QUESTION 2 (50 marks, 90 minutes) Alex Nkwe (67 years old and married to Prudence out of community of property) was an employee of a company that repairs domestic appliances, Domestic Appliance Repairs (Pty) Ltd (DAR). DAR also performs emergency repairs on a 24 -hour basis. Alex worked for DAR for 45 years. Alex retired on 31 October 2022. Below, and in the notes and additional information, are details of Alex's total income, benefits, expenses and contributions for the year of assessment ended 28 February 2023: 1. Acquisition of appliances DAR has an agreement with customers that stipulates when repaired appliances are neither paid for nor collected, within six months from the date that the repair was completed, DAR will sell the appliance as its own trading stock. On 31 October 2022, Alex's employer allowed him to purchase some of these customers' appliances that had been retained. Alex paid his employer R25 000. Alex, knowing that he could make some money, sold these appliances for R55 000 within two weeks from when he purchased them. 2. Insurance Alex's employer enters into insurance contracts in respect of all their employees against injury on duty. The employer pays 80% of the premiums, and the employees pay the remaining 20% of the premiums. The insurance covers instances where an employee is injured during working hours. Alex paid a monthly insurance premium contribution of R250. Alex was injured while repairing an appliance and lost the use of two fingers on his left hand. The insurance company paid him R450 000 on 31 August 2022. 3. Use of employer-owned vehicle Alex uses an employer-owned vehicle to attend to callouts at customers' premises, when repairing large appliances. Alex is on standby for emