Memo from Thabo Molefe

From: Thabo Molefe

To: Tax Manager

Subject: Farming

Mr$.$ T$.$ Kgosi, a Botswanan citizen, works as a senior officer for a financial institution in Gaborone.

According to a documented employment contract, the following was his compensation package for

the tax year $20212022$:

Salary

$300,000$

Car allowance

$30,000$

Benefits in kind:

Provided housing $($municipal valuation P$400000)$; employer pays P$108000$ in rent. Mr$.$ Kgosi

received household furnishings and equipment at a cost of P$80,000.$ Mr$.$ Kgosi uses a corporate

automobile which cost P$290,000$ and was responsible for purchasing the petrol.

Contributions and expenses paid by the employer for medical fund

$14,400$

Holiday travel $($Europe P$30000$ & Far East P$15000)$

$45,000$

School fees

$60,000$

PAYE deductions of P$94000$ were made by the employer for the above remuneration.

During the current tax year, Mr$.$ Kgosi also operated as a cattle farmer with an average of $1200$ head

of cattle, achieving the following results:

Net profit on farming after adjusting for standard values of livestock

and income tax allowances in previous years

$40,000$

Capital expenditure this year:

Fencing

Q P $-$ A S R $-001|$ R e v $001$ E f f D a t e : $09-0$

$8-2023$

Page $5$ of $10$

$50,000$

Dam construction

$100,000$

$150,000$

Mr$.$Kgosi derived rental income from a residential property during the year as follows:

Gross rent receivable

$60,000$

Expenses:

interest on Bond

$52,000$

Municipal rates $7,000$

Repairs and maintanance $5,000$

Boundary wall constructed on tenant's request

$10,000$

Total expenses

$74,000$

Loss for the year

$(14,000)$

You are required to:

a$)$ Take advantage of any election$($s$)$ that may be available to Mr$.$ Kgosi to determine his taxable

income and the amount of tax due for the $2021/22$ tax year. $[15$ Marks$]$

b$)$ Explain the tax treatment of the rental income and the effect, if any, on the tax payable $($as

calculated in $($a$)$ above$)$ for the $2021/2022$ tax year. $[5$ Mark