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tax2601_exam_study_notes

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Course
TAX2601 - Principles Of Taxation

Institution
University Of South Africa

tax2601_exam_study_notes 1 TAX2601 USING TL, SG & NOTES FROM LECTURERS AND STUDENTS Annuities paid to former employees on retirement SG page 19 Textbook page 103 Errata: Provisional tax calculation – Change in the periods that determine the basic amount (section 3.9.1 in tutorial letter 1...

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tax2601examstudynotes

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University of South Africa
Course
TAX2601 - Principles Of Taxation

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tax2601_exam_study_notes

,TAX2601
USING TL, SG & NOTES FROM LECTURERS AND STUDENTS

Annuities paid to former employees on retirement
SG page 19
Textbook page 103

Errata: Provisional tax calculation – Change in the periods that determine the basic amount (section
3.9.1 in tutorial letter 102)
Currently, the basic amount is deemed to be as follows:
1. The taxable income assessed by the Commissioner, for the‖ latest preceding year of assessment‖
less—
 taxable capital gain included in terms of section 26A

2. The ―Latest preceding year of assessment‖ is deemed to be:
 the assessment relating to preceding year of assessment
 where a notice issued by the Commissioner of such an assessment is more than 14 days before the
date on which the current period estimate is submitted to the Commissioner

3. If the assessed amount for the latest preceding year of assessment was assessed
 more than 18 months AND
 in respect of a period that ends more than one year after the end of such preceding year of
assessment,
then the basic amount must be increased by 8% per annum of that assessed amount, from the end of such
latest year to the end of the current year of assessment in respect of which the estimate is made.

The 18 month-period refers to the date on which the previous year’s assessment was received up to the date
on which the first provisional payment is due. Refer to the timelines provided on page 5 of this document for
an illustration of this principle.

STUDY UNIT 1

1. An example of a tax that is levied on income is: Income tax
2. An example of a tax that is levied on consumption is: Customs Duty
3. Taxes can be levied on income or consumption or wealth or other
4. Consumption taxes are taxes that are levied on the: sale or use of commodities
5. Wealth taxes are taxes that are levied on: the transfer of property eg capital gains tax, estate duty, donations tax
6. Other taxes are generally levied on: specific transactions eg transfer duty, marketable securities tax, fuel levy,
dividend tax
7. Income tax on natural persons is an example of what method of tax?: Progressive tax
8. There are three methods that can be used to calculate tax, they are: Proportional tax, progressive tax and regressive
tax
9. A Direct tax tax is a tax where the same person who earns the income pays the tax
10. Where the seller bears the impact of the tax and the consumer pays, this is known as: Indirect Tax eg. VAT

STUDY UNIT 2

1. A taxpayer has to submit an income tax return if registered as a taxpayer – True
2. Any person (individual, company or trust) who becomes liable for any normal tax at any time should register as taxpayer
with SARS within how many days: 21 days
3. Any person may request information from SARS about another taxpayer – False
1

, 4. The source document used as the basis for the assessment process is called: Tax return
5. The purpose of a tax assessment (ITA34) is: To indicate the calculation of normal taxable income & to indicate the
normal tax for the year of assessment & To indicate the amount of any tax due by or refundable to a taxpayer
6. Before a taxpayer can lodge an objection a tax assessment should have been issued: True
7. When a taxpayer is dissatisfied with the result of the objection, the next step is to go to court: False
8. A taxpayer may settle a dispute with the Commissioner when intentional tax evasion or fraud is present in a specific case:
False
9. An entity like a trust, company or close corporation has to have a representative taxpayer being approved by the
Commissioner: True

Study Unit 3

1. Calculate the tax liability for a small business corporation, as defined, with a taxable income of R89 200.00 = first R67111
= 0% tax then 7% of amount above R67111 thus R22089 x 7% = R1,546.23

2. What is the tax rate of a company? 28%

3. If a company has a March year-end, when must the second provisional tax payment be made? March next year. There are
two obligatory provisional tax payments, the first is due on or before the last day of the sixth month of the year of
assessment and the second is due on or before the last day of the year of assessment.

