Module Code: TAX3247N_3226N

Module Name: Taxation 3

APPLICATION-BASED ASSIGNMENT
(Cycle 1- May 2024 Examination Cycle)

Due Date: 16 February 2024

Examiner: F Dehart Moderator: Mpofu

Marks: 100 NQF Level: 7/6

INSTRUCTIONS

1. Read and follow all instructions in the assignment.

2. DO NOT plagiarise or copy other authors’ and/or students’ work when completing
the assignment; doing so will result in disciplinary action and/or a zero mark will be
assigned.
3. Please sign the declaration section on page 2 of the answer book to confirm that
you are the student.
4. This assignment must be completed within the time range specified. Late
applications will not be accepted and, as a result, will not be assessed.
5. At the top of each page, write your name and student number. Also, ensure the
pages in your answer book is numbered accordingly.
6. Use the mark distribution for each task as a guideline for structuring your response.

7. When answering, do not use informal language such as WhatsApp text, for
example, LoL, WUD, etc., Such responses will not be assessed.

8. After you have typed or handwritten your answers, save your document in PDF
format and upload it to myClass. The document you upload must be in PDF format.
9. Ensure that in cases where handwritten responses are provided the uploaded
document is clearly visible.

10. Ensure you have enough power or backup power on hand, as the College will not
be held liable for any power outages during online assessments. Candidates are
recommended to make alternative plans, such as using a power bank.
11. Keep a copy of your assessment answer book.

Page 1 of 10
Question 1 (20 marks)
Ceumly (Pty) Ltd (“Ceumly”) manufactures and sells household goods. The company is
situated in Bloemfontein, South Africa. Ceumly only supplies household goods to major
supermarkets in South Africa. The key information for Ceumly is as follows:

• Ceumly is a category B registered VAT vendor and makes 90% taxable supplies.

• The financial year of the company ends on the last day of February each year.

• All amounts stated, include VAT, unless otherwise stated, or if the context
indicates otherwise.

• Where applicable, all transactions were concluded with VAT vendors and
Ceumly is in possession of valid tax invoices, unless otherwise stated andwhere
relevant.

Information is being compiled to complete the VAT201 return for the two-month VAT
period ended 28 February 2022. Before taking the following transactions into account,
the accountant correctly determined the VAT payable for the period as R64 094:

1. On 2 February 2022, the company issued an invoice for a credit sale to a supermarket
in Welkom, Freestate, to the value of R588 800. The customer paid on 8 May 2022.

2. Salaries and wages of employees for the services rendered to Ceumly for the month
of February 2022 amounted to R763 750.

3. Petrol and diesel costs for the vehicles amounted to R17 250.

4. Bank charges, as reflected on the bank statement, amounted to R4 600.

5. Water and electricity account from the Manguang Metropolitan Municipality amounted to
R36 225.

6. Ceumly charges interest on overdue customers’ accounts. For the VAT period that
ended 28 February 2022 interest of R32 200 accrued to the company.

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7. On 2 January 2022, Ceumly purchased a Yotota Luxhi single cab bakkie from a local
dealer ship for R362 250 cash. The vehicle was delivered to Ceumly on 2 January
2022. A staff member, in a management position, was given the right of use of the
vehicle on the same day. The staff member (manager) bears the full cost of repairs
and maintenance of the vehicle and does not pay Ceumly for the right of use of the
vehicle.

REQUIRED: MARKS

Calculate the amount of VAT payable by/refundable to Ceumly (Pty) Ltd for the two - month
VAT period ended 28 February 2022. Provide brief reasons for all amounts excluded or 20
apportioned that are used in your answer.

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Question 2 (30 marks)

The key information regarding Usyk is:

• He is 31 years old.
• He is married out of community of property and they have twins who are 3 years old.
• He is an IT-specialist employed by a South African company.
• Usyk and his family are all members of the medical scheme.
• No member of the family has a disability as defined.
He provided you with the following information relating to his tax affairs for the year ended
28 February 2022:

In addition to his annual salary of R875 000, he received (in cash or otherwise) the following:

Income and benefits Note R

Annuities 1 60 775
Foreign interest 12 000
Gross foreign dividends (from a unit trust) 2 5 130
Use of company cell phone 3 ?
Loan from employer 4 135 000
Subsistence allowance 5 3 500
Contributions towards specific funds 6 32 000

Notes to amounts received in cash or otherwise:

1. Annuities

The annuities were received in terms of the sale of a patent that Usyk sold the rights to
four years ago. The sale agreement specified that he receives an annual annuity which
escalates by 5% per annum for a period of 15 years.

