10.1.3 TAXATION 302 [100] QUESTION ONE [40] Magna (Pty) Ltd (Magna or the company) operates as a manufacturer of car parts that are supplied to both local and foreign customers. The company is a registered Value-Added Tax (VAT) vendor (category B). The following income and expenditure amounts, inclusive of VAT where applicable, have been extracted for the tax period 1 January 2022 to 29 February 2022: R INCOME Local sales 13 823 345 Export sales (note 1) 8 150 780 Bad debts recovered (note 2) 88 550 Insurance payout (note 3) 346 265 Interest on current bank account 5 980 EXPENDITURE Purchases of raw materials (note 4) 11 955 630 Salaries 3 256 700 Motor vehicle purchased (note 5) 346 150 Fuel (note 6) 14 145 Repairs and maintenance (note 7) 7 935 Insurance (note 8) 47 610 Bad debt written-off (note 9) 23 230 Bank charges 1 035 Water and electricity 37 950 Printing and stationery 2 415 Sundry purchases staff kitchen (note 10) 345 NOTES 1. The company is in possession of all export sales documents as required by the South African Revenue Service (SARS). 2. The bad debts recovered by Magna during the tax period are broken down as follows: Local debtors R62 100 Export debtors R26 450 3. The insurance payout was received from the companys insurer in respect of a delivery truck that was stolen from the companys premises in December 2021. The truck was never recovered and the payment received represents the full settlement amount from the insurer. 4. All purchases are from registered VAT vendors. 5. A new motor car was purchased by the company on 1 February 2022 at a cost R346 150 (including VAT) and use of the vehicle was immediately granted to the companys financial director. All costs in relation to the car are borne by the company. 6. Fuel costs for the period are broken down as follows: Delivery trucks R12 945 Motor car (see note 5 above) R1 200 7. All repairs and maintenance costs incurred for the period relate to the delivery trucks. 8. The insurance expense includes an amount of R690 relating to the insurance on the new motor car (note 5). 9. The bad debt written-off for R23 230 was for an amount owing by a local customer for goods invoiced and delivered in October 2021. Magna has been unable to recover the debt since the debtor was liquidated. 10. Sundry purchases comprise of tea, coffee and sugar purchased for use by staff in the staff kitchenRequired Calculate the VAT payable by, or refundable to Magna (Pty) Ltd for its tax period 1 January 2022 to 29 February 2022. Where there are no VAT consequences, provide a brief reason why. A VAT rate of 15% applied throughout the applicable tax period on standard-rated good and services. Round off to the nearest Rand. QUESTION TWO [10] Joe Majola (aged 52) is a resident of the Republic. He is employed as a Human Resources Manager at a large firm in Johannesburg. Joe owns a Kia Sportage which cost R460 000 (including VAT of R60 000). He uses his own car for business purposes on a regular basis as he travels between the companys head office and local branches regularly. All costs in respect of the car are paid for by Joe, but he has not kept a record of the expenses paid. Joe received a travel allowance of R7 500 per month from his employer for the 2022 year of assessment. He used his car for business purposes for the full year of assessment. He is uncertain of the tax consequences that will arise from this allowance as it is the first year that he has received such an allowance. Joe maintained a logbook which reflects that during the 2022 year of assessment, his opening odometer reading on 1 March 2019 was 65,250 kilometres and his closing odometer reading on 29 February 2022 was 96,430 kilometres. The logbook also reflects that he travelled 13,250 kilometres for business purposes. Required 1. Calculate the taxable portion of Joes travel allowance for the 2022 year of assessment. (8) 2. Calculate the amount of the travel allowance to be included in Joes monthly remuneration as defined, for employees tax purposes. (2)QUESTION THREE [40] FurnCo (Pty) Ltd (FurnCo or the company) operates as a furniture manufacturer in Durban. The company is a resident in the Republic and is not regarded to be a small business corporation. The Commissioner is satisfied that FurnCo carries on a process of manufacture. For the year ended 29 February 2022, a taxable profit of R14 650 000 was calculated, before taking into account the following (ignore Value-Added Tax (VAT) for the purpose of this question): 1. Local dividends and local interest During the year, gross local dividends of R15 000 were paid to the FurnCo. In addition, local interest of R27 000 accrued to the company. 