed on the corresponding credit note.

PART B
An amount will be included in taxable income if it meets the definition of gross income
Gross income is:
Total amount in cash or otherwise:
A total amount of R50 000 has been received in cash
Received by or accrued to the taxapayer:
An amount must be included in gross income at the earlier of receipt or accrual
Received by means that the amount has been received by the taxpayer on his own behalf and for his own benef
(Geldenhuys)
There must also be no obligation to repay the amount.
The deposit is refundable if the lecturers are not happy with the game and there is an obligation to pay it back if t
The R50 000 may also be included if the amount has accrued to JJ.
An amount has accrued to the taxpayer if there is an unconditional entitlement to receive the money
(Mooi)
This is not the case as the deposit is dependant on a condition ie the lecturers must be satisfied with the product
In the year of assessment
As a sole trade, the year of assessment is from 1 Mar to 28 The deposit was invoiced on 1 Feb, but only deposit
to 28 Feb
Not capital in nature
The development of the app is a service provided by JJ and is not considered to be capital in nature
Conclusion
As the amount has neither been received by nor has it acrued to JJ in the year of assessment, the R50 000 will n
until the condition has been satisfied.
1

1
1
1
5

1
1
1
1
4

1
1

1
1
4
3

1
 1
1
1
1.5

1
1
1
1
4
3

½
1
½
1
1
½
1
1
1
1
½
1
½

1
½
1

1
13
8
Solution 3.1
PART A
a) Fees - all trips completed and paid R2 500 x 320 800,000 1
Fees - trips completed but not paid last instalment R2 500 x 10 persons x 50% 12,500 1
Fees - persons paid the deposit amount R2 500 x 40 persons x 50% 50,000 1
Royalties Investment income included 77,000 1
Sale of hot air balloon R50 000 x 50% 25,000 1
Taxable turnover 964,500

b) Tax liability 6 650 + 3% x (970 000 - 750 000) 13,250 2

PART B
- any close corporation or any company registered as a private company in terms of the
Companies Act. 1
- the entire shareholding of which is at all times during the year of assessment held by
shareholders or members that are natural persons. 1
- the gross income for the year of assessment does not exceed R20,000,000 (Note that if a
company trades for a part of a year, the amount of R20,000,000 is reduced proportionately). 1
- Investment income or personal service income do not make up more than 20% of the revenue
and accruals and capital gains 1
- None of the shareholders hold any shares or interest in another company other than permitted
holdings. 1
Permitted holdings are:
- Listed companies, collective investment schemes, body corporates ( association looking at
collective interests of members), venture capital companies, friendly society, a cc with assets
less than R5,000 and does not carry a trade, company/cc/co operative which are being
liquidated, less than 5% in a social or consumer co-operative, less than 5% in a primary savings
co-operative bank
2
2 marks for any 2 above, Maximum of 5 marks in total

PART C

a) Brand New (Pty) Ltd has to complete form IT/IB77 and submit the signed and completed form to
any SARS branch office. The following information has to be completed on the application for
registration: 1
• Registered name of the company
• Trade name of the company (only if different from registered name)
• Postal address
• Registered address
• Company registration number
• Nature of the business
• Turnover
• Registration date
• Full banking particulars for the company
• Particulars of the public officer (representative for the company)
• Particulars of the three main directors/shareholders of the company
• Income details such as whether the company will be trading, if the company should also be
registered for provisional tax, the estimated taxable income and the financial year-end of the
company.

1 Mark for any 3 points above

b) Boxing Gloves (Pty) Ltd will have to pay the outstanding amount of R26 450 to SARS and then
proceed to lodge an appeal. 1
Boxing Gloves (Pty) Ltd will have to appeal within 30 days of the notice of disallowing the objection.
1
An NOA form is used for the notice of appeal. 1
The NOA must contain the details of the tax in dispute, i.e. the disallowance of the doubtful debt
allowance and the grounds of appeal. 1
Solution 3.2
a) She will need to lodge an objection within 30 days of receiving her assessment ie 31 March 1
b) The objection should be filled out on a NOO form 1
c) Mrs. Slatter will have to pay the outstanding amount of taxes to SARS and then proceed to lodge an appeal.
1
Mrs. Slatter will have to appeal within 30 days of the notice of disallowing the objection. 1
An NOA form is used for the notice of appeal. 1
The NOA must contain the details of the tax in dispute, i.e. the proceeds on the sale of her house incorrectly
included as income and the grounds of appeal. 1
Solution 3.3

ADR1 referred to below is now known as the NOO form.

Source: Questions on SA Tax 2017 - Question 1.7
Solution 4.1
PART A
Adcam's understanding of 'amount, in cash or otherwise' is incorrect 1
Income need not be an actual amount of money but may be “every form of property earned by the taxpayer,
whether corporeal or incorporeal, which has a money value (1) (Lategan) (½)
Adcam has clearly received something that can be expressed in money ie has an ascertainable money value (1) (Butcher
Brothers) (½)
Adcam's gross income is therefore the value of what is received 1
That being, R287 per golf shirt. 1
Adcam cannot argue that it was not received for it's own benefit (1) (Geldenhuys) (½)
The company benefits from the receipt, and the giving of the golf shirts to the employees is a second transaction (1) , similar
to that in Witswatersrand Association of Racing Clubs (½)
Additionally Adcam will be entitled to the deduction for each golf shirt given to an employee if this were part of the cost of
employment 1
The amount was received in the year of assessment and is not capital in nature and is therefore considered to be gross
income
Available 11
Maximum 10

PART B

Mrs. Airtight is a South African resident and thus will be taxed on worldwide income 1
An amount will be gross income if it meets the defintion

