Tutorial Letter 108/0/2023: TAX4862 NTA4862

TAX4862/108/0/2023
NTA4862/108/0/2023
Tutorial letter 108/0/2023
APPLIED TAXATION (CTA level 2)
TAX4862
NTA4862
YEAR MODULE
Department of Financial Intelligence
IMPORTANT INFORMATION:
This tutorial letter contains information on exam preparation and learning
unit 21.
Open Rubric
2 TAX4862/108
NTA4862/108
CONTENTS
I. INTRODUCTION .........................................................................................................3
II. THE OCTOBER 2023 EXAMINATION ........................................................................3
III. REVISION LECTURES DURING AUGUST/SEPTEMBER 2023 .................................4
IV. LEARNING UNIT 21: TAX ADVICE AND PLANNING ................................................5
V. INTEGRATED QUESTIONS .....................................................................................18
QUESTION 1 .........................................................................................................................................20
October 2021 Paper 1 Question 1 (100 marks) .....................................................................................20
QUESTION 2 .........................................................................................................................................25
QUESTION 1 - SUGGESTED SOLUTION ...........................................................................................31
QUESTION 2 - SUGGESTED SOLUTION ............................................................................................40
QUESTION 3 .........................................................................................................................................50
QUESTION 4 .........................................................................................................................................58
ANNEXURE: MONETARY AMOUNTS TO BE PROVIDED IN THE OCTOBER 2023 AND JANUARY
2024 SUPPLEMENTARY EXAMINATIONS ..........................................................................................84
3 TAX4862/108
NTA4862/108
I. INTRODUCTION
In this tutorial letter we provide you with:
• Information regarding the October 2023 examination;

• Information regarding the planned revision lectures in August/September 2023;
• Learning unit 21: Tax advice and tax planning; and
• Revision questions to assist you in your final preparation for the year-end exam.
The main purpose of this tutorial letter is therefore to assist you in preparing for the summative
assessment of this module.
II. THE OCTOBER 2023 EXAMINATION

The October 2023 examination will be an online assessment. The examination will consist of 2 papers
of 100 marks each. It is therefore a 200-mark, 5-hour examination for both papers.
Take note that marks will also be awarded for communication skills and layout, as is the case in the
SAICA ITC Part 1 examination (no more than 5% of the total marks will be awarded for this). In addition,
it is important to note that, every exam paper will contain some integration with other disciplines
included in your studies, this integration will however be limited to a maximum of 20%. This is in
preparation for the SAICA ITC examination next year, where you can expect integration throughout the
papers that you will write.
Since it will be an online assessment, please ensure that you have all adequate resources (internet
connectivity, a device with the applicable invigilation application, pdf converter/scanner app) to ensure
minimal disruptions during the assessment.
The examination is a limited open-book examination: You are allowed to use ONE COPY of the
2022/2023 version of the SAICA Student Handbook (volume 3) or any version published in one of the
previous years. You should note that the taxation exam is set and marked according to the legislation
contained in the 2022/2023 version of the SAICA Student Handbook. We strongly recommend that you
obtain and use the latest version (2022/2023).
 Please refer to tutorial letter CASSALL2/301/2023 for the Open book and calculator policy
as set out in 3.2
The above policy will be applied strictly. Although it will be an online assessment, any transgression
with any Unisa policy will be subject to disciplinary action.
The cut-off date for taxation legislation examinable in the Initial Test of Competence (ITC) for 2024
is as follows:
Amendments promulgated by 31 January 2023 and which are effective for the 2023 year of
assessment, will be examinable. All amendments effective for years of assessment 2024 or later are
not examinable. The UNISA syllabus is also based on these dates. Any amendments effective after
these dates will therefore not be incorporated into our study material.
UNISA as well as the SAICA ITC 2024 will therefore assess individuals with a 2023 year of assessment
and non-natural persons with a December 2023 (or earlier) year of assessment.
Regarding individuals’ rates of normal tax, rebates and monetary thresholds, the monetary values
are incorporated in the SAICA Student Handbook 2022/2023 book. An annexure with the monetary
rates was provided in Test 3 and will also be provided in the year end examination.
4 TAX4862/108
NTA4862/108
We would like to extend our best wishes to you with your preparation for the forthcoming examination. We
as lecturers trust that you will use the following weeks effectively in preparing for the year end examination.
Be assured of our continued support during this time. As stated previously, we always prefer to receive
queries via e-mail:
tax4862@unisa.ac.za
however, you may contact any of the tax lecturers during your preparation period. You can also book a
consultation session of 30 minutes with a lecturer through the Lecturer Online Consultation System. You
can access the booking system on the following link:
https://outlook.office365.com/owa/calendar/SoAALecturerOnlineConsultation@mylife.unisa.ac.za/bookin
gs/
For all administrative queries please phone the administrative officer, Mr Maxwell Mapheda, on
012 429 2947.
III. REVISION LECTURES DURING AUGUST/SEPTEMBER 2023
The provisional schedule for the TAX4862 revision lectures, to be held during September 2023, in
preparation for the upcoming examination will be provided via either a CASALL2 tutorial letter and/or
announcements on myUnisa/SMS’s.
Slides and videos have been provided for each tutorial letter during the year. Due to the limited time
available, the revision lectures will focus on exam technique by working through questions selected
carefully covering the topics from TL103 – 108. More information on this will be provided via an
announcement on myUnisa in due course.
5 TAX4862/108
NTA4862/108
LEARNING UNIT 17
COMPANIES AND CLOSE CORPORATIONS
IV. LEARNING UNIT 21: TAX ADVICE AND PLANNING
21.1 BACKGROUND
In this learning unit, you will receive guidance on how to apply the knowledge you gained in this module to a
practical tax advice and/or tax planning situation. There are no specific references to the various Taxation
Acts or to SILKE that you need to study in this learning unit since this learning unit encompasses your whole
syllabus. This learning unit is, in effect, an application of all your tax knowledge in an advisory situation.
Questions requiring you to provide tax advice will normally entail a comparison of different alternatives, for
example, should a taxpayer accept a travel allowance or utilise the right to use an employer-owned vehicle.
The tax implications of these alternatives and the after-tax cash flows, in particular, would have to be
calculated in coming to a conclusion (and providing advice) in this regard.
21.1.1 UNGC Principle 10
The UNGC principles were introduced in TL102. Compliance with laws and regulations is the basis on
which the taxation legislation is founded.
UNGC principle 10 states that businesses should work against corruption in all its forms, including extortion
and bribery. The definition of corruption includes dishonest or fraudulent conduct; thus, tax evasion would
fall within the ambit of corruption. UNGC principle 10 encourages entities to find a balance between the
social obligation to pay taxes and tax planning, to minimise the ‘cost’ of these taxes for an entity within the
ambit of the law. Situations may arise where entities embark on tax planning with an intent to evade tax.
It is important to take note of the UNGC principle 10 when studying this learning unit, since you will be
providing tax advice or doing tax planning for a client but you will always need to keep the UNGC
principle 10 in mind when doing the planning and trying to find a balance between the social obligation to
pay taxes and tax planning.
6 TAX4862/108
NTA4862/108
21.2 OUTCOMES OF THIS LEARNING UNIT
After studying learning unit 21, you should be able to meet the following
outcomes:
• Understand and be able to evaluate the factors relevant when tax
planning is done, or tax advice is provided in a practical situation.
• Be able to apply the tax knowledge obtained in this module in a practical
situation by evaluating and critiquing all options available to a taxpayer
and creating sound tax advice or designing tax planning options.
The following section contains notes 1 in which guidance is provided to you for the process of creating
sound tax advice, or designing tax planning options, by applying the knowledge obtained in this module,
to enable you to evaluate and critique different tax options available to a taxpayer.
21.3 TAX PLANNING IN GENERAL
There is virtually no economic act or agreement, which is devoid of tax implications. Accordingly, if tax
planning is done in good time, positive tax savings can be achieved. The failure to plan in good time leads
to catastrophe. Tax advisors must have a thorough knowledge of tax law in order to provide their clients
with sound tax planning advice. When providing clients with advice, the difference between tax avoidance
and tax evasion must be well understood.
Tax evasion involves using unlawful ways to pay less to no tax, whilst the methods used are usually
fraudulent, for example, under declaration of tax income, or falsifying records. Tax avoidance on the other
hand includes legal means aimed at paying less to no tax. In Duke of Westminster V IRC 1953(UK), Lord
Tomlin held that ‘Every man is entitled, if he can, to order his affairs so that tax attaching under the
appropriate act is less than it otherwise would be’.
Sound ethical principles must be applied at all times to ensure that accountants and clients are legitimately
paying less tax than their fellow taxpayers in like circumstances. For instance, the retrospective signing
contracts or agreements is not tax planning, usually it would constitute fraud. Always consider ethics when
providing tax advice.
21.3.1 Approach to tax planning
Parties to an agreement often find themselves in an adversarial position (meaning a position characterised
by possible conflict or antagonism). The agreement may totally favour one person from a tax perspective,
for example, the one party may obtain a capital gain (subject to CGT) but the other party may not be able
to obtain a corresponding deduction, which increases the “cost” of the acquisition. Ideally, the tax benefits
(and disadvantages) of both parties must be identified and quantified and be shared equally. This is
achieved by hard bargaining between the parties.
The (adverse) tax considerations must never be allowed to distort a sound commercial bargain. However,
adverse tax considerations may compel the rushing of a proposed transaction.
In effect, the approach to tax planning involves isolating and identifying the factors that give rise to a tax
liability and then neutralising these factors as far as possible. It is also important to note that the tax
implications relating to tax planning may not be isolated to a once-off event, a taxpayer’s actions can cause
less tax to be paid in one year but trigger potential tax implications in the future.
1 These notes flow from information provided in the book, “Tax Strategy” by EB Broomberg and Des Kruger (see list of
references in note 21.5) and have been updated for subsequent amendments to legislation.
7 TAX4862/108
NTA4862/108
Factors that determine tax liability
• Factor of incidence
The factor of incidence means identifying the person that will be liable for tax. Is it, for example, a legal
entity, i.e. an existing company, a company to be formed, a trust or an association of persons, or is it a
natural person?
The method to decrease the tax liability entails the varying of the incidence of taxation from a highly taxed
person (natural person or legal entity) to a lower taxed person.
 Consider the normal tax rates of individuals and special trusts (maximum marginal rate 45% for
taxable income of more than R1 731 600), small business corporations (differentiated rates up to a
maximum of 28%), other companies (a flat rate of 27%, which decreased from 28% for years of
assessment ending before 31 March 2023), and trusts (a flat rate of 45%). (Refer to TL107 for the
different corporate entities). In order to distribute profits from a company, a dividend must be
declared. Dividends tax is payable on dividends declared / deemed to be declared by a company at
a rate of 20%. The effective normal tax rate of a company (excluding a small business corporation),
on assumption that all profits available for distribution are in fact distributed, is an effective rate of
41.60%. (Taxable income of R100 less R27 for normal tax, leaves R73 to be distributed as a
dividend. Dividends tax is then R73 x 20% = R14.60. Therefore, the total tax paid is R27 plus R14.60
= R41.60. (The effective rate was 42.4% for years of assessment ending before 31 March 2023 due
to the 28% tax rate for companies.) A natural person younger than 65 years of age with a taxable
income of R1.8 million will pay R628 547 (R644 972 less the primary rebate of R16 425) normal tax,
giving an effective/average rate of 34.92% (R628 547 / R1 800 000).
 Consider the effective capital gains tax rates for individuals (maximum 18% (45% x 40%)),
companies (21.6% (27% x 80%) (22.4% (28% x 80%) for years of assessment ending before
31 March 2023)) and trusts (other than a special trusts) (36% (45% x 80%)) for the 2023 year of
assessment.
 Consider the tax disadvantages of companies:
i) Hostile legislation (personal service providers and labour brokers) (Section 23(k) together with
Interpretation Note 35 (Issue 5 of 14 March 20123).
ii) Assessed losses. Section 20(1) precludes a company with an assessed loss from carrying
forward that assessed loss if the company ceased to trade in any tax year and it limits the
extent of the balance of assessed loss that is deductible. These restrictions are not applicable
to individuals (or trusts). Section 20A, however, ring-fences certain trade losses for individuals.
iii) Refusal to recognise groups of companies. There is no group relief (except for Part III in the
Income Tax Act) and intra-group transactions are closely scrutinised for non-arm’s length inter-
company charges.
iv) Business tendency of company. Assets purchased by a company and later sold, are more
likely to be regarded by SARS as revenue in nature. The onus on the taxpayer is greatly
increased in these circumstances.
v) Extraction of capital profits from a company. A company is subject to an effective 21.6% (80%
x 27%) (22.4% (80% x 28%) for years of assessment ending before 31 March 2023) capital
gains tax rate as opposed to a maximum marginal rate of 18% (40% x 45%) for an individual.
vi) Also note that certain exclusions from capital gains would only apply in the case of natural
persons and special trusts, e.g. the annual exclusion.
vii) Furthermore, section 64E (loans to shareholders, deemed to be dividends in certain circum-
stances) could present a problem.
8 TAX4862/108
NTA4862/108
 Consider the advantages of companies:
i) Non-fiscal considerations
• limited liability
• perpetual succession
• status
ii) Utilisation of assessed losses but be careful of trading in assessed losses - section 103(2).
iii) Able to change the year-end of the company (to take advantage of new tax rates, etc.). Also
refer to Interpretation Note 19 (issue 5 of 18 November 2020).
 The use of trusts for business purposes, so-called business trusts:
i) Non-fiscal considerations:
• limited liability
• can have perpetual succession
• assets of trust are distinct from the personal assets of the trustee and founder
• control and administration may be cumbersome
• difficult to dispose of a beneficial interest in a trust as opposed to the sale of shares in a
company - however, a trust deed can make a provision for beneficiaries to be substituted
• the loss of control and/or freedom of action by the founder of the trust
ii) Anti-avoidance provisions aimed at preventing a taxpayer from diverting income to another,
less heavily taxed taxpayer - see section 7(2) to 7(8) (note that sections 7(2)(a), 7(4), 7(6),
7(7), 7(8)(aA) and 7(11) are excluded from the SAICA syllabus) and section 25B as well as the
attribution rules in the Eighth Schedule.
iii) Taxed at a flat rate of 45% which is higher than the normal tax rate for a company (but the
same rate as the maximum rate of an individual). The inclusion rate of the net capital gain is
double that of any natural person (80% versus 40%).
iv) No loss of the identity of income received by a trust (conduit-pipe principle) and distributed to
a beneficiary, but where distributed in the form of an annuity, the sections 10(1)(h), 10(1)(k),
10B(2) and 10B(3) exemptions will not be available.
• Factor of timing
When considering tax as part of the planning process the timing of the transaction can be an important
factor. The date of the transaction can result in a tax saving if there is a change in legislation favouring the
taxpayer, for example a reduction in the tax rate for small business corporations or companies. Some
changes in legislation can, however, have a negative impact on transactions for example the increase in
the CGT inclusion rate.
9 TAX4862/108
NTA4862/108
Since tax years ending on or after 1 April 2008, the maximum tax rate for companies has been 28% and
decreased to 27% for years of assessment ending from 31 March 2023), however Dividends Tax was
increased from 15% to 20% from 22 February 2017.
The effective CGT rate for companies is 21.6% (80% x 27%) and was 22.4% (80% x 28%) since the 2017
year of assessment until years of assessment ending before 31 March 2023 (18.7% 2016 y.o.a). On 1 April
2018 VAT increased from 14% to 15%.
The status of the taxpayer may alter (from resident to non-resident or vice versa) which might result in
certain CGT or normal income tax consequences.
Tax provisions may change (e.g. the restructuring of the taxation of retirement benefits for individuals).
Methods that can be used to decrease the tax liability is to defer the recognition of income to a later period
(discounted cash flow and time-value of money considerations) or to speed-up the claiming of a deduction
or allowance.
• Factor of residence
Where is the person resident?
The residence of a person can influence his/her tax liability. In certain instances, a person’s tax liability
can be reduced if he/she does become, or ceases to be, a resident in a particular country. The existence
of any double tax agreement must be considered. The taxpayer can utilise the exemptions for income
earned from a source outside South Africa (section 10(1)(o)(ii)). (R1.25 million in respect of remuneration
will be exempted if certain criteria apply.)
• Factor of nature
Is the amount received or accrued of a capital or revenue nature? Does the amount fall within the definition
of a dividend?
It is essential to determine the true nature of an amount because if the amount is regarded as a capital
receipt rather than a receipt of a revenue nature, less tax will be payable (e.g., the effective rate applicable
to capital gains of individuals is 18% and for companies it is 21.6% (22.4% for years of assessment ending
before 31 March 2023), whereas the normal tax payable on revenue amounts are much higher).
Determining whether an amount received is interest or a dividend is also of importance. Interest received
may be partly (section 10(1)(i)) or fully ((section 10(1)(h) for foreign residents) and section 12T) exempt
from normal tax, whereas local dividends might be subject to dividends tax at 20%.
21.3.2 General and specific considerations in tax planning
21.3.2.1 Tax rates
• Normal tax rates (company rate of 27% (28% for years of assessment ending before 31 March 2023)
versus maximum marginal rate of 45% for a natural person);
• Natural persons also qualify for a tax rebate, but companies do not, therefore the threshold for an
individual < 65 years of age = R91 250 (thresholds for those between 65 and 75 is R141 250 and
75 years or older is R157 900) for the 2023 year of assessment;
• Dividends tax of 20%;
• CGT rate (company effective rate of 21.6% (22.4% for years of assessment ending before 31 March
2023) versus the individual’s maximum rate of 18%, with an annual exclusion of R40 000 as well as
being taxed on a progressive rate);
10 TAX4862/108
NTA4862/108
• Withholding tax on non-residents (interest @ 15%) and a pre-payment of withholding tax on the sale
of fixed property acquired from a non-resident if the fixed property was bought for more than
R2 million – (ranging between 7.5% and 15%).
• Donations tax - 20% (aggregate amounts above R30 million at 25%);
• Estate Duty - 20% (amounts above R30 million at 25%);
• VAT - 15% or zero-rated or exempt;
• Transfer duty at rates ranging from 0% (value of property less than R1 000 000) to a maximum rate
of 13% (value of property above R11 million).
• Securities transfer tax (STT) is payable, from 1 July 2008, at a rate of 0,25% on the greater of the
consideration, closing price or market value on the transfer, cancellation or redemption of any listed
or unlisted share or members’ interest in a CC or the cession of a right to receive distributions from
a company or CC. STT is not applicable to foreign companies not listed on the South African stock
exchange. The acquisition of the shares in certain (residential) property owning companies is subject
to transfer duty on the value of the property at the applicable rate and not to STT. Note that only
section 2 and 8 form part of the SAICA ITC Examinable Pronouncements 2023.
11 TAX4862/108
NTA4862/108
 Integrated Example:
Use of company car vs travel allowance
You are a tax manager in an accounting firm, and you have received some tax queries from one of your
main clients. The client, Vision Manufacturing Limited (‘Vision’), is a South African resident company, and
its business is the manufacture of ceramic tiles. Vision has a December year-end and is a registered
category C VAT vendor. Mr Angus Jacobs became the managing director of Vision on 1 March 2022.
The following information is relevant to the query you have received from the company:
As part of Angus’s remuneration package (from 1 March 2022), Vision expects to spend R14 000 per
month on motor vehicle costs. There are two options in this regard:
(a) Vision acquires the motor vehicle in terms of a lease (other than an operating lease) and grants the
free use to Angus. The cash cost of the car (and the retail market value per the Minister’s Regulation)
is R456 000 (including VAT and excluding finance charges). The lease payments on a three-year
lease will be R14 000 per month, inclusive of VAT and Vision will pay all the maintenance costs; or
(b) Vision pays Angus a travel allowance of R14 000 per month. Angus then leases the vehicle on pre-
cisely the same terms as those outlined in (a) above.
Angus will maintain an accurate logbook of kilometres travelled for business purposes.
Angus expects to travel a total of 28 000 km per annum, of which the private component is expected to be
21 000 km. The total actual cost of petrol is expected to be about R36 000 per annum, which Angus will
pay himself. All other costs, like maintenance and licence fees, will be covered by Vision.
REQUIRED:
Advise Angus, based on tax cash flows, which of the two options will be better for him – compare the
monthly PAYE amounts as well as the additional payment or refund upon assessment. Show all
calculations and accept that Vision will make use of any possible election that will legally minimise Angus’s
PAYE liability.
• Assume that there is no maintenance plan on the vehicle.
• Assume that total finance costs amount to R48 000 for the 3-year lease period.
• Assume Angus pays tax at the maximum marginal tax rate.
• Assume Angus kept an accurate logbook.
(18 marks)
(QE 2012 – adapted)
12 TAX4862/108
NTA4862/108
SUGGESTED SOLUTION
Company Travel
Car Allowance
R R
Monthly taxable amount:
Company Car (R456 000[RMV] x 3.5% x 80%) 12 768 (1)
Travel Allowance (R14 000 x 80%) 11 200 (1)
PAYE @ 45% (i.e. monthly cash Outflow) 5 746 5 040 (1)
x 12 months 68 952 60 480
Annual taxable value:

Company Car
Annual value of usage (R456 000 x 3.5% x 12 months) 191 520 (1)
Less: Business travelling portion
[R191 250 x 7 000km/28 000km] (47 880) (1)
143 640
Less: Cost of private fuel (21 000km x 183.8c) (38 598) (1)
Maintenance costs 0
Annual taxable value 105 042
Note the lease is not an operating lease as set out in
par 7(4)(a)(ii), thus par 7(8) of the Eighth Schedule can be
applied.
Travel allowance
Annual allowance amount (R14 000 x 12 months) 168 000 (1)
Less: Cost of business travel
Actual cost: Cash Cost (provided) R456 000
Wear & tear (R456 000/7) R65 143 (1)
Finance cost (R48 000/3) R16 000 (1)
Fuel cost (provided) R36 000 (1)
Maintenance cost Rnil
R117 143
Actual cost per km (R117 143/28 000km) R4.184 (1)
Deemed cost: Fixed cost per table R116 438

Fixed cost per km (R116 438/28 000km) 415.9c (1)
Fuel cost per table 183.8c (1)
Maintenance cost R0.00
Total deemed cost per km 599.7c
Therefore, elect deemed cost R5.997 (1)
Attributable to business travelling ((599.7c x 7 000 km)/100) (41 979) (1)
Annual taxable value 126 021
13 TAX4862/108
NTA4862/108
R R
Tax at 45% 47 269 56 709 (1)
Annual total of monthly PAYE deduction (x 12) (68 952) (60 480)
Additional refund upon assessment 21 683 3 771 (1)
Conclusion:
Based on the annual taxable value, the company car option is favoured over the travel allowance.
This is because the overall tax liability of a company car is lower than that of the travel allowance
option. (1)
 NOTE:
Due to the fact that the normal tax rates of an individual works on a progressive basis, you
should always use the maximum marginal tax rate (i.e. 45%) when required to provide tax
advice in a test or examination question, unless specifically instructed otherwise. Only when
you provide tax advice in practice, will you consider the effective or maximum marginal normal
tax rate applicable to that specific individual.
21.3.3 Specific issues relating to either purchasing the shares of a company or rather purchasing the
assets of that company
• Recoupments (sections 8(4) and 22(8));

• Assessed losses (sections 20 & 103(2));
• Income for dividend swaps (section 103(5));
• Hybrid instruments (sections 8E and 8F) – section 8E is excluded from the SAICA examinable
pronouncements;
• VAT issues;
• Deductibility of interest on borrowed funds (purchase shares of a company versus purchase of
assets out of a company);
• Lock, stock and barrel sales; CIR v Niko, 11 SATC 124: The purchase price received by the seller
of a business, even if expressed as a lump sum, must be allocated to the individual items making up
the business, including goodwill, stock, etc. The price received and allocated to items of a revenue
nature (for example, stock) remains revenue in nature even if purchased under a lock, stock and
barrel sale. Similarly, the price allocated to an item of a capital nature (for example, goodwill, trade
receivables (debtors) or fixed assets) remains capital in nature (but capital gains tax may be
applicable and recoupments can come into play);
• Anti-avoidance measures in terms of section 24BA, application of section 40CA as well as the relief
provided in section 42 and section 45 (read with section 41).
21.3.3.1 Other considerations
• Tax skeletons of the company versus the cost of forming a new company. Generally, assessments
only remain open for three years after the date of original assessment (SARS assessments) (or five
years in respect of self-assessment (section 99 of the TAA - see also TL106 for more information on
this), if there was no fraud, misrepresentation or non-disclosure of material facts (and certain other
circumstances – see section 99(2)(c), (d) and (e)). In other specific instances these periods may be
extended by SARS (see section 99(3) and 99(4)).
• Cost of agreement and legal fees. Who will bear the cost? Usually, the contract stipulates who will
bear the cost of the agreement. From a tax planning point of view, the person who can obtain a tax
deduction for the cost of the agreement should bear the total cost of the agreement with a
corresponding adjustment to the purchase price. For example, in a lease agreement, if the lessee
14 TAX4862/108
NTA4862/108
must bear the cost of the lease agreement, he will not be able to obtain a deduction for such expense,
as such expense is regarded as capital in nature. On the other hand, should the lessor bear the cost
of the agreement, he would be able to obtain a deduction for such expense as it is revenue in nature
and is incurred in the production of income.
• Commercial considerations. Always consider the present as well as the possible future commercial
considerations which may outweigh the immediate potential tax benefits. For example, home office
expenses can be deductible in one year to the taxpayer’s advantage but can require an adjustment to
the primary residence exclusion for business use in the year the primary residence is sold.
• Time value of money. This aspect is very important in evaluating a transaction and must be
considered in deciding which route to follow. This is especially so in cases of evaluating alternatives,
for example, whether to purchase or lease equipment and whether to invest an amount in a reti-
rement annuity fund or in collective investments schemes or in shares listed on a stock exchange or
in property.
• An important point to note is that the comparison must be made at the after-tax cost level. As the
cash outflows (or inflows) are likely to vary under different options, tax implications must be
considered. The time value of money should also be considered - although many tax questions
require you to ignore this aspect.
21.3.3.2 Investment decisions
What is an investment?
An investment is not an asset which is purchased for resale for a profit but an asset obtained to hold and
earn a return. It is the proverbial tree (capital) which bears the fruit (CIR v Visser). Generally, the intention
of the taxpayer would determine its status (Natal Estates). Different types of investments are for example,
interest-bearing securities or cash deposits, dividend-yielding shares, rent-producing properties and
assets generating rental income. Typically, investments yield passive income, e.g. interest, dividends and
rental income.
The tax treatment of an investment will depend on the type of investment, as the returns on different
investments are treated differently in the Act. For example, certain expenses are tax deductible for certain
types of investment income; an investor holding equity shares for at least three years (section 9C), will be
deemed to have disposed of a capital asset, etc. Also, a distinction is made between the tax treatment of
the distribution by a collective investment scheme in property and a collective investment scheme in
securities.
Assets that do not produce passive income, generally complicate the classification of the capital vs
revenue nature of the yield on these items. These are so-called hard assets, like paintings, works of art,
stamps, jewellery, antiques, coins, Kruger Rands and diamonds (not set into jewellery). As the only “in-
come” from them could arise when they are sold/disposed of at a profit, it would be up to the taxpayer to
prove that these assets were of a capital nature to prevent the proceeds from falling into gross income.
The intention of the taxpayer in acquiring and holding these assets and his conduct in relation to them,
rather than the mere nature of the assets, will determine the taxability of any profit.
The proceeds on the sale of assets of this nature bought as part of a collection, to be used as ornaments,
jewellery, for interior decoration or for the personal enjoyment of the taxpayer, will generally not be taxable
(not even subject to CGT (personal-use asset)) unless they are coins made of gold or platinum.
When determining whether the proceeds from the sale of Kruger Rands are revenue or capital in nature,
case law needs to be taken into consideration. Our interpretation is that Kruger Rands should be subjected
to the same “tests” as other assets for determining a capital or revenue classification. See more information
on this in Silke 3.6.5.
15 TAX4862/108
NTA4862/108
Note that cryptocurrency have been added to the definition of a ‘financial instrument’ in section 1 of the
Act and can be either capital or revenue in nature, depending on the intention of the taxpayer.
Factors to consider when making an investment decision
An investment decision usually involves a comparison between two or more options. Therefore, a uniform
base needs to be selected to make a realistic comparison - usually it would be the after-tax returns that
should be compared.
Tax entity to be utilised
The tax entity to be utilised will influence the rate at which the income from the investment will be taxed.
The effective tax rate of a corporate taxpayer is 41.6% (42.4% for years of assessment ending before
31 March 2023) whereas for an individual taxpayer, the maximum marginal rate of tax of 45% is usually
used unless the circumstances indicate otherwise. In the case of a trust, a rate of 45% is used.
Also, remember that the basic interest exemption is only available to natural persons.
There is a great temptation for an investor to operate through a company because the corporate tax rate
is 18% (17% for years of assessment ending before 31 March 2023) lower than the maximum marginal
rate (45%) of an individual taxpayer. However, the company’s income after tax still has to be diverted to
the individual by way of:
• dividends on which an additional 20% dividends tax will be borne by the shareholders, and/ or
• a salary, provided that the individual provides a legitimate service to the company and that the
company can deduct the salary for tax purposes, that is, it is carrying on a trade, etc. (the salary, in
turn, is taxable in the recipient’s hands).
Be careful of the potential excessive remuneration practice of SARS. This practice should not be a problem
especially where the individual taxpayer is already paying tax at the maximum marginal rate of 45%.
Tax-free income
The tax treatment of income from investments depends upon various factors but the most important factor
is whether the amount is tax free (for example, tax free investments (see below)). Natural persons are
exempt from tax on the first R23 800 of interest if under the age of 65 (R34 500 if older than 65 years).
Furthermore, the residence of a taxpayer is also important in determining whether an amount is tax free
or not. In addition, you need to consider the tax deductions that may be claimed.
In the case of an individual (natural person), the starting point is the R23 800 basic interest exemption for
a person under the age of 65 and R34 500 for a person 65 years or older. One should always try to ensure
that the taxpayer earns at least interest equal to the exemption in order to obtain the maximum benefit.
For example, an investment in an interest-bearing investment yielding 8% per annum, by a person (older
than 65 years), of R431 250 (R34 500 / 8%) will yield R34 500 in interest which will be tax-free due to the
annual interest exemption. To earn an equivalent amount from some other type of taxable investment,
the individual would need to earn a 14.5% (8% / 55%) yield before tax. A natural person can also invest
R36 000 annually (with a life-time limit of R500 000) in a (section 12T) tax-free savings account. This
investment can take any form, i.e. cash, shares, unit-trusts etc. Any yield from these tax-free saving
accounts will be tax-free.
Although merely earning passive interest income is not included in the definition of carrying on a "trade“,
which means that interest paid on funds borrowed to invest in an investment that earns passive income,
will not be allowed as a deduction in terms of section 11(a) (general deduction formula), SARS follows
Practice Note 31 and the decision taken in the Scribante court case which provides for interest paid to be
allowed as a deduction provided that more interest is received than is paid or the amounts of interest paid
and received are the same. This means that no loss can be created. Practice Note 31 creates a trade
16 TAX4862/108
NTA4862/108
argument for section 11(a) purposes – not for section 24J. Where section 24J(2) is applicable (see below),
Practice Note 31 will not be applicable in respect of the deduction of interest.
Be conscious of whether the taxpayer is resident or non-resident in the Republic. If the investor is non-
resident in the Republic, then in terms of section 10(1)(h), the interest which he receives on investments
in the Republic may be tax free provided that the provisions of that section are met.
If the investor is resident in South Africa, he is taxed on his worldwide income with a foreign tax rebate.
Dividends received from a foreign company might be taxable in South Africa (refer to section 10B). Always
consider double tax agreements as well.
The after-tax returns on other investments may not be the same each year. This can occur, for example,
if an initial or higher tax allowance is granted on assets purchased in the first year.
Income instruments
Not all taxpayers receiving interest from instruments will necessarily be affected by the provisions of
section 24J. As far as the accrual of interest is concerned, and only in the case of non-corporate taxpayers,
the ambit of this section is limited to instruments defined as “income instruments”. Included in the definition
of instruments are instruments whose term will or is likely to exceed one year and which are issued or
acquired at a discount or premium or which bear deferred interest.
Examples of instruments, which do not fall within the scope of section 24J, are
• savings accounts
• call accounts
• fixed deposits not exceeding one year
• fixed deposits (the term of which is longer than one year, but the rate of interest is fixed and paid
annually).
For a company, an “income instrument” is any “instrument” (irrespective of its period).
Interest does not accrue from day-to-day (unless it is deemed to do so because it is an “income instrument”
as defined (see above)) but only when it becomes payable in terms of the contract. Therefore, various
types of interest-bearing securities will have different terms and conditions as to when interest accrues.
• In the case of fixed-deposit investments, the interest only accrues when the fixed deposit matures,
unless any other conditions have been provided for in the investment contract.
• In the case of mortgage and other bonds, the interest accrues on the dates provided for in the bond.
• The interest earned from government or municipal stocks or debentures accrues according to the
terms of the issue.
Deductions available against investment income
Section 11(a) allows the deduction of expenditure incurred (as defined) in the production of income in the
carrying on of a trade. The passive earning of interest, dividends, pensions and annuities do not form part
of the definition of carrying on a trade. However, Burgess states that trade should be given a wide
interpretation. If the borrowing of money and re-lending it at a higher rate of interest is a venture, thereby
making a profit, it could constitute the carrying on of a trade (Scribante and MTN case read with Practice
Note 31).
17 TAX4862/108
NTA4862/108
Interest paid on funds borrowed for the purposes of lending them out at a higher rate of interest will, in
terms of section 11(a) of the Act, constitute an admissible deduction from the interest so received by virtue
of the fact that this activity constitutes a profit-making venture. According to the PE Electric Tramway the
interest incurred should be closely connected to the production of income. It is important to always consider
other sections of the Act as well. In terms of section 23B(3), no deduction may be allowed under
section 11(a) where a deduction or allowance may be granted under a specific provision. Therefore,
section 11(a) must not be considered if for example section 24J(2) will be applicable.
While it is evident that a person (not being a money lender) earning interest on capital or surplus funds
invested does not carry on a trade and that any expenditure incurred in the production of such interest
cannot be allowed as a deduction, it is nevertheless the practice of SARS to allow only interest incurred in
the production of the interest to the extent that it does not exceed such income to be claimed as a
deduction. The above practice is allowed even where funds are borrowed at a certain rate of interest and
then invested at a lower rate.
In respect of interest incurred to earn local dividends, which is normally exempt from normal tax, you need
to keep section 24O in mind. This section allows a deduction of interest incurred to obtain an interest in an
operating company.
21.4 SUMMARY OF LEARNING UNIT 21
This learning unit provided some guidance on which factors will be relevant when tax planning is done, or
tax advice is provided in a practical situation. This learning unit also introduced you to ways in which to
apply the tax knowledge obtained in this course in a practical situation by considering all options available
to a taxpayer and providing sound tax advice or tax planning options. Remember to look at the additional
resources available for this learning unit on myUnisa and YouTube.
21.5 LIST OF REFERENCES OF LEARNING UNIT 21
• SAICA. 2023. SAICA Student Handbook 2022/2023 Volume 3, Durban, LexisNexis.

• Stiglingh, et al. 2022. Silke: South African Income Tax 2023, Durban, LexisNexis.
• Broomberg, E.B. & Kruger, D. 1998. Tax Strategy, Third Edition, Durban, Butterworth’s. Lawrence: University
Press of Kansas.
____________________________________
END OF LEARNING UNIT 21
18 TAX4862/108
NTA4862/108
V. INTEGRATED QUESTIONS
Tests focuses on specific topics in tax and tests your knowledge, examination questions integrate the
taxation topics in a specific question. This section contains the October 2021 and October 2022
examination papers with the solutions. The questions are integrated on a level that is expected from
you as CTA student in your year-end assessment.
The Taxation Acts as well as the SAICA Taxation Examinable Pronouncements are amended annually,
changes may have been made to some of the original questions, where necessary to take these
amendments into account.
If there are further questions that are uploaded on myUnisa, these will be brought to your attention in
an announcement on myUnisa.
 Proposed self-assessment method:
The formative (tests) and summative (examination) assessment of this module is done
at 1.5 minutes per every one mark. Therefore, for a 50 mark question you will have
75 minutes available to answer.
First attempt a question without checking the proposed solution. This will ensure that you
first think through the specific issue and come up with your own solution to the whole
question. Only then should you consult the proposed solution and then use that to
indicate areas where you must revise or update your knowledge.
Apply the following method regarding the time allocation:
Read the information given in the question carefully. Do not 15 minutes for
read the REQUIRED yet. This is the same method that was every hour
applied in the tests. It will also be followed in the examination.
Attempt the Question but commence with reading the 75 minutes for a
REQUIRED. 50 mark question
Assess your answer with the help of the proposed solution. Where you made an
error, refer back to the legislation and/or SILKE by making use of the references
provided in the solution in order to update your knowledge and understanding and
interpretation of the legislation.
After completing the integrated questions in the time limits provided you
should be able to
• demonstrate that you are competent to pass the summative assessment
relating to the topics covered in your syllabus.
19 TAX4862/108
NTA4862/108
QUESTION CONTENT AND NOTES

MARKS/TIME
October 2021 examination
October 2021 examination Paper 1
1 Individual, taxable income, fringe benefits, capital gains tax, normal
tax payable, s 6A, s 6B, employees’ tax, withholding tax, provisional
tax, deductibility of home office expenditure, instalment credit 100/150
agreement and leases, IFRS 16 journals, VAT implications for sale of
a going concern
2 Companies (ss 24C, 24J, 12H, 11(j), 12C and 11(o)), debt reduction
(s 19 read with par 12A of the Eighth Schedule, trusts (ss 25 and 7),
100/150
deceased estate (s 9HA, CGT), corporate rules (ss 42 and 24BA),
integrated risk, deemed donation (s 7C(1B), (3))
Suggested solution to the October 2021 examination – Questions 1 and 2
October 2022 examination
3 Companies (s 11(e), 11(f), 11(g), 12C, 13, 13quin, 23F, 24I, 24J,
Debt reduction (s 19 read with par 12A and par 56 of 8th Schedule),
100/150
general deductions. VAT (input tax; leasehold improvements; output
tax; zero-rated). Gross income, CGT, recoupment and trading stock.
4 Corporate rules (s 42), anti-avoidance (s 24BA), s 12C, CGT (incl.
par 65), dividends, ethics, individuals, gross income, fringe benefits, 100/150
s 8C, s 11F.
Suggested solution to the October 2022 examination – Questions 3 and 4
Total time 10 Hours
20 TAX4862/108
NTA4862/108
QUESTION 1
October 2021 Paper 1 Question 1 (100 marks)
This question consists of three related parts, namely PART A, PART B and PART C.
PART A (67 marks)
Xavier Benson is 48 years old and was a resident of South Africa for normal tax purposes as on
1 March 2022. He is the financial manager at Coldage (Pty) Ltd (‘Coldage’) where he had been employed
since 2018.
Xavier requested your assistance with his personal tax affairs and provided you with the following information:
1. Xavier earned a basic monthly gross cash salary of R30 000 until his voluntary resignation on
31 October 2022.
2. Coldage also made contributions for the benefit of Xavier, in terms of Xavier’s employment contract.
Coldage contributed 100% of his total contribution to a provident fund amounting to R5 000 per month
up to 31 October 2022. Coldage contributed 60% of Xavier’s total medical scheme contributions which
amounted to R2 800 per month (60%). Xavier contributed the other 40%. For November 2022 and
December 2022 Xavier paid 100% of his medical scheme contributions himself (also see note 12 for
additional information on medical expenses). Xavier’s membership at the medical scheme ceased on
31 December 2022.
3. The company also provided him with the exclusive use of a laptop for Coldage’s business. He estimates
his private use of the laptop at around 10% of its total use. The laptop was purchased by Coldage for
R23 000 (including VAT) on 1 February 2022 and the use thereof granted to Xavier on the same date.
Xavier returned the laptop to Coldage upon his resignation.
4. As part of Xavier’s remuneration package, Coldage granted Xavier an option to acquire 10 000 equity
shares in Coldage on 1 April 2019 for a consideration of R20 per share when the shares were valued
at R35 per share. Once Xavier exercises the option, he may not sell the shares for a period of 3 years.
Xavier exercised the option on the same date it was granted to him. On 1 April 2022 Coldage’s shares
were valued at R45 per share. Xavier holds these shares on capital account. He sold all 10 000 shares
on 31 August 2022 when the shares were valued at R62 per share.
5. Coldage purchased a new vehicle on 1 February 2022 from Opportune (Pty) Ltd (‘Opportune’) (a car
dealership, not a connected person in relation to Coldage and a registered VAT vendor) at a cash cost
of R494 500 (retail market value) with no maintenance plan and granted the exclusive use to Xavier on
the same date. Xavier bears no cost in respect of the vehicle, but had to keep a valid and accurate
logbook, which he duly did. However, since lockdown was introduced due to the COVID-19 pandemic,
Xavier worked from home and therefore only travelled 1 200 km for business purposes and 2 300 km
for private purposes during the period 1 March 2022 until 31 October 2022. Xavier returned the vehicle
to Coldage upon his resignation.
6. On 1 April 2022, all Coldage employees that were allowed to work from home during the COVID-19
lockdown (also see note 7) received an allowance of R3 500 each to purchase an office chair to use at
home for business purposes. Proof had to be provided to Coldage that the allowance was in fact used
to purchase an office chair, however, the office chairs became the property of the employees.
21 TAX4862/108
NTA4862/108
QUESTION 1 (continued)
7. Xavier, together with many of Coldage’s other employees, was granted formal permission by Coldage
to work from home during the COVID-19 lockdown as he could execute his duties from home. Xavier
worked from home for Coldage from 1 April 2022 until the date of his voluntary resignation. Xavier used
a room in his house (see note 11 below) that comprises 5% of the total area of the house and which is
specifically equipped to be used as his home office. Xavier’s City Council utility bill amounted to
R31 500 from 1 April 2022 until 31 October 2022. Xavier used the allowance given by Coldage (see
note 6 above) and purchased an office chair on 15 April 2022 at a cost of R6 670 (including VAT) and
used it exclusively in his home office for the full period that he was still employed by Coldage.
8. Xavier was newly appointed as an employee by an Australian incorporated company and he had to
commence working in Australia on 1 December 2022. However, due to delays with getting his Visa, he
was only able to commence working in Australia on 20 January 2023. He earned AUD$11 250
(R118 000 equivalent) in total from 20 January 2023 up to 28 February 2023. Xavier decided to
officially emigrate from South Africa once he left the country on 5 January 2023.
9. Xavier earned interest of R93 750 during the period 1 March 2022 until 4 January 2023 on a five-year
fixed deposit at a South African bank that had a capital balance of R1 250 000 on 4 January 2023. The
money was transferred to and invested at an Australian bank on 5 January 2023. The investment
earned interest of AUD420 (R4 400 equivalent) up to 28 February 2023.
10. Upon his voluntary resignation from Coldage and in anticipation of his emigration to Australia, Xavier
withdrew his funds from his South African provident fund. The fund paid an amount of R2 820 000 into
his bank account on 25 December 2022 after deducting normal tax of R860 000. Xavier transferred
these funds to an Australian bank on 5 January 2023. Based on the fact that provident fund
contributions were never allowed as a deduction for normal tax purposes in South Africa until
29 February 2016, R175 000 of Xavier’s contributions to his provident fund up and until
29 February 2016 have never qualified for a deduction for normal tax purposes. However, all his
provident fund contributions from 1 March 2016 and thereafter have fully qualified for a deduction for
normal tax purposes.
11. With the slow housing market in South Africa, Xavier only managed to sell his house situated in Pretoria,
South Africa (in which he lived until 4 January 2023) on 15 February 2023. The property was sold for
R2 600 000, and Xavier had to pay agent’s commission amounting to R78 000. He purchased the
house in 2018 for R2 300 000 and paid the purchase price and R74 250 transfer duty in cash. Assume
that Xavier did in fact claim home study expenses on 5% of the property for the first time ever during
the 2023 year of assessment. He owned the property for 60 months in total and used a portion for his
home as a home office for seven months.
12. Xavier incurred R18 200 medical expenses for himself for the 2023 year of assessment (until
4 January 2023) that the medical scheme did not refund. Of this amount, R15 000 was paid in cash
and the balance was still owing to medical practitioners by 28 February 2023. Xavier also paid his
mother’s medical scheme contributions of R2 230 per month during her full 2023 year of assessment
as well as R62 000 medical expenses (paid during August 2022) that were not refunded by her medical
scheme. Xavier’s mother, who has a physical impairment that qualifies as a “disability” as defined in
section 6B(1) of the Income Tax Act, 1962 (Act 58 of 1962), as amended, is dependent on him for
family care and support.
22 TAX4862/108
NTA4862/108
PART B (28 marks)
Coldage is a registered VAT vendor that makes 100% taxable supplies and is not a small business
corporation as defined for normal tax purposes. The company has a February financial year-end. Coldage
has been trading since 2001 and provides long-term and short-term cold storage facilities to customers. The
company is dependent on a constant supply of electricity which has not been the case since load shedding
was introduced by Eskom in South Africa.
Coldage decided to invest in photovoltaic solar panels (less than 1 megawatt). The panels were purchased
and delivered at Coldage’s premises on 1 May 2022. The installation was finalised on 15 May 2022 and the
panels were brought into use on the same day. The purchase amount (cash value) included the installation
costs and amounted to R2 587 500 (Present Value). It was financed by a lease agreement with DEF Bank (a
local South African bank) and the bank settled the purchase price on 1 May 2022.
The lease agreement was entered into subject to the following terms and conditions:
• The lessee accepts the full risk of destruction or loss of the solar panels and assumes all obligations
arising in connection with the insurance, maintenance and repair of the panels while the agreement
remains in force;
• At the end of the lease contract, ownership of the solar panels will pass to Coldage;
• Coldage measures solar panels and right of use assets by applying the cost model and accounts for
depreciation on the straight-line method over a period of 10 years;
• the lease agreement carries interest at 7% per annum;
• the rent is paid in monthly instalments of R51 236 over a period of 60 months commencing from
31 May 2022; and
• Finance charges (interest expense) for the period 1 May 2022 until 28 February 2023 is R141 301. The
capital repaid for the period 31 May 2022 until 28 February 2023 amounts to R371 055 (correctly
calculated).
PART C (5 marks)
Opportune (see Part A, note 5) is a registered VAT vendor that makes mixed supplies. Opportune purchased
a business as a going concern at the zero-rate for a purchase consideration of R750 000. Included in the
purchase consideration are assets with a value of R120 000 that will be used by Opportune to make 100%
taxable supplies. Also included in the purchase price, is a motor car (as defined in section 1 of the VAT Act)
with a value of R85 000. The use of this motor car will be given to an employee of Opportune. The original
cost price of the motor car was R135 000. The rest of the assets will be used by Opportune to make 45%
taxable supplies.
23 TAX4862/108
NTA4862/108
QUESTION 1 - REQUIRED
The required consists of three related parts namely PART A, PART B and PART C.
PART A
REQUIRED Marks
Sub-
Total Total
(a) Calculate and indicate the effect of the transactions under PART A on Xavier’s
taxable income for his 2023 year of assessment.
Ignore the effect of the transactions under note 4 (share options) and note 7 (home
office expenses).
Provide reasons or references to legislation for Rnil items including the transaction
under note 6.
For purposes of determining any retirement fund contribution deduction, assume
that the amount of “remuneration” (as defined in paragraph 1 of the Fourth
Schedule to the Income Tax Act, 1962 (Act 58 of 1962), as amended) is R378 690
and that the taxable income before and after any taxable capital gain is R450 000
25
(correctly determined).
(b) Calculate the normal tax consequences of note 4 for Xavier for all the years of
assessment wherein there is a normal tax consequence. Clearly indicate the tax
consequences for each year of assessment separately.
Indicate which amount (if any) will be subject to employees’ tax in Xavier’s hands
during his 2023 year of assessment.
Support your answers with relevant references to legislation.
Assume that the 2022/23 tax legislation applies to all the relevant years of
12
assessment.
(c) Xavier read an online news article that mentioned that employees working from
home would be entitled to deduct home office expenses for normal tax purposes.
Compile an e-mail to Xavier and provide your opinion on the deductibility of all the
expenditure under note 7 in respect of his 2023 year of assessment. Address each
expense separately, without duplicating arguments. Support your opinion with
relevant references to legislation, as well as calculations. 12
Communication skills – layout and structure; logical argument 2 14