2. Gross foreign dividends

Foreign tax of R270 was withheld from the foreign dividends, so he received an amount
of R5 130.

3. Use of company cell phone

Usyk’s employer gave him the right to use a company cell phone from 1 August 2021,
the salient details being:

• Usyk had the right to use the cell phone until the end of the 2022 year of
assessment.
• The phone was purchased by the company on 1 April 2021 for R12 500.

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 • The market value of the cell phone was R10 000 at the time Usyk received the
right of use.
• Usyk used the phone 75% for business purposes and 25% for private purposes.

4. Loan from employer

Usyk’s employer granted him a loan on 1 November 2021.The details of the loan were
as follows:

• An amount of R135 000 was received.

• The loan is repayable in full at the end of a five-year period or termination of
employment (whichever occurred first)
• Interest to be charged at a rate of 3.5% per annum.
• Assume for the relevant period the South African repo rate was 5.75%.

5. Subsistence allowance

Usyk spent a work week (i.e. 4 nights and 5 days) away from home on a business trip
to George. The subsistence allowance (of R700 per night) covered meals and incidental
costs. Usyk kept a record of his actual expenses that amounted to R2 800 for meals
and accommodation, R499 for alcoholic beverages and R200 for private telephone calls.

6. Contributions made by employer (in addition to salary):

The employer made the following payments, for benefit of the employer, during the year
ended 28 February 2022:
• R22 200 towards Usyk’s provident fund
• R15 600 towards Usyk’s medical aid fund

Following your request to complete his tax assessment, Usyk furnished you with the following
expenditure incurred by him during the year ended 28 February 2022:
• R60 000 in contributions to his provident fund
• R96 000 in contributions to his retirement annuity fund
• R62 400 in contributions to his medical aid scheme
• R36 800 in medical expenses that were not covered by his medical aid

REQUIRED: MARKS

Calculate Usyk’s net normal tax for the year of assessment ended 28 February 2022. You
may assume that Usyk’s remuneration amounted to R913 800 (correctly calculated) for the 30
2022 year of assessment.

Page 5 of 10
QUESTION 3 (25 marks)

FuRn4U (Pty) Ltd (FuRn4U) manufactures (this is seen as an approved manufacturing

process by SARS) furniture. The company is not a small business corporation as
defined in the Income Tax Act and its year of assessment ends on 31 January 2022.
FuRn4U is a registered VAT vendor making only taxable supplies. All amounts exclude
VAT, unless otherwise stated.

You are provided with the detailed statement of profit or loss and other comprehensive
income of FuRn4Ufor the year of assessment ending 31 January 2022:

Note R
Sales 28 500 000
Cost of sales (9 690 000)
Opening stock (at cost price, market value = R2.2 million) 2 1660 000
Add: Purchases 8 664 000
Less: Closing stock (at cost price, market value = R1.1 million) (1 140 000)
Gross profit 18 810 000
Rental income 1 6 156 000
Expenditure
Bad debts 2 (1 050 000)
Depreciation 3 (2 109 000)
Donation 4 (1 500 000)
Employee cost 5 (11 970 000)
Penalties 6 (26 220)
Provision for doubtful debts 7 (501 600)
Profit before tax 7 809 180

Notes:

1. Rental income

On 1 March 2021, FuRn4U entered into a lease agreement with PCC Ltd for the
lease of theland owned by FuRn4U. The lease agreement provided the following:

• The term of the lease agreement is 20 years from 1 March 2021.

• The lessee would erect a factory building on the land at a cost of R5.7 million.
• The total rental income received for the current year of assessment is R6 156
000.

Building commenced on 1 April 2021 and the factory was completed and
brought into use on1 November 2021 at a cost of R6.8 million. (The discounting
rate is 0.312).