Criteria
Total amount in cash or otherwise (½):
Application
Total sales made included R27 000, a deposit of R500 and R2 000 from the event
in February (1). Of these amounts, it needs to be determined how much must be
included in Mrs. Airtight's gross income as she is only entitled to commission of
20% (1)

Received by or accrued to the According to caselaw , an amount has been 'received by' a taxpayer it is for his
taxpayer (½): own behalf and for his own benefit (1) (Geldenhuys) (½)
Based on this, Mrs. Airtight does not need to include the full amount of R27 000 in
her gross income as only 20% (R5 400) was received for her benefit (1) and the
remaining 80% belongs to Microware (1).
The deposit of R500 has not accrued yet as Mrs. Airtight has not made delivery of
the goods and thus has not become unconditionally entitled (1) (Mooi) (½) to the
amount.
It was not stated that the deposit is non-refundable and thus it does not appear as
if the R500 is owed to Microware (1). This in turn means that Mrs. Airtight has not
'received' the deposit either (1).
The promise of a refund of a portion of an amount received does not represent a
decrease in gross income since the taxpayer is entitled to use the full amount
received for his/ her benefit (1).
The giving of the refund is a second transaction based on the happening of a
second event. When the event occurs, the payment of the refund may have
separate tax consequences (1).

In the year of assessment (½): The amount of R27 000 and R2 000 was received during the year of assessment
ending 28 February 2021, of which Mrs. Airtight is entitled to 20% (1).

Capital in nature (½): Mrs. Airtight is compensated for selling of Microware products. She is rendering a
service by selling inventory on their behalf which is not seen to be capital in
nature (1).

Conclusion: 20% of R27 000 (R5 400) and R2 000 (R400) will be included in her gross income
for the year (1). As it is assumed that the R500 deposit received is non-
refundable, it is not seen to be gross income.

Available 16
Maximum 15
PART C
In order for proceeds to be included in gross income, it has to meet the gross income definition. 1
Specifically, it must have been 'received' as defined by case law. 1
The mere fact that an activity is illegal does not mean that it will not subject to tax (1) (Delagoa Bay Cigarette Co. Ltd) (½)
In an illegal transaction, the question is whether the perpetrator intended on keeping the money for his/ her own benefit (1)
(MP Finance Group CC (in liquidation) (½).
NOTE: SARS holds this to be the case even if the victim did not intend to part with the money (see Interpretation Note 80)
In this case, Four-19 (Pty) Limited intended to benefit from the receipts (although they were illegal) and therefore should
include R300 000 in gross income 1
Available 6
Maximum 5
Source: Questions on SA Tax 2017 - Question 1.12
Solution 4.2

1. The deposit is non-refundable and therefore has been received for the benefit of the taxpayer (Geldenhuys)
There is also no condition to repay the amount and it will therefore be included in gross income as it was receive
on 20 February ie in the year of assessment
The remaining purchase price of 10% of sales is conditional upon the amount that will be received as sales up un
28 February 2022.
This amount will only be included in gross income once the taxpayer becomes uncondtionally entitled to the
amount (Mooi) ie as and when the sales are made.
To

2. Even though the R1m sales prices is only payable on 1 March, Mr. A became unconditionally entitled to the
amount on 28 February 2021 when the goods were delivered.
R1m will included in gross income for the 2022 year of assessment.

The 5% of profits earned is conditional upon the customer making sales of at least R2.5m by 28 February 2022
This amount will only be included in gross income once the taxpayer becomes uncondtionally entitled to the
amount (Mooi) ie if sales exceed R2.5m on 28 February 2022
To
Maximu

An amount must be included in gross income at the earlier of receipt or accrual.

At the end of the 2021 year of assessment, Mr. A has only delivered 1/12 of the goods and thus only entitled to
1/12 of the payment.
The remainder of the sale (R2m less the sales price of 1/12 of the goods) will be recognised in 2022 when
payment is received
To
1

1
4

1
1

1
4
3

1
3
Source: Tax Workbook 2014 Question 2.5
Solution 4.3

Grant Green
The definition of "gross income" excludes receipts and accruals of a capital nature.
The sale of Grant Green of his family motor car would be of a capital nature as he would be engaged in the operatio
business in a scheme for profit making (He would merely be realising a privat domestic asset).
In Grant's situation, his business involves the buying and selling of second-hand motor cars therefore it is possible th
private motor car was merged with his trading stock (indicating a change in intention)
Grant would have to prove that this is not the case and that the R130 000 should not be included in gross income

Shiela du Randt
The definition of "gross income"includes amounts that have been received or accrued to a person in the form of cas
form other than cash as long as what has been received has an ascertainable money value (Butcher Bros (Pty) Ltd)
When a benefit has been received in a form other than cash, the amount that is included in gross income is the fair m
on the date it is received.
The R4 000 that was received in cash wull be included in Shiela's gross income, being a non-capital receipt for the s
trading stock.
The value of the second hand furniture will be included at its market value of R1 500 and not the balance of the selli
R1 000.
The fact that the furniture was sold within 3 days for R1 500 would indicate that this was its market value on the day
traded in.

Starling Ltd
The amount that accrued to Starling Ltd is the amount to which it became unconditionally entitled (Mooi).
It follows that R95 000 (95% x R100 000) accrued to Starling on 14 February 2021.

