Health Harmony (Pty) Ltd (“HH”) is a company offering various health and wellness services and sells health 

supplements. The  company is situated in Johannesburg and its financial year ends on 31 March 2023.  HH 

owns a 25% shareholding in another company specialising in organic juices, OJuicy (Pty) Ltd (“OJuicy”). HH is 

not a small business corporation as defined in section 12E  the Income Tax Act. The  company  accountant 

calculated the  preliminary  taxable income as R6 785 000.  You may assume that this amount is correctly 

calculated, however, the items listed below still needs to be taken into account: 

 

Dividends received 

OJuicy declared and paid dividends to its shareholders on 15 March 2023. HH’s 25% share of the gross 

dividend amounted to R50 000. (You may ignore dividends tax). 

 

2.  Rental income & improvements 

A lease agreement was entered into on 1 July 2022 between a personal trainer (a natural person) and HH 

whereby the trainer will pay R15 000 monthly rent to use office space in HH’s property from 1 July 2022. In 

terms of the agreement, the trainer needed to make improvements to the space for an amount of R100 000. 

The improvements were all effected by the trainer and brought into use by 31 January 2023 at a cost of 

R130 000.

Inventory transactions 

Supplements for R1 789 000 were purchased during the year. The following was confirmed by the auditors 

during the latest company stock takes: 

 

Cost 

Market value 

Supplements - closing inventory 31 March 2022 

R665 430 

R690 000 

Supplements - closing inventory 31 March 2023 

R342 978 

R300 670 

 

On 1 March 2023, supplements which were about to expire and could not be sold to the public were sold 

to HH’s staff family members for R12 800. The R12 800 is already included in the calculated taxable income 

of R6 785 000. These supplements had a market value of R26 000. 

 

4.  Marketing expense 

HH entered into a contract with a marketing company to handle all the company’s marketing. An upfront 

payment of R90 000 was paid on 1 March 2023 for marketing services to be rendered from 1 March 2023 

until 31 December 2023. 

 

5.  Patents & related costs 

5.1 The  term of a  South African patent (patent S1) that  HH  owns on  a  supplement,  was extended on 

1 June 2022 for another two years for R35 000. 

5.2 HH consulted with a foreign supplier regarding improvements to the supplement (patent S1). The foreign 

supplier shared their valuable expertise and knowledge for a fee of R60 000 which was paid by HH on 

1 October 2022. 

 

6.  Bad debts 

The following amounts were written off by HH at the end of its 2023 year of assessment: 

6.1 R58 000 in respect of product sales that were made in the previous year of assessment and are now 

considered to be irrecoverable. 

6.2 R13 000 in respect of a loan made to an employee. R12 000 was loaned to the employee and R1 000 

interest accrued on this loan amount in previous years of assessments. The employee absconded from 

work during April 2022 and cannot be traced. The full amount is regarded as irrecoverable by HH. 

 

7.  Restraint of trade expense 

HH employed a well known  life coach two years ago, who resigned on 31 July 2022. An amount of 

R1 000 000 was paid to the life coach in order to restrain the coach to work in Johannesburg for a period 

of one year. 

 

REQUIRED: 

Calculate the normal tax liability of Health Harmony (Pty) Ltd for the 2023 year of assessment. 

Provide reasons for your answer in respect of the marketing expense as well as for all amounts 

that are not taxable and/or not deductible.

 

Bella Italia (Pty) Ltd operates as a franchise restaurant in a busy shopping mall in Pretoria. According to the 

contract between them and the franchisor, the restaurant must pay monthly franchise fees for various franchise 

services received. In addition, R80 000 must be paid each year by 30 April if a (verified and audited) turnover 

of more than R4million for the financial year was reached. 

The accountant decided to be prudent and paid the R80 000 on 26 February 2023 without knowing the annual 

turnover amount and deducted it for the purposes of calculating the taxable income for the 28 February 2023 

year of assessment .

 

The following information is provided: Calculated taxable income Dividends received Rental income Inventory Marketing expense Patents & related costs Bad debts Restraint of trade Notes 1 2 3 4 5 6 7 R 6 785 000 50 000 ? ? 90 000 95 000 71 000 1 000 000