(d) Calculate any withholding tax that Xavier may be liable for during his 2023 year of
assessment. Support your calculation with a relevant reference to legislation. 3
(e) Calculate the medical tax credits that Xavier will qualify for (if any) in respect of his
2023 year of assessment. Assume that Xavier’s taxable income for his 2023 year
of assessment is R600 000 (correctly determined). 9
(f) Briefly discuss, whether or not Xavier is liable to submit provisional tax returns
(IRP6’s) in respect of his 2023 year of assessment. Provide reasons, or relevant
references to legislation, to support your answer. 4
TOTAL FOR PART A 67
24 TAX4862/108
NTA4862/108
QUESTION 1 – REQUIRED (continued)
PART B
REQUIRED Marks
Sub- Total
Total
(a) Provide a brief discussion on whether or not the lease agreement qualifies as
an instalment credit agreement as defined in the Value-Added Tax (VAT) Act,
1991 (Act 89 of 1991), as amended.
Also calculate and indicate the VAT consequences and the time of supply of
this transaction, for Coldage (Pty) Ltd. Support your answer with relevant
references to VAT legislation. 9
Communication skills – clarity of expression 1 10

(b) Prepare all the journal entries to account for the lease in the financial records
of Coldage (Pty) Ltd for the financial year ended 28 February 2023. Provide
one cumulative journal at financial year-end for any recurring journals.
Assume that the lease contract contains a lease as per IFRS 16 Leases.
Journal narrations and journal entry dates are not required. Ignore any normal
tax consequences. 10
Communication skills – presentation 1 11

(c) Based on the assumption that the lease agreement is a finance lease, briefly
discuss the normal tax consequences of this transaction for Coldage (Pty)
Ltd’s 2023 year of assessment. Support your discussion with calculations. 6
Communication skills – clarity of expression 1 7

TOTAL FOR PART B 28
PART C
REQUIRED Marks
Total
Calculate the VAT implications of the transaction for Opportune (Pty) Ltd.
Clearly distinguish, in your answer, between input tax and output tax. 5
TOTAL FOR PART C 5
TOTAL FOR QUESTION 1 100
(IM/JW)
25 TAX4862/108
NTA4862/108
QUESTION 2
All references in the scenario below are to the Income Tax Act, 1962 (Act 58 of 1962), as amended,
unless stated otherwise.
Homecraft Furniture Ltd (‘Homecraft’) is a South African listed company that imports high quality material
from international sources and is renowned for its production of modern designs and eco-friendly furniture
parts. The company only use reputable dealers to source high quality material from China, Indonesia and
Malaysia to provide cost-friendly do-it-yourself (DIY) products to the South African public. The DIY furniture
is easy to assemble by the public, but as Homecraft uses the material to produce easily assembled furniture,
the South African Revenue Service (SARS) acknowledges the production of the furniture parts as a process
similar to manufacture as determined in Practice Note 42 issued by SARS
Homecraft is a company, both incorporated and effectively managed in South Africa, and has one million
equity ordinary shares in issue since incorporation which are widely held. It is a registered value-added tax
(VAT) vendor, a category C vendor (with monthly VAT returns). Its financial year ends on the last day of
December. Homecraft has obtained valid tax invoices as well as other necessary documentation for all its
transactions, where relevant. Homecraft obtained an annual ruling from SARS in 2023 to determine its input
tax in accordance with the turnover-based method where the ratio of taxable supplies to total supplies is
90:100 for Homecraft’s enterprise as a whole.
Notes:
1 Contract with Furn-Mart
Homecraft entered into a contract with Furn-Mart (Pty) Ltd (‘Furn-Mart’) (a resident company and VAT
vendor) on 1 December 2023 to produce 150 home office desks for it all to be sold to the South African
market. Furn-Mart will have the exclusive rights to sell these desks. Furn-Mart is not a connected
person in relation to Homecraft. The contract price for the 150 desks was R1 200 000 (excluding VAT)
of which Furn-Mart paid R800 000 on 1 December 2023. The remaining balance is payable on the
date of delivery of the desks. The desks were delivered on 15 February 2024. At 31 December 2023,
Homecraft incurred expenses of R130 000 (excluding VAT) in respect of the contract and the company
will incur further expenses (after 31 December 2023) of R250 000 (excluding VAT) to meet its
obligations in respect of the contract.
2 Order from China
Homecraft ordered 500 children’s beds, at a cost of ¥800 per bed, from their supplier in China on
7 November 2022. The beds were shipped Cost-insurance-freight (CIF) on 1 December 2022 and the
costs of the risks associated with the CIF will be borne by Homecraft from this date. On the same date,
Homecraft entered into a two-month forward exchange contract (FEC) with their local bank in order to
hedge the full purchase price. The beds arrived in South Africa on 17 December 2022 and were
immediately cleared and released by Customs for home consumption. Import duties of R17 200 were
paid, as well as the correct amount of South African VAT. 80% of the beds were still on hand at 1
January 2023, but none of the beds were on hand at 31 December 2023. The outstanding debt was
settled in full on 31 January 2023.
26 TAX4862/108
NTA4862/108
The following exchange rates were applicable:
Date Spot rate

¥1 = R?
7 November 2022 ¥1 = R2.20
1 December 2022 ¥1 = R1.92
¥1 = R2.15 (forward rate under a two-month
FEC)
17 December 2022 ¥1 = R2.25
31 December 2022 ¥1R1.87
¥1 = R2.00 (forward rate under a one-month
FEC)
31 January 2023 ¥1 = R2.05
3. Other information
3.1 Herman (who is disabled) and Alec (not disabled) are both in the employ of Homecraft. Both these
employees entered into a six-month registered learnership agreement with Homecraft on 1 July 2023.
Both employees successfully completed the learnership agreement on 31 December 2023. On
1 July 2023, Herman held a National Qualifications Framework (NQF) level 7 qualification, while Alec
held a NQF level 6 qualification on the same date.
3.2 During Homecrafts’ 2022 financial year, the Commissioner allowed a doubtful debt allowance of
R22 000. Homecraft applies IFRS 9. During the 2023 year of assessment a total impairment loss
allowance (IFRS 9 loss allowance) of R85 000 was determined by Homecraft. It consisted of R30 000
measured at an amount equal to the lifetime expended credit loss and R55 000 measured at an amount
equal to the 12-month expected credit loss.
3.3 A calibrating sanding machine used solely in the production of furniture parts was damaged beyond
repair because of a power surge during load shedding on 4 June 2023. This machine was purchased
new and unused on 25 April 2021 at a cost of R950 000 (including VAT) and brought into use on 1 May
2021.
Homecraft’s insurance policy did not cover the damages relating to the power surge and as a result
they did not receive an insurance pay-out. Homecraft sold the damaged machine for R100 000
(excluding VAT) on 10 August 2023 to a manufacturer (not a connected person as defined in section 1),
who will dismantle the machine for spare parts.
As the damaged machine was crucial to Homecraft’s production operations, the company immediately
purchased a new machine under a suspensive-sale agreement from a manufacturer situated in
Johannesburg on 11 June 2023 at a cash price of R1 380 000 (including VAT), plus finance charges of
R207 000 for the 36-months period from 11 June 2023 to 11 June 2026. As part of the installation of
the new machine and due to the sensitivity of the machine, a technician was required to setup the
calibration of the sanding machine for the machine to operate to precise measurements. The technician
sent an invoice to Homecraft for R92 000 (including VAT) on 12 August 2023. The new machine was
solely brought into use in the production of furniture parts on 13 August 2023.
27 TAX4862/108
NTA4862/108
4 Investment in small business enterprises
Homecraft acknowledges the growing demand for home improvements in the local informal settlement
areas. To this end, Homecraft introduced a programme whereby small black-owned independent
businesses can buy wholesale from Homecraft. In addition, Homecraft provides mentorship to the
small business owners and provide financial support in the form of loans. None of these small
businesses are connected persons as defined in section 1 in relation to Homecraft. Homecraft
considers renting premises in Diepkloof Square, Johannesburg, as a depot for several small black-
owned independent businesses that buy wholesale from Homecraft.
Homecraft granted a loan of R1 500 000 to one of these businesses, People Projects (Pty) Ltd (‘PP’)
on 1 January 2023 at an interest rate of 8% per annum (capitalised annually). PP is not a registered
VAT vendor, nor a Small Business Corporation as defined in section 12E. PP’s year of assessment
ends on the last day of December. PP used the loan to purchase a new delivery truck at a cost of
R1 500 000 (excluding VAT) on 14 January 2023. The truck was brought into use on 1 February 2023.
PP experienced some serious cash flow problems and approached Homecraft to consider a
compromise of its debt. Homecraft discharged the R1 500 000 capital portion of the debt together with
the capitalized interest of R173 615 to Rnil on 1 June 2024. PP correctly deducted the interest paid for
income tax purposes during the company’s 2023 and 2024 years of assessment, respectively.
5 Shareholders of Homecraft
Some of Homecraft’s issued ordinary equity shares are held by the Plywood Trust, a resident trust (see
note 5.2 below) and Baren Birch (and ordinary resident in South Africa). Baren holds 10% of the issued
ordinary equity shares and voting rights as an investment since 2020), while the remaining issued
ordinary equity shares are held by numerous investors and share dealers of which none hold more than
1% of the ordinary equity shares and voting rights on their own at any given point in time. The following
information is available:
5.1 Plywood Trust
The Plywood Trust was founded during 2017 in terms of the valid will of Baren Birch’s father,
Beechwood Birch. Beechwood was born in South Africa and lived here his whole life. The trust is
discretionary with regards to both income and capital and not a VAT vendor as defined. The
beneficiaries of the Plywood Trust are Baren Birch (48 years old, divorced) and his two children, Pine
(25 years old and not a resident for South African tax purposes) and Cypress (16 years old and a
resident for South African tax purposes).
In his will, Beechwood bequeathed an offshore (i.e. foreign) share portfolio to the Plywood Trust. The
shareholding in the offshore share portfolio is less than 1% and none of the foreign companies are
dual-listed on the Johannesburg Stock Exchange (JSE). All dividends earned on the offshore share
portfolio are subject to a 10% withholding tax. Beechwood also bequeathed a small office block (market
value R3.2 million on date of Beechwood’s death) in Nasrec, Johannesburg to the Plywood Trust (see
note 5.2 below). The small office block was acquired from a property developer by Beechwood in 2008
at a cost of R1.5 million.
28 TAX4862/108
NTA4862/108
Baren donated the capital amount in an interest-bearing long-term fixed deposit (held for investment
purposes) of R4 million held at a local bank to the Plywood Trust on 1 September 2022. On the same
date, Baren decided to transfer an eight-hectare plot (at market value) which he owned in Knysna,
Western Cape to the trust on an interest-free loan account. He acquired the plot of land in 2018 to build
his own retirement home, but due to financial constraints he decided that the plot of land is perfect for
the development of holiday apartments and that the trust would be the ideal vehicle for the
development. Baren purchased the plot of land for the amount of R4,5 million and it had an open market
value of R6 million on 1 September 2022. As the Plywood Trust did not have the necessary cash funds,
Baren paid R150 000 to his lawyer (on 30 September 2022) to sub-divide the vacant plot of land.
After the transfer of the above to the trust, Baren’s only asset is his house in Birchwood, Johannesburg.
He inherited this house in 2013 when it had an open market value of R4.4 million. On 1 October 2022
the house had an open market value of R5.4 million. Baren did not have an assessed loss or capital
loss during his 2022 year of assessment.
The income and distributions of the Plywood Trust for the year ending on 28 February 2023 were as
follows:
Income and distributions Received or R

accrued on:
Net foreign dividend income 30/04/2022 138 000 20%
Net rental received from the office block 01/03/2022 to
(accrued evenly) 30/09/2022 345 000 50%
Interest income (accrued evenly) 207 000 30%
Total net income Distributed on: 690 000 100%
Distribution, pro rata out of all income, to 30/09/2022 (100 000)
Baren
Distribution, pro rata out of all income, to 28/02/2023 (100 000)
Pine
Distribution, pro rata out of all income, to
Cypress 28/02/2023 (100 000)
Retained income 390 000
You may assume that the market-related interest is 5% and that the official rate of interest is 4,75%
during the entire 12-month period ending on 28 February 2023.
5.2 Acquisition of office block
On 1 October 2022 Homecraft acquired the office block (see note 5.1 above) for an amount of R3,8
million (market value) from the Plywood Trust. The office block had a base cost of R3,2 million on the
date it was acquired from the Plywood Trust. Homecraft financed the acquisition of the office block by
issuing 30 928 ordinary equity shares to the Plywood Trust. The Plywood Trust did not own any equity
shares in Homecraft before this transaction. However, after the transaction the Plywood Trust held a
3% interest in Homecraft’s ordinary equity shares and voting rights. Homecraft will lease the office
building to the small business owners mentioned under note 4 above, instead of renting the premises
in Diepkloof Square.
The market value of the Homecraft ordinary equity shares immediately prior to the transaction
amounted to R98 per ordinary share, while on 1 October 2022 the market value was R110 per ordinary
share.
29 TAX4862/108
NTA4862/108
6 Equity shares
The Plywood Trust acquired a further 12% of the issued ordinary equity shares and voting rights of
Homecraft on 1 January 2023. Baren Birch also acquired a further 5% of the issued ordinary equity
shares and voting rights in Homecraft on 1 January 2023, as well as 20 000 4% cumulative preference
shares in Homecraft at their par value of R50 per preference share.
Additional information:
• The Commissioner allows Homecraft to apply the gross profit percentage on a contract as the basis
for calculating future costs for normal tax purposes, where applicable.
• SARS’ Binding General Ruling No 7 provides for the following write-off periods:
o a six-year (6) write-off period for sanding machines.

o A four-year (4) write-off period on delivery trucks.
• Assume that Homecraft will elect any tax option available that will legally reduce its income tax liability.
• Apart from the information provided above, Baren Birch made no other donations or deemed
donations since 1 March 2020.
30 TAX4862/108
NTA4862/108
REQUIRED MARKS
Sub-
total Total
(i) Calculate the effect that the transactions in Notes 1 to 3, will have on the
taxable income of Homecraft Furniture Ltd (‘Homecraft’) for the company’s
2023 year of assessment. Address each item and if any item or part of an
item has no effect on taxable income, it should be clearly indicated supported
by a reason. 28
For the purposes of this part of the required only, ignore the income tax
treatment of finance charges in terms of s 24J of the Income Tax Act, 1962
(Act 58 of 1962), as amended.
(ii) Discuss, supported by calculations and detailed references to legislation, the
income tax implications for People Projects (Pty) Ltd in respect of the
reduction of debt (see note 4) for the company’s 2024 year of assessment. 10
Assume that the reduction of debt is not a scheme to avoid tax nor does it
constitute a donation. Also assume that the Income Tax legislation for the
2023 year of assessment remains the same for the 2024 year of assessment.
Communication skills – clarity of expression and presentation
2 12
(iii) For note 5.1, calculate the taxable income of Baren Birch for his 2023 year of
assessment. Support each item in your calculation with the correct reason
and/or reference to Income Tax legislation. Assume that Baren Birch is not a
VAT vendor and that his taxable income, before taking into account the
information in note 5.1, amounted to R560 000 (correctly determined) during
his 2023 year of assessment. 19
(iv) Briefly discuss, supported by calculations if applicable, the changes, if any, in
his taxable income calculation (when compared to your answer in part (iii) of
the required) if Baren Birch passed away on 1 October 2022. Assume that his
valid will bequeathed all his assets to the Plywood Trust. Also assume that
his taxable “income” (as defined in section 1 of the Income Tax Act) from other
sources amounted to R448 000 (correctly determined) up until
1 October 2022 and before the information under note 5.1 was taken into 7
account.