The remaining 5% accrues only when the final engineer's certificate is issued which will not take place before 14 Au
Therefore R95 000 must be included in gross income in the 2021 year of assessment and R5 000 must be included
year of assessment

Nightjar (Pty) Ltd

Nightjar (Pty) Ltd is entitled to the sale value of the evening outfits (of R60 000) as soon as the contract of sale is en
There is an obligation on its part to deliver the goods before it has a right to the selling price
It delivered the goods on 3 March 2021, which is thus the date of accrual for gross income purposes.
Nightjar (Pty) Ltd must therefore include R60 000 in gross income the 2022 year of assessment
Bob Feldman
The deposits received by Bob represent amounts received as it was received for his own benefit (Geldenhuys)
These deposits are not subject to a condition since the customer forfeits the deposit should they cancel their orders,
an obligation to repay the amount

The R5 000 has therefore been received by Bob under the "gross income" definition and will be included in his gross
1

1
1
4
4

1
5
5

1
1

1
4
4

1
1
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1
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1
3
3
Solution 4.4

Description Calculation/Explanation R
Furniture sales Included in Gross income 850,000 1
Local Dividends Special Inclusion 10,000 1
Less: Exemption S10(1)(k) exemption -10,000 0 1
Foreign Dividends - B PLC 11,000 1
Less: Exemption Fully exempt as per S10B as owns >10% -11,000 0 1
Foreign Dividends - C PLC 18,000 1
Less: Exemption 18000 x 25/45 -10,000 8,000 1
Foreign Dividends - D PLC 8,000 1
Less: Exemption Fully exempt as per S10B as dual listed -8,000 - 1
Local Interest 13,000 1
Less: Exemption Limited to 23 800 -13,000 0 1

Income 858,000
Less: Deductible business expenses -45,000 1
Taxable income 813,000

Normal tax 218 139 + 41%(813000 - 744 800) 246,101 2

Less Primary rebate -14,958 1
Net tax payable to/ (refundable by) SARS 231,143

Available 15
Solution 5.1

Description Calculation/Explanation R
Sales 5,000,000 1
-Opening stock 3,000,000 + 800,000 -3,800,000 2
-Purchases 3,000,000 + 200,000 -3,200,000 2
-Closing stock 3,500,000 + 500,000 4,000,000 2
Recoupment (S22(8)) 6,500 1
-Interest received 500,000 1
-Proceeds Capital in nature thus not included - 1
Bad debt Actual - deductible in full under S11(i) -500,000 1
Doubtful debts expensed Not deductible in full - only 25% allowed
-
through P/L 1
2020 allowance Add back 20,000 1
2021 Allowance 250,000 x 25% -62,500 1
Salaries and wages -1,000,000 1
Contributions paid No limitation -185,000 1
Annuity -15,000 1
Fines paid Not deductible - prohibited per S23(o) - 1
Restraint of trade Deduct lower of: 60 000/3 = 20 000 1
60 000/4 = 15 000 -15,000 1
Depreciation Not an expense - 1
Taxable income 749,000

Normal tax 749 000 x 28% 209,720 1

Provisional taxes paid -239,500 1
Net tax payable to/ (refundable by) SARS -29,780

Available 23
Maximum 20
Source: Tax workbook - Question 5.3

Solution 5.2
Electricity account
Of the R16 500 paid by Rozac, R2 750 (R16 500 x 1/6) relates to March 2021, falling within the 2021 year of
assessment.
The remaining R13 750 (R16 500 x 5/6) relates to the following 5 months thus falling into the next year of assess
and is therefore a prepayment.
To be deducted under the general deduction formula, an amount must be actually incurred in the year of assessm
in the production of income and must be of a capital nature.

The R16 500 satisfies all the criteria, but it is still necessary to determine whether it has been actually incurred.
In the Caltex Oil (SA) v Secretary For Inland Revenue case (½), it was held that actually incurred includes both
amounts paid and those where the taxpayer has a legal obligation to pay the amount.
It was also seen in Mooi V Secretary For Inland Revenue (½) that an amount is only actually incurred where the
taxpayer has an unconditonal legal liability to pay it.
Rozac has actually paid the R16 500 and has an on-going legal liability to pay the amount, the only condition bei
that it continues to occupy the premises for its trade purposes.
It would appear that the full amount is actually incurred (when paid), even though the total amount is not yet due
payable and thus it should be deductible in full.
However, S23H may delay the deduction of prepaid expenditure until the following year of assessment.
There are two provisos within S23H which may allow the prepayment to be deductible.
- The first is when the services are rendered within 6 months of the end of the year:
This has been met as the prepayment is for 5 months after year end.
- The second is that the aggregate amount of prepayments must not exceed R100 000
This has also been met as the prepayment portion amounts to R13 750.
The total amount is thus deductible (R2 750 under S11(a) and R13 750 under the first proviso of S23H
Ava
Max

Compensation paid
In addition to satisfying the other requirements of the general deduction formula and expense must be incurred "
production of income"
In Port Elizabeth Electric Tramway V CIR (½), it was held that this requirement not only refers to expenses that
actually produced income or that were incurred for the purpose of producing income, but also encompasses exp
so closely connected with the taxpayer's income earning operations.
In the above case, a tram driver died following an accident after he had lost control of the tram and then crashed
The court held that the type of business carried on by the taxpayer involved risks of this nature.
This meant that the compensation was sufficiently closely connected with the production of the taxpayers income
therefore qualified as a deduction
You donot need to know the facts of a case - your solution does not need to include the highlighted information
For the compensation paid by Rozac, it would appear that the risk of injury to its employees operating machines
equally closely connected to the production of its income to render the amount deductible
It could be said that the expense was an inevitable concomitant of it's type of business
It was held in the Golden Dumps case (½) that if the existence of the liability is dependent on a legal dispute, it w
be ‘actually incurred’ once the outcome of the legal dispute has been determined (1)
Although the expense was paid in the following year of assessment, the liability had been fixed by the court.
An unconditional liability was incurred in January 2021 and therefore the amount is deductible in the 2021 year o
assessment.
 Ava
Max

Vacant land
The R70 000 incurred to purchase the vacant land is an expense of a capital nature.
This is because the land forms part of its income-earning structure and not connected to its income earning
operations. (New States Areas Ltd v CIR) (½)
The R10 000 was incurred as part of the fixed capital of the business rather than the floating capital.
The expense is therefore not deductible
Ava
Max

Loan to acquire shares

The loan was incurred to acquire shares that would produce local dividends.

