FACULTY OF COMMERCE, MANAGEMENT AND LAW Question 2 35 Marks You are a tax consultant. The following unrelated tax matters are presented to you. Matter 1 20 Marks Imms Estate Agents CC (IEA) is a private company which is established and effectively managed in the Republic of Namibia with a 31 December year of assessment. IEA collects rentals on behalf of property owners at a 25% commission of the amount collected. During its 2021 year of assessment Imms Estate Agents CC collected N$5 800 000 from tenants occupying Ndoto Courts (a new client of the entity). The company kept the commission and paid over the balance to the property owners. This amount represents 95% of the rent due for the year despite the effects of the Covid- 19 pandemic on the tenants' income. Ndoto Courts management were impressed by this landmark as they always struggled to collect rent from tenants in the past. As such they gave IEA a brand-new state-of-the-art computer worth N$35 000 as a token of appreciation for the good services rendered. The Accountant of IEA went on maternity leave at the time of preparing the income tax return. Mr Michael Hidimokanya, the Managing Director, then consulted you to advise on the income tax implications of the entire amount received on behalf of Ndoto Courts as well as the computer received. Write a memorandum to the Managing Director in which you determine and discuss in detail the amount to be included in the gross income of IEA for the 2021 year of assessment. Refer to relevant case law principles. 18 marks Presentation marks (2) Matter 2 15 Marks On 25 December 2020 Mr Erastus Johannes (a 25-year-old male) decided to buy a small house, renovate it and rent it out in order to earn additional income. The purchase price was N$1 500 000. Although the property is old, it only required limited work before it could be let. The renovations were started on 1 January 2021 and completed on 25 February 2021. The first tenant moved in on 1 March 2021 (paying a monthly rental of NS9 000), after Johannes ha affected the following renovations: N$ Replacement of damaged carpets with wooden floors Page 12 of 24 FACULTY OF COMMERCE, MANAGEMENT AND LAW Installing a security system 35 000 Painting of the exterior and interior walls of the 20 000 house Landscaping the garden (the house did not have a 15 000 garden before, only grass) Total cost 70 000 Write an email to Mr Johannes explaining to him with reference to section 17(1) (d) and case law, whether the renovation expenses he incurred will be deductible for income tax purposes during his 2021 year of assessment. 14 Marks Presentation marks (1) FACULTY OF COMMERCE, MANAGEMENT AND LAW Question 3 14 Marks 3.1 Define trading stock in terms of the Act. Further state & explain the sections of the Act which deals with trading stock? 8 marks 3.2 Define fringe benefits in terms of the income tax Act 2 marks 3.3 What section of the Act deals with foreign exchange transactions 1 mark 3.4 Mention 3 ways in which the payment of normal tax payable for individuals takes place? 3 marks FACULTY OF COMMERCE, MANAGEMENT AND LAW Question 4 31 Marks Valipo Salom had the following income for the year of assessment ending 28 February 2 Amount N$ Salary 84 000 Item Director's Fee 60 000 Interest from FNB 11 000 Interest from ABSA (SA) 23 000 Dividends 45 000 Legacy received 35 000 Gift from a friend 15 000 Profit on sale of a house 40 000 18 000 Share premium receipt Subsidy on soil erosion 30 000 Annuity from a UK 10 000 Insurance company Lump sum from employer 50 000 Profit from business 22 000 branch Kenya Compensation for 120 000 damages to office block Owned by a property investor Sale of shares held as: Investment 80 000 Trading Stock 65 000 Bet win on results of a 7 500 soccer match Interest from Bank 15 000 Windhoek Page 15 of 24 FACULTY OF COMMERCE, MANAGEMENT AND LAW Restraint of trade payment 25 00 received Profit from Namibian 55 000 Business branch Gross income ? Calculate the gross income of Valipo Salom for the year of assessment ending at 28 February 2022. As part of your swer provide a reason for every item excluded from gross income. 