Principles of Taxation

TAX2601
2023 Semester 1

ASSESSMENT 5 - SOLUTION
 TAX2601/2023/Semester 1/Solution to assessment 5
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QUESTION 1 (30 marks)

Calculate the normal tax liability of SA Metals (Pty) Ltd for the year of assessment ended
31 March 2023.
R
Taxable income (provided) 12 653 000
Moveable assets - capital allowances:
Machine SP10 new - s12C (R750 000 x 40%) (300 000) (1)
Machine RT4 second hand - s12C (R450 000 x 20%) (90 000) (1)
Machine RT4 moving costs - R16 400/3 years (3 years left) (5 467) (1)
Machine DP1 – s12C: used in R&D (R500 000 x 50%) (250 000) (1)
Printer – s11(e) (less than R7 000, write off in full) (6 499) (1)
Delivery van - s11(e) R380 000/4 years x 7m/12m (55 417) (2)
Manufacturing machine EB09 (s12C)
Cost - purchased 22 October 2021 900 000
Less: Allowances claimed – 2022: R900 000 x 40% (360 000) (1)
Less: Allowances claimed – 2023: R900 000 x 20% (180 000) (180 000) (2)
Tax value 360 000
Selling price 770 000 (1)
Recoupment 410 000 410 000 (1)
Heavy duty truck HD1 (s11(e))
Cost - purchased 1 March 2022 560 000
Less: Allowances claimed – 2022: R560 000 / 3 years x 1m/12m (15 556) (2)

Less: Allowances claimed – 2023: R560 000/ 3 years x 11m/12m (171 111) (171 111) (2)

Tax value 373 333

Insurance payout 95 000
(2)
(Scrapping allowance) 278 333 (278 333)
Buildings
Suite of offices (R1 800 000) - no commercial building allowance as the buildings
were not new or unused.(s13quin only applies after 1 April 2007) Nil (1)
Factory building Johannesburg – s13(1) building allowance (R3 700 000 x 5%) (185 000) (1)
Repairs made to factory manager’s office (deductible in full as it is a repair and not an (84 000) (1)
improvement)
Factory building Gqeberha - s13(quat) (R12 000 000 x 20%) (2 400 000) (1)
Registration of intellectual property s11(gB)
Design A registration cost (R30 000) (30 000) (1)
Acquisition of intellectual property s11(gC)
Trademark purchased at cost (R65 000) - no deduction allowed when Nil (1)
acquired (s11(gC) does not apply to trademarks)
Research and development expenditure s11D
Design of steel pipe – consumables - s11D (R375 000 x 150%) (562 500) (1)
Sales promotion costs (R158 000) – not a qualifying expense
(specifically not allowed as a deduction) ito proviso (c) to s11D Nil (1)
Sales promotion costs will be deductible ito s 11(a) (R158 000 x 100%) (158 000) (1)
Payment of traffic fines
R26 800 is a prohibited deduction and therefore does not qualify for a deduction Nil (1)
Taxable income 8 306 673 (1)
Normal income tax liability (payable) R8 306 673 x 27% 2 242 802 (2)
Total marks (31)
Maximum marks [30]

2
 TAX2601/2023/Semester 1/Solution to assessment 5
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QUESTION 2 (13 marks)

Gross income is defined

as:
in the case of a resident
the total amount
in cash or otherwise
received by or accrued to
or in favour of the
resident
during the year of
assessment
not of a capital nature
Conclusion
Siyahamba is incorporated in South Africa and is therefore a (2)
resident of the Republic
An amount is received (2)
R10 000 was received in cash (1)
An amount must be included in gross income on the earlier of (2)
receipt or accrual.
An amount can only be received if it has been received by him
on his own behalf or for his own benefit. (Geldenhuys court
case) (2)
The deposit of R10 000 was received by Siyahamba on
10 March 2023 and this amount is for their own benefit due to
the fact that the deposit is not refundable should the client (1)
cancel.
It was received on 10 March 2023, which falls within the 2023 (2)
year of assessment
The amount received is revenue in nature (2)
The requirements of the gross income definition are satisfied (1)
and the R10 000 will be included in Siyahamba’ gross income.
Total marks (15)
Maximum marks [13]

QUESTION 3 (26 marks)

(a) Calculate the normal tax liability R R

Sales (R967 000 – R60 000 sale of delivery vehicle, capital in nature) 907 000 (2)
Dividend income – gross income 100 000 (1)
Less: Exempt income (100 000) (1)
Manufacturing machine FP1 – s 12E
R400 000 written off in full (100%) in 2022 Nil (1)
Manufacturing machine FP2 – s 12E
(R320 000 + R37 000) x 100% (357 000) (2)
Disposal of delivery vehicle:
Cost price 350 000
Less: s 12E capital allowance – 2022: R350 000 x 50% (175 000) (1)
Less: s 12E capital allowance – 2023: R350 000 x 30% (105 000) (105 000) (2)
Tax value 70 000
Proceeds (60 000) (1)
Scrapping (10 000) (10 000) (1)
Office & computer equipment – s 12E R230 000 x 20% (46 000) (1)
Tax deductible expenses (278 320) (1)
Add: Recoupment of trading stock sold at a consideration which is less
than market value - s 22(8)
Recoup the market value less selling price (R32 000 – R22 000) 10 000 (1)
Taxable income 120 680 (1)
Normal income tax liability (R120 680 – R91 250) x 7%) 2 060 (1)
[17]

3
 TAX2601/2023/Semester 1/Solution to assessment 5
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(b) Explain whether Funky Pants (Pty) Ltd could qualify as a micro business.
• Natural persons, companies and CC’s qualify as a micro business (Trusts do not qualify).
Funky pants is a company (not a trust) (1)
• Qualifying turnover must be less than R1million
Funky Pants’s qualifying turnover is R967 000 – R60 000 capital receipt = R907 000, therefore (1)
qualifying turnover is less than R1 million. (1)
• Year of assessment must end on 28 February
Funky Pants has a February year end (the year of assessments ends on 28 February 2023) (1)
Since all the above requirements are met, Funky Pants (Pty) Ltd would qualify as a micro business. (1)
[5]

(c) Calculate the tax liability for Funky Pants (Pty) Ltd
R
Taxable turnover: Sales less capital receipt: R967 000 – R60 000 907 000 (2)
Plus: 50% of capital receipts – R60 000 x 50% 30 000 (1)
Dividends, capital allowances and expenses excluded (not taken into account for Nil (2)
turnover tax)
Taxable turnover 937 000 (1)
Turnover tax liability (R937 000 – R750 000) x 3% plus R6 650 12 260 (1)
[7]

(d) Discuss whether it would be advisable for Funky Pants (Pty) Ltd to register as a micro
business
No, Funky Pants (Pty) Ltd should not register as a micro business, as they would pay more tax if they (3)
were a micro business (based on turnover tax) than what they currently pay as a small business
corporation.
Usually, small business corporations that qualify for capital allowances and have deductible expenses
will pay the least amount of tax, as opposed to paying turnover tax.

Maximum marks [2]

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