To be deductible the expense must be incurred to produce "income" as defined ie gross income less exemptions
Local dividends are exempt from tax as per S10(1)(k)
The interest on the loan is not incurred in production of income and therefore is not deductible
S23(f) reinforces this by prohibiting the deduction of expenses that do not produce "income" as defined
Ava
Max

Debenture loan
Then debenture loan was raised to finance the purchase of property on which a factory will be built.
Interest on the debenture is incurred for the acquistion of an asset, the vacant land which will not be used for trad
purposes until the new factory has been completed and brought into use.
Until such time the amount incurred will no be deductible (not in production of income).
After the factory is brought into use, interest may be deducted.
NOTE:The taxpayer may be able to utilise S11A to deduction pre-trade interest. This section is not part of the
TAXA6212 syllabus and will be covered in third year.
Ava
Max

Exclusive right to sell

The R150 000 incurred by Rozac for the exclusive right to sell the product in its trading area for a period of 5 yea
relates to the establishment of an income producing asset.
This is not seen as a cost of performing the taxpayers income-earning operations.
This expense is therefore capital in nature.
The fact that the expense is paid in instalments does not change its capital nature.
The expense is not deductible
Ava
Max
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5
4
Solution 5.3
a) Big Slam will be able to deduct an amount if it meets all the criteria of S11(a), being :
Criteria
Carrying on a trade (½)
Expenditure or losses (½)
Actually incurred (½)
In the year of assessment
(½)
In production of income
(½)
Not of a capital nature (½)
Conclusion (must be
consistent with argument
above
If student argued amount was in production of income: Available
If student argued amount was NOT in production of income: Available
Application
Big Slam operates a golfing pro shop and sells golfing equipment and
clothes. This constitutes a trade (1)
A claim was received from a customer amounting to R10 500. This amount
was paid to John Best and is an expense (1)
An amount is actually incurred if the company has an unconditional liability
to pay the amount (Nasionale Pers Bpk case) (1)
Furthermore, if the existence of the liability is dependent on a legal dispute,
it will only be ‘actually incurred’ once the outcome of the legal dispute has
been determined (1) (Golden Dumps case) (½)
The claim was settled out of court and both parties agreed on 31 Jan that
R10 500 would be paid by Big Slam to John Best (1)
The uncondtional liability to make payment was on the day the agreement
was reached ie the day the amount was actually incurred (1)
Although the amount was only paid after year end, the agreement was
made on 31 Jan and was thus actually incurred in the year of assessment
(1)
In order to establish if an amount incurred is in the production of income it
needs to be seen if it is an inevitable concomitant of the business (1) (Port
Elizabeth Electric Tramway Case) (½)
This means it must be an unavoidable cost that is closely connected to the
business. (1)
The company hosted a golf day and there is an inherent risk that an
accident may occur. (1)
OR
However, it was determined in the Joffe and Co case (½) that expenses/
losses that arise from negligence cannot be treated as being an
unavoidable part of performing business (1). The accident was as a result of
the brakes failing which may be indicative of negligence as management
and staff should have checked that the vehicles were safe for driving before
the event. (1)
An amount is considered to be capital in nature if it creates an enduring
benefit (Rhodesia Congo Border Timber Company Ltd case). No enduring
benefit was created by the payment of R10 500 in damages and it is not
capital in nature (1)
As all the requirements of S11(a) have been met, the amount is deductible
under S11(a) (1)
OR
Although these costs are not specifically prohibited by S23, the damages
paid are not in the production of income and therefore not deductible under
S11(a) (1)
16
17.5
 Maximum 12

It should be noted that the question was vague in terms of determining negligence and therefore this
could be argued either way.

b) Gross income definition - Received by

An amount will only be included in gross income if it was received by a person "on his own behalf and for
his own benefit" (1).

The principle “received on his own behalf and for his own benefit” means that income will only be included
in a person’s gross income if it is received by that person and that person does not have an obligation to
repay (1).
Geldenhuys v Commissioner for Inland Revenue (1)
Available 4
Maximum 3
Solution 5.4

Description Calculation/Explanation
Local sales 3 790 000 x 100/115
Export sales Zero rated sales - include at amount inclusive of VAT

S11(l): Contributions to pension fund

S11(l): Contributions to medical aid
S11(a): Salaries and wages

S11(cA): Restraint of trade Deduct < 650 000/3 = 216 667

650 000/5 = 130 000

S11(j): Doubtful debts 281 000 x 40%

Add PY

S11(c): Legal fees Collection of trade debtors - revenue in nature

Employee claims - deductible

S23(d): Penalties Prohibited from being deducted per S23(d)

S11(i): Bad debts Loan to employee - not previously included in income

Trade debtors

S11(a) and S23H: Prepayments:

Deposit for a car - capital in nature thus not deductible
Rental Actually incurred - nil (all after year end)

Prepaid: From 1 Jul to 31 Jan = 7 months. This is > 6

months thus not deductible under first proviso of S23H

Insurance: Actually incurred - 17 328 x 100/115 x 1/12

Prepaid: From 1 Jul to 31 May = 11 months. This is > 6

months thus not deductible under first proviso of S23H

Aggregate prepayments: (45 600 x 100/115 ) + (17 328 x 100/115 x 11/12)

53,464
This is < R100 000 and thus fully deductible

S11(gC): Patent purchased 17 900 x 5%

S11(gB): Renewal of trademark is fully deductible

Taxable income

Normal tax 1 053 537 x 28%

Provisional taxes paid
Net tax payable to/ (refundable by) SARS
R
3,295,652 1
505,400 1