4. What is the tax rate of a close corporation? 28%

5. Public and private companies qualify as small business corporations – False A “small business corporation” is defined
in section 12E(4) as any close corporation,
co-operative or any private company in terms of the Companies Act and can therefore never be a public company.
There are additional requirements that an entity must satisfy for it to be a small business corporation as defined in
s12E(4) - please ensure you are familiar with these requirements.

6. In order for a company to be classified as a small business corporation, the definition states that investment income and
income from a personal service cannot make up more than 10% of the revenue receipts and capital gains of the company –
False the answer is 20% - In order for a company to be classified as a small business corporation, the definition
states that investment income and income from a personal service cannot make up more than 20% (and not 10%) of
the revenue receipts and capital gains of the company.

7. In terms of the Sixth Schedule to the Income Tax Act, a trust cannot qualify as a micro business – True. In terms of the
Sixth Schedule to the Income Tax Act, a trust cannot qualify as a micro business.

8. In terms of turnover tax rules, qualifying turnover (as defined), includes 50% of all receipts of a capital nature – False p187
th
Qualifying turnover is defined in par 1 of the 6 Schedule as: Total receipts from carrying on business activities
excluding any amount of a capital nature, and excluding any amounts exempt from tax in terms of certain sections -
In terms of the turnover tax rules, any amount of a capital nature received from conducting business must be
excluded from qualifying turnover.

9. A company that is registered as a micro business in terms of the Sixth Schedule must have its year of assessment ending
on 28/29 February – True - As per the turnover tax rules, a company, close corporation and co-operative is
disqualified as a micro business if its year of assessment ends on a date other than the last day of February

10. The taxable income of a trust for the 2014 year of assessment is R625 000. How much tax must the trust pay? 40%
currently R250,000.00

Study Unit 4 - Gross Income Definition

1. Which one of the following statements is correct? A person other than a natural person is a resident of the Republic if it ? .

Is incorporated, established or formed in the Republic or has its place of effective management in the Republic

A person other than a natural person (in other words a business entity such as a company or a close corporation) is a resident
of the Republic if it is:

 incorporated, established or formed in the Republic, or
 has its place of effective management in the Republic

2. Indicate whether the following statement is true or false: Amounts of a capital nature do not form part of gross income

2

, True

3. Which one of the following statements is correct? The year of assessment for a company with a financial
year-end of 30 June 2014 is ? . 1 July 2013 to 30 June 2013
4. Indicate whether the following statement is true or false: Dividends are specifically included in gross income

True

5. Which one of the following taxpayers is not exempt from tax?

Any company that trades in shares

Study Unit 5 General and specific deductions

Question 1

Dumela (Pty) Ltd has taxable income of R350 000 for its 31 January 2014 year of assessment, before allowing a
deduction for donations in terms of section 18A. Dumela (Pty) Ltd made a donation of

R38 000 to a public benefit organisation approved by the Commissioner under section 30 and received a section 18A
certificate from it. What is Dumela’s taxable income amount (after taking the donation into account) for the year of
assessment?

Taxable Income R350 000

Donation Actual R38 000

Allowed only 10% Taxable Income of R350 000, thus only R35 000 claimable.

Thus taxable Income after donation deduction R315 000

=R315 000

That is correct! In terms of s18A, a deduction for donation to a PBO is limited to 10% of taxable income. In this example, the
deduction is R38 000 limited to R35 000 (10%*R350 000). The taxable income of Dumela after taking the s18A deduction into
account is therefore R315 000 (R350 000 - R35 000)

Question 2

Minnie and Daisy (Pty) Ltd is a well know toy store in South Africa. The company concluded the following
transactions with its 90 employees during the financial year ended 31 March 2014. Salaries paid to employees were
R16 000 000. Its contributions to provident and medical aid funds on behalf of its employees were R1 200 000. What
is the deduction that Minnie and Daisy (Pty) Ltd can claim in respect of the salaries and contributions to provident
and medical aid funds in arriving at taxable income?

=R17 200 000

Well done, that is correct. Section 11(l) provides for the deduction of any sum contributed by an employer during the year of
assessment for the benefit of his employees to any pension, provident or medical fund. The deduction is however subject to certain
conditions - refer to your textbooks for these conditions

Question 3

3

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