QUESTION 1

Matt & Pisa (Both Namibian residents), have known each other since childhood, they have however never kept in contact since varsity, when both pursued their Postgraduate studies in accounting at the renowned Rhodes University, in Grahamstown, South Africa. On a recent visit by Pisa to London they bumped into each othet whilst attending a football between Tottenham Hotspurs & Man Utd, Matt, an avid Spurs fan, has been working for a big 4 audit firm for the last 4 years , completing his articles & qualified as a chartered accountant in process, whilst Pisa has qualified through a local big 4 firm as well. Both, being qualified CA (SA), have long held a passion for business. Matt, coming at the end of his stay in the UK, urged that they use their qualification status and start a business venture, both werent sure what type of venture to undertake, they agreed that they both go on a fact find mission before a decision can be made. Upon his arrival back in Windhoek , Pisa, had the opportunity to peruse the Namibia legislation in terms of the type business, they then decided to open up an accounting practice partnership, with both Matt and Pisa, sharing on a 40%,60% respectively. The ratio was determined as such due to the fact that Pisa, was to manage the practice on a daily basis, whilst Matt was a sleeping partner, mostly assisting with the technical expertise on various matters and the start capital. During 2019, M&P accounting, tax consultation was started, with a 28 February year-end. The practice, commenced operations on the 01 June 2019

The following information pertains to the 2020 FY: (All amounts in NAD, unless stated otherwise, excludes VAT unless stated otherwise)

Professional & Consulting fees earned: 1,200,000

Start-up expenses (including registration fees) 82,500

Rental expense (Refer to note 1)

Dividends(Refer to Note2) 180,000

Salaries paid to Matt & Pisa 460,000

General office expenses 65,000

Interest on loan from DM Bank(Refer to note3) 34,800

Keyman Policy (Refer to note 4) ???

In addition, the entity incurred, the following, M&P purchased the following capital assets, Accounting software from, a reputable firm in the UK at a cost of 50,000 EURO, at the exchange rate of 16,50 on the 31 August 2019, the debt remained unpaid at year-end when the exchange rate was 18,30, a printer & scanner for a cost of NAD 109,000 and a Motor vehicle at a cost NAD 325,760.

The following notes pertains to the partnership for the year as well:

1. M&P, signed a rental agreement effective the 01 June 2019 with Lagoon properties for the premises which the partnership operates from, the property was in high demand, so Pisa had to negotiate fiercely to obtain the right of use thereof, and the following terms were agreed:

• A monthly, rental fee of, NAD, 45,739 VAT inclusive
• A lease premium of NAD 96,000
• A lease term of 6 years
• M&P to effect improvements to the tune of NAD 350,000 on the interior & exterior of the building before commencement of operations

2. M&P , to diversify their risk, opted to invest in a construction company, SANCHO Inc. , a company based in Oshakati, M&P received a dividend of NAD650,000 on the 28 February 2020.

3. In anticipation of excessive initial capital outlay, M&P approached DM Bank for a long-term loan for the capital expenditure -As the primary terms of the loan , the funds are to be used for capital expenses of the partnership.

4. Pisa, is seen as the cornerstone of the partnership, the partnership decided to secure his life by taking out a keyman policy as of 01 November 2019, Pisa is the sole beneficiary of the policy, the monthly premiums amounted to NAD18,500

The partnership anticipating accepting proposal from Matts friend , Nick, a UK resident, who would like to acquire, an equal profit sharing in the partnership.

Required:

A) Discuss, with supporting calculations, the income tax implications for both the partnership and the partners as a result of the above information?

B) Discuss, the income tax implications for Nick, if he were to be admitted as a third partner?