-132,000 1
-156,000 1
-1,422,000 1

1
-130,000 1

-112,400 1
89,200 1

-48,000 1
-50,000 1

- 1

- 1
-711,000 1

- 1
- 1

-
1
-1,256 2

1
3

-53,464 1

-895 1
-19,700 1

1,053,537

294,990 1
-276,000 1
 18,990

Available 28
Maximum 25
Solution 5.5

Description
Income (given)

Opening stock: S22(2) deduct < of cost or market value

Closing stock: S22(1) Add < of cost or market value
Purchases of stock: S11(a)
Stock donated to PBO: S22(8) recoupment at amount deducted as opening stock
ie the lower of cost or market value
Stolen stock: S23(c ) - insured losses are prohibited from being deducted

Trademark purchased
Renewal of trademark is fully deductible: S11(gB)
Patent purchased S11(gC)

Water and electricity S11(a)

Entertainment S11(a)
Rates and taxes S11(a)
Interest paid S11(a)

Prepayments S23H

Legal fees S11(c )

Shares purchased
Dividends received
S10(1)(k) exemption
S11(cA): Restraint of trade: < of:

Research and development S11D

Bad debts recovered

Doubtful debts S11(j)

Bad debts S11(i)

Dividends paid
Salary

Provisional tax payment

Taxable income before S18A
Donation to PBO S18A

Taxable income

Normal tax
Provisional taxes paid
Net tax payable to/ (refundable by) SARS
 Calculation/Explanation R
1,980,000 1

duct < of cost or market value -410,000 1

< of cost or market value 565,000 1
-608,000 1
2(8) recoupment at amount deducted as opening stock
17,000 1
ured losses are prohibited from being deducted
(12 800 (1) - 9 200 (1)) -3,600

Not deducible under S11(gC) - 1

ully deductible: S11(gB) -12,650 1
> R5000; 15 700 x 5% -785 1

15 965 (1) x 100/115 (1) -13,883

Input vat denied (1) - deduct full amount -16,880 1
Zero rated supply (1) - VAT is R0 thus deduct full amount -13,860 1
Exempt supply thus no VAT 1
R2 699 for late payment - prohibited by S23(d) 1
Remainder deducted under S11(a) 8 699 - 2 699 -6,000 1

Insurance prepaid for 8 months

Actually incurred in 2021: 5 700 (½) x 100/115 (½) x 3/9 (1) -1,652
Prepayment: 5 700 (½) x 100/115 (½) x 6/9 (1) = 3 304
Will materialise in 6 months thus deduct full amount -3,304 1
Rental prepaid for 12 months
Actually incurred in 2021: 20 520 (½) x 100/115 (½) x 2/12 (1) -2,974
Prepayment: 20 520 (½) x 100/115 (½) x 10/12 (1) = 14 870
This will not materialise within 6 months, but is less 1
than R100 000 therefore deduct full amount -14,870 1

Collection of debtors -6,333 1

Lease agreement - capital in nature (enduring benefit of 5 years) -
1
Court case - not deductible due to negligence - 1
Damages - not deductible due to negligence therefore not in
-
production of income 1

Capital in nature - 1
25 000/80 x 100 31,250 2
-31,250 1
 320 000/4 = 80 000 1
320 000/3 = 106 667 -80,000 1

After approval: 57 000 x 150% -85,500 1

1,000 1

Add back 2020: 25% x 12 000 3,000 1

Deduct 2021: 25% x 15 000 -3,750 1

Local debtors: 10 260 (1) x 100/115 (1) -8,922

Export debtors - zero rated supply (1) and VAT = R0 thus deduct
-3,000
full amount 1
Loan granted - not previously included in income therefore not
-
deductible under S11(i) 1

Not an expense thus not deductible under S11(a) - 1

-180,000 1

S23(d) taxes are prohibited from being deducted - 1

1,090,038
17 000 (1) limited to 10% x 1 089 638 (1) = 108 964 -17,000

1,073,038

58 583+ 28% x (1 073 038 - 550 000) 205,034 2

-100,000 1
ndable by) SARS 105,034

Available 57
Maximum 55
Solution 6.1

Description Calculation/Explanation R
Sales 6,865,000

S11(a): Raw materials 4 161 570 x 100/115 3,618,757 1

S11(a): Transport -8,600 1

S11D: Research and

(375 000 (½) + 98 000 (½)) x 150% (1) -709,500
development

S11(i): Bad debts -58,960 1

S11(j): Doubtful debts Add PY - 112 000 x 25% 28,000 1

Deduct CY: 97 000 x 25% -24,250 1

S11(e): Furniture (41 040 x 100/115(1))/6 (1) 5,948

Moving cost Deducted over remaining period:
1 Aug 2019 - 1 Oct 2020 = 14 months
72 months - 14months = 58months 1
15 000/58 x 6 -1,552 1

Cost 25,000
S11(e): 1 Jul 2019 - 31 Mar 2020: 25 000/6 x 9/12 -3,125 1
S11(e): 1 Apr 2020 - 1 Aug 2020: 25 000/6 x 4/12 -1,389 -1,389 1
Tax base 20,486 1

S11(o): Scrapping loss 18 000 limited to 25 000 (1) - 20 486 (1) -2,486

Proceeds 18,000 1
Base cost (25 000 - 4 514(1) - 2 486 (1)) -18,000
Capital gain -

NOTE: CGT would not have been covered by this stage, but in an exam, marks will
be awarded for this even if the effect is zero. It should only not be done if questions
states: "Ignore capital gains tax".