(v) In respect of note 5.2:
Discuss, with supporting calculations, the income tax consequences for both
Homecraft and the Plywood Trust for the 2023 year of assessment. 15
Communication skills – layout and structure 1 16

(vi) For note 5.2, critically discuss the qualitative factors (ignore tax-related
factors), that Homecraft should have considered before taking the decision to
acquire the office building and letting it to the small business owners. 10
(vii) In respect of note 6:

Draft a memo to Baren Birch in which you explain, with supporting
calculations, all his donations tax implications (if any) during his 2023 year of
assessment. 6

TOTAL QUESTION 2 100
(MP/JW)
31 TAX4862/108
NTA4862/108
QUESTION 1 - SUGGESTED SOLUTION
PART A
(a) Taxable income
Taxable income as a resident 1 March 2022 – 4 January 2023 Add/

(deduct)
R
1. Monthly basic gross cash salary
R30 000 pm x 8 months 240 000 (½)

Inclusion ito par (c) of “gross income” (‘GI’) def. section 1
2. Contributions to benefit funds
Provident fund contributions – R5 000 pm x 8 months 40 000 (1)

Inclusion ito par (i) of GI def. Fringe benefit ito of par 2(l) & par 12D of the Seventh
Schedule.
Medical scheme contributions – R2 800 pm x 8 months 22 400 (1)
Inclusion ito par (i) of GI def. Fringe benefit ito par 2(i) & par 12A of the Seventh
Schedule.
3. Exclusive use of laptop
Private use portion is a fringe benefit, but with no value ito par 6(4)(bA) of the
Seventh Schedule as the laptop (R23 000) is used mainly (more than 50%) for the
employer’s business. - (1)
4. Vesting of share options
Ignore as per required
5. Exclusive use of motor vehicle
R494 500 x 3,5% pm x 8 months 138 460 (1½)

Less: Par 7(7) reduction R138 460 x 1 200km/3 500km (47 472)
Inclusion ito par (i) of GI def. Par 2(b) & 7 of the
Seventh Schedule. 90 988 (1)
6. Allowance received for office chair
Allowance received for office chair 3 500 (½)

Inclusion in taxable income (OR s 8(1)(a)(i)) (1)
Note: No deduction for the amount spent on the office chair (note 7) is allowed, as
ownership of the asset does not vest in the principal (employer), but in the
employee. Proviso to section 8(1)(a)(ii). - (1)
7. Work from home expenditure
Ignore as per required

32 TAX4862/108
NTA4862/108
QUESTION 1 – SUGGESTED SOLUTION (continued)
Add/
(deduct)
9. Interest received
R
Interest received from SA bank while ordinarily resident 93 750 (½)
Less: Interest exemption (section 10(1)(i)(ii)) (23 800) (½)
9, 10 & 11. Deemed disposal of assets upon emigration
Deemed sale of cash investments (notes 9 and 10):
Ito section 9H(2) Xavier is regarded as having disposed of all his assets on the
day before he emigrates to Australia, which is 4 January 2023. However, currency
is excluded from the definition of an “asset” in paragraph 1 of the Eighth Schedule.
(R1 250 000)
- (1)
Deemed sale of residential property in Pretoria, South Africa (note 11):
The source of the asset is SA in terms of section 9(4)(d) of the Income Tax Act.
Ito section 9H(2) Xavier is regarded as having disposed of all his assets on the
day before he emigrates to Australia, which is 4 January 2023. However, ito
section 9H(4)(a) immovable property situated in RSA is excluded from this
deemed disposal due to emigration. - (1)
10. Lump sum received from withdrawal of provident fund R
Net amount received 2 820 000 (½)

Plus: Tax deducted 860 000 (½)
Gross amount of lump sum (GI & Par 2(1)(b)(ii) of 2nd Schedule) 3 680 000
Less: Previous contributions not allowed as a deduction deductible
ito par 6(1)(b)(i) of the 2nd Schedule. (175 000)
(1)
The balance of unclaimed contributions cannot be considered for
s 11F deduction due to the fact that it does not meet the stipulations
of s 11F(3).
Taxable amount of lump sum withdrawal from provident fund. 3 505 000 3 505 000
Lump sum withdrawal is taxed separately at the normal tax rates that applies to
withdrawals from retirement funds. Included ito par (e) of the def of GI, s 1 (1)
Lump sum withdrawal received is excluded from capital gains in
terms of par 54 of the Eighth Schedule. (1)
Taxable income as a non-resident 5 Jan to 28 Feb 2023
8. Salary earned in Australia
Xavier is a non-resident as he emigrated on 5 January 2023 when he left South

Africa. From 5 January 2023 he was not ordinarily resident in South Africa any
longer and will not be taxed on the Australian income in South Africa (OR: will only
be taxed in SA on SA source income). The physical presence test cannot be
applied during a year when a taxpayer was ordinarily resident in South Africa.
Source of Australian salary is place where the services were rendered (originating
cause principle – Lever Brothers & Unilever Ltd case principle) which was
Australia and not South Africa. (R118 000) - (1)
33 TAX4862/108
NTA4862/108
Add/
(deduct)
R
9. Interest received
Interest received from Australian bank

Xavier is a non-resident as he emigrated on 5 January 2023 when he left South
Africa. From 5 January 2023 he was not ordinarily resident in South Africa any
longer and will not be taxed on the Australian income in South Africa. The physical
presence test cannot be applied during a year when a taxpayer was ordinarily
resident in South Africa. The deemed source of the interest is Australia and not
South Africa in terms of section 9(4)(b) of the Income Tax Act. (R4 400) - (1)
11. Sale of residential property (primary residence)
Proceeds [par 35] 2 600 000 (½)

Less: Base cost [par 20] (2 452 250)
Purchase price 2 300 000 (½)
Plus: Agent’s commission (not deduct from 78 000
Proceeds) (½)
Plus: Transfer duty 74 250 (½)
Capital gain 147 750
Less: Taxable portions:
Home study expense claimed as a deduction
R147 750 (capital gain) x 5% x 7m/60m (862) (2)
Period not residing in primary residence (i.e.
5 January 2023 to 15 February 2023) -
Note: Xavier is deemed to have resided in the primary
residence during the period that the residence was offered for
sale ito of par 48(a) of the Eighth Schedule.
146 888
Less: Primary residence exclusion (Par 45(1)(a) of the Eighth
Schedule) (R2 million limited to R146 888) (146 888) (1)
-
Capital gain (home study (business) portion) 862
Less: Annual exclusion [par 5] (R40 000 limited to R862) (862)
Net capital gain - - (½)
34 TAX4862/108
NTA4862/108
Add/
(deduct)
R
Section 11F deduction:
Actual contributions made to Provident Fund (paid by employer) – R40 000 (1)
Limited to the lesser of:
● R350 000 (not reduced for period of residence); or
(½)
● 27,5% of the higher of:
- Remuneration = R378 690 (given in required); and
- R450 000 (TI after taxable capital gain) (given in
required)
Therefore – 27,5% x R450 000 (1) = R123 750; or (1½)
● R450 000 (TI before taxable capital gain – given in
required)
(½)
Therefore, the lesser amount - R123 750, but limited to actual
contributions. (40 000) (1)
Total 27½
Max 25
(b) Share options R
Feb 2020 YOA:

(½)
Option granted and exercised on 1 April 2019
(R35 – R20) x 10 000 shares – 2020 yoa 150 000 (1)

Inclusion in GI, section 1, par (c) (by default) when option is granted and when (1)
exercised. Obtained due to employment, hence due to services rendered.
Less: exemption (in both instances) (150 000) (½)
Section 10(1)(nD) exemption as shares have not vested yet. The
conversion of one restricted equity instrument (option) into (1)
another restricted equity instrument (equity share) is not a
vesting event for purposes of section 8C [see section 8C(1)(b)(i)]
Inclusion in Income nil
Feb 2023 YOA: (½)

Vesting of the shares on 1 April 2022 as the restriction falls away (sales restriction
is lifted) on 31 March 2022.
Market value on vesting date (R45 x 10 000 shares) – 2023 yoa 450 000 (½)
Less: Consideration paid (R20 x 10 000 shares) (200 000) (½)
Inclusion in income gain realised in terms of section 8C 250 000 (1)
Disposal of shares held on capital account: CGT consequences
Proceeds (R62 x 10 000 shares) (par 35 of the Eighth Schedule) 620 000 (1½)
Less: Base cost (R45 x 10 000 shares) (par 20(1)(h) of the Eighth Schedule) (450 000) (1½)
Capital gain (Eighth Schedule) – 2023 yoa 170 000
This capital gain will be aggregated with other capital gains/losses for the year of assessment
and annual exclusion deducted. (½)
Inclusion rate 40% (½)
35 TAX4862/108
NTA4862/108
Amount subject to employees’ tax in 2023 year of assessment:
The full amount of the income gain inclusion in “income” in terms of s 8C will be
subject to employee’s tax / is remuneration. 250 000
Par (e) of the definition of “remuneration” in par 1 of the Fourth Schedule to the
Income Tax Act. (It is NOT a fringe benefit)
2 marks for students who calculate normal tax (with no deduction of rebates) (2)
Total 12½
Max 12
(c) E-mail – home office expenses
Mail to: Xavier Benson

Mail from: CTA Student / Consultant
Subject: Deductibility of home office expenses for the 2023 year of assessment
Date: 28 February 2023
1 mark for the e-mail format (
Home office expense (City Council utility bill):
For an expense to be deductible, it needs to meet the criteria of the general deduction formula (1)
in section 11(a) read with section 23(g) of the Income Tax Act.
Section 23(g) prohibits expenditure to the extent that such expense is not expended for the (1)
purposes of trade.
Therefore, in terms of the general deduction formula, even though a portion of the City Council (1)
bill is expended for private purposes, a portion of the City Council utility bill may qualify for
deduction as it is expended for trade purposes/production of income.
Section 23(b) may prohibit the deduction of private or domestic expenses in connection with any (1)
dwelling, except in respect of such part as may be occupied for trade purposes.
The City Council utility bill is a private or domestic expense incurred in connection with a dwelling.
Xavier uses a 5% portion of his dwelling for trade purposes, therefore 5% of the City Council
utility bill may be deductible. (Mark given later)
Section 23(b) does NOT prohibit the deduction of 5% of the City Council utility bill, because: (1)
5% of the floor space is specifically equipped for Xavier’s trade and was regularly and (1)
exclusively occupied for his trade (Proviso (a) to section 23(b)); and
His duties are mainly (more than 50%) performed in the specifically equipped portion due to (1)
the fact that Xavier worked from home for the full period between 1 April 2022 and
31 October 2022. (Proviso (b) to section 23(b)).
However, due to the fact that Xavier’s income does not consist mainly of commission income (or (1)
consists mainly of salary), section 23(m) limits the deduction of expenses that qualifies for
deduction ito section 11, to certain types of expenditure. (1)
In terms of section 23(m)(iv), Xavier will be able to deduct the 5% of the City Council utility bill as (1)
an expense in connection with any dwelling that is not prohibited by section 23(b).
Xavier will be able to deduct R31 500 x 5% = R1 575 of the utility bill. (1)
36 TAX4862/108
NTA4862/108
Office chair
The expenditure incurred on the office chair does not meet the requirements of the general (1)
deduction formula as it is capital in nature.
The office chair may qualify for a section 11(e) capital allowance. As the cost price is less than (1)
R7 000, the full purchase price (meaning 100%) will qualify for the allowance.
However, due to the fact that Xavier’s income does not consist mainly of commission income,
section 23(m) limits the deduction of expenses that qualifies for deduction ito section 11, to
certain types of expenditure.
In terms of section 23(m)(ii), Xavier will be able to deduct the capital allowance on the office
chair. (1)
Xavier will be able to deduct R6 670 – R1 = R6 669 for capital allowance. (1)
Available 15
Max 12
Communication skills – layout and structure; logical argument (2)
Total 14
(d) Withholding tax

Xavier will be liable for withholding tax on the sale of his primary residence situated in Pretoria,
South Africa in terms of section 35A of the Income Tax Act. (1)
The buyer of the property must withhold the tax and pay it to SARS on behalf of the seller.
Because Xavier (the seller) is a natural person, the withholding tax rate is 7,5%. (1)
R2 600 000 x 7,5% = R195 000 withholding tax will be payable (not a final tax). (1)
Total 3
37 TAX4862/108
NTA4862/108
(e) Section 6A and section 6B medical tax credits
Section 6A credit:
Xavier’s mother qualifies as a “dependant” ito par (c) of the definition of “dependant”
in section 6B(1).
R347 x 10 months (s 6A(2)(b)(i)(aa)) for Xavier himself 3 470 (1½)
R347 x 12 months (s 6A(2)(b)(i)(aa)) for Xavier’s mother 4 164 (1)
Section 6A(2)(b) credit 7 634
Section 6B credit:
Medical scheme fees paid by Xavier
R2 800/60x100 = R4 667 x 10 months 46 670 (1½)
R2 230 x 12 months = R26 760 (mother) 26 760 (1)
73 430
Less: 4 x Section 6A(2)(b) credit (4 x R7 634 = R30 536) (30 536) (1)
42 894
Plus: Qualifying medical expenses paid by Xavier for himself 15 000 (1)
Qualifying medical expenses must be actually paid and not just
incurred or payable to qualify for deduction.
Qualifying medical expenses paid by Xavier on behalf of his mother 62 000 (1)
119 894
Less: 7,5% x R600 000 (given) = R45 000 (45 000) (1)
74 894
Section 6B credit – R74 894 x 25% 18 724 (1)
Total 10
Max 9
(f) Provisional tax returns
The definition of “provisional taxpayer” in par 1 of the Fourth Schedule applies. (1)
In terms of sub-par (a)(ii) of the definition Xavier is regarded as a provisional taxpayer as he
derives income by way of interest received that is not remuneration. (1)
The exclusion in sub-par (dd)(B)(BB) does not apply, as the taxable income of interest received
by Xavier amounts to R69 950 (i.e. R93 750 – R23 800) which exceeds R30 000.
(1)
Conclusion: Xavier is liable to submit provisional tax returns (IRP6’s) for his 2023 year of
assessment. (1)
Total 4
PART B
(a) Discuss ICA and VAT

Par (b) of the definition of “instalment credit agreement” in section 1 of the VAT Act: (1)
The photovoltaic panels are goods consisting of corporeal movable goods (½)
(b)(i) – the rent consists of a determinable amount of money payable periodically in instalments
over a period of 60 months; and (½)
(b)(ii) – the instalment payable includes finance charges; and (½)
(b)(iii) – The aggregate of the amounts payable to the lessor and any residual value of the leased
goods on termination of the lease, exceeds the cash value of the supply; and
OR - total amount payable (R3 074 160 (50 x R51 2360)) > cash value of the supply (R2 587 500) (½)
(b)(iv) – Coldage (lessee) is entitled to the possession and use of the goods for a period of more
than 12 months; and (½)
(b)(v) – Coldage (lessee) accepts the full risk of destruction or loss of the goods and assumes all
obligations arising in connection with the insurance, maintenance and repair of the goods while
the agreement remains in force. (½)
38 TAX4862/108
NTA4862/108
Conclusion: Yes, the lease agreement is an instalment credit agreement. (1)

Input tax: Input tax is claimable as the goods will be used to make taxable supplies, the VAT paid (1)
on the solar panels qualify for an input tax deduction (definition of “input tax” in section 1).
The input tax is claimable ito section 17(1) of the VAT Act. It is also not denied. (1)
Value: The consideration in money for the supply is the cash value of the supply. This is the
purchase price including VAT, which is R2 587 500, excluding finance charges. (Def of “cash
value” in section 1 and/or s 10(6)). As Coldage makes 100% taxable supplies, the input tax must
not be apportioned. (1)
Input tax = the value of the supply x the tax fraction = R2 587 500 x 15/115 = R337 500 (1)
Interest component is classified as a “financial service” (OR finance charges) which will be an
exempt supply for VAT purposes (s 2 read with s 12(a) of the VAT Act). (2)
Time: The time of supply is the earlier of the time of the delivery of the goods or the time any
payment is received, which in this instance is the same date. The input tax is claimable in the
VAT period in which May 2022 falls (Section 9(3)(c)) (2)
Available 13
Max 9
Communication skills – clarity of expression (1)
Total 10
(b) Accounting journals

Dr/R Cr/R
1 May 2022
J1 Right-of-use asset (SFP) 2 250 000 (1½)
Input tax / VAT control account (SFP) 337 500 (1½)
Lease liability (SFP) (Initial measurement of the lease) 2 587 500 (1)
Recognition of the right-of-use asset
28 February 2023
J2 Lease liability (SFP) (R51 236 X 10 months)
(or R512 360) 512 356 (2)
Bank (SFP) 512 356 (½)
Recognise lease liability
J3 Interest expense (P/L) 141 301 (1½)
Lease liability (SFP) 141 301 (1)
Recognise interest expense
J2&3 Alternative:
Lease liability 371 055 (3)
Interest expense 141 301 (1½)
Bank 512 356 (½)
J4 Depreciation: Right of use Asset (P/L) 178 125 (½)

Accumulated depreciation: Right of use asset (SFP) 178 125 (½)
Recognise depreciation for the year
R2 250 000 /10y x 9,5m /12m = R178 125 (2)
Available 12
Max 10
Communication skills – presentation (1)
Total 11
39 TAX4862/108
NTA4862/108
(c) Normal tax consequences – finance lease
The solar panels are not owned by Coldage as it was not purchased outright or financed by way of
an instalment sale agreement, therefore no capital allowances and no deduction for finance
charges.
Note: If the solar panels were purchased, Coldage would have deducted the finance charges and a
section 12B capital allowance of 100% (s 12B(2)(b), read with s 12B(1)(h)(ii)(bb)).
The solar panels are leased by Coldage and therefore the monthly instalments paid (excluding VAT) (1)
are deductible for normal tax purposes ito the general deduction formula (s 11(a)) as it constitutes
rent paid for an asset used for trade purposes / in production of income.
(1)
As the finance lease agreement qualifies as an instalment credit agreement for VAT purposes, the
full VAT amount is claimable upfront as input tax / VAT must be excluded from each payment.
Therefore, the VAT must be excluded from the monthly instalments (ito section 23C of the ITA) in
order to calculate the amount that is deductible for normal tax purposes. (1)
R2 587 500 x 15/115 = R337 500 / 60 (1) = R5 625 VAT in each payment.
Monthly payment (R51 236) less VAT (R5 625) = R45 611 payment excluding VAT. (4)
Deduction for lease payments – R45 611 x 10m = (R456 110)
Available 7
Max 6
Communication skills – clarity of expression (1)
Total 7
PART C
Input tax: (½)

Buying the business as a going concern (R750 000 x 0% / zero (0)
rated)) - given (1)
Output tax: (½)
Going concern adjustment (s 18A) R
Total purchase consideration of the business 750 000
Less: Value of assets used to make 100% taxable supplies (120 000) (1)
Less: Value of asset on which input tax was denied – motor car (85 000) (1)
Balance of assets that will be used to make mixed supplies 545 000
Non-taxable use percentage (100% - 45% = 55%)

Non-taxable use (R545 000 x 55%) = R299 750 299 750 (1)
Output tax on non-taxable use – R299 750 x 15% 44 963 (1)
Total 6
Max 5
40 TAX4862/108
NTA4862/108
i) R R
(1) Contract with Furn-Mart
Part of contract price received 800 000 (1)
Remaining part of contract: R400 000 (R1.2 m - 0,8m),
not unconditionally entitled to as not accrued (Mooi case nil (1)
principle), as the desks needs to be delivered, thus further
obligations exists.
Expenses incurred – deductible in terms of section 11(a) (130 000) (1)
Section 24C allowance:
Gross profit percentage:
(R130 000 + R250 000)/R1 200 000 = 31.67% (1)
Costs relating to amount received:
R800 000 x 31.67% = R253 360 (1P)
(Alternative: R800 000 x 31.7% = R253 600)
(Alternative: R800 000 x 32% = R256 000)
Costs still to be recognized:
R253 360 (OR: R253 600; OR: R256 000) – R130 000 (123 360) (1P)
(2) Material imported

Cost of sales (s11(a)) – 2022
(¥400 000 (i.e. 500 x ¥800) x R1.92 = R768 000) (s 25D)) +
R17 200 = R785 200 (2)
Opening stock (R785 200 x 80%) (s 22(2) – 2023) (628 160) (1P)
Note: There is no closing stock
Foreign exchange differences (s 24I)
Debt:
¥400 000 x (R2.05 – R1,87) (exchange loss) (72 000) (1)
FEC:
¥400 000 x (R2,05 – R2.00) (exchange gain) 20 000 (1)
Gains and loses must be correctly indicated 1P
(3) Allowances
3.1 Learnership agreement allowance – s 12H
Annual allowance
Herman (disabled) –NQF 7 (s 12H(2A)(b) read with s 12H(5A))
R50 000 x 6/12 (25 000) (1)
Alec – NQF 6 (s 12H(2)(b))
R40 000 x 6/12 (20 000) (1)
Completion allowance
Herman (disabled) NQF 7 (s 12H(3A) read with s 12H (5A)) (50 000) (1)
Alec – NQF 6 (s 12H(3)) (40 000) (1)
41 TAX4862/108
NTA4862/108
3.2 Doubtful debt allowance – s 11(j) R R

Add back doubtful debt allowance – 2022 22 000 (1)
Doubtful debt allowance for 2023 is the sum of (s 11(j)(ii):
- 40% of R30 000 (measured at an amount equal to the (1)
lifetime expected credit loss) = R12 000 plus
- 25% of R55 000 (measured at an amount equal to the
12-month expected credit loss) = R13 750 (25 750) (1)
3.3 Calibrating sanding machines

Old machine – 25/4/2021
Cost (R950 000 x 100/115) (used 100% for TS) 826 087 (1)
S 12C allowance
2021: (R826 087 x 40%) (330 435) (1)
2022: (R826 087 x 20%) (165 217)
2023: (R826 087 x 20%) (165 217) (165 217) (1)
Tax value: 165 218
Selling price (limited to cost – R826 087) 100 000 (1)
Less: Tax value (165 218)
(65 218)
S 11(o) scrapping allowance (65 218) (1)P
Alternative calculation:
Cost – (SP + allowances claimed)
= R826 087 – (R100 000 + R660 869) = R65 218.
CGT
Proceeds 100 000 - (1P)
Less: Base cost
(R165 218 – R65 218) 100 000 (1P)
Capital gain/loss
No amount will be included in taxable income via s 26A
New machine – 12/8/2023
Cost
Purchase price (R1 380 000 x 100/115) 1 200 000 (1)
Calibrating costs (R92 000 x 100/115) 80 000 (1)
S 12C allowance (R1 280 000 x 40%) 1 280 000 (512 000) (1)
Available 29
MAX 28
42 TAX4862/108
NTA4862/108
ii)
As there was a concession or comprise in respect of a debt that was owed by a person
(PP) and the amount of debt was used directly to fund expenditure for which an interest (1)
deduction and capital allowance was granted in terms of the Income Tax Act, section
19 and paragraph 12A of the Eighth Schedule will be applicable. (1)
As the interest of R173 615 was claimed as an income tax deduction, the provisions of (1)
section 19(5) will apply and the amount will be recouped in the 2024 year of assessment
in terms of section 8(4)(a). (1)
The R1 500 000 was used to finance the delivery truck (allowance asset), therefore (1)
section 19 together with paragraph 12A of the Eighth Schedule should be applied.
In terms of paragraph 12A of the Eighth Schedule the base cost of the asset as on the (1)
date of the debt benefit received should be reduced with the debt reduction amount.
The base cost of the delivery truck: R