2. Trading stock: Opening and closing stock were as follows: Trading stock as at 1 March 2021 R675 000 Trading stock as at 29 February 2022 R940 000 3. Bad debts A trade debtor owing an amount of R30 280 went into liquidation. The liquidators paid FurnCo an amount of R7 570. The remaining amount outstanding is not considered to be recoverable. 4. Doubtful debts The total provision for doubtful debts for the year ended 29 February 2022 is R154 000, while the prior year provision was R142 000. The Commissioner has agreed to a 25% allowance for doubtful debts. 5. Annuities paid During the 2022 year of assessment, the following annuities were paid by FurnCo: R24 000 to Busi Ndlovu, the widow of a former employee who had been killed in a work-related accident; R20 000 to Heather Smith, a former employee who resigned to care for her disabled child. 6. Restraint of trade payment The head furniture designer at FurnCo decided to retire early. A payment of R375 000 was made to him on 1 March 2021 to restrain him from working for a competitor company or starting a similar business within the province for four years.7. Legal expenses Legal expenses of R3 000 were incurred in respect of the drawing up of the restraint of trade agreement (see note 6 above). 8. New lease On 1 September 2021, the company entered into a 20-year lease agreement for a factory building large enough to accommodate the expanding production of the company. The lease agreement stipulated that Jozi Shoes pay a premium of R750 000 on 1 September 2021 and monthly rentals of R95 000 on the 1 st day of every month, commencing on 1 September 2021. The company moved to the new premises on 1 September 2021. 9. Fines paid The company was fined R5 000 for attempting to bribe a safety officer when he inspected the new factory building for adherence to safety requirements. 10. New machinery purchased The following machinery was purchased (for use in the process of manufacture): Machine 1 (new and unused) was purchased on 1 October 2021 for R245 000. It cost a further R5 000 to have the machine installed. Due to an unforeseen problem with the installation, the machine was brought into use on 1 November 2021. Machine 2 (second-hand) was purchased for R52 000 on 1 January 2022 and brought into use immediately. 11. New delivery vehicle purchased A new delivery vehicle was purchased on 1 November 2021 for R525 000 and brought into use immediately. The Commissioner will allow for delivery vehicles to be written off over 4 years on a straight-line basis. 12. Sale of land The company owned land, purchased on 1 January 2020 for R800 000, on which it intended to build a factory. Due to unrest in the area, the directors decided not to commence with the building of the factory and passed a resolution to sell the land. The land was sold on 1 April 2021 for R805 000. 13. Assessed loss brought forward For the year ended 28 February 2021 FurnCo had an assessed loss of R1 234 000. Required Calculate the normal tax liability of FurnCo (Pty) Ltd for the 2022 year of assessment. Round off your calculations to the nearest Rand.QUESTION FOUR [10] During the 2022 year of assessment Karl Naidoo (unmarried, aged 52), a resident of the Republic, made the following donations: 1. On 25 April 2021, he gave his best friend, Shaun, the lifetime usufruct in his holiday apartment, situated in Cape Town. The value of the usufruct on this date was R1 545 000. 2. On 1 May 2021 he gave his sister a necklace valued at R20 000 as a birthday gift. 3. On 1 July 2021 he gave R45 000 to North West University (an approved Public Benefit Organisation as referred to in section 10(1)(cN) of the Income Tax Act). 4. On 24 December 2021, Karl gave his driver, Abe, a bonus of R25 000. This was to acknowledge his many years of hard work and loyalty to Karl. 5. On 1 January 2022, Karl gave an amount of R60 000 to his widowed mother. The Commissioner of SARS considers this to be a bona fide contribution to maintenance and regards the amount as reasonable. 6. On 10 January 2022 he gave his niece an annuity of R7 000 per annum for 10 years. The Commissioner does not regard this as a bona fide contribution to maintenance. The value of the annuity on this date was R39 550. Required Calculate the donations tax payable on each of the above donations made by Karl during the 2022 year of assessment. Show all workings and where there is an exemption applicable, clearly state as such