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TAX3761 Assignment 3 of 2020
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Answers study book International Tax of Lynette Olivier, Michael Honiball - ISBN: 9781920025779 (Detailed Assignment)
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Taxation of Business Activities and IndividualsAssignment 3
CASE STUDY 1
Calculations Capital gain R
Salary 630,000
Pension Income 180,000
Low interest loan- Fringe benefit 7,514
(200000*(8-3%)*275/366)
Use of an employer owned motor vehicle
Determined value 399,999
Value of the benefit (399000*3.5%*9) 125,685
Less: business travel (125686*12000/18000) -83,790
Less: fuel expense (6000*133.5/100) -8,010
Less: maintenance costs (4200*6000/18000) -1,400
Taxable fringe benefit 32,485
Acquisition of an asset at lessthan actual value (150000-120000) 30,000
Use of equipment
Owned (90000*0.15*2/12) 2,250
Leased (5000*2) 10,000
Disposal of a primary residence
Proceeds (1940000/0.97) 2,000,000
Less: Base cost (700 000+150 000+60 000) -910,000
TAB = 700 000
Market value = 650 000
20% rule = 20%* [2000000 - (150000+60000)]= 358 000
Cost=(400000+150000+60000)= 610 000
Proceeds > cost, apply par 26
VDV= 700 000
Gain 1,090,000
Less: primary residence exclusion (2000000 ltd to actual) -1,060,407
Acrual gain that relate to primary residence
Primary residence gain [(101/221*1090000)+ (120/221*1090000*95%)
Capital gain 29,593
Promises's gain (29593*1/2) 14,796 14,796
Disposal of a let residence
Proceeds 1,700,000
Base cost -1,240,500
Cost =800000 800,000
Transfer duty and legal fees = 150 000 15,000
Extension =(80000+9000)= 89 000 89,000
Garage = 200 000 200,000
Agent commission= (1700000*4%)= 68 000 68,000
Repayment of bond (not capitalised)
Installation of prepaid electric meter 6,500
Agent's commission 7,000
Enclosure of a veranda 55,000
Capital gain 459,500
Promises's portion (459500/2) 229,750
Gross rental receipts [(12*12500)/2] 43,750
Property rates and taxes- s11(a) [(21600*5%)+ 15700]/2 -8,390
Electricity[ (24000*5%)/2] -600
Monthly levies [(30400*5%)+19450]/2 -10,485
Interest paid on employer loan [(200000*3%*275/366)/2] -2,254
Payment to financial institution:
Capital- not deductible
Interest- -1,709
Repairs of damaged cost (recovered from the tenant) -
Security levies [(5000*5%)+2500]/2 -1,375
Medical contributions fringe benefit- 8th Schedule, par 12A (5) 45,000
Medical contributions fringe benefit: after retirement- 8th Schedule, par -
Contribution to a fund- fringe benefit (630000*8%) 50,400
Preciou's earned income:
Salary- not passive income, not shared
Dividends' (48000/2) 24,000
Section 10(1)(k)(ii)(aa)- not exempt -
Aggregate capital gains 244,546
Less: Annual exclusion -40000
204,546
Taxable capital gain (204546*40%) 81,818
1,112,405
Section 11F deduction
, Employer contribution (8%*630000) 50,400
Employee contribution (8%*630000) +(3000*12) 86,400
Total contribution 136,800 -136,800
Limited to the lesser of:
a) 350000
and greater of:
b(i) 1112405*27,5% = 305911
(ii) 1049700*27,5% = 288668
305,911
Taxable income 975,605
Normal tax per tax tables[ (207448+41%*(975605-708310)] 317,039
Less rebates and credits
Section 6 -14,220
Section 6A (620*12) -7,440
Section 6B
Employer contributions (45000+ 30000) 75,000
Employee contributions 45,000
Total contributions 120,000
Less: (3*7440) -22,320
97,680
Section 6B (97680*33.3% + 33.3%*0) -32,527
Net normal tax 262,852
CASE STUDY 2
a) Gross income definition
Requirement Discussion
Resident Ramesh
A total ofisR15
a South African
000 000 resident
accrues to Ramesh as the contract has been been finalised
Total amount (all
Thecontractual conditions
amount is made up of were met).
R12 000 000 for property and buliding, R2 500 000
for seedlings and the products in the shop, and R500 000 for equipment.
transaction, thus cash will be received by Ramesh upon conclusion of the
In cash or otherwise contract.
(nursery), which includes property and buildings, seedlings and products in the
Received by or accrued to or in favour of shop as well as equipment.
The transaction was concluded during the year of assessment and all contractual
Year of assessment conditions were met during the year of assessment.
Not of capital nature Whether the sale consist items that a capital in nature or not, they will be discuss
R12 000 000 for property and buildings: property and buildings are of a capital in nature as they are c
R2 500 000 for seedlings and products in the shop: Seedlings consist of trees,
plants and flowers sold to retailers and the public. These seedlings are not of a
capital in nature as they are sold in the production of income. Thus R2 500 000
will be included in Ramesh's gross income.
R500 000 for equipment: Equipment is a capital assets, thus R500 000 is of a
capital in nature.
Conclusion:
Property and buildings are of a capital in nature as they are capital assets. Thus R12 000 000 will not be included in Ramesh's gross income.
R500 000 for equipment: Equipment is a capital assets, thus R500 000 is of a capital in nature.
These seedlings are not of a capital in nature as they are sold in the production of income. Thus R2 500 000 will be included in Ramesh's gross income.
Retention of a vehicle
Retention of not
Ramesh will a vehicle does
be able not constitute
to claim disposal offor
capital allowances a nursery, Ramesh
the vehicle not it
as he will use include it in his
for private gross income.
purposes, thus not in the production of
income.
b) General deduction formula
Ramesh- commission
Requirement Discussion
Commision is not incurred as a result of carrying on a trade, as the business is
Carrying on a trade sold to Go-Green.
Expenditure or losses Commission is an expenditure to Ramesh as he will pay the business broker
Actually incurred The commission is actually incurred as he must pay the business broker
In the production of income The commission is not incurred in the production of income as it's an expense as a
Year of assessment The commision is incurred in the year of assessment, when the contract to sell wa
Not of a capital nature The commission is of a capital nature and will be capitalised to base cost of the asse
Based on the above discussion, commission which will be paid to the labour broker will not be deductible in terms of the general
deduction formula.
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