S12C: New machine 220 000 x 40% -88,000 1

Purchased second hand from a non-vendor thus claim notional input
S12C: Used machine
tax 1
143 750 x 100/115 x 20% -25,000 1.5

S13sex: (650 000 (½) x 5 (½)) x 55% (½) x 5% (½) -89,375

Rent received 3 500 x 5 x 11 192,500 1

S11(a): Water and Elec Actually incurred: 110 000 x 3/12 -27,500 1
S23H: Prepayment 110 000 x 9/12 82,500 1
Will not be incurred in < 6months, but < R100 000 thus deduct -82,500 1

S11(a): Salaries and wages -1,200,000 1

S11(l): Contribution to medical aid -155,000 1
S11(a): Leave pay Actually paid thus not prohibited by S23(e) -54,000 1

S11(a) and S23(c) Insured losses are not deductible (5 500 x 5) (1) - 20 000 (1) -7,500
S23(o) Bribes are prohibited from being deducted - 1
8,174,593
S18A 150 000 (1) limited to 10% x 893 388 (1) = 85 478 -817,459
No mark if not included at correct place
Taxable income 7,357,133

Normal tax 804 049 x 28% 2,059,997 1

Provisional taxes paid
Net tax payable to/ (refundable by) SARS 2,059,997

Available 35
Maximum 30

As CGT has not been covered yet, those marks were not included when allocating marks for this question
Thus available is 33 and maximum is 30.
Solution 6.2
R R
Description Calculation/Explanation CGT Taxable income
Sales 4,000,000 1

S11(a): Purchases 1 710 000 (1) x 100/115 (1) 1,486,957 2

S22(2): Opening stock -300,000 1

S22(1): Closing stock 200,000 1

S22(8): Recoupment Donated to PBO thus recoupment at cost 12,000 2

S11(a): Salaries and wages -700,000 1

S13: Factory 900 000 x 5% -45,000 1

No capital allowance for land - 1

S11(a): Rental paid 6 270 x 8 -50,160 1

Machine A Cost 1,368,000

S12C - 2019: 1 368 000 x 40% -547,200 1
S12C - 2020: 1 368 000 x 20% -273,600 1
S12C - 2021: 1 368 000 x 20% -273,600 -273,600 1
Tax base 273,600 1

S8(4)(a): Recoupment 1 482 000 limited to 1 368 000 (1) - 273 600 (1) 1,094,400 2

Proceeds 1 482 000 - 1 094 400 387,600 1

Base cost 1 368 000 - 1 094 400 -273,600 1
114,000 114,000

NOTE: CGT would not have been covered by this stage, but students should redo this
part after SU7.

Purchased second hand from a non-vendor thus claim notional input

Machine B
tax 1
Cost: 262 200 x 100/115 228,000 1
S12C - 2018: 228 000 x 20% -45,600 -45,600 1
Tax base 182,400 1

S11(o): Scrapping 34 200 limited to 228 000 (1) - 182 400 (1) -148,200 2

Proceeds 34,200 1
Base cost 228 000 - 45 200 - 148 200 -34,200 2
- -

NOTE: CGT would not have been covered by this stage, but students should redo this
part after SU7.

S11(i): Bad debts 7 980 (1) x 100/115 (1) -6,939 2

S11(m): Annuities Employee resigned to study further - no deduction as he did not

retire due old age, ill health or other infirmity - 1
Dependants of deceased employee - deductible -8,000 1

Aggregate capital gain 114,000

S26A:Taxable capital gain 114 000 x 80% 91,200 1
No mark if not included at correct place 5,307,057

S18A: Donation to PBO 12 000 (1) limited to 10% x 2 320 119 (1M) -12,000 2
No mark if not included at correct place
Taxable income 5,295,057

Normal tax 2 308 119 x 28% 1,482,616 1

Provisional taxes paid -
Net tax payable to/ (refundable by) SARS 1,482,616

Available 36
Maximum 28

As CGT has not been covered yet, those marks were not included when allocating marks for this question
Thus available is 28 and maximum is 28.
Solution 6.3

Description Calculation/Explanation R
Sales 5,000,000 1
Dividends 200,000 1
Less: S10(1)(k) Dividends exemption -200,000 1

Machine super Safe

Cost 570,000 1
Allowances: S12E 570,000 x 100% -570,000 -570,000 1
Tax value -
Selling price 525,000
Recoupment 525,000 limited to 570,000 (1) - 0 (1) 525,000 525,000 2

Added for completeness: Capital gains tax

Proceeds 525,000 - 525,000 - 1
Base cost 570,000 - 570,000 - 1
-
NOTE: CGT would not have been covered by this stage, but in an exam,
marks will be awarded for this even if the effect is zero. It should only not be
done if questions states: "Ignore capital gains tax".

Machine "Triple super safe" (1,200,000(1) + 120,000(1) + 50,000(1)) x 100% (1) -1,370,000 4

Opening stock -150,000 1

Purchase of stock -715,250 1
Closing stock 200,000 1
Donation of stock Section 22(8) recoupment of stock 5,000 1

New Delivery vehicle 500,000 x 50% -250,000 1

Water and electricity -125,000 1

Salaries and wages -200,000 1

Mercedes
Cost Input VAT denied 798,000 1
Allowance 700,000 x 50% -399,000 -399,000 1
Tax value 399,000 1
Selling price 200,000
Scrapping allowance 200,000 limited to 798,000 (1) - 399,000 (1) -199,000 -199,000 2

Added for completeness: Capital gains tax

Proceeds 200,000 1
Base cost (798,000 - 399,000 (1) - 199,000 (1)) -200,000 2
Capital gain -
Taxable income 1,751,750

Normal tax 58 583 + ((1,751,750 - 550,000) x 28%) 395,073 2

Provisional tax paid -289,000 1
106,073

Available 31
Maximum 25

As CGT has not been covered yet, those marks were not included when allocating marks for this question
Thus available is 26 and maximum is 25.
Solution 6.4
R
Description Calculation/Explanation Taxable income
Sales 12,250,000 1

S11(a): Purchases -9,188,000 1

S12E: Delivery vehicle 251 500 x 30% -75,450 1

S12E: Machine 855 000 x 100% -855,000 1

Computer 14,500
S12E - 2019: 14 500 x 50% -7,250 1
S12E - 2020: 14 500 x 30% -4,350 1
S12E - 2021: 14 500 x 20% -2,900 -2,900 1
Tax base - 1

S8(4)(a): Recoupment 8 000 limited to 14 500 (1) - 0 (1) 8,000

Proceeds 8 000 - 8 000 - 1

Base cost 14 500 - 14 500 - 1
-
NOTE: CGT would not have been covered by this stage, but in an exam, marks will
be awarded for this even if the effect is zero. It should only not be done if questions
states: "Ignore capital gains tax".