Cost 1 500 000
Less: Section 11(e) allowance – 2023 (R1 500 000 x ¼ (or ÷ 4) x 11/12) (343 750) (1)
(apportioned)
(Alternative: (R1 500 000 x ¼ (or ÷ 4) x 334/365 = R343 151 – 2023)
Less: Section 11(e) allowance – 2024 (R1 500 000 x ¼ x 5/12) (156 250) (1)
(Alternative: (R1 500 000 x ¼ x 151/365 = R155 137)
Base cost 1 000 000
(Alternative, if days used = R1 001 712
R1 000 000 of the debt reduction of R1.5 million should therefore be applied to reduce
the base cost of the delivery truck by R1 000 000 to Rnil. (1)
The remaining capital portion of the debt reduction of R500 000 (i.e., R1.5 million less (1)
R1 million) will be applied to recoup the allowances claimed in respect of the delivery
truck (allowance asset) as a deduction for Income Tax purposes.
R1 500 000 – R1 000 000 = R500 000 will in terms of section 19(6) be deemed to be a (1)
section 8(4)(a) recoupment that needs to be included in PP’s gross income, section 1,
paragraph (n)) during PP’s 2024 year of assessment. (1)
No further section 11(e) allowances will be allowed to be claimed on the delivery truck
in future years of assessment, due to the section 19(7) limitation which is calculated as (1)
follows:
R
Aggregate expenditure incurred in acquiring the asset 1 500 000
Less: Debt reduction amount (1 000 000)
Less: Deductions and allowances previously allowed (500 000
Rnil
Available 13
Max 10
Communication skills - Clarity of expression (correct terminology in reference to Income
Tax legislation) and presentation (supported by applicable calculations) 2
Total 12
43 TAX4862/108
NTA4862/108
iii) Calculations
R R
Taxable income Baren Birch – provided 560 000
Distribution from trust: Included in terms of GI
definition, world-wide income and conduit pipe
principle:
20% foreign dividend R20 000 x 100/90 (WHT) (1)
= R22 223 +
50% net rental R50 000 + (1)P
30% interest income R30 000 102 223
Reason: Attained vested right ito s 25B(2) read with
s 7(1) (1)
Exempt income:
Foreign dividend 25/45 x R22 223 (12 346) (1)P
Reason: s 10B(3) rebate on gross amount of foreign
dividend (1)
Distribution to children:
Pine: Interest 30% x R100 000 or 30 000 (1)
Reason: s 7(8) applies on donation of investment (to
non-resident) that would have constituted income in (1)
Pine’s hands if he was a resident
Cypres: Interest 30% of R200 000 (both 30 000 (1)
Reason: s 7(3) applies as Cypress is a minor and this beneficiaries)
income comes from a donation by Baren (Cypress’ (1)
father).
Note: s 25B applies on foreign dividend and rental
income
Local interest (23 800) (1)
Reason: Baren is 48 (i.e. younger than 65) / s 10(1)(i) (1)
Retained income in trust: R207 000 – R90 000 or 117 000 (1)
Reason: S 7(5) will tax retained income (interest) in (R390 000 x 30%)
the hands of the donor (1)
Expenses:
Lawyer expenses R150 000 -
Reason: Not deductible in terms of s 11(a) or s 11(c)
as it was expensed in regards to a capital asset and (1)
not in the production of income (OR: Barren is no
longer the owner of the asset and this is a loan to the
trust.)
44 TAX4862/108
NTA4862/108
CGT: Eighth Schedule –included in terms of R (1)

s 26A
Local interest-bearing investment donated
Proceeds [Par 35] R4 million nil
Less: Base cost [Par 20] (equal to proceeds as
it’s a monetary asset) (R4 million) (1)
Capital gain/(loss) Nil
Cost of donation:
Consider par 22:
[(R4m - R4m)/R4m] x R780 000 = Rnil (thus, no
donations tax component to be added to the
base cost)
The donation of interest-bearing investment of
R4 million will be subject to donations tax at 20%.
The amount of the donation must be reduced by
the R100 000 annual exemption in terms of
s 56(2)(b). (2)
R780 000 ((R4 000 000 – R100 000) x 20%)
Disposal of 8 hectare plot:
Change in capital in nature
Proceeds: [Par 35] R6 000 000
Less: Base cost [Par 20] + lawyer expense
[par 20(1)(c)] (R4 650 000) (1)
Capital gain R1 350 000
Less: Annual exclusion [Par 5] (R40 000) (1)
Aggregate and net capital gain R1 310 000
Multiply with: CGT inclusion rate [Par 10] x 40% (1)
Taxable capital gain [s 26A] 524 000 524 000 (1)
Taxable income 1 327 077
Available 22
Max 19
Note: As no income was distributed (or received) in terms of the 8 hectare, Woulidge principle will not apply
45 TAX4862/108
NTA4862/108
iv)
On date of death (1 October 2022) all Baren’s assets will be deemed to be disposed of at
market value in terms of section 9HA. (1)
Baren will still be taxed on taxable amounts received until the date of his death on
1 October 2022, hence R448 000 will need to be included in his gross income. (1)
The R100 000 distribution he received from the trust was received before his death and there
is no change in the income included in his taxable income.
In terms of section 7 the interest income from the trust (distributed to his children) will be
included in his income until the date of his death. Any interest income received by his children (1)
after his death will be taxed in their own hands in terms of s 25B(2). (1)
Thus only R35 178 (30% of R200 000 x 214/365 days) or 215/365 will be included in his gross (1)
income in terms of s 7(8) and s 7(3).
Alternative: R17 589 in terms of s 7(8) if student motivates the amount as ‘income’ and not
gross income. Section 10(1)(i) should then not have been used before
The retained income in terms of section 7(5) will change to R68 597 (R117 000 x 214/365) (1)
(1)
but the full s 10(1)(i) interest exemption can still be used (it will only be apportioned from the
2024 yoa if a person dies during the year).
Expenses paid to his lawyer will still be of a capital nature (loan to the trust) and not deductible
in terms of s 11(a). – no change
There is no change in the capital gain with regards to the interest-bearing investment and the
8 hectare plot as the plot and investment were transferred (‘sold) to the trust before his death.
In addition there will be a CGT on his primary residence of:
Proceeds R5,4 million less base cost R4.4 million = R1 million and as it will qualify for the (1)
par 45 primary residence exclusion (R2 million limited to R1 million), the aggregated capital (1)
gain will therefore not increase.
The annual exclusion in terms of paragraph 5 will change to R300 000 instead of the R40 000.
The inclusion rate will remain at 40% – no change (1)
Available 10
Max 7
Communication skills - Presentation – awarded for using supporting calc. in answer 1
Total 8
46 TAX4862/108
NTA4862/108
(v)
The Plywood Trust transfers the office block at a higher market value than its original cost (base
cost) to Homecraft, a resident company, thus an asset-for-share transaction in terms of s 42(1)
took place. (1)
Although Plywood Trust will hold 3% of Homecraft’s ordinary equity shares and voting rights,
Homecraft is a listed company, thus Plywood Trust will hold a “qualifying interest” as defined and
required in terms of section 42(1). (1)
Both parties hold the office building as a capital asset, (1)
thus all the requirements of section 42 are met and the roll-over relief provided for under this
provision are applicable, meaning that the Plywood Trust and Homecraft will be deemed to be one
and the same person (1)
But the market value of the office block (R3.8 million) is higher than the value of the ordinary equity
shares received (30 928 x R110 = R3 402 080), thus it is an asset-for-share transaction that is not (1)
at arm’s length (s 24BA(2)) that would have applied between independent persons. (1)
None of the exemptions under s 24BA(4) will apply. (1)
Homecraft Furniture Ltd
The issue of ordinary equity shares by Homecraft is not a disposal ito par 11(2)(b) of the Eighth
Schedule. (1)
Homecrafts’ contributed tax capital would be increased by R3.2 million which represents the base
cost of the office block on 1 October 2022 (i.e. the date of the disposal of the office block by the
Plywood Trust) in terms of s 42(3A)(b). (1)
Homecraft is deemed to acquire the office block from the Plywood Trust at the base cost of the
office block at the time of the bequest, R3.2 million (given in note 5.1) (s 42(2)(a)(i)(aa)) (1)
Application of s 24BA
As the market value of the office block (R3.8 m) exceeds the value of the shares (R3 402 080)
immediately after the transaction, a deemed capital gain arises in the hands of the issuer of the (1)
shares (Homecraft) (s 24BA(3)(a)(i)).
A capital gain of R397 920 (i.e. R3.8 million less R3 402 080) will be added to the aggregated (1)P
capital gains and losses of Homecraft during its 2022 year of assessment
In terms of s 40CA(b) the base cost of the office block needs to be adjusted with the capital gain
that arose in terms of s 24BA (effective from 1 January 2022).
The cost is thus R3.2 million plus R397 920 = R3 597 920. This amount will also be the base cost (1)
of the asset.
Section 13quin will not apply as the office block is not a new and unused building (purchased in (1)
2008 and bequeathed to the trust) even though Homecraft and the Plywood Trust is deemed to be
one and the same person.
The Plywood Trust
The Plywood Trust is deemed to have disposed the office block to Homecraft for an amount equal
to the base cost of R3.2 million (s 42(2)(a)(i)(aa)). (1)
The ordinary equity shares in Homecraft acquired by the Plywood Trust will have a base cost of (1)
R3.2 million. However, as a result of the application of s 24BA(3)(a)(ii), the difference between the
market value of the asset and the market value of the shares immediately after the transaction,
reduces the expenditure (cost) of then ordinary equity shares.
and the shares will have a value of R3.2 million less R397 920 = R2 802 080. (1)P
Available 17
Maximum 15
Communication skills – layout and structure
1
Clear differentiations between taxpayers
Total 16
47 TAX4862/108
NTA4862/108
(vi)
Strategy and risk
• Does the purchase and rental of the office building align with Homecraft’s strategy and (1)
risk appetite / risk tolerance?
• Homecraft is renowned in a different industry and may not have the necessary industry (1)
knowledge, expertise and point of systems and internal processes to manage the
property, increasing the risk of the purchase.
• The property could bring about diversification from a strategy perspective thus (1)
complementing the furniture business.
• The purchase could possibly enhance Homecraft’s reputation, its standing within the (1)
community, social responsibility, shareholder relationships and risk assessment.
• Identification and evaluation of other similar properties and other available investment (1)
opportunities.
Investment decision making
• If the investment is intended to make a profit; then capital investment appraisal (1)
techniques should be applied to determine its bankability (profitability via NPV / IRR, etc.)
prior to making decision to purchase.
• Performance of proper due diligence on the office block property and its current (1)
performance: verification of leases, maintenance of property, contracts in place, demand
estimates, independent valuation on property etc.
• Additional financial strain on Homecraft as it is already providing financial support to (1)
business owners.
Financial
• How the property should/is financed, debt or equity? (1)
• Consideration to optimal capital structure should be given. 3% equity (currently used) is (1)
significant for a listed company.
• Risk of defaulting on lease could be high, as small business owner’s financial (1)
sustainability could be low (PP approached Homecraft to compromise its debt).
• Demand for office buildings is significant lower since the pandemic, as administrative (1)
workers work from home.
• Consideration to alternative ways of structuring the deal for example: rent to buy (1)
agreement option or instituting guarantees on rental income / deferment of payment of
purchase costs subject to sourcing of tenants
• Customer Credit Assessment and Management (New processes and procedures, (1)
Additional admin costs)
• Fixed property can be used as collateral for future funding: this increases the financial
flexibility and strengthens the balance sheet of HomeCraft. (1)
• Future considerations on the use of the offices for HomeCraft’s business / business
(1)
partners, sales offices or displays for their office furniture to potential customers, etc.
48 TAX4862/108
NTA4862/108
Operational
• Is the office block suitable for the small business owners or could there be potential (1)
other costs involved such as, branding, tenant fitment, transfer costs, eco-cost etc.
• How will this office building be branded? The property’s current branding may enhance (1)
the continuity or Homecraft’s branding may increase or destroy value depending if project
succeeds.
• Maintenance and upkeep of the property. Does Homecraft have the competency or
access to a competent party to assume this role? (1)
• Is the office building eco-friendly and fitted with green technology, such as water and
energy efficiency. Homecraft is known for its commitment to eco-friendly furniture parts. (1)
Legal and compliance

• The purchase will require pre-purchase compliance with Companies Act, memorandum (1)
of incorporation, any existing shareholder agreements, and listing requirements
(compliance focus)
• Laws and regulations relating to property rentals such as SHE requirements, municipal (1)
business licence laws, rules, and regulations).
• Potential undue influence of Baren Birch on management as shareholder and property (1)
seller as a result of the proximity to management.
(1)
Maximum 10
49 TAX4862/108
NTA4862/108
vii)
Memo to Baren Birch
Re: Advice on the uptake of preference shares in Homecraft
Date: xxxx 2023
From: CTA student
Preference shares
Baren is a beneficiary of the Plywood Trust because any beneficiary of a trust is regarded as (1)
a connected person in relation to such a trust” (par (b)(ii) of the definition of “connected person”
in s 1 of the ITA.
Baren and the Plywood Trust jointly hold at least 20% (in this case 30%, namely: 15% + 15%)
of the ordinary equity shares of Homecraft. (1)
and no holder of shares holds the majority of voting rights in Homecraft as it is indicated that (1)
all other ordinary equity shares are held by share investors and share dealers of which none
hold more than 1% of the ordinary equity shares and voting rights on their own at any given
point in time.
The amount of R50 x 20 000 = R1 million is deemed to be a loan for the purposes of (1)
section 7C(3).
The official rate of interest would require Homecraft to pay interest of R1 000 000 x 4,75% x (1)
59/365 days [s 7D(b)] = R7 678 while the holder (Baren) of the preference share will be paid
4% x R1 000 000 x 59/365 days [s 7D(b)] = R6 466. Or (1)
R1 million x (4.75%-4%) x 59/365 days =R1 212 = 2 marks
The difference between the two of R1 212 (i.e. R7 678 – R6 466) will be deemed to be a (1)
donation in terms of s 7C(1B) on 28 February 2023 (i.e. the last day of the year of assessment
of the Plywood Trust).
As Baren has already utilised his basic annual exclusion (he donated his investment and house
to the trust on 1 September 2022), he is liable for donations tax of R242.40 (R1 212 x 20%) (1)
before/on 31 March 2023 (i.e. the last day of the month following the month during which the (1)P
donation was made).
Available 9
Maximum 6
Communication skills – presentation 1
Format must be in memo form
Total for question 2 (vii) 7
50 TAX4862/108
NTA4862/108
QUESTION 3
This question consists of three related parts, namely Part A, Part B and Part C.
The Packing and Wrapping group of companies consists of three resident companies and one non-resident
company, Plastic Inc (“Plastic”), registered in the United States. All four companies have a December year-
end and the three resident companies are all registered category B VAT vendors. The Packing and Wrapping
Group selected IFRS as its financial reporting framework.
All amounts in the question exclude VAT, unless otherwise stated or implied and all parties are registered
VAT vendors that make 100% taxable supplies, unless specifically stated otherwise.
The following companies are members of the Packing and Wrapping group of companies:
• Bubbles (Pty) Ltd (“Bubbles”) holds all the shares in the other two resident companies and 25% of the
shares and voting rights in the foreign company, Plastic Inc (“Plastic”). Bubbles is involved in the
manufacturing of bubble wrap and other related types of packaging material. Bubbles acquires plastic
grains either from Sasol Ltd, in South Africa, or from Plastic if Sasol Ltd has no stock.
• Carton (Pty) Ltd (“Carton”) inter alia manufactures and sells carton boxes, operates a restaurant and
holds 45% of the shares and voting rights in Plastic.
• Polystyrene (Pty) Ltd manufactures solid or foamed polystyrene from styrene.
• Plastic is a company registered in the United States and manufactures machines to manufacture bubble
wrap as well as plastic grains that are used in the manufacturing of bubble wrap and other plastic
packaging.
PART A (58 Marks)

Information relating to Bubbles
The following transactions relate to Bubbles’ 2023 year of assessment ending 31 December 2023:
Transaction 1
On 1 November 2022 Bubbles ordered a new manufacturing machine from Plastic at a market related price
of $100 000 and plastic grains at a market related price of $45 000.
• The manufacturing machine was shipped free on board on 10 November 2022 and was delivered at
Bubbles’ premises on 6 December 2022. The machine was brought into use in the manufacturing
process of Bubbles on the date of delivery. $25 000 of the purchase price of the machine was paid by
Bubbles on 10 November 2022 and the correct amount of VAT and import duty of R32 000 were paid to
Customs and Excise on 1 December 2022 when the machine was cleared for home consumption. Plastic
agreed that Bubbles could pay the outstanding purchase amount as well as the total amount of interest
at 10% per annum (a market related interest rate) on 28 February 2024. Interest will be translated at the
average exchange rate applicable to the period during which the interest accrues to Plastic.
Manufacturing machines are sold at a profit mark-up of 10% on sales by Plastic.
51 TAX4862/108
NTA4862/108
• The plastic grains were only shipped free on board on 20 December 2022 and arrived in South Africa on
10 January 2023 when it was cleared for home consumption and the correct amount of VAT and import
duty of R7 800 were paid. The plastic grains were delivered at Bubbles’ premises on 12 January 2023.
Plastic agreed that Bubbles could pay the total amount of the purchase price on 31 March 2023 and that
Plastic would charge no interest on the outstanding amount. On 31 December 2022 Bubbles entered
into a three-month foreign exchange agreement (“FEC”) at R17.00 = $1 to hedge the total purchase
amount. Plastic sells the plastic grains at a profit mark-up of 15% on sales and on 31 December 2023
Bubbles did not have intragroup plastic gains on hand anymore.
Transaction 2
Bold (Pty) Ltd (“Bold”), an independent resident company registered as a VAT vendor, owns a vacant plot of
land, next to Bubble’s office building. Bubbles erected this office building during 2016 for R3 600 000. On
1 February 2023 Bubbles entered into a fifteen (15) year lease agreement with Bold in respect of the vacant
land. In terms of the lease agreement Bubbles would:
• Pay a monthly lease amount of R50 000 from 1 February 2023;
• Pay a lease premium of R600 000 on 1 February 2023; and
• Erect a factory building on the vacant land at a cost of R20 000 000.
Bubbles agreed to all the terms of the lease agreements as the company needed more space to manufacture
its bubble wrap. Bubbles made all payments timeously. The company commenced with the construction of
the factory building on 2 February 2023 and completed the building on 30 November 2023 at a total cost of
R23 000 000. The building was brought into use in the manufacturing process of Bubbles on
1 December 2023.
Transaction 3
On 1 January 2021 Bubbles granted Carton a loan of R3 000 000 at an interest rate of 8% to purchase a
second-hand manufacturing machine, for R3 000 000 cash from an independent party that is not registered
as a VAT vendor. As Carton was suffering financial difficulties Bubbles agreed to waive the debt on 1 January
2023, after Carton paid the total amount of interest for the previous two years of assessment as the total
amount of interest was still outstanding. Carton paid the interest on 1 January 2023 and Bubbles waived the
debt on the same day. The machine was brought into use in Carton’s manufacturing process on the date of
purchase and was still held and used in this process at the end of Carton’s 2023 year of assessment.
PART B (22 Marks)

Information relating to Carton:
Apart from the manufacturing and selling of carton boxes, the restaurant that Carton operates provides free
meals to the company’s own staff and meals that are sold at a profit to staff of other companies that have
their business premises in the close vicinity of Carton’s business premises and restaurant. The supplies made
to staff members of Carton are 35% of the total supplies made by the restaurant.
Due to Carton’s financial difficulties, the company decided to sell its restaurant. The following is an extract
from the contract between Carton (the seller) and Foodies (Pty) Ltd (“Foodies”) (the buyer who is not a
connected person to Carton)) who will use the restaurant for the same purposes as Carton. It is estimated
that Foodies will provide 40% of its supplies to its own staff at no fee and 60% to other customers that pay
for their meals.
52 TAX4862/108
NTA4862/108
SALE OF RESTAURANT AGREEMENT
Entered into between:
CARTON (PTY) LTD

Registration Number 2013/07451/07
Herein represented by HENDRIK ALBERTS,
He is being duly authorized
Address Plot 51A, Norra Road, Willows, Pretoria 0184

Email carton@gmail.com
(hereinafter called “the Seller”)
and
FOODIES (PTY) LTD

Registration Number 2018/180352/07
Herein represented by ALI ABRAHAMS,
He being duly authorized
Address Plot 51B, Norra Road, Willows. Pretoria, 0184

Email Bold@gmail.com
(hereinafter called “the Purchaser”)
WHEREAS:
The Seller and the Purchaser (the “Parties”) entered into a Memorandum of Agreement on 1 June 2023, in
terms of which, inter alia,
- the Purchaser will pay the sum of R3 250 000.00 for the purchase of the Restaurant from the Seller, as
a going concern, to the Conveyancer (T & T Attorneys Inc, 400 Atterbury Road, Menlo Park, Pretoria
0081, South Africa); the purchase price being R3 250 000.00 inclusive of VAT at the zero rate;
- The purchase price will be paid to the Conveyancer within five (5) business days from the date of signing
this agreement;
- The purchase price will be paid to the Seller upon receipt of the FICA documents of the Purchaser;
THEREFORE THE PARTIES AGREE AS FOLLOWS:
1.1 In this Agreement and in the annexures to this Agreement (other than documents or accounts prepared
before the date of signature of this Agreement):
- annexures to this agreement shall be deemed to have been incorporated herein and shall form an
integral part hereof;
- a reference to a Party in a document includes that Party's successors;
- a business day means any day of the week except a Saturday or Sunday or other day that is a
public holiday in the Republic of South Africa.
53 TAX4862/108
NTA4862/108
1.2 In this Agreement the following expressions bear the meanings given to them below:
Expression Meaning
“Restaurant Assets” all the assets that the Seller used in or in connection with the Restaurant,
made up of, inter alia:
– Fixed Assets;
– Stock
“Fixed Assets” all fixed assets, including Stock, of whatever nature owned and used by
the Seller for the Restaurant as contained in Annexure A.
“Stock” means the trading stock (consumables) that the Seller has on hand on
the date of signing this agreement.
1.3 The Seller and the Purchaser declare that the Seller and Purchaser are registered vendors in terms of
the Value-Added Tax Act, No 89 of 1991, as amended. The Seller and the Purchaser warrant that
they understand the requirements of the SA Revenue Services pertaining to the payment of taxation
and the submission of revenue returns.
1.4 Going Concern
It is recorded that:
1.4.1 the Restaurant is sold as a going concern;
1.4.2 the Restaurant is and will be an income-earning activity at the time of transfer to the Purchaser;
1.4.3 the assets necessary for the carrying on of the Restaurant, will be transferred to the Purchaser on
date of signing this agreement;
1.4.4 the purchase consideration includes value-added tax at zero rate;
1.4.5 the Seller will be responsible for all creditors and other liabilities of the Restaurant up to the date of
signing this agreement.
SIGNED at Pretoria on this 1ST day of June 2023