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2. Bad debts

The bad debts amount of R1.05 million became bad during the current year of
assessment. This amount was also included in the taxable income of the company
during the 2020 year of assessment.

3. Depreciation relates to the following assets:

• On 31 May 2020, FuRn4U purchased a used manufacturing Gamma Xenic for

R3 648 000 and it was brought into use on the same day. Gamma Xenic
was sold on 1 December 2021 for R2 622 000. FuRn4U elects that the
provisions of paragraph 66 of the Eighth Schedule apply.

• On 1 January 2022, FuRn4U purchased a new and unused manufacturing Alpha

Lazer to replace Gamma Xenic for R6 384 000 and it was brought into use on the
same day.
• On 1 May 2019, office furniture with a total value of R1 368 000 was purchased.
• On 1 July 2021, a second-hand delivery truck was purchased for R3 648 000.

Binding General Ruling: No. 7 makes provision for the following write-off periods:

• Office furniture… .......................................................................... 6 years

• Delivery truck ............................................................................... 5 years

4. Donation

FuRn4U made the donation to the Children Fund and received a valid section 18A
receipt.

5. Employee cost comprised of the following:

• Salaries ...................................................................................... R1 050 000

6. Penalties

FuRn4U incurred late payment penalty of R2 300 from the South African Revenue
Service forpaying their August 2021 and September 2021 PAYE after the due date.

7. Provision for doubtful debts

FuRn4U received a deduction for doubtful debts for tax purposes in the previous
year of R365 000and the current year’s doubtful debt relates to trade debtors only.

Page 7 of 10
REQUIRED: MARKS

Calculate the taxable income of FuRn4U (Pty) Ltd for the year of assessment
ended on 31 January 2022. Clearly indicate items with no effect.
25
Start your calculation with the profit before tax of R7 809 180. Ignore capital gains
tax.

Page 8 of 10
Question 4 (10 marks)

Branda Fessy owns a very successful entertainment arena in Orlando (South Africa) for the
past eleven years. Her arena often hosts overseas musicians and is also popular with the
local market. She has never considered selling her entertainment arena. In June 2021, a large
listed company saw the value in Branda Fessy’s arena and offered her R5 million for the arena.

Branda Fessy’s cousin is the chairman of the “Orlando Overturn” committee. Branda Fessy
knows that major redevelopment plans for Orlando will be announced in the next month.
These plans will significantly increase the value of her property. Branda Fessy declined the
offer from the large listed company.

The major redevelopment plans were announced in July 2021 and during August 2021 Branda
Fessy obtained an independent valuation for her property amounting to R12 million. She
approached the large listed company and agreed to sell her entertainment arena for R12
million.

The sale was concluded and all monies were received by Branda Fessy in December 2021.

REQUIRED: MARKS

Discuss, with reference to the gross income definition, whether or not the
monies received by Branda Fessy in December 2021 will be included her gross
10
income.

No reference to case law is required.

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Question 5 (15 marks)

Greg Berrein retired on 28 February 2022 at the age of 60 years. Salient personal information
relating to Greg includes:

• He is married to Lerato in community of property.

• None of the couple’s assets are excluded from their joint estate.
• They moved into a retirement village during March 2022 after they disposed of some
of their assets.

The timeline of transactions relating to the assets acquired and disposed of are as follows:

1 October 2001 Lerato received 1 000 shares when Lansam demutualised R20 000
28 February 2005 Purchased a 4 hectare plot – land R3 500 000
House on the plot (their primary residence) R400 000
1 January 2006 Commenced extensions to include home office
28 February 2006 Cost to complete home office for Greg and brought into use R300 000
31 January 2022 Lerato sold her shares for R25 000
15 February 2022 Sold primary residence – proceeds on house R800 000
15 February 2022 - proceeds on land R6 200 000

Additional information
The office space comprised 5% of the property and was used for business purposes.
Lerato is not considered a share dealer/trader.

REQUIRED: MARKS

Calculate Greg’s taxable capital gain/(loss) for the 2022 year of assessment. 15
Note:
For the primary residence calculation, you need to separate the calculations
for the house and the land and indicate it in two columns next to each other.

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