31 Marks Appendix A APPENDIX INDIVIDUAL INCOME TAX TAXABLE INCOME (NS) ANNUAL RATES OF TAX (NS) 0 - 50 000 Not taxable 50 001 - 100 000 18% for each NS above 50 000 100 000 - 300 000 9 000 + 25% for each N$ above 100 000 300 001 - 500 000 59 000 + 28% for each NS above 300 000 500 001 - 800 000 115 000 + 30% for each N$ above 500 000 800 001 - 1 500 000 205 000 + 32% for each NS above 800 000 429 000 + 37% for each NS above 1 500 000 Above 1 500 000 Total marks 100 FACULTY OF COMMERCE, MANAGEMENT AND LAW Question 2 35 Marks You are a tax consultant. The following unrelated tax matters are presented to you. Matter 1 20 Marks Imms Estate Agents CC (IEA) is a private company which is established and effectively managed in the Republic of Namibia with a 31 December year of assessment. IEA collects rentals on behalf of property owners at a 25% commission of the amount collected. During its 2021 year of assessment Imms Estate Agents CC collected N$5 800 000 from tenants occupying Ndoto Courts (a new client of the entity). The company kept the commission and paid over the balance to the property owners. This amount represents 95% of the rent due for the year despite the effects of the Covid- 19 pandemic on the tenants' income. Ndoto Courts management were impressed by this landmark as they always struggled to collect rent from tenants in the past. As such they gave IEA a brand-new state-of-the-art computer worth N$35 000 as a token of appreciation for the good services rendered. The Accountant of IEA went on maternity leave at the time of preparing the income tax return. Mr Michael Hidimokanya, the Managing Director, then consulted you to advise on the income tax implications of the entire amount received on behalf of Ndoto Courts as well as the computer received. Write a memorandum to the Managing Director in which you determine and discuss in detail the amount to be included in the gross income of IEA for the 2021 year of assessment. Refer to relevant case law principles. 18 marks Presentation marks (2) Matter 2 15 Marks On 25 December 2020 Mr Erastus Johannes (a 25-year-old male) decided to buy a small house, renovate it and rent it out in order to earn additional income. The purchase price was N$1 500 000. Although the property is old, it only required limited work before it could be let. The renovations were started on 1 January 2021 and completed on 25 February 2021. The first tenant moved in on 1 March 2021 (paying a monthly rental of NS9 000), after Johannes ha affected the following renovations: N$ Replacement of damaged carpets with wooden floors Page 12 of 24 FACULTY OF COMMERCE, MANAGEMENT AND LAW Installing a security system 35 000 Painting of the exterior and interior walls of the 20 000 house Landscaping the garden (the house did not have a 15 000 garden before, only grass) Total cost 70 000 Write an email to Mr Johannes explaining to him with reference to section 17(1) (d) and case law, whether the renovation expenses he incurred will be deductible for income tax purposes during his 2021 year of assessment. 14 Marks Presentation marks (1) FACULTY OF COMMERCE, MANAGEMENT AND LAW Question 3 14 Marks 3.1 Define trading stock in terms of the Act. Further state & explain the sections of the Act which deals with trading stock? 8 marks 3.2 Define fringe benefits in terms of the income tax Act 2 marks 3.3 What section of the Act deals with foreign exchange transactions 1 mark 3.4 Mention 3 ways in which the payment of normal tax payable for individuals takes place? 3 marks FACULTY OF COMMERCE, MANAGEMENT AND LAW Question 4 31 Marks Valipo Salom had the following income for the year of assessment ending 28 February 2 Amount N$ Salary 84 000 Item Director's Fee 60 000 Interest from FNB 11 000 Interest from ABSA (SA) 23 000 Dividends 45 000 Legacy received 35 000 Gift from a friend 15 000 Profit on sale of a house 40 000 18 000 Share premium receipt Subsidy on soil erosion 30 000 Annuity from a UK 10 000 Insurance company Lump sum from employer 50 000 Profit from business 22 000 branch Kenya Compensation for 120 000 damages to office block Owned by a property investor Sale of shares held as: Investment 80 000 Trading Stock 65 000 Bet win on results of a 7 500 soccer match Interest from Bank 15 000 Windhoek Page 15 of 24 FACULTY OF COMMERCE, MANAGEMENT AND LAW Restraint of trade payment 25 00 received Profit from Namibian 55 000 Business branch Gross income ? Calculate the gross income of Valipo Salom for the year of assessment ending at 28 February 2022. As part of your swer provide a reason for every item excluded from gross income. 31 Marks Appendix A APPENDIX INDIVIDUAL INCOME TAX TAXABLE INCOME (NS) ANNUAL RATES OF TAX (NS) 0 - 50 000 Not taxable 50 001 - 100 000 18% for each NS above 50 000 100 000 - 300 000 9 000 + 25% for each N$ above 100 000 300 001 - 500 000 59 000 + 28% for each NS above 300 000 500 001 - 800 000 115 000 + 30% for each N$ above 500 000 800 001 - 1 500 000 205 000 + 32% for each NS above 800 000 429 000 + 37% for each NS above 1 500 000 Above 1 500 000 Total marks 100