Witnesses:
1 T Rebel H Alberts
2 P Moeketsi
(Signatures of witnesses) (Signature of Seller)
SIGNED at Pretoria on this 1ST day of June 2023

Witnesses:
1 D Theron A Abrahams
2 WS Sithole
(Signatures of witnesses) (Signature of Purchaser)
54 TAX4862/108
NTA4862/108
ANNEXURE A TO AGREEMENT
The purchase price of R3 250 000 has been allocated to the assets of the restaurant as follows:
Asset Date purchased Date brought Cost price Open Selling price
into use less VAT market on date of
claimed on value sale
date of on date of
acquisition sale
R R R
Kitchen 1 December 2020 1 January 2021 1 500 000 1 125 000 1 125 000
equipment
Kitchen 1 April 2021 1 April 2021 215 000 150 000 125 000
utensils
(note 1)
Furniture 1 January 2022 1 January 2022 850 000 840 000 850 000
(tables and
chairs)
Trading During 2023 year 1 200 000 1 200 000 1 150 000
stock of assessment
TOTAL 3 250 000
Note 1:
Kitchen utensils consist of 100 different items that were all purchased for a cost of less than R7 000.
PART C (20 Marks)

Information relating to Plastic:
In 2019 Bubbles acquired its 25% interest in the shares and voting rights of Plastic. From that date, Bubbles
obtained control of Plastic as per the definition of control in terms of IFRS 10 Consolidated Financial
Statements, in terms of its direct and indirect shareholding in Plastic. This acquisition was a strategic decision
due to the occasional shortage of plastic grains in South Africa. Plastic’s operations are located in San Diego,
California.
On the acquisition date, all the assets and liabilities of Plastic were fairly valued and no additional assets,
liabilities or contingent liabilities were identified. The acquisition did not result in the recognition of goodwill.
The condensed trial balance of Plastic as at 31 December 2023 was as follows:
Debit Credit
$ $
Total assets 1 968 000

Share capital (100 000 shares) 100 000
Retained earnings - opening balance 984 000
Profit for the year 87 000
Dividends paid (paid 31 March 2023) 25 000
Total liabilities 822 000
1 993 000 1 993 000
55 TAX4862/108
NTA4862/108
ADDITIONAL INFORMATION:
• The following exchange rates were applicable at the respective dates:
Date Exchange
rate
1$ = R
1 November 2022 16.89
10 November 2022 16.90
1 December 2022 16.93
6 December 2022 16.94
20 December 2022 16.92
31 December 2022 16.95
Average for the period 10 November 2022 to 16.91
31 December 2022
10 January 2023 16.97
12 January 2023 17.00
31 March 2023 17.05
31 December 2023 17.15
Average for the period 1 January 2023 to 17.10
31 December 2023
• SARS allows a write-off period of 6 years in respect of kitchen equipment and utensils as well as on
furniture in terms of Binding General Ruling No. 7 (Interpretation Note No. 47).
• It is the accounting policy of the Packing and Wrapping Group to account for investments in subsidiaries
at cost in its separate financial statements in accordance with IAS 27.10(a).
• The Group elected to measure non-controlling interests at the proportionate share of the acquiree’s
identifiable net assets at the acquisition date for all its acquisitions.
• The Group depreciates manufacturing machines over its useful life on the straight-line basis. The useful
life of manufacturing machines is estimated to be five years.
56 TAX4862/108
NTA4862/108
The required consists of three related parts, namely Part A, Part B and Part C.
PART A
REQUIRED Marks
Sub- Total
total
(i) Transactions 1 and 2
Calculate the income tax implications of transactions 1 and 2 for Bubbles (Pty) 34 34
Ltd for the company’s 2023 year of assessment.
(ii) Transaction 2
Discuss, supported by calculations and reference to relevant legislation, the VAT
implications of the leasehold improvements in transaction 2, for both Bubbles 11
(Pty) Ltd and Bold (Pty) Ltd.
Communication skills – Layout and structure 1 12

(iii) Transaction 3
Discuss, supported with calculations, the income tax implications for Bubbles
(Pty) Ltd in respect of the waiver of the debt for the company’s 2023 year of 10
assessment. Remember to consider the income tax implications for Carton (Pty)
Ltd, as this will have an impact on the income tax implications for Bubbles (Pty)
Ltd.

Total for Part A 58
PART B
REQUIRED Marks
Sub- Total
total
(i) Calculate the VAT implications for Carton (Pty) Ltd, and for Foodies (Pty) Ltd in
respect of the sale/purchase of the restaurant. Clearly indicate whether any VAT 6
referred to is input or output tax.
(ii) Calculate the income tax implications for Carton (Pty) Ltd in respect of the sale of
the restaurant to Foodies (Pty) Ltd. 15
Total for Part B 22

57 TAX4862/108
NTA4862/108
QUESTION 3 - REQUIRED (continued)

PART C
REQUIRED Marks
Sub- Total
total
Prepare the investment in Plastic Inc note to the consolidated financial statements of the
Bubbles (Pty) Ltd Group, in accordance with IFRS 12 Disclosure of Interests in Other 19
Entities for the year ended 31 December 2023.
Communication skills – Presentation and layout 1 20

Please note:
• You may assume that the non-controlling interests are material to Bubbles (Pty) Ltd.
• Ignore any deferred tax consequences.
• You do not have to present comparative amounts.
• Round off all amounts to the nearest dollar and rand.
• Your answer must comply with International Financial Reporting Standards (IFRS).
Total for Part C 20

(IM/AH)
58 TAX4862/108
NTA4862/108
QUESTION 4
This question consists of two related parts namely Part A and Part B.
PART A (61 Marks)
All references in the scenario below are to the Income Tax Act, 1962 (Act 58 of 1962), as amended, unless
stated otherwise. All amounts exclude value-added tax (VAT), unless indicated or implied otherwise or where
otherwise defined in the VAT Act. Assume that all documentary requirements in terms of the VAT Act have
been complied with. Accept that all companies involved are in Durban and registered as category C VAT
vendors with a 31 December financial year end.
EnergySA Ltd (‘EnergySA’) is a South African listed company that acquires high quality solar panels from
national and international resources, reconstructs and assembles the solar panels according to the
requirements of their customers and use subcontracting parties to market and install their products. The solar
panels produce photovoltaic solar energy of less than one megawatt as it is specifically modelled for
households. The South African Revenue Service (SARS) acknowledges that the import, remodelling and
reassembling of solar panels is a process similar to manufacture as determined in Practice Note No. 42
(issued by SARS).
Due to ongoing load-shedding, EnergySA realised that there is an increased demand for alternative multi-
technology solutions (wind, solar and storage) and it will be a good business decision to invest in various
other South African companies to expand their energy resources. Other energy resources may provide
cheaper and more accessible energy to customers. EnergySA thus invested R13 million in 2021 in an
innovative company Inventum (Pty) Ltd (‘Inventum’) for 70% of the equity shares of the company. Inventum
initially produced batteries for the supply of photovoltaic solar energy but switched to wind-energy in 2022.
EnergySA has recently appointed a new audit firm. Although this audit firm has a good reputation, the audit
partner appointed Miss Knowitall as manager of the first audit of EnergySA. Miss Knowitall is a registered
Chartered Accountant and registered as a tax practitioner at SARS. She is well versed in her accounting and
audit knowledge but, due to not keeping up with annual tax legislation changes, her knowledge on certain
tax issues is dismal. She asked you for your advice on the following transactions.
EnergySA
Transaction 1 – Second-hand racking machine
On 1 April 2023 EnergySA purchased a second-hand racking machine, (a machine used in the production of
solar panels) from Sunshine (Pty) Ltd, a non-connected party. Sunshine (Pty) Ltd acquired this machine new
and unused on 1 September 2022 at a cost of R900 000 and immediately brought it into use in the company’s
manufacturing process. The market value immediately before the disposal of the racking machine was
R800 000.
EnergySA issued 10 000 shares (1.2% of its issued equity shares) at R60 per share (the value of a share
immediately after the transaction was R65 per share) to Sunshine (Pty) Ltd as compensation for the
purchase. This racking machine was brought into use in the manufacturing process of EnergySA on 1 April
2023. Sunshine acquired the shares in EnergySA as a capital asset and did not own any shares in EnergySA
before this transaction.
59 TAX4862/108
NTA4862/108
On 1 July 2023 the racking machine was destroyed during industrial action. Fortunately, EnergySA was
insured through Lightning Insurance and an amount of R782 000 was deposited into EnergySA’s bank
account on 1 August 2023. The board of directors of EnergySA decided to rather use the full insurance payout
to invest in wind energy.
They consequently organised to transfer a second-hand racking machine from Inventum. Inventum initially
acquired the racking machine at a cost of R1 500 000 on 15 August 2020 and immediately used it in the
same photovoltaic solar energy manufacturing process as EnergySA. Inventum disposed of the racking
machine at its market value of R1 800 000 (the increased market value is due to the scarcity of the machine)
on 2 August 2023 to EnergySA that immediately brought it into use in the company’s manufacturing process.
SARS’ Binding General Ruling No 7 provides a six-year (6) write-off period for racking machines.
Transaction 2 – Investment portfolio
As part of EnergySA’s investment portfolio, the company invested R250 000 in Windfall (Pty) Ltd on
1 September 2022, as the CEO (see transaction 3) heard that the cash dividends paid by Windfall (Pty) Ltd
were phenomenal. On 31 October 2022 EnergySA received a dividend of R45 000 and on 31 March 2023 it
received a dividend of R40 500 in the company’s bank account. One of the directors heard that due to the
restructuring of Windfall (Pty) Ltd, the dividend policy of Windfall (Pty) Ltd would not be that lucrative anymore
and as such the board of directors decided to sell the shares on 15 April 2023 for R150 000. EnergySA is not
a share dealer.
Transaction 3 – Installation of solar panels
Tumi Matsimela was the Chief Executive Officer (CEO) of EnergySA Ltd until his retirement on 1 February
2023. On 1 July 2023, the directors of EnergySA approved that Tumi’s residence would be fully fitted with
EnergySA solar panels, in recognition of him being the biggest shareholder (5% of the total equity
shareholding) of EnergySA. Tumi is a South African resident but not a registered VAT vendor. The installation
of the solar panels, with a total production cost of R36 000, was completed on 30 July 2023. The production
cost was already deducted for accounting and tax purposes. The open market value, as defined, of this
installation was R77 050 on the same date. Miss Knowitall unilaterally decided that this installation could be
used as a marketing tool and thus also fully deducted the open market value of R77 050 in the financial
statement of the company as advertising and marketing costs.
Transaction 4 - E-commerce web site
EnergySA commenced with the research and development of an e-commerce web site during the financial
year ended 31 December 2023. The web site would supply easy-to-read resources to customers to conduct
their own preliminary research on a solar energy system suitable to their needs. Customers would also be
able to make use of the online consultancy services and purchase their products via the online platform.
It is the intention of EnergySA that all sales will eventually be performed via the e-commerce platform. Market
research indicates that EnergySA’s visibility on the internet, as well as the provided convenience of acquiring
products on-line, could increase its turnover with up to 30%.
In March 2023 EnergySA’s Information Technology (IT) department investigated the possibility of moving to
an e-commerce platform. Mrs. Site, an employee at EnergySA’s IT department, was delegated to the web site
project. Mrs. Site spent the month of March 2023 obtaining sufficient information for the directors of EnergySA
to make a well-informed decision on whether the company should implement an e-commerce web site or not.
60 TAX4862/108
NTA4862/108
On 15 April 2023 Mrs. Site presented her findings to the directors of EnergySA and on that same day the
board of directors concluded that EnergySA would benefit from an e-commerce web site. The IT
department was instructed to continue with the development of an e-commerce web site specific to the
requirements of EnergySA.
EnergySA’s IT department therefore consulted with Mr. Webb, an independent web site consultant, on
30 April 2023. Mr. Webb confirmed that it was technically possible to implement EnergySA’s desired criteria
to the required web site. On 1 May 2023, Mr. Webb was appointed to assist Mrs. Site with a presentation
detailing the layout of the web site as well as the various functionalities it would have, and the required cost
thereof. Mrs. Site spent 40% of her time during the month of May 2023 on this presentation.
On 1 June 2023, Mrs. Site presented the web site presentation to the board of directors. During this meeting,
Mrs. Site also presented a detailed schedule indicating what the development of the web site would amount
to. The board was pleased with the presentation and cost analysis and approved both the design of the web
site as well as the further development thereof during the meeting. The board of directors indicated that the
company expects to launch the web site no later than August 2023 and the financial director was required to
secure the necessary funding for the development of the web site. On 2 June 2023, EnergySA’s bank
overdraft was increased to a sufficient level to enable the company to fund the development of the web site.
Mr. Webb continued to assist Mrs. Site with the development of the web site. Mrs. Site spent all her time in
the month of June 2023 to complete the project. EnergySA acquired new computer hardware to support the
development and maintenance of the web site on 2 June 2023. During the month of June, Mr. Shot was also
appointed to produce high-quality photographic images of the products which EnergySA will display on its
web site.
On 30 June 2023, once the web site development was completed, an independent consultant, Mr. Host, was
required to move the web site content onto the webhost platform. The final testing was performed on that
day. The web site was officially launched on 1 July 2023.
During the month of July 2023, Mrs. Site identified a few areas where the web site malfunctioned. Mr. Webb
repaired the malfunctions at a cost of R2 500. In the same month of July, Mr. Webb also trained certain of
EnergySA’s IT-personnel to enable them to do the day-to-day maintenance of the web site.
In August 2023, Mrs. Site obtained the services of Mr. Webb to assist with improvements to the web site that
were identified by EnergySA’s personnel who were using the web site for almost two months and were of the
opinion that the additions would enhance the function of the web site to generate more revenue. You may
assume that the cost of the improvements to the web site, amounting to R8 500, complies with paragraph 18
of IAS38 Intangible Assets.
The following information relates to the development of the web site:

R
Invoices received from Mr. Webb:
• Invoice No.12: Consultation fees relating to technical feasibility, layout and
functionalities of the web site. 12 000
• Invoice No.14: Development of web site itself 28 000
• Invoice No.20: Repairs of malfunction 2 500
• Invoice No.25: Training cost 5 600
• Invoice No.28: Improvements to the web site 8 500
New computer hardware 57 000
Mr. Host: Invoice No.45 5 600
61 TAX4862/108
NTA4862/108
R
Mr. Shot: Invoice No.22 4 800
Mrs. Site’s gross monthly salary for the financial year ended 31 December 2023 38 000
Hosting fees:
Monthly subscription fees commencing on 1 July 2023 (Contract reference: C179) 1 150
You may assume that there are no bank charges applicable to any of EnergySA’s online
sales.
PART B (39 Marks)
Tumi (65 years old on 1 February 2023) is married out of community of property to Moipone (58 years old).
IRP5 received
Tumi Matsimela retired from EnergySA on 1 February 2023 when he turned 65. While employed at EnergySA
he received a gross pensionable salary of R90 000 per month and was a member of the Energy Provident
Fund until date of retirement. EnergySA contributed 8% of his pensionable salary to the Energy Provident
Fund and Tumi contributed an equal amount to the provident fund. Non-pensionable director’s fees of R350
000 for the 2023 year of assessment, were approved in a board meeting that was held on 15 March 2023
and paid into Tumi’s bank account on 30 April 2023 (after deducting PAYE of 25%). No director’s fees were
paid in the previous two years due to the impact of the COVID-19 pandemic.
On the date of his retirement, Tumi received a gross retirement fund lump sum benefit of R3 400 000 from
the Energy Provident Fund and, in addition to this payment, he will receive a monthly annuity of R50 000
(payable on the first day of every month with the first payment on 1 March 2023) from the fund for the rest of
his life. Up to the date of Tumi’s retirement, R850 000 of his contributions to the Fund had not previously
been allowed as deductions.
In recognition of all Tumi’s years of service to the company, the board of directors of EnergySA, on 31 January
2023, decided to pay Tumi a voluntary once off amount of R600 000. Tumi immediately invested the R600
000 in an annuity that he purchased from Southern Right Insurers. The insurer will pay him R12 000 (capital
element being R7 200 on this amount) a month for the next 60 months, with the first payment on
28 February 2023.
Tumi and his wife (Moipone) are both members of the Bolt Medical Fund (registered under the Medical
Schemes Act, 1998 (Act 131 of 1998)) in South Africa. They will, in terms of their agreement with EnergySA,
stay on as members, under the same conditions that applied during his employment with the company, for
another two years after Tumi’s retirement. EnergySA contributed 50% of the total contributions of R6 500, for
both Tumi and his wife, to the medical fund and Tumi contributes the other half. EnergySA will continue to
contribute 50% to the medical fund after retirement, as per the agreement above.
As the CEO of EnergySA, Tumi was also entitled to the use of a company-owned smartphone that may also
be used for private purposes. EnergySA paid R899 per month to the cell phone provider for the use of this
smartphone. Tumi estimated that about 80% of his phone calls were for business purposes. In recognition of
Tumi’s 20 years of service, the company gave him a brand-new iPhone 13, with an open market value of
R23 599 (cost of R20 520) at his farewell on 15 February 2023.
62 TAX4862/108
NTA4862/108
EnergySA leases 10 A-Class Mercedes-Benz sedan motor vehicles under an operating lease, as defined in
terms of section 23A(1) of the Income Tax Act, for their board of Directors of which Tumi was the CEO and
chairperson. Lease payments of R9 000 per month per vehicle are made to the lessor by EnergySA and
EnergySA incurs fuel costs of R2 500 per month on each leased vehicle. The retail market value of each
vehicle that EnergySA leases is R560 000. Tumi kept accurate records of his kilometres travelled and
travelled 20 320km for business purposes (which his employer approved), from 1 March 2022 until 1 February
2023. The odometer read 11 667km on 1 March 2022 and 37 067km om 1 February 2023 when he handed
the vehicle back to his employer. Tumi felt that it was the right thing to do not to let EnergySA pay for his
family holiday and thus paid for all his petrol cost (R6 700) and for a damaged tyre (R5 400) during his family’s
holiday tour through Namakwaland in September 2022.
In 2019 EnergySA offered all executive directors equity shares by means of the Energy Exec Employee
Share Ownership Trust (‘EEE Trust’, a share incentive scheme). Tumi was offered 10 000 shares at R10
each when the shares had a market value of R48 each. Tumi immediately took up the offer in 2019 and paid
R100 000 to the EEE Trust. All equity shares awarded in terms of this incentive scheme are registered in the
name of the Trust until settlement date – this is the date on which the Trust registers the employee as the
owner of the shares in the securities register.
Settlement of these equity share awards occurs when the executive director either resigns or retire. As part
of his estate planning and down-sizing exercise, Tumi donated these shares to the Matsimela Trust (see
below) on 28 February 2023 when the shares had a market value of R78 each (the market value was R70
each on 1 February 2023). Tumi made no other donations in the 2023 year of assessment.
Tumi Matsimela’s trust
The Matsimela Trust (not a VAT vendor as defined) was founded in 2020 when Tumi’s accountant made a
R100 donation to the Matsimela Trust. Tumi wanted to divert some of his assets to a different entity for tax
planning purposes as he was reaching retirement age. The beneficiaries of the Matsimela Trust are his two
adult children, Zinhle (25 years old and not a resident for South African tax purposes) and Munashe (a South
African resident, 33 years old and married). The trust is a discretionary trust with regards to both revenue
and capital income, except that all dividends received from the offshore share portfolio will be shared equally
between the two beneficiaries.
On 1 March 2020 Tumi transferred his whole investment portfolio to the Matsimela Trust at its market value
of R3 million, funded by an interest-free loan of R3 million to the trust. This investment portfolio consists of
an offshore share portfolio (less than 5% shares in any given company), fixed deposit accounts and a good
variety of blue-chip investments on the Johannesburg Stock Exchange (JSE). The Matsimela Trust is not a
share dealer. All dividends earned from the offshore share portfolio are subject to a 10% withholding tax. Had
the trust borrowed the money in 2020 to purchase the investment portfolio, it would have paid interest at the
annual interest rate of 8%.
On 1 February 2023 when Tumi retired he requested the trustees to pay back the R3 million interest-free
loan to him as he wanted to build a retirement home in George, Western Cape. In order to get funds, the
trustees decided to sell the offshore share portfolio on 15 February. A capital gain of R500 000 was made
and they vested the capital gain equally in the hands of the two beneficiaries. The trust paid the R3 million
loan account back to Tumi on 1 March 2023. Since its inception, the trustees have not distributed any other
income except for the foreign dividends as per the trust deed to the two beneficiaries.
63 TAX4862/108
NTA4862/108
A quick inspection of the trust’s bank records revealed the following investment income and distributions to
the two beneficiaries:
Received in the trust bank account
Year of Local Local Foreign Zinhle Munashe Investment

Assessment dividends interest dividend Foreign Foreign return on
received (correctly dividend dividend 3 million
in bank translated at distributed distributed
account spot rate)
R R R R R
2021 80 000 20 000 60 000 (30 000) (30 000) 5.33%
2022 78 000 12 000 40 000 (20 000) (20 000) 4.33%
2023 90 500 44 000 78 000 (39 000) (39 000) 7.08%
Total
distributions Nil Nil 178 000 89 000 89 000
You may assume that the official rate of interest was 4,75% during the entire 2023 period of assessment.
64 TAX4862/108
NTA4862/108
The required consists of two related parts namely Part A and Part B.
PART A
REQUIRED Marks
Sub-
Total Total
(g) Transaction 1
Discuss the normal tax implications for EnergySA Ltd for the 2023 year of
assessment in respect of transaction 1 in Part A. Support your answer with
calculations and provide brief reasons or reference to relevant legislation, where
applicable. Address the following in your answer:
- Purchase of the racking machine from Sunshine (Pty) Ltd,

- destruction of the racking machine during industrial action and
- purchase of another racking machine from Inventum.
Accept that the recoupment of the destroyed machine is correctly calculated as 15

R320 000.
Communication skills – logical argument 1 16
(h) Transaction 2
Write a memorandum to the board of directors of EnergySA Ltd to discuss all the
tax implications for EnergySA Ltd in respect of Transaction 2 – Investment
portfolio for the 2023 year of assessment relating to: 10
• the dividend of R40 500 received on 31 March 2023; and

