TEST 4 SOLUTION: QUESTION 1

No. Calculation Amount Section Ref.

1) Relating to Part A,
Discuss the income tax implications for Irwin relating to all his amounts earned in South Africa for the 2023 year of assessment. Marks
- Do not perform any calculations.
Relating to all transactions (amounts)
Irwin is a non-resident and is taxed only on amounts from a South African source. 1

Interest
The interest will be included in his gross income as it is from SA source. s 1, GI def. 1
The interest will be fully exempted as he - s 10(1)(h) 1
Spent zero (0) days in SA which is less than 183 days in the 12-month period before the interest was paid. s 10(1)(h) 1
And the interest is not connected to a permanent establishment in SA. s 10(1)(h) 1
The interest will be subject to a withholding tax of 15% which is a final tax. s 50B 1

Royalty
The royalty will be included in his gross income as it is from SA source. s 1, GI def. 1
The royalty will be subject to a withholding tax of 15% which is a final tax as he - s 49B 1
Spent zero (0) days in SA which is less than 183 days in the 12-month period before the royalty was paid. s 49D 1
And the royalty is not connected to a permanent establishment in SA. s 49D 1
The royalty will then be exempt from normal tax as it was subject to a withholding tax. s 10(1)(l) 1

Available 11
Max 9
Award only if student addressed all amounts (interest and royalty). Communication 1
Total 10
2) Relating to Part B,
Critically analyse the employee’s tax calculation for March 2022 performed by Ndivhuwo Makhavhu for any errors/omissions.
Marks
- Where there are any errors/omissions, provide correcting calculations.
- Do not recalculate the employee’s tax.
1 The treatment for the salary amount is incorrect. (1/2) Gross salary = R50 000 + R1 200 (1/2) 51 366 s 1 GI def.
She included the net salary in the computation of employee’s tax instead of gross salary. (1) + R166 (1/2) 2,5

1 The treatment for GL's contribution to pension fund is incorrect. (1/2) Correct contribution = R51 366*8% (1/2 4 109 s 1 GI def.
She used the net salary to calculate GL's contribution to pension fund instead of using the gross salary. (1) p) 2

1 The treatment for GL's contribution to medical aid is correct. (1/2) No recalculation GI def. & para 12A
of 7th schedule 0,5

2 The treatment for the right of use of company car is incorrect. (1/2) Correct amount = R300 000 x 1,15 (1/2) 9 660 Def remuneration,
She used VAT exclusive cost for determined value (1/2) and she did not include 80% of the cash value of the x 3.5% x 80% (1/2) 4th schedule 2,5
right of use of company car as part of the remuneration. (1/2)
3 The treatment for use of the residential accommodation is incorrect. (1/2) GL does not own the accommodation, 9 131 para 9(3C)
Provision of residential accommodation is an exempt supply as defined (1/2), she was not supposed to reduce the the fringe benefit value is the lower of: -
cost by VAT (1/2) and she simply took the rental without calculating the fringe benefit value of the use of residential Value per formula and
accommodation i.t.o par 9 of the 7th schedule. (1/2) - The cost borne by the ER (1)

1. Formula=(A-B)*C/100*D/12
A=R700 000 (1/2)
B=R91 250 (1/2)
C=18 (1/2) 6
D=1 (1/2)
=(R700 000-R91 250)*18/100*1/12
=R9 131 or

2. Rental paid by ER = R15 000 (1/2)

Therefore the lower is R9 131 (1/2)

Ndivhuwo omitted to test if the contributions to pension fund are limited in terms of s11F. (1/2) R5 200 is limited to the lesser of: S 11F and BoR in
Despite this omission, the correct amount set off against the remuneration. (1/2) 4th schedule
1. 27,5% x R75 266* = R20 698 (1P) or
2. R350 000/12 (1/2) = R29 167

*Remuneration = R75 266

(R51 366 +R4 109 +R1 000 +R9 660 3,0
+R9 131) (for completeness, amount
was given in the scenario)

The lesser is R20 698, therefore deduct

contributions in full (1p)

The treatment of annualising the Balance of remuneration by multiplying the figure by 12 is correct. (1/2) 0,5
The tax per table and treatment of rebates: primary rebate, secondary rebate and s6A rebate is correct. (1/2) s5&6 0,5
She omitted/did not account for s6B - Golden is older than 65 years and s6B must be accounted for. (1/2) Contributions R1 000 0 s6
Less (3*924) (1/2p) (2 772)
Subtotal (limited to nil) R0 (1/2p)

Award a bonus mark to students for not 2,0

taking into account the qualifying
medical expenditure. (1/2B)

Dividing the annual tax by 12 to get to the EE’s tax for March is correct. (1/2) 0,5