S13: Factory 12 750 000 x 5% -637,500 1

S13quin: Commercial 2 230 725 x 55% (1) x 5% (1) -61,345

Taxable income 1,437,805

Normal tax 58 583 + 28% x (1 437 805 - 550 000) 307,168 2

Provisional taxes paid -
Net tax payable to/ (refundable by) SARS 307,168

Available 17
Maximum 15

As CGT has not been covered yet, those marks were not included when allocating marks for this question
Thus available is 15 and maximum is 15.
Solution 7.1

1. Office building
Cost
Transfer cost
Total cost
Less: Allowances - as the building was erected before 1 April 2007, there will be no allowances
Tax value when sold

There is no recoupment as there are no allowances

Proceeds
Base cost
Capital gain

2. Factory building
Cost
Allowances (balancing)
Tax value (given)

Recoupment 1,200,000 limited to 850,000 - 382,000

Proceeds 1,200,000 - 468,000

Base cost (850,000 + 75 000) - 468,000
Capital gain
3. Machine
Pre 1 Oct 2001 Post 1 Oct 2001
Cost 2,500,000 -
Less Allowances -2,500,000 -
Tax value when sold - -
Other costs - -

Tax value
Recoupment 5,000,000 limited to 2,500,000 - 0

Proceeds 5,000,000 - 2,500,000

Base cost See calculation below

1) Valuation date value

Proceeds of R2,500,000 exceeds total costs R0
Use par 26: VDV is >
Market value
TABC
20% x (2 500 000 - 0)

Use market value, market value does not exceeds proceeds

 Use market value, market value does not exceeds proceeds
Valuation date value
Post 1/10/01
Base cost
Aggregate capital gain
Less: Capital loss brought forward
Net capital gain
Inclusion rate
Taxable capital gain
 Capital Gain/ Loss

1,250,000 1
180,000 1
1,430,000
will be no allowances -
1,430,000

1
1,500,000 1
-1,430,000 1
70,000 70,000

850,000 1
-468,000 1
382,000 1

468,000 2

732,000
1
-457,000 1
275,000 275,000

Total
2,500,000 1
-2,500,000 1
- 1
-

0-0 2,500,000 2

2,500,000 1
-1,500,000
1,000,000 1,000,000

1
1
1,500,000 1
-
500,000 1

ue does not exceeds proceeds

ue does not exceeds proceeds
1,500,000 1
- 1
1,500,000
1,345,000
-85,000 1
1,260,000
80% 1
1,008,000

Available 26
Maximum 25
Solution 7.2

Factory
Pre 1 Oct 2001 Post 1 Oct 2001
Cost 2,600,000 -
Less Allowances -2,100,000 -
Tax value when sold 500,000 -
Other costs - 12,000
Total costs 500,000.00 12,000

Recoupment 3 850 000 limited to 2 600 000 - 500 000

Proceeds 3 850 000 - 2 100 000

Base cost See calculation below

1) Valuation date value

Proceeds of R1 750,000 exceeds total costs R512 000
Use par 26: VDV is >
Market value
TABC
20% x (1 750 000 - 12 000)

Use market value, market value does not exceed proceeds

Valuation date value

Post 1/10/01
Base cost
Aggregate capital gain
Less: Capital loss brought forward
Net capital gain
Inclusion rate
Taxable capital gain
 Capital Gain/ Loss

Total
2,600,000 1
-2,100,000 1
500,000 1
12,000 1
512,000

0 - 500 000 2,100,000 2

1,750,000 1
-612,000
1,138,000 1,138,000

1
1
600,000 1
-
247,600 1

ue does not exceed proceeds

1

600,000 1
12,000 1
612,000
1,138,000
-
1,138,000
80% 1
910,400

Available 15
Maximum 15
Solution 7.3

Description Calculation Capital Revenue

Net profit 2,566,350
Repairs and maintenance
-replace carpets with tiles -53,600 1
-painting factory and office -28,720 1
-erecting new carports improvement, not deductible -
1
(38,900 x 100/115)(1)/5 x
-wear and tear: carports
9/12 (1) -5,074
-replacing wire fence with palisade -48,300 1

Machine Benji
-Cost 385,000
-Allowance 2018 - 2020 20% x 385,000 x 3 -231,000 1
-Allowance 2021 -77,000 -77,000 1
Tax value when destroyed 77,000 1

400 000 limited to 385 000 (1)

Recoupment 308,000 308,000
- 77 000 (1)

Disposal of an asset triggers CGT

Proceeds 400 000 - 308 000 92,000 1
Base cost 385 000 - 308 000 -77,000 1
15,000 15,000

NOTE TO LECTURER: The recoupment and capital gain can be deferred, but this is not
part of their syllabus. They only need to know the S13 deferral

Machine Foxtrot
Cost 1,360,000 1
Air freight, customs and clearing 95,000 1
Foundation 44,500 1
1,499,500
Allowance 1,499,500x 40% (1) 599,800

Factory Building
Cost of old building 1,800,000
S13 Allowance 2016 - 2020 1 800 000 x 5% (1) x 5 (1) -450,000
S13 Allowance 2021 -90,000 -90,000 1
Tax base 1,260,000

