LML4804 - Exam test bank includes
October november exam 2022
,QUESTION 1 (CAPITAL GAINS TAX)
After successfully suing The News, a newspaper, for R 5 million, for erroneously
publishing that he was a suspect in a cash-in-transit heist, Madala resigned from his
job as a diesel mechanic. He immediately went on a shopping spree. Madala bought
a customised G-Van for R 900 000 to be used for special trips, and a Badoo Sport for
R 300 000 to be used for his short trips. He also bought a penthouse in Pretoria for R
2 million where he will stay and a townhouse in Midrand for R 800 000 for rental
purposes.
His girlfriend, Puleng, stays in her flat in the East of Pretoria and she visits him on a
regular basis. The couple always post their expensive clothes and jewellery on their
Indagram account. They also host a series of house parties where they serve their
guests with French champagne in the penthouse. Madala has also been seen on
several Tock videos where he throws cash notes into the air in front of people.
As a result of his lifestyle, Madala’s cash flow dried up. With a thought of downsizing
his lifestyle, Madala decided to recover some cash. Therefore, he appointed RA
Valuators to value his penthouse so that he can sell it and to move in to his Midrand
townhouse. He paid RA Valuators R 10 000 for their services. Madala appointed Sell
Me Estate Agents to market and sell the penthouse. He paid them R 80 000. The
penthouse was ultimately sold at R 2.1 million.
WHAT IS REQUIRED OF YOU?
To discuss the capital gains tax consequences of the following transactions:
1. R 5 million for suing The News.
2. The buying of the G-Van for R 90 000; Badoo Sport for R 300 000; Penthouse
for R 2 million and a townhouse for R 800 000.
3. R 10 000 he paid RA Valuators and R 80 000 he paid to Sell Me Estate Agents
4. The sale of the penthouse. Students must also provide a solution where Madala
and his girlfriend Puleng, were married in community of property.
[15 marks]
QUESTION 2 (TAX ADMINISTRATION, TAX AVOIDANCE AND TAXPAYER)
Mr Daniel was a farmer and owned a large piece of land north of Durban. He was
carrying on a business as a grower of wheat. In 2018, he purchased 100% of the
shareholding in a company, DD Bakers (Pty) Ltd (DD Bakers). When Mr Daniel initially
acquired DD Bakers, it was trading at an assessed loss of R1.5 million. In June 2019,
with DD Bakers now a successful company, Mr Daniel sold all his shares in the
company to his close friend Mr Williams. Upon the submission of its tax returns for the
2019/2020 year of assessment, DD Bakers’ assessed loss was brought forward and
utilised against the company’s taxable income of R 1 million. As a result, the company
received a substantial tax benefit. The remaining assessed loss of R 500 000 was
carried forward to be utilised in the 2020/2021 year of assessment.
, The Commissioner of the South African Revenue Service (SARS) is of the view that a
tax avoidance arrangement had been created between Mr Daniel and DD Bakers for
the company to receive an impermissible tax benefit. The Commissioner believed that
had it not been for the assessed losses, the company would have attracted tax on the
income it received. On that basis, the Commissioner issued section 80J notices and
letters of assessment in terms of section 80B.
WHAT IS REQUIRED OF YOU?
Advise Mr Daniel on the meaning of the term ‘impermissible avoidance arrangement’
with specific reference to the requirements that must be met in terms of Section 80A
before a transaction/scheme/arrangement is deemed to be an ‘impermissible
avoidance arrangement’. Your answer should also contain a brief discussion on the
difference between tax avoidance and tax evasion.
[15 marks]
QUESTION 3 (GROSS INCOME)
Darin, a South African citizen, works at the South African Midvaal branch of Brew Ltd,
an international brewery incorporated in the United Kingdom (UK) with its head office
in London. On 1 March 2016, Darin was seconded to the head office of Brew Ltd for a
fixed period of three years, after which he returned to the Republic of South Africa
(South Africa). Darin’s life partner (Michael) and their adopted child (Tracy) did not
accompany him as they did not want to disrupt the child’s school programmes. Michael
and Tracy, who stay in Darin’s house in Midvaal, visited Darin during school holidays
as he had a very busy work schedule and would not be able to spend his vacations in
South Africa. During this secondment period, Darin received his salary directly from
Brew Ltd, London in British Sterling Pounds. Shortly before Darin left for the UK, he
and Michael purchased a block of flats in Centurion (Pretoria) as an investment to pay
for Tracy’s education.
In September 2019, Brew Ltd acquired a brewery in the Czech Republic. Darin was
seconded to this brewery to act as plant manager. In January 2020, Darin immigrated
to the Czech Republic. Shortly thereafter Michael and Tracy joined him in the Czech
Republic. As a result of a decline in the property market due to COVID-19 pandemic,
Darin disposed of his house in Midvaal but not the block of flats in Centurion.
Accordingly, he appointed a rental agent (SHARP) to manage the building and collect
rent on his behalf. In terms of this agreement, SHARP is entitled to ten per cent
commission of the rent collected. The collected rent was deposited in a trust account
in South Africa administered by SHARP. For the 2021/2022 year of assessment, the
total rental income amounted to R 3 million.
WHAT IS REQUIRED OF YOU?
To discuss the income tax consequences of the abovementioned transactions for
Darin.
[15 marks]