Available 20
Max 19
Award if responded to both tasks (critically evaluated and provided calculation were there are errors) Communication 1
Total 20
3) Relating to Part B,
Calculate the first provisional tax payment and late payment penalty, if applicable for Seabi for the 2023 year of assessment.
Marks
ASSUME for this required,
- That the employees’ tax paid by Seabi from 1 March 2022 to 31 August 2022 was R141 019.
First Provisional Payment
Basic amount 2020: R1 490 000 - R290 000 (1) = R1
200 000
R1 200 000 x 1,24 (1) = R1 488 000
Para 19 2
(Note: award students marks if they
used 1,16 to increase the basic amount)

Reasons for using the basic amount: Provided only for completeness
The estimate of taxable income (R1 353 000, taxable capital gain is not deducted, it's only deducted when purposes, therefore no marks awarded
determining the basic amount) is below the basic amount (R1 488 000, as calculated above).

Taxable income - basic amount as determined by student 1 488 000

Tax payable R251 258 +41%(R1 488 000 - R857 509 599
900) s 5 & para 17 1

Less: Primary and secondary rebates (16 425 (1/2) + 9 000 (1/2)) -7 425 s 6 & para 21 1
Less: Medical aid scheme tax credit (R694 + R234) x 12 -11 136 s 6A & para 21 1
Less: Additional medical expense tax credit Contributions R1 000 -5 328
Less (3*924) (2 772)
Subtotal (limited to nil) R0*
Add qualifying expenses R16 000 (1/2)
Aggregate R16 000
1
Multiply by 33,3% (1/2) = R5 328

*Carry forward from required 2, no

marks awarded here.

Total tax for the year 485 710

Tax for the first six months (R482 038/2 (1)) 242 855 para 21 1 P
Less: EE's for the first six months -141 019 para 21 1
First Provisional Payment 101 836 para 21 1

Late payment penalty - payment was made late (17 September 2022 instead of 31 August 2022)
Penalty R100 000 x 10% 10 000 Para 27 1

Available 10
Max 9
Award only if student addressed both requireds (1st payment and penalty). Communication 1
Total 10
Total marks (Q1) 40
TEST 4 SOLUTION: QUESTION 2
No. Calculation Amount Section Ref.
1) Relating to transaction 1.4,
Discuss the income tax implications for Sello relating to the special uniform for his 2023 year of assessment. Marks

1,4 The amount will however be included in gross income in terms of paragraph c. Para c of GI def. 1
The amount included will be R6 000, exclusive of VAT. R6 900 x 100/115 s 23C 1
The special uniform is exempt from normal tax because s 10(1)(nA) 1
Sello is required to wear it on duty (1/2) and s 10(1)(nA) 0,5
It is clearly distinguishable from ordinary clothing (1/2). s 10(1)(nA) 0,5
Therefore it is not a taxable benefit as defined. Para 2 of 7th
1
schedule
Note to markers: alternative for the first three marks (inclusion in GI, the amount and exemption)
is: include R0 in taxable income (1), disclose the amount (1) and exemption (1).

Available 5
Max 4
2) Relating to transactions 2,
Calculate the donations tax payable by Sello during the 2023 year of assessment. Marks

2,1 Residential property

Value 1 495 000 s 55(1) 1
2,2 Shares
Value (general exemption is used and no specific exemption available) 440 000 s 55(1) 1
Total Property 1 935 000
General exemption (R100 000 used up on the by these donations) -100 000 s 56(2)(b) 1
Net Property 1 835 000 1 p
Donations tax @ 20% (1) 367 000 1

Available 5
Max 5
3) Relating to transaction 3,
Discuss the income tax implications for Sello relating to the loan for his 2023 year of assessment. Marks

3 Sello is a natural person. 0,5

The wife and son are connected persons to the trust as they are beneficiaries to the trust. 1
Sello is related to the beneficiaries, therefore is a connected person to the trust. 1
And he advanced an interest-free loan to the trust. 0,5
Therefore, section 7C is applicable. 0,5
He is deemed to have made a donation to trust on the loan amount owing (outstanding loan)
1
by the trust as at 28 February 2023.
 The donation amount is the difference between interest at the official rate and the actual Value = R1 000 000 x (8,5% (1/2) - 0% (1/2)) x 8/365 (1) 3
interest charged. (1)
Notes to students:
- Outstanding loan at year end of trust is R1 000 000, no
repayment would have taken place as yet.
- The trust is paying 0% interest as this is an interest free
loan.

There is no exemption available for this donation (the R100 000 general exemption is used up
by other donations - refer to required 3). 1

The donation tax will be calculated using 20% donations tax rate, payable on 30/03/203 (end of
1
month following after end of YOA of the trust).

