QUESTION 1 55 MARKS PART A 40 MARKS Wiseman Madala has been employed by Amapiano (Pty) Ltd (referred to as Amapiano) since 1 October 2021. Up until 30 June 2021 he had been employed by Kwaito Records (Pty) Ltd (referred to as Kwaito Records). He was unemployed for the period of 3 months from 1 July 2021 until 30 September 2021. At Kwaito Records, he received a monthly net cash salary of R21 369 (after the deduction of employees' tax of R3 853, UIF of R177 and his contribution to the pension fund of R2 600 per month). The company's contributions to the pension fund amounted to R2 600 per month in terms of the rules of the fund. On 30 June 2021, he also received a lump sum of R66 000 (gross amount) from Kwaito Records for accumulated leave days due to him. On his resignation from Kwaito Records (Pty) Ltd, the value of his pension fund amounted to R1 080.000. The full amount was transferred for his benefit directly by the pension fund to a pension preservation fund, which will only be accessible when he turns 65 years old according to the rules of the fund. He turned 59 years old, on 2 August 2021 and retired from a retirement annuity fund from which he will receive a lifelong monthly annuity of R10 200 from 31 August 2021. At this date, contributions to this retirement annuity fund amounting to R18 250, in total, have not yet been allowed as a deduction against his taxable income. Wiseman earns a gross cash salary of R33 000 per month from Amapiano. In addition to this, he received the following benefits or allowances: He joined a medical aid fund effective from 1 October 2021. He and his mother are the only dependants of the fund. His mother qualifies as a dependant in terms of the rules of the fund. His total monthly contributions amounted to R6 800 per month, from 1. October 2021 to 31 January 2022, of which his employer contributed R4 000 per month. His mother sadly passed away during January 2022 and therefore the total contributions for February 2022 amounted to only R3 400, of which his employer contributed R2 000. For the period 1 October 2021 to 28 February 2022 he did not incur any additional medical expenses as the medical aid fund settled all claims. His employer effected the payment of her contributions to the medical aid fund. During the period 1 March 2021 to 30 September 2021, Wiseman did not belong to a medical aid fund. His medical expenses for this period amounted to R34 000, which he paid for in cash. Wiseman's total contributions to a provident fund from 1 October 2017 were R3 800 per month. His employer did not make any contributions to the fund. Wiseman enjoyed the right of use of a company-owned vehicle, which she uses for business as well as for private purposes. Amapiano purchased the vehicle when it had a retail market value of R368.000 (VAT included) on 1 October 2022, the same date that Wiseman obtained its use. The vehicle had a qualifying maintenance plan. Wiseman had to pay for the full fuel cost of the vehicle, which amounted to R29.000 in total until 28 February 2022. Wiseman kept a logbook at the insistence of his employer. He travelled a total of 18 900 km for the 152-day period, 8 300 km of which was for private purposes. He also paid R200 per month to his employer for the use of the vehicle. Amapiano, a manufacturer of world-class LED televisions, granted Wiseman the free use of a 120 cm HD LED television for use at his home for a period of 2 months. On 1 October 2021, the date on which the benefit was granted to Wiseman, the manufacturing cost to Amapiano of the television was R65 000 (excluding VAT) and the open market value was R110 000. On 1 December 2021, this television was sold to Wiseman for R65 000, funded by an interest-free loan (repo rate 7%). At this date the television had an open market value of R95 000. He had to pay an instalment of R2 500, at the end of each month commencing from 31 March 2022 for a period of 26 months, on the loan. Wiseman performed so well in his position at Amapiano that the company, instead wrote off the outstanding amount (R65 000) on this loan on 28 February 2022 in lieu of paying Wiseman an annual bonus. YOU ARE REQUIRED TO: a) Calculate the total amount which will be included for the right of use of the motor car for employees' tax purposes in Wiseman's remuneration for the year of assessment ended 28 February 2022. (3) b) Calculate Wiseman Madala's taxable income for the year of assessment ended 28 February 2022. Provide reasons for amounts, which in your opinion are either not taxable or not deductible. Show all calculations. (24) c) Calculate Wiseman's