• the sale of the shares at R150 000 on 15 April 2023.
Support your answer with calculations and provide brief reasons or relevant
legislation where applicable.
Communication skills – layout and structure 1 11
(i) Transaction 3
Discuss all the tax consequences (with supporting calculations where applicable)
for EnergySA Ltd’s 2023 year of assessment of the installation of solar panels at
the residence of Tumi Matsimela. 7
(j) Transaction 3
As you know Miss Knowitall made a unilateral decision to deduct the cost of the
installation of R77 050 as advertising and marketing cost in the calculation of the
taxable income of EnergySA Ltd for the 2023 year of assessment. Discuss any
ethical concerns you may have regarding her decision in this regard. Your answer
must include any actions or remedies that SARS may have against Miss Knowitall
and EnergySA Ltd (if any) regarding the deduction for income tax purposes. 6
Communication skills – appropriate style
1 7
(e) Transaction 4
Discuss the correct initial recognition and initial measurement of the costs
incurred relating to the whole web site project in the financial records of EnergySA
Ltd for the financial year ended 31 December 2023, in terms of SIC 32 Intangible
Assets - Web Site Costs. 19
Please note:
Your discussion should include relevant amounts and calculations.
Communication skills – logical argument 1 20
TOTAL FOR PART A 61
65 TAX4862/108
NTA4862/108
QUESTION 4 – REQUIRED (continued)
PART B
REQUIRED Marks
Total
Based on the information provided in Part A and B, calculate Tumi Matsimela’s taxable income
for his 2023 year of assessment.
Clearly indicate all items that have a Rnil effect and provide a brief reason for each of these items. 38
Communication skills – layout and structure 1

TOTAL FOR PART B 39
(AH/MM)
66 TAX4862/108
NTA4862/108
PART A(i)
Transactions 1 and 2
Calculate the income tax implications of transactions 1 and 2 for Bubbles (Pty) Ltd for the
company’s 2023 year of assessment. 34
Manufacturing machine:
R R
1. 10 November 2022:
$100 000 x R16.90 = R1 690 000 1 690 000 (1)
Import duty 32 000 (1)
VAT correctly claimed -
1 722 000
Section 12C – R1 722 000 x 20% (second

year in use) (344 400) (1)
Interest incurred – section 24J

Interest - 2022
($100 000 - $25 000) x 10% x 52/365) =
$1 068 (3)
Interest - 2023
($100 000 - $25 000 + $1 068) x 10% x
R17.10 x 365/365 = R130 076 (130 076) (3)
Foreign exchange loss/gain on interest

and debt (previous years)
Interest
($100 000 - $25 000) x 10% x 52/365) =
$1 068 x (R16.91 – 16.95) = R42.72 foreign
exchange loss (43) (3)
Debt:
($100 000 - $25 000) x (R16.90- R16.95) =
R3 750 foreign exchange loss (3 750) (3)
Foreign exchange gains and losses on

interest and debt for 2023
Interest
(($100 000 - $25 000 + $1 068) x 10%)
$7 607 x (R17.10 -R17.15) = R380 foreign
exchange loss (380) (3)
Debt:
($100 000 - $25 000 + $1 068) (R16.95 –
R17.15) = R15 214 foreign exchange loss (15 214) (3)
67 TAX4862/108
NTA4862/108
If students only show one calculation for previous R R

and current year foreign exchange difference on
debt, award marks as follows:
($100 000 - $25 000) x (R16.90 – R17.15)

Plastic grains
Sections 23F(1) and 11(a)
$45 000 x R16.92 = R761 400 761 400 (1)
Import duty 7 800 (1)
769 200 (769 200)
Foreign exchange differences on debt for

acquiring plastic grains – section 24I
Debt:
$45 000 x (R16.95 – R17.05) = R4 500
foreign exchange loss (4 500) (2)
FEC:
$45 000 x (R17.00 – R17.05) = R2 250 2 250 (2)
foreign exchange gain
2. Lease payments – section 11(a)

R50 000 x 11 = R550 000 (550 000) (1)
Lease premium – section 11(f)

R600 000/15 x 11/12 = R36 337 OR (36 667) (2)
R600 000/180 (15 x 12) x 11 = R36 667
Leasehold improvements – section 11(g)

R20 000 000/((15 x 12) – 10 months) = 170
months x 1 month = R117 647 OR (117 647)
R20 000 000/14,17yrs x 1/12 years =
117 619 (3)
Section 13(1) on factory

(R23 000 000 – R20 000 000) x 5% (150 000) (2)
Office building – section 13quin

R3 600 000 x 5% = R180 000 (180 000) (1)
Total 36
Max 34
68 TAX4862/108
NTA4862/108
A(ii)
Transaction 2
Discuss, supported by calculations and reference to relevant legislation, the VAT
implications of the leasehold improvements for both Bubbles (Pty) Ltd and Bold (Pty) Ltd. 11
Communication skills – Layout and structure 1

VAT implications for Bubbles (Pty) Ltd:
As no consideration was received for the leasehold improvements and the leasehold
improvements will be used wholly for the making of taxable supplies, the following will apply
to Bubbles:
In terms of section 8(29) of the VAT Act the leasehold improvements are deemed to be a (1)
supply of goods in the course of Bubbles’ enterprise. (1)
The time of the supply in terms of section 9(12) is the time that the leasehold improvements (1)
are completed OR, therefore on 30 November 2023, which falls into the (1)
November/December 2023 tax period. (1)
The value of the deemed supply is Rnil in terms of section 10(28). (2)
Therefor the output tax payable by Bubbles will be Rnil (Rnil x 15% = Rnil) (1)
As Bubbles is deemed to make a supply the input tax in respect of the expenses paid to
make the supply can be claimed as follows: R23 000 000 x 15% = R3 450 000 (as the (1)
amount excludes VAT)
VAT implications for Bold (Pty) Ltd:
As Bold paid no consideration for the leasehold improvements, section 18C will apply to the (1)
company.
Bold is deemed to have made a taxable supply in the course of its enterprise. (1)
The output tax will be as follows: (1)
AxBxC
A = 15/115
B = R20 000 000
C = 0% used for non-taxable supplies or input tax would be denied.
15/115 x R20 000 000 x 0% = Rnil (1)
Available 13
Max 11
Communication skills – layout and structure – answer meets required if the lessee and lessor
are discussed and reference to legislation is supplied. 1
12
PART A(iii)
Transaction 3
Discuss, supported with calculations, the income tax implications for Bubbles (Pty) Ltd in
respect of the waiver of the debt for the company’s 2023 year of assessment. Remember to 10
consider the income tax implications for Carton (Pty) Ltd, as this will have an impact on the
income tax implications for Bubbles (Pty) Ltd.

The loan granted was of a capital nature as Bubbles is not a money lender. (1)
The waiver of a loan is a deemed disposal in terms of paragraph 11(1)(b) of the Eighth
Schedule. (1)
Therefor capital gains tax (CGT) consequences will arise.
As Bubbles receives no consideration for the waiver of the loan the proceeds is Rnil. (1)
The base cost of the loan is the amount of the loan that was granted, therefor R3 000 000. (1)
69 TAX4862/108
NTA4862/108
OR
Proceeds is Rnil less Base cost R3 000 000 = R3 000 000 capital loss
The capital loss is therefore R3 000 000.

As the capital loss was made due to a transaction with a connected person (Carton is a
connected person as Bubbles holds 100% of the shares of Carton) paragraph 56(1) of the (1)
Eighth Schedule needs to be considered.
Paragraph 56(1) determines that if a creditor (Bubbles) disposes of a debt owed by a debtor
(Carton) who is a connected person in relation to the creditor (Bubbles) that creditor
(Bubbles) must disregard any capital loss determined in consequence of that disposal. (1)
However in terms of paragraph 56(2) paragraph 56(1) will not apply to the extent that:
• Carton reduced the R3 000 000 expenditure incurred in respect of the second-hand
manufacturing machine (paragraph 12A(3)), or
• a capital gain was taken into account by Carton in terms of paragraph 12A(4), or
• an amount was included in Carton’s gross income or income,
• an amount was taken into account in the determination of Carton’s balance of
assessed loss in terms of section 20(1)(a).
Carton received a debt benefit of R3 000 000, the amount of the debt that was waived. (1)
Carton reduced the base cost of the asset as follows:
Cost (R3 000 000 less deemed input tax of R391 304 (R3 000 000 x15/115) R2 608 696 (1)
Less s12C Allowances for 2021, 2022 & 2023 (R2 608 696 x 20% x 3 years)
(R1 565 218) (1)
Tax value/Base cost R1 043 478
Reduce base cost to Rnil (paragraph 12A(3)) (R1 043 478) (1)
Carton included a recoupment in its gross income in terms of sections 8(4)(a) and 19(6)
The recoupment will be R3 000 000 – R1 043 478 = R1 956 522, limited to the allowances (1)
claimed of R1 565 218 (1)
Therefore a capital loss of R2 608 696 (R1 043 478 + R1 565 218) will not be disregarded
in terms of paragraph 56(1) and Bubbles will be able to claim R2 608 696 as a capital loss
for CGT purposes. (1)
The remaining part of the debt waived R391 304 (R3 000 000 – R2 608 696) will be a
capital loss that will be disregarded in terms of paragraph 56(1). (1)
Available 14
Max 10
Total 12
70 TAX4862/108
NTA4862/108
PART B(i)
Calculate the VAT implications for Carton (Pty) Ltd and Foodies (Pty) Ltd in respect of the
sale/purchase of the restaurant. Clearly indicate whether any VAT referred to is input or 6
output tax.

Carton (Pty) Ltd R R
VAT Input tax Output tax
Output tax: R3 250 000 x 0% = Rnil – section 8(16) and Nil (1)
proviso (ii) to section 11(e)
Input tax: (R1 125 000 + R150 000 + R840 000 +
R1 200 000) x 15/115 x 35% =R151 337 151 337 (3)
sections 16(3)(h) and 9(6)
Foodies (Pty) Ltd Input tax Output tax

VAT
Input tax – R3 250 000 x 0% = Rnil Nil (1)
Output tax – section 18A - R3 250 000 – (R3 250 000 x
60%) x 15% = R195 000 195 000 (2)
OR
(R3 250 000 x 40%) x 15%
Available 7
Max 6
Communication mark – Layout and presentation 1
Total 7
PART B (ii)
Calculate the income tax implications for Carton (Pty) Ltd in respect of the sale of the
restaurant. 15
Income tax: R R
Amount received for sale of restaurant – capital in nature -
Kitchen equipment:
Recoupment:
Cost R1 500 000 - (R1 125 000 x 15/115 x 35%) 1 448 641 (2)
Less section 11(e) allowances: (2021 & 2022)
(R1 500 000/6) x 2 (500 000) (1)
Less section 11(e) allowance for 2023: R1 500 000/6 x (104 167) (104 167) (1)
5/12
Tax value 844 474
Less selling price (1 125 000)
Recoupment (section 8(4)(a)) 280 526 280 526 (1)
Capital gain:
Proceeds (R1 125 000 – R280 526 (recoupment)) 844 474
Less Base cost (R1 448 641 – (R500 000 + R104 167) (844 474)
(allowances))
Capital gain/loss nil (1)
71 TAX4862/108
NTA4862/108
Kitchen utensils
Cost R215 000 – (R150 000 x 15/115 x 35%) 208 152 (1)
Less section 11(e) allowances (214 900) (1)
Tax value (6 748)
Less selling price (125 000)
Recoupment – section 8(4)(a) 131 748 131 748 (1)
Capital gain
Proceeds (R125 000 – R131 748) (6 748)
Less Base cost (R208 152 – R214 900) 6 748
Capital gain nil (1)
Furniture
Cost (R850 000 – (R840 000 x15/115 x 35%)) 811 652 (1)
Less section 11(e) allowance – 2022 – R850 000/6 (141 667) (1)
Less section 11(e) allowance – 2023 – R850 000/6 (59 028) (59 028) (1)
x 5/12
Tax value 610 957
Less selling price (850 000)
Recoupment – section 8(4)(a) limited to allowances 200 695 200 695 (1)
claimed R141 667 + R59 028 = R200 695
Capital gain: Proceeds ((R850 000 – R200 695) –

Base cost (R811 652 – (R141 667 + R59 028) =
R38 348 38 348 (1)
Taxable capital gain x 80% (order: include below)
Trading stock
Purchase - section 11(a) (R1 200 000 – (1 145 217) (1)
(R1 200 000 x 15/115 x 35%)
Sales – section 1, gross income definition 1 150 000 (1)
Furniture – taxable capital gain (@ 80%) 30 678 (1)

Available 18
Max 15
72 TAX4862/108
NTA4862/108
PART C
Prepare the investment in Plastic Inc note to the consolidated financial statements of the
Bubbles (Pty) Ltd Group, in accordance with IFRS 12 Disclosure of Interests in Other Entities 20
for the year ended 31 December 2023.
BUBBLES (PTY) LTD GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER
2023
Marks
13. Investment in Plastic Inc
Name of investment in subsidiary: Plastic Inc (1)

Principal place of business: San Diego, California, USA (1)
Proportion of ownership interest held by non-controlling
interests: [25% + (100% x 45%) = 70% parent, 30% NCI] 30% (1)
Profit allocated to non-controlling interests during the 2023
financial year: [C1] R491 228 (3½)
Accumulated non-controlling interests at the end of the 2023
financial year: [C2] R5 855 715 (5½)
Dividends paid to non-controlling interests during the 2023
financial year: ($25 000 x 30% x 17.05) (R127 875) (1)
R
Summarised financial information:
Total assets (1 968 000 x 17.15) 33 751 200 (1)
Total liabilities (822 000 x 17.15) 14 097 300 (1)
Profit for the year (87 000 x 17.10) 1 487 700 (1)
Total comprehensive income (1 487 700 + 218 650 [C3]) 1 706 350 (4)
Available (20)
Max (19)
Communication skills – Presentation and layout (1)
Max (20)
73 TAX4862/108
NTA4862/108
CALCULATIONS
C1. Profit or loss allocated to non-controlling interests during the 2023 financial year
$ Rate R
Profit for the year 87 000 17.10 1 487 700 [1]

Intragroup profit recognised on machine sold
in 2022 (100 000 x 10% = 10 000 x 1/5) 2 000 *17.15 34 300 [1]
Intragroup profit recognised on inventory sold
in 2022 (45 000 x 15%) 6 750 17.10 115 425 [1]
95 750 1 637 425
NCI share at 30% 491 228 [½]

[3½]
* The rate 17.10 could also have been used
C2. Accumulated non-controlling interests at the end of the 2023 financial year
$ Rate R
Net asset value at 31 December 2023

(1 968 000 - 822 000) 1 146 000 [1]
Eliminate intragroup profit on machine sold (10 000) [1]
Realise intragroup profit on machine sold
- 2022 (10 000/5 x #25/365) 137 [1]
- 2023 (10 000/5) 2 000 [1]
1 138 137 17.15 19 519 050 [1]
NCI share at 30% 5 855 715 [½]

[5½]
# 26 days could also have been used
C3. FCTR for the 2023 financial year
$ Rate R
Net asset value at 31 December 2022

(100 000 + 984 000) 1 084 000 16.95 18 373 800 [1]
Profit for the year 87 000 17.10 1 487 700 [1]
Dividends paid (25 000) 17.05 (426 250) [1]
FCTR for the year (OCI) (balancing) 218 650
Net asset value at 31 December 2022 [C2] 1 146 000 17.15 19 653 900 [1]
[4]
Note: No intragroup elimination should be included in the FCTR calculation as IFRS 12.B11 states
that the summarised financial information required shall be the amounts before inter-company
eliminations
74 TAX4862/108
NTA4862/108
Part A(a)Transaction 1
Discuss the normal tax implications for EnergySA Ltd for the 2023 year of assessment in
respect of transaction 1 in Part A. Support your answer with calculations and provide brief
reasons or reference to relevant legislation, where applicable. Address the following in your 15
answer:
- Purchase of the racking machine from Sunshine (Pty) Ltd,
- destruction of the racking machine during industrial action and
- purchase of another racking machine from Inventum
Communication skills – logical argument

1
Purchase of second-hand racking machine Marks
1. EnergySA purchased the second-hand racking machine from Sunshine in an asset for
share transaction (s 42). (1)
• Sunshine acquires 1.2% of the issued equity shares (less than 10%) but as
EnergySA is a listed company it has a qualifying interest (section 42(1)), (1)
• both companies are resident companies and (1)
• the base cost of the racking machine, R360 000 (R900 000 less 60% (s 12C)) is
(2)
less than the market value of R800 000 of the racking machine, thus a roll-over
ought to apply.
2. However, an anti-avoidance provision in terms of the asset for share transaction is
deemed to arise in the hands of EnergySA in terms of s 24BA in 2023 as: (1)
• The market value of the machine (asset), immediately before disposal is
R800 000 whilst the value of the shares immediately after the issue amounts to
R650 000 (10 000 x R65). (1)
• The excess of R150 000 (R800 000 less R650 000) is a capital gain in terms of
(1)P
s 24BA(3)(a) and EnergySA must add this
• deemed capital gain to the base cost of the second-hand racking machine in (1)
terms of section 40CA(b).
Destruction of machine
3. When the machine is destroyed a capital gain and a recoupment ought to be calculated.
In the hands of EnergySA, the racking machine’s base cost will be the amount that (1)P
the company received for issuing the shares, thus R650 000 (s 42(2)(i)(aa).
Recoupment – provided: R320 000.
EnergySA would not claim the s12C allowance in 2023 (allowance has already been
used by Sunshine in 2023)). (1)
The capital gain/loss will be:
Proceeds: R782 000 x 100/115 (s 8(8) of the VAT Act) = R680 000 (1)
Less recoupment (Provided) (320 000) R360 000 (1)
Base cost: 650 000
Add: s 40CA(b) (R150 000) 150 000 (800 000) (1)P
Loss R440 000
Paragraph 65 will not apply as a capital loss was made or Capital loss carried forward. (1)P
75 TAX4862/108
NTA4862/108
4. Purchase of new machine

As EnergySA owns 70% of the equity shares in Inventum, they form part of the same (1)
group of companies.
Both companies are residents, thus section 45 will apply. (1)
There will be no recoupment or CGT effect for both parties. (1)
EnergySA is deemed to have acquired the racking machine at its base cost of Rnil (1)
(R1 500 000 less s 12C (40:20:20:20) (Same base cost as in the tax calculation of
Inventum).
If EnergySA disposes of the racking machine in the future, the recoupment will include
the allowances deducted by Inventum of R1 500 000. (1)B
Available 20
Max 15
Communication mark: clear differentiation between tax events 1
Total for part (a) 16
Part A(b) Transaction 2
Write a memorandum to the board of directors of EnergySA Ltd to discuss all the tax
implications for EnergySA Ltd as a result of the transaction with Windfall (Pty) Ltd for the
2023 year of assessment in regards to: 10
• the dividend of R40 500 received on 31 March 2023; and
• the sale of the shares at R150 000 on 15 April 2023.
Support your answer with calculations and provide brief reasons or relevant legislation where
applicable.
MEMORANDUM: Marks
To: Board of Directors

From: Tax practitioner XXX C
Date: XXXX 2023
Re: All the tax implications for EnergySA regarding the dividend received and the sale of the
shares in Windfall (Pty) Ltd for R150 000.
The dividend received and sale of the shares in Windfall (Pty) Ltd will have the following tax
implications for EnergySA:
Receipt of R40 500 on 31 March 2023
Dividends Tax
The dividend of R40 500 is not subject to dividends tax as it is exempt ito s 64F(1)(a). (1)
Normal Tax
The dividend of R40 500 must be included in the gross income of EnergySA, in terms of (1)
par (k) of the gross income definition in section 1, but is exempt from normal income tax in (1)
the hands of EnergySA in terms of section 10(1)(k)(i).
VAT
Dividend income constitutes a supply of money and is specifically excluded from the (1)
definition of goods and services in section 1), thus no VAT implications.
76 TAX4862/108
NTA4862/108
Sale of shares in Windfall (Pty) Ltd R

Normal tax
As EnergySA is not a share dealer as defined, the sale of shares is of a
capital nature, and therefore Capital Gains in terms of the Eighth Schedule (1)
must be considered.
Capital gain/loss
Proceeds (par 35) 150 000
Less: Base cost (par 20(1)(a)) (250 000)
Capital loss (100 000) (1)
Capital Gains implications

As EnergySA sold the shares and within a period of 18 months, prior to (1)
the disposal received extraordinary, exempt dividends
the disregarding of the capital loss must be considered (paragraph (1)
19(1)(b)).
As the dividend received is an exempt dividend, and exceeds 15% of the (1)
proceeds received on disposal it will qualify as an extraordinary exempt
dividend in terms of par 19(3)(c).
Extraordinary exempt dividend:
Amount of aggregate dividend (≤18 months)
- 31 October 2022 45 000
- 31 March 2023 40 500
Aggregate dividend 85 500 (1)
Less: 15% of proceeds (R150 000 x 15%) (22 500) (1)
Capital loss to be disregarded 63 000
Portion of capital loss to be allowed to be deducted from other gains and

losses:
Capital loss: R100 000 less R63 000 37 000 (1)P
VAT
The sale of shares or securities are exempt for VAT purposes in terms of
section 12(a) as it qualifies as financial services in terms of section 2 of (1)P
the VAT Act, thus no VAT effect
Available 13
Max 10
Communication mark: Memorandum format 1
Total for part (b) 11
77 TAX4862/108
NTA4862/108
Part A(c) Transaction 3
Discuss all the tax consequences (with supporting calculations where applicable) for 7
EnergySA of the installation of solar panels at the residence of Tumi Matsimela for the
company’s 2023 year of assessment.
Solar panels installation for Tumi Matsimela Marks
1. As EnergySA distributed solar panels (trading stock) to a holder of shares, the
distribution will be a dividend in specie (s 22(8)). (1)
2. Income tax consequences:
The recoupment (s 22(8) par (b)(iii)) will be the market value on date of distribution
R77 050 x 100/115 = R67 000. (1)
The cost of the total solar installation of R36 000 was already deducted either in terms
of section 11(a) (new purchases) or as part of the opening stock value (s 22(2)) (that (1)
was correctly treated).
Dividends tax
3. As it’s a dividend in specie EnergySA is liable for the dividends tax (1)
The value of the dividend in specie is the market value of R67 000 (R77 050 x (1)P
100/115) the solar panels on the date of transfer of ownership, which will be when the
solar panels was installed.
EnergySA is liable for dividends tax of R13 400 (R67 000 x 20%) as none of the (1)
exemptions in section 64FA(1) apply.
EnergySA must pay the dividends tax to SARS by the last day of the month following
the month in which the dividend is deemed to be declared, thus end of August 2023. (1)
VAT
4. Dividend in specie:
Tumi Matsimela is not a VAT vendor but also not a connected person (connected (1)
person – par (d)(iv)), because he holds 5% of the company’s shares or voting rights
which is less than 20%.
Section 10(4) of the VAT Act will not apply (open market value is not used). (1)
Trading stock
Section 18(1) applies to the change of use of the trading stock and (1)
an output tax at the tax fraction of 15/115 must be levied on the open market value
(s 10(7)): R77 050 x 15/115 = R10 050 (1)
Available 11
Max 9
Total for part (c) 7
78 TAX4862/108
NTA4862/108
Part A(d) Transaction 3
As you know Miss Knowitall made a unilateral decision to deduct the cost of the
installation of R77 050 as advertising and marketing cost in the calculation of the taxable
income of EnergySA Ltd for the 2023 year of assessment. Discuss any ethical concerns
you may have regarding her decision in this regard. Your answer must include any
actions or remedies that SARS may have against Miss Knowitall and EnergySA Ltd (if
6
any) regarding the deduction for income tax purposes.
Communication skills – appropriate style 1