Available 10
Max 8
4) Relating to transaction 4 and 5,
Discuss the income tax implications for the beneficiaries relating to the amounts earned by the trust for their 2023 year of assessment. Marks

Masello
She has a vested right to both dividend (in terms of trust deed) and rental (exercise of s 1 definitions
1
discretionary right by trustee) amounts.
However, Sello will be taxed on these amounts and not her because: s 7(2) 1
The trust was created with the main purpose to reduce, postpone or avoid Sello's liability for tax. s 7(2)
1

Thato
He has a vested right to dividend amount as he is entitled to it. s 1 definitions 1
He will be taxed on the dividend in the 2023 YOA when accrual takes place and not in 2024 s 1 GI def.
1
YOA when the distribution happens.
He will include R28 500 (R95 000 x 30%) in his gross income. s 1 GI def. 1
The dividend will be fully exempted. s 10(1)(k) 1
He has a contingent right to the rental amount. s 1 definitions 1
He will only have a vested right in the YOA in which the condition lapses. s 1 definitions 1
Therefore, the rental will not be taxed in his hands in the 2023 YOA. s 1 GI def. 1

Available 10
Max 9
Award only if the student addressed both dividend and rental amounts for both taxpayers. Communication 1
Total 10
5) Relating to all transactions,
Calculate the taxable income for Sello for his 2023 year of assessment. Marks
- Provide brief reasons where applicable.
Gross income & exemptions
1,1 Salary R35 000 x 12 (1) 420 000 s 1 GI def., para c 1
1,3 Bursary 70 000 s 1 GI def., para c 1
 Exemption - bursary Limited to R60 000 (1/2), -60 000 s 10(1)(q)
- Bursary awarded to a relative of the EE (1/2),
- EE's remuneration proxy is below R600 000 (R420 000)
(1/2), and 2
- Relative is studying for an NQF level 6 qualification (1/2)

1,4 Special uniform 6 000 s 1 GI def., para c 1

Exemption - uniform (refer to required 1 for reasons, no marks for reasons on -6 000 s 10(1)(nA)
1
this part)
4 Dividends - accruing to his wife in the trust R95 000 x 70% 66 500 s 7(2) 1
Exemption - local dividends Local dividends are fully exempted -66 500 s 10(1)(k) 1
5 Rentals - received by his wife in the trust 100 000 s 7(2) 1
4,5 Rentals - retained by the trust 100 000 s 7(5) 1
Income 630 000 s 1 def. 1 p
Less: Deductions and allowances
4 Operating expenses - trust -80 000 s 25B(3) 1
Subtotal A 550 000
1,2 Add taxable travel allowance - this is a reimbursive travel allowance as the allowance is based Allowance received (R4,80 x 10 000) R48 000 (1) 0 s 8(1)(b) 9
on actual KM travelled (1/2). Qualifies for simplified approach as this is the only travel allowance Reduced by business travel cost (49 190) (1p)*
received. (1/2) Taxable travel allowance R0
*Award only if the highest cost is chosen - refer below

Business travel cost

1) Using the simplified approach
R4,18 x 10 000 km = R41 800 (1)
2) Using actual costs
Actual costs - as provided R45 360
Plus: Wear and tear (R180 000*/7) R25 714 (1)
Total actual costs R71 074
Business travel cost = R71 074 x 10 000/18 000
= R39 486 (1p)
*No mark if student removed VAT - EE is not a VAT vendor
and will not claim input VAT
3) Using deemed cost per KM
Fixed cost 293,8 cents
(R52 889/18 000 (1/2)) x 100 (1/2)
Fuel cost 147,0 cents (1/2)
Maintenance cost 51,1 cents (1/2)
Total deemed cost per KM 491,9 cents
Business travel cost = 491,9 cents x 10 000
= R49 190 (1p)

Add taxable capital gains R132 308 x 40% (1) 52 923 s 26A 1
 Residential property Proceeds R1 495 000 8th schedule, para
Base cost (1 354 692) 20, 35 and 3
Cost R1 322 500
Plus: Donations tax* R 32 192 3
Capital gain R 140 308 (1 p)
*(1 4950 000 (1/2) - 1 322 500 (1/2))/1 495 000 (1/2) x 279
000 (1/2) = R32 192

Shares Proceeds R440 000 8th schedule, para

Base cost (408 000) 20, 22, 35 and 3
Cost R400 000
Plus: Donations tax* R 8 000 3
Capital gain R 32 000 (1 p)
*(440 000 (1/2) - 400 000 (1/2))/440 000 (1/2) x 8 000 (1/2)
= R8 000
Aggregate capital gain (R140 308 + R32 000) R172 308 (1 p) para 6 1
Less: Annual exclusion -40 000 para 5 1
Net capital gains (172 308 - 40 000) 132 308 para 8 1

TAXABLE INCOME 602 923 1 p

Available 32
Max 32
No mark if the student did not provide brief reasons. Communication 1
Total 33
Total marks (Q2) 60