Recoupment 1 900 000 limited to 1 800 540,000

000 (1) - 1 260 000 (1) 2
(2 500 000 - 540 000(1)) x 5%
S13 deferral of recoupment: -98,000
(1) 2
Disposal of an asset triggers CGT
Proceeds 1 900 000 - 540 000 1,360,000 1
Base cost 1 800 000 - 540 000 -1,260,000 1
100,000 100,000

(189 300 x 100/115) (1) / 3 x

Computers -27,435
6/12 (1)

Salaries for two researchers 350,000 x 150% -525,000 1

Dividend received Included but should be exempt -35,000 1

Member's salary -360,000 1
Dividend paid to member Not deductible under S11(a) -
Aggregate capital gain 115,000 1
Taxable capital gain at 80% 92,000 1
Taxable income 2,218,021

Normal tax at 28% (1) 621,046

Available 45
Maximum 45
Solution 8.1

The company has a February year end and thus the first provisional payment for the year of assessment
ending 28 February 2021 needs to be made by 31 August 2020.

At payment date 2020 has not been received.

2019 has been received but it was not 14 days before payment and therefore cannot be used.
Thus 2018 will have to be used.

YE of assessment to date of payment: 28/02/2018 - 31/08/2020 = 30 months ie > 18 mo

YE of assessment to date of payment: 28/02/2018 - 31/08/2020 = 30 months ie > 12 mo

As both the above requirements have been met, the assessment value must be inflated by 8% per year

Basic amount - 2018 362,000

Less: Taxable capital gain (62,000)
300,000
Inflated by 8% x 3 72,000
310,000

Tax payable at 28% 86,800

First payment: Divide by 2 for 6 month period 43,400

The second provisional payment needs to be made by 28 February 2021.

At this date the latest available assessment is the 2020 assessment.
At the date of payment, the assessment is not older than 12 months
and it is not older than 18 months and thus there is no inflation and the amount can be used as is

The taxpayer is earning less than R1m taxable income and thus the
second payment must be based on the lower of:
The basic amount of 500 000
90% x actual - 450 000 x 90% 405,000

Amount used 405,000

No inflation by 8% -
405,000

Tax payable at 28% 113,400

Less: First provisional payment (43,400)
Second payment 70,000

The third provisional payment is always based on actual.

Third provisional payment payable by 30 September 2021

Actual taxable income 450,000
Tax payable at 28% 126,000
Less: First provisional payment (43,400)
Less: Second provisional payment (70,000)
Third payment 12,600

Available
Maximum
 year of assessment
1

1
1
1

= 30 months ie > 18 months 1

= 30 months ie > 12 months

ated by 8% per year

1
1

1
1

be used as is

1
1

1
1

1
1
1
1
1

21
17
Solution 8.2

The company has a February year end and thus the first provisional payment for the year of assessment endin
28 February 2021 needs to be made by 31 August 2020.

At payment date 2020 has not been received.

2019 has been received and it was within 14 days before payment and therefore can be used.

YE of assessment to date of payment: 28/02/2019 - 31/08/2020 = 18 months ie NOT > 18 m

YE of assessment to date of payment: 28/02/2019 - 31/08/2020 = 18 months ie > 12 month

As only one requirement has been met and NOT BOTH, no 8% adjustment needs to be made

Basic amount - 2019 1,125,556

Inflation -
1,125,556

Tax payable at 28% 315,156

First payment: Divide by 2 for 6 month period 157,578

The second provisional payment needs to be made by 28 February 2021.

The taxpayer is earning more than R1m taxable income and thus the
second payment must be based on the estimate 1,200,000

Amount used 1,200,000

No inflation by 8% -
1,200,000

Tax payable at 28% 336,000

Less: First provisional payment (157,578)
Second payment 178,422

The third provisional payment is always based on actual.

Third provisional payment payable by 30 September 2021

Actual taxable income 1,180,000

Tax payable at 28% 330,400

Less: First provisional payment (157,578)
Less: Second provisional payment (178,422)
Third payment (refund) (5,600)
ayment for the year of assessment ending
1

1
d therefore can be used. 1

- 31/08/2020 = 18 months ie NOT > 18 months 1

- 31/08/2020 = 18 months ie > 12 months 1

ment needs to be made

1

1
1

1
1
1
Available 17
Maximum 17
Solution 8.3

The company has a December year end and thus the first provisional payment for the year of assessment
ending 31 December 2021 needs to be made by 30 June 2021. 1

At payment date 2020 has not been submitted 1

2019 has been received and it was within 14 days before payment and therefore can be used. 1

YE of assessment to date of payment: 31/12/2019 - 30/06/2021 = 18 months ie not > 18 months 1

YE of assessment to date of payment: 31/12/2019 - 30/06/2021 = 18 months ie > 12 months

As only one requirement has been met and NOT BOTH, no 8% adjustment needs to be made

Basic - 2019 620,000

Inflation - 1
620,000

Tax payable 58 583 + 28% x (620 000 - 550 000) 78,183 2

First payment: Divide by 2 for 6 month period 39,092 1

The second provisional payment needs to be made by 31 December 2021 1

At this date the latest available assessment is the 2019 assessment. 1
At the date of payment, the assessment is older than 12 months and older than 18 months 1
31/12/2019 - 31/12/2021 = 24 months

The taxpayer is earning less than R1m taxable income and thus the
second payment must be based on the lower of:
The basic amount 620,000 1
Inflation (620 000 x 8% x 2) 99,200 1
719,200
90% x actual - not available 1

Amount used 719,200

No inflation by 8% -
719,200

Tax payable 58 583 + 28% x (719 200 - 550 000) 105,959 2

Less: First provisional payment (39,092) 1
Second payment 66,868

Available 17
Maximum 15