Marks
1.1 The cost of the installation of R36 000 has already been deducted in terms of
section 11(a)/section 22. To deduct the open market value of R77 050 will be a
double deduction for VAT and Income tax purposes. (1)
1.2 Miss Knowitall is a chartered accountant and tax practitioner. As the representative
of EnergySA may not defraud SARS in the form of a double deduction. (1)
This is unethical behaviour and may negatively impact on the reputation of (1)
both EnergySA and Miss Knowitall as it is the contravention of good corporate and
fiscal citizenship.
She, as tax practitioner should update herself yearly in regards to the newest (1)
tax legislation in order to maintain her registration.
2 The actions that SARS may take against EnergySA:
2.1 SARS will disallow the additional deductions that EnergySA wrongfully claimed (1)
as an expense in their accounting records and tax calculation in the form of an
additional assessment.
2.2 SARS may impose an understatement penalty (and interest) on the Income tax (1)
and VAT of EnergySA for the additional tax deductions claimed for both provisional
tax and on the assessment filed
3 The actions SARS may take against Miss Knowitall:
3.1 A senior SARS official may lodge a complaint (s 241 of the Tax Administration
Act) with SAICA because Miss Knowitall attempted to assist a client to evade tax (1)
acting in her capacity as audit manager.
Miss Knowitall may consequently lose her registration as a member of SAICA (1)
and as tax practitioner.
3.2 In terms of s 235(1) of the TAA it is a contravention of tax legislation to claim or (1)
attempt to claim a false deduction.
3.3 If found guilty of an offence Miss Knowitall may be subject to a fine or
imprisonment for a period not exceeding five years in terms of s 235(1)(a) of the (1)
TAA.
Available 10
Maximum 6
Communication skills – appropriate style clear indication of Miss Knowitall and
1
EnergySA addressed
Total for part (d) 7
79 TAX4862/108
NTA4862/108
Part A(e) Discuss the correct recognition and measurement of the costs relating to the web site
development.
SIC 32 provides guidance on accounting for costs incurred in the following stages of
a web site’s development:
• Planning,
• Application and Infrastructure Development, Graphical Design Development and
Content Development stages (other than for advertising and promotion purposes),
• Content Development stages (for advertising and promotion purposes), and
• Operating Stage
The web site software was developed by EnergySA itself and is used for internal and
external access. It would therefore constitute an internally generated intangible asset (1)
that is subject to the requirements of IAS 38 Intangible Assets (SIC 32.7)
However, the web site will only be recognised as an intangible asset if, in addition to
complying with the general requirements described in IAS 38.21 for recognition and initial
measurement, EnergySA can satisfy the requirements in IAS 38.57. (1)
The web site will only be recognised as an intangible asset if (IAS 38.21):
a) It is probable that the expected future economic benefits that are attributable to the
asset will flow to the entity: (1)
EnergySA will be receiving the income that is generated with the use of the web site
and no other party will partake in it.
b) The cost of the asset can be measured reliable: (1)

EnergySA received invoices from its consultants and suppliers. The monthly
salary of the employee who is assisting Mr Webb (web site consultant) is also known
to EnergySA. Therefore, the cost pertaining to the development of web site can be
measured reliable
Therefore, the website can be recognised as an intangible asset.

Planning stage (SIC32.9(a)): The planning stage is similar to the research phase of IAS–
38.54-.56 - expenditure incurred in this stage are expensed to profit or loss when incurred:
Therefore, the employee cost (R38 000) relating to Mrs Site for the month of
March 2023 will be expensed to short term employee benefit cost, and not capitalised (1)
to the intangible asset, because during that time period she was only obtaining more
information relating to (did research on) e-commerce web sites.
Development stage;
Application and Infrastructure Development, Graphical Design Development and
Content Development stages (other than for advertising and promotion purposes)
(SIC 32.9(b)): This stage is similar in nature to the development phase indicated in
IAS 38.57-64.
The internally developed web site software will only be recognised if EnergySA can
demonstrate all of the following (IAS38.57):
(a) The technical feasibility of completing the intangible asset:
This occurs on 30 April 2023 when Mr Webb indicated that it is technically
possible to implement EnergySA’s required criteria to the web site. (1)
80 TAX4862/108
NTA4862/108
(b) EnergySA’s intention to complete and use the web site:

On 15 April 2023, the board of directors authorised the IT department to continue (1)
with the development of the web site and appointed Mr Webb, a web site consultant,
to assist Mrs.Site with the development.
After Mrs Site’s presentation, EnergySA again authorised the further development (1)
of the web site and indicated that the company intends to launch the web site no
later than August 2023 which indicates the EnergySA’s intention to complete and (1)
use the web site.
(c) EnergySA’s ability to use the web site:

EnergySA will be able to use the web site to introduce its products to the market (1)
as well as to sell its products via the e-commerce site. EnergySA therefore has the
ability to use the web site.
(d) How the web site will generate probable future economic benefits:
EnergySA will be able to sell its product via the on-line platform. ()
Market research also indicated that EnergySA’s turnover could increase with up to (1)
30% which is evidence of the company’s ability to use the web site to generate
income.
(e) The availability of technical, financial and other resources to complete:

EnergySA obtained an expert in the field of web site design to assist with the (1)
development of the web site.
On 1 June 2023 the directors of EnergySA authorised the development of the web
site, which included the cost to develop the web site, since a cost analysis was
presented together with the presentation of the layout and design of the web site.
EnergySA therefore has sufficient funding to complete the web site development. (1)
Mrs Site, an employee (other resource) of EnergySA, also assisted with the
development of the web site.
(f) The ability to measure expenditure reliably:

A detailed cost analysis was provided to reliably determine the cost of the (1)
development.
All contractors and suppliers will also provide invoices to enable the measurement (½)
of the expenses reliably.
The cost contribution relating to Mrs Site can also be measured reliably since her
salary is known to the company. (½)
Based on the above, the criteria contained in IAS 38.57 is met on 1 June 2023. (1)
Development cost prior to 1 June 2023 that will be expensed to profit or loss will amount
to:
• Mr Webb’s fee to assist with the presentation: R12 000 (½)
• Mrs Site’s pro-rata gross salary relating to the time she spent on the presentation: (½)
40% x R38 000 = R15 200
81 TAX4862/108
NTA4862/108
Development cost after 1 June 2023 that will be capitalised as an intangible asset
amount to:
• Mr Webb’s development fee: R28 000 (Inv 14) (½)

• Mrs Site’s salary for the month of June 2023: R38 000 (½)
• Mr Host’s fee: R5 600 (½)
• Mr Webb’s improvement fee: R8 500. Even though the improvement incurred after
(1)
the web site was available for use (operating stage) on 1 July 2023, it enables
EnergySA to generate economic benefits more than its originally assessed standard
of performance / the costs meets the recognition criteria in IAS38.18 and can therefore
be capitalised.
The training cost of R5 600 is excluded from an internally generated intangible asset (1)
and would therefore also be expensed to profit or loss when it is incurred.(IAS38.69(a))
The computer hardware costs of R57 000 would meet the requirements for capitalisation
separately under IAS 16 Property, plant and equipment and would therefore not be (1)
capitalised to the web site.
Content Development stages (for advertising and promotion purposes) (SIC32.9(c)):
To the extent that this cost relates to the advertisement and promotion of an entity’s own
products, it has to be recognised as an expense when incurred.
The R4 800 payable to Mr Shot with regard to the high-quality photographs taken of the (1)
products which will be sold via the web site will be expensed to profit or loss, because
Mr Shot’s professional services was received during the web site development process (1)
and not while the photos are displayed on the web site.
Operating stage (SIC32.9(d)) – begins on 1 July 2023, once the development of the web
site is complete and the web site is launched. Costs incurred in this stage shall be
recognised as an expense unless it meets the recognition criteria in IAS38.18
The following cost, which were incurred after 30 June 2023, will therefore be expensed: (1)
• Mr Webb – repair: R2 500 does not enable the web site to generate future economic
benefits more than its originally assessed standard of performance from using the (1)
intangible asset, but rather restore the intangible asset to its original intended
operating capacity.
(½)
• Monthly hosting fees: R1 150
Total 28
Maximum 19
Communication skills: Logical argument Discuss different stages 1
Total for part (e) 20
82 TAX4862/108
NTA4862/108
Part B
Base on the information provided in Part A and Part B calculate Tumi Matsimela’s taxable
39
income for his 2023 year of assessment.
Clearly indicate all items that have a nil effect and provide a brief reason for each of these
items.
Taxable Marks
Income
R
EnergySA salary (par (c) Gross Income def.) (R90 000 x 11) 990 000 (1)
Director fees: section 7B applies and variable remuneration not accrued - (1)
Lumpsum received: Provident fund – gross income
R3.4 million less: par 5 R850 000 2 550 000 (1)
Taxed separately (2 550 000) (1)P
Lump sum received: Employer (Par (d)) 600 000 (1)
Annuity from provident fund 50 000 (1)
Annuity from insurer (par (a) of the gross income definition 12 000 (1)
Less: capital element (s 10A) (7 200) (1)
Fringe benefit: Provident fund (par 2(l) and 12D) R90 000 x 8% X 11 79 200 (1)
Fringe benefit: Medical scheme (par 12(A)
R6 500 x 50% x 11 months 35 750 (1)
R6 500 x 50% x 1 month – no value as he retired due to old age - (1)
(par 12A(5)(a)
Fringe Benefit: Smart phone use (iphone 13) (par 6(4)(bA)):
no value as the communication service is mainly used for the employer’s Nil (1)
business
Fringe benefit (par 2(a) and 5(2)(b): iPhone – long service award:
R20 521 (R23 599 x 100/115)/R23 599 (1)
less R5 000 = 15 521 (1)
Fringe benefit (par 7(4) – leased company car:
Annual value: Lease payments (R9 000 x 11) R 99 000 (1)
Plus: Fuel costs (R2 500 x 11) 27 500 (1)
126 500
Less business travel proportion (par 7(7))
(R126 500 x 20 320km/25 400km) (101 200) 25 300 (1)P
No par 7(8) deduction as it is a leased motor vehicle - (1)
Section 8C gain on vesting of shares on retirement:
Market value on 1 Feb: R70 x 10 000 = R700 000 (1)
Less: amount paid: 100 000 600 000 (1)
Remuneration 2 400 571
Matsimela trust:
Local dividends (s 7(5) retained income of trust not distributed:
R90 500 x 100/80 = 113 125 (1)
Local dividend: Exempt ito section 10(1)(k) (113 125) (1)P
Interest: section 7(5) –retained income 44 000 (1)
Exempt: older than 65 years of age on year-end (34 500) (1)
Foreign dividend distributed to Zinhle: section 7(8) foreign resident
R39 000 x 100/90 (withholding tax) = 43 333 (1)
S 10B(3): partial exemption: 25/45 x R43 333 (24 074) (1)P
28 759
Woulidge test: Tumi is taxed on a net return of R28 759
Alternative: R113 125 +44 000 + 43 333 = R200 458 which is much less
than
R3 million x 8% = R240 000, thus none of the income is limited (1)
Taxable income before CGT 2 429 330
83 TAX4862/108
NTA4862/108
CGT:
1) Donation of shares
Proceeds: market value (connected to trust)
10 000 x R78= R780 000 (1)
Base cost: Value of s 8C gain:
paragraph 20(1)(h) (700 000) (1)P
Add: par 22: R780 000 - 700 000/780 000 x R136 000 (13 949) (1)P
*(780 000 - R100 000 x 20% = R136 000 (1)
Capital gain: R66 061
2) Loan – Proceeds less Base cost nil (1)
3) Foreign shares – gain provided R500 000 x 50% 250 000 (1)
(1)
Exemption of capital gain is limited to the aggregate income and
CGT received by the donor ito par 73:
From 2021 to 2023: Interest saving less total amount of income
(1)
included ito section 7(8) and 7(5); R720 000 less R453 514
(R310 625 (R248 500 x 100/80) (local div) + R44 000 (local interest)
+ (R89 000x100/90) (for div) = R266 486,
thus no limitation or
R720 000 less R53 451(R310 625 –R310 625 +R44 000 – R34 500 +
R98 889 – 25/45) =R666 549 if interpretation is that ‘income is after
exemptions’
Capital gain R250 000
Aggregate capital gain: R316 061
(1)
Less: annual exclusion (40 000)
110 424 (1)
R276 061 x 40%
Subtotal before section 11F 2 539 754
Provident fund contributions (s11F) –
Actual contributions: R79 200 x 2 = R158 400 (1)P
Limited to the lesser of the following three options:
• R350 000, or
• 27,5% of the higher of the *remuneration R2 375 271(R2 400 571 less
company car adjustment of R25 300 (20% X R126 500) or (1)
(1)
taxable income after CGT), R2 539 754
thus R2 539 754 X 27.5% = R698 432 or
• the taxable income before taxable capital gain = R2 429 330
Thus: R350 000, thus R158 400 not limited (158 400) (1P)
*Remuneration referred to is remuneration for employees’ tax purposes, but
excluding retirement lump sums and severance benefits,
Taxable Income after section 11F 2 381 354
Lump Sum received 2 550 000
4 931 354
Available 41
Maximum 38
Calculation of s 11F AFTER CGT
Total for part B 39
84 TAX4862/108
NTA4862/108
ANNEXURE: MONETARY AMOUNTS TO BE PROVIDED IN THE OCTOBER 2023 AND

JANUARY 2024 SUPPLEMENTARY EXAMINATIONS
Tax thresholds
(point at which normal tax becomes payable)
Taxable income
Rand
2023 2022
Persons under 65 91 250 87 300
Persons 65 and under 75 141 250 135 150
Persons 75 and above 157 900 151 100
SCHEDULE I – RATES OF NORMAL TAX

For any natural person, deceased estate, insolvent estate or special trust
Year of assessment 28 February 2023
Taxable income Rates of tax
R0 – R226 000 18% of taxable income
R226 001 – R353 100 R40 680 + 26% of taxable income exceeding R226 000
R817 601 – R1 731 600 R239 452 + 41% of taxable income exceeding R817 600
R1 731 601 and above R614 192 + 45% of taxable income exceeding R1 731 600
Retirement fund lump sum withdrawal benefits

Lump sums accruing between 1 March 2014 – 28 February 2023
Taxable income from lump Rates of tax
sum withdrawal benefits
R25 001 – R660 000 18% of taxable income exceeding R25 000
R990 001 and above R203 400 + 36% of taxable income exceeding R990 000
Retirement fund lump sum benefits and severance benefits

Lump sums accruing between 1 March 2014 – 28 February 2023
Taxable income from lump Rates of tax
sum benefits
R500 001 – R700 000 18% of taxable income exceeding R500 000
R700 001 – R1 050 000 R36 000 + 27% of taxable income exceeding R700 000
R1 050 001 and above R130 500 + 36% of taxable income exceeding R1 050 000
Normal tax rebates

Rebates (Rand)
2023 2022
Primary rebate (Persons under 65) 16 425 15 714
Secondary rebate (Persons 65 and under 75) 9 000 8 613
Tertiary rebate (Persons 75 and above) 2 997 2 871
Annual interest exemption

Rand
2014 - 2023 2013
Persons under 65 23 800 22 800
Persons 65 and above 34 500 33 000
85 TAX4862/108
NTA4862/108
Determination of the daily amount in respect of meals and incidental costs for purposes of
subsistence allowance
Rand
2023 2022
Meals and incidental costs (per day) 493 452
Incidental costs only (per day) 152 139
Fixing of rate per kilometre in respect of motor vehicles per regulation (travel allowance)
Effective from 1 March 2022
Where the value of vehicle Fixed Cost Fuel cost Maintenance
(including VAT) (R) (c/km) cost (c/km)
Does not exceed R95 000 29 836 131.7 40.9
exceeds R95 000 but does not exceed R190 000 52 889 147.0 51.1
Exceeds R190 000 but does not exceed R285 000 76 033 159.7 56.3
exceeds R665 000 159 031 218.0 105.5
Medical scheme fees tax credit

Rand
2023 2022
Taxpayer 347 332
Taxpayer and one dependant 694 664
For each additional dependant 234 224
Capital gains tax

2023 2022
Inclusion rate 40% 40%
Annual exclusion R40 000 R40 000
Exclusion in year of death R300 000 R300 000
Primary residence exclusion R2 000 000 R2 000 000
Estate Duty
On or after 1 March 2018:
- 20% on the first R30 million
- 25% on excess above R30 million
Fringe benefit on residential accommodation

2023 2022
Symbol B R91 250 R87 300
Scholarship or bursary granted to:

2023
A relative of employee without a A relative of employee with a
Effective from
disability disability
1 March 2018
Section 10(1)(q)(ii) Section 10(1)(qA)(ii)
Remuneration proxy: R600 000 R600 000
Grade R to 12 R20 000 R30 000
NQF 1 to 4 R20 000 R30 000
NQF 5 to 10 R60 000 R90 000
86 TAX4862/108
NTA4862/108
Small Business Corporation (as defined in section 12E)

Applies to any year of assessment ending during the 12 months from 1 April 2022 up to 30 March 2023
Taxable Income Rate of Tax
R91 251 – R365 000 7% of the amount above R91 250
R365 001 – R550 000 R19 163 + 21% of the amount above R365 000
R550 001 and above R58 013 + 28%* of the amount above R550 000
*27% if the year of assessment ends on 31 March 2023
Small Business Corporation (as defined in section 12E)
Applies to any year of assessment ending during the 12 months from 1 April 2023 up to 31 March 2024
Taxable Income Rate of Tax
R95 751 – R365 000 7% of the amount above R95 750
R365 001 – R550 000 R18 848 + 21% of the amount above R365 000
R550 001 and above R57 698 + 27% of the amount above R550 000
Master’s Fees (effective 1 January 2018)
R0 – less than R250 000 RNil
R250 000 – less than R400 000 R600
R400 000 and more R600 + R200 for every complete further R100 000 of estate value up
to a maximum fee of R7 000 (for estates valued at R3.6 million or more)
VAT rate
Up until 31 March 2018 14%
Effective from 1 April 2018 15%
_________________________________
END OF TUTORIAL LETTER
©
UNISA
2023

Tutorial Letter 108/0/2023: TAX4862 NTA4862

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Tutorial Letter 108/0/2023: TAX4862 NTA4862

Uploaded by

Copyright:

Available Formats

TAX4862/108/0/2023

Tutorial letter 108/0/2023

APPLIED TAXATION (CTA level 2)

• Information regarding the October 2023 examination;

II. THE OCTOBER 2023 EXAMINATION

III. REVISION LECTURES DURING AUGUST/SEPTEMBER 2023

COMPANIES AND CLOSE CORPORATIONS

IV. LEARNING UNIT 21: TAX ADVICE AND PLANNING

21.1.1 UNGC Principle 10

21.2 OUTCOMES OF THIS LEARNING UNIT

21.3 TAX PLANNING IN GENERAL

21.3.1 Approach to tax planning

Factors that determine tax liability

 Consider the tax disadvantages of companies:

 Consider the advantages of companies:

 The use of trusts for business purposes, so-called business trusts:

Where is the person resident?

21.3.2 General and specific considerations in tax planning

21.3.2.1 Tax rates

Annual taxable value:

Deemed cost: Fixed cost per table R116 438

• Recoupments (sections 8(4) and 22(8));

21.3.3.1 Other considerations

21.3.3.2 Investment decisions

Factors to consider when making an investment decision

Tax entity to be utilised

For a company, an “income instrument” is any “instrument” (irrespective of its period).

Deductions available against investment income

21.4 SUMMARY OF LEARNING UNIT 21

21.5 LIST OF REFERENCES OF LEARNING UNIT 21

• SAICA. 2023. SAICA Student Handbook 2022/2023 Volume 3, Durban, LexisNexis.

 Proposed self-assessment method:

Apply the following method regarding the time allocation:

QUESTION CONTENT AND NOTES

PART A (67 marks)

PART B (28 marks)

Communication skills – layout and structure; logical argument 2 14

Communication skills – clarity of expression 1 10

Communication skills – presentation 1 11

Communication skills – clarity of expression 1 7

1 Contract with Furn-Mart

2 Order from China

The following exchange rates were applicable:

Date Spot rate

4 Investment in small business enterprises

5.1 Plywood Trust

Income and distributions Received or R

5.2 Acquisition of office block

o a six-year (6) write-off period for sanding machines.

Communication skills – presentation 1 8

Communication skills – layout and structure 1 16

(vii) In respect of note 6:

Communication skills – presentation 1 7

(a) Taxable income

Taxable income as a resident 1 March 2022 – 4 January 2023 Add/

R30 000 pm x 8 months 240 000 (½)

2. Contributions to benefit funds

Provident fund contributions – R5 000 pm x 8 months 40 000 (1)

3. Exclusive use of laptop

4. Vesting of share options

Ignore as per required

5. Exclusive use of motor vehicle