normal tax liability for the year of assessment ended 28 February 2022. Assume that Wiseman's taxable income for the year of assessment is R450 000. (9) d) Discuss, with reference to the Income Tax Act, the effect of Wiseman's medical aid fund contributions and medical expenses on the calculation of her employees' tax for the year of assessment ended 28 February 2022. (4) PART B 15 MARKS Mulanga Kharivhe a resident of the Republic, is the famous South African soccer player who won 5 of the South African Footballer Awards. Ten years ago, he designed a soccer ball that can detect when the ball is out of play and officially registered this design in his own name. He received an offer from FIFA, an international governing body of association football, the highest governing body of association of football on 1 March 2021 to sell this design to them for an amount of R5 million (rand equivalent) or annual payments of R250 000 (rand equivalent) from 31 March 2021 for the rest of his life. Mulanga Kharivhe did not need to sell the design, but the annual payments for the rest of his life sounded like a good idea. YOU ARE REQUIRED TO: Discuss (supported with reference to legislation and case law) the normal tax implications for Mulanga Kharivhe if he decides to sell the design to FIFA. Your discussion must clearly indicate the tax implication for each payment method. (15) price on 25 August 2021. The standard value of this livestock would have been R12 800. 2. On 26 November 2021, he also received by way of donation from his uncle 600 ewes and 100 rams. At the date of donation, the fair market value of these animals was R200 000. The standard value would have been R4 200. Nome 3. He has elected the standard values fixed by regulation. 4. During the year, he, his wife and his family consumed produce at an estimated cost of R3 500. Pa 5. 24 ewes and 12 rams were donated to charitable institutions during the year. These animals were acquired at a cost of R6 700, but at the date of donation their fair market value was R10 800. 6. At 28 February 2022, the numbers of livestock on hand were as follows: Ewes 1.500 Rams 250 . Lambs 400 7. The estimated cost of production of wool and fruit on hand at 28 February 2022 was R9 100. YOU ARE REQUIRED TO: Calculate the taxable income of the farmer for the year of assessment ended 28 February 2022. (15) APPENDIX ON NEXT PAGE QUESTION 2 360 000 X 149 000 25 MARKS PART A 10 MARKS On 10 October 1996, Mr Poor purchased a house in Rondebosch for R600 000. The property is less than two hectares in size. Because the couple were short of cash, Mrs Poor's father Bill Rich paid for 40% of the house, with the understanding that he would have a 40% interest in the house. Bill has never actually lived in the house. Mr and Mrs Poor lived in the house until 1 December 2020, when they sold it. They sold the house because of a very high offer made by a property developer, who intended building an office block. The market value of the house on 1 October 2001 was R800 000. The house was sold to the property developer for R5.5 million. In terms of their agreement with Bill Rich, Bill received 40% of the selling price. The couple are resident in South Africa and married out of community of property. The house was registered in Mr Poor's name. For income tax purposes, the proceeds are of a capital nature. YOU ARE REQUIRED TO: Discuss the tax implications of the sale of the house for both Mr Poor and Mr Bill Rich for the 2022 year of assessment. (10) (This Question was taken from Question on SA TAX, Question 10.6 Part B) PART B 15 MARKS The following is the statement of comprehensive income of a farmer who commenced farming on 25 August 2021. Statement of comprehensive income Development expenditure: Dividends received from RSA companies 8,000 25,000 Fee for letting of machine New irrigation equipment Dams and boreholes 9,600 12,000 Interest received 2.300 Road-making 15.000 Livestock sales 900,000 Sol-erosion works 8,000 Produce sales (wool and fruit) 120,000 Fertilizers and manures. 6.000 Food for livestock 10,000 General farming expenses (all allowable) 7,800 Interest payable 5,600 Livestock purchases 34,000 Repair of damaged fencing 30,000 Seeds 2.980 Wages and rations 21.556 Wear-and-tear ands 12B allowance (all allowable) 14.600 Profit 838,164 1,039,900 1,039,000 1. When he commenced farming, the executors of the estate of his late father handed over to him 1 800 ewes, 200 rams and 400 lambs. The current market value of these i animals at the date of his father's death was R650 000, and this was the fair market 41 Page lecome 40% 240 QUESTION 1 55 MARKS PART A 40 MARKS Wiseman Madala has been employed by Amapiano (Pty) Ltd (referred to as Amapiano) since 1 October 2021. Up until 30 June 2021 he had been employed by Kwaito Records (Pty) Ltd (referred to as Kwaito Records). He was unemployed for the period of 3 months from 1 July 2021 until 30 September 2021. At Kwaito Records, he received a monthly net cash salary of R21 369 (after the deduction of employees' tax of R3 853, UIF of R177 and his contribution to the pension fund of R2 600 per month). The company's contributions to the pension fund amounted to R2 600 per month in terms of the rules of the fund. On 30 June 2021, he also received a lump sum of R66 000 (gross amount) from Kwaito Records for accumulated leave days due to him. On his resignation from Kwaito Records (Pty) Ltd, the value of his pension fund amounted to R1 080.000. The full amount was transferred for his benefit directly by the pension fund to a pension preservation fund, which will only be accessible when he turns 65 years old according to the rules of the fund. He turned 59 years old, on 2 August 2021 and retired from a retirement annuity fund from which he will receive a lifelong monthly annuity of R10 200 from 31 August 2021. At this date, contributions to this retirement annuity fund amounting to R18 250, in total, have not yet been allowed as a deduction against his taxable income. Wiseman earns a gross cash salary of R33 000 per month from Amapiano. In addition to this, he received the following benefits or allowances: He joined a medical aid fund effective from 1 October 2021. He and his mother are the only dependants of the fund. His mother qualifies as a dependant in terms of the rules of the fund. His total monthly contributions amounted to R6 800 per month, from 1. October 2021 to 31 January 2022, of which his employer contributed R4 000 per month. His mother sadly passed away during January 2022 and therefore the total contributions for February 2022 amounted to only R3 400, of which his employer contributed R2 000. For the period 1 October 2021 to 28 February 2022 he did not incur any additional medical expenses as the medical aid fund settled all claims. His employer effected the payment of her contributions to the medical aid fund. During the period 1 March 2021 to 30 September 2021, Wiseman did not belong to a medical aid fund. His medical expenses for this period amounted to R34 000, which he paid for in cash. Wiseman's total contributions to a provident fund from 1 October 2017 were R3 800 per month. His employer did not make any contributions to the fund. Wiseman enjoyed the right of use of a company-owned vehicle, which she uses for business as well as for private purposes. Amapiano purchased the vehicle when it had a retail market value of R368.000 (VAT included) on 1 October 2022, the same date that Wiseman obtained its use. The vehicle had a qualifying maintenance plan. Wiseman had to pay for the full fuel cost of the vehicle, which amounted to R29.000 in total until 28 February 2022. Wiseman kept a logbook at the insistence of his employer. He travelled a total of 18 900 km for the 152-day period, 8 300 km of which was for private purposes. He also paid R200 per month to his employer for the use of the vehicle. Amapiano, a manufacturer of world-class LED televisions, granted Wiseman the free use of a 120 cm HD LED television for use at his home for a period of 2 months. On 1 October 2021, the date on which the benefit was granted to Wiseman, the manufacturing cost to Amapiano of the television was R65 000 (excluding VAT) and the open market value was R110 000. On 1 December 2021, this television was sold to Wiseman for R65 000, funded by an interest-free loan (repo rate 7%). At this date the television had an open market value of R95 000. He had to pay an instalment of R2 500, at the end of each month commencing from 31 March 2022 for a period of 26 months, on the loan. Wiseman performed so well in his position at Amapiano that the company, instead wrote off the outstanding amount (R65 000) on this loan on 28 February 2022 in lieu of paying Wiseman an annual bonus. YOU ARE REQUIRED TO: a) Calculate the total amount which will be included for the right of use of the motor car for employees' tax purposes in Wiseman's remuneration for the year of assessment ended 28 February 2022. (3) b) Calculate Wiseman Madala's taxable income for the year of assessment ended 28 February 2022. Provide reasons for amounts, which in your opinion are either not taxable or not deductible. Show all calculations. (24) c) Calculate Wiseman's normal tax liability for the year of assessment ended 28 February 2022. Assume that Wiseman's taxable income for the year of assessment is R450 000. (9) d) Discuss, with reference to the Income Tax Act, the effect of Wiseman's medical aid fund contributions and medical expenses on the calculation of her employees' tax for the year of assessment ended 28 February 2022. (4) PART B 15 MARKS Mulanga Kharivhe a resident of the Republic, is the famous South African soccer player who won 5 of the South African Footballer Awards. Ten years ago, he designed a soccer ball that can detect when the ball is out of play and officially registered this design in his own name. He received an offer from FIFA, an international governing body of association football, the highest governing body of association of football on 1 March 2021 to sell this design to them for an amount of R5 million (rand equivalent) or annual payments of R250 000 (rand equivalent) from 31 March 2021 for the rest of his life. Mulanga Kharivhe did not need to sell the design, but the annual payments for the rest of his life sounded like a good idea. YOU ARE REQUIRED TO: Discuss (supported with reference to legislation and case law) the normal tax implications for Mulanga Kharivhe if he decides to sell the design to FIFA. Your discussion must clearly indicate the tax implication for each payment method. (15) price on 25 August 2021. The standard value of this livestock would have been R12 800. 2. On 26 November 2021, he also received by way of donation from his uncle 600 ewes and 100 rams. At the date of donation, the fair market value of these animals was R200 000. The standard value would have been R4 200. Nome 3. He has elected the standard values fixed by regulation. 4. During the year, he, his wife and his family consumed produce at an estimated cost of R3 500. Pa 5. 24 ewes and 12 rams were donated to charitable institutions during the year. These animals were acquired at a cost of R6 700, but at the date of donation their fair market value was R10 800. 6. At 28 February 2022, the numbers of livestock on hand were as follows: Ewes 1.500 Rams 250 . Lambs 400 7. The estimated cost of production of wool and fruit on hand at 28 February 2022 was R9 100. YOU ARE REQUIRED TO: Calculate the taxable income of the farmer for the year of assessment ended 28 February 2022. (15) APPENDIX ON NEXT PAGE QUESTION 2 360 000 X 149 000 25 MARKS PART A 10 MARKS On 10 October 1996, Mr Poor purchased a house in Rondebosch for R600 000. The property is less than two hectares in size. Because the couple were short of cash, Mrs Poor's father Bill Rich paid for 40% of the house, with the understanding that he would have a 40% interest in the house. Bill has never actually lived in the house. Mr and Mrs Poor lived in the house until 1 December 2020, when they sold it. They sold the house because of a very high offer made by a property developer, who intended building an office block. The market value of the house on 1 October 2001 was R800 000. The house was sold to the property developer for R5.5 million. In terms of their agreement with Bill Rich, Bill received 40% of the selling price. The couple are resident in South Africa and married out of community of property. The house was registered in Mr Poor's name. For income tax purposes, the proceeds are of a capital nature. YOU ARE REQUIRED TO: Discuss the tax implications of the sale of the house for both Mr Poor and Mr Bill Rich for the 2022 year of assessment. (10) (This Question was taken from Question on SA TAX, Question 10.6 Part B) PART B 15 MARKS The following is the statement of comprehensive income of a farmer who commenced farming on 25 August 2021. Statement of comprehensive income Development expenditure: Dividends received from RSA companies 8,000 25,000 Fee for letting of machine New irrigation equipment Dams and boreholes 9,600 12,000 Interest received 2.300 Road-making 15.000 Livestock sales 900,000 Sol-erosion works 8,000 Produce sales (wool and fruit) 120,000 Fertilizers and manures. 6.000 Food for livestock 10,000 General farming expenses (all allowable) 7,800 Interest payable 5,600 Livestock purchases 34,000 Repair of damaged fencing 30,000 Seeds 2.980 Wages and rations 21.556 Wear-and-tear ands 12B allowance (all allowable) 14.600 Profit 838,164 1,039,900 1,039,000 1. When he commenced farming, the executors of the estate of his late father handed over to him 1 800 ewes, 200 rams and 400 lambs. The current market value of these i animals at the date of his father's death was R650 000, and this was the fair market 41 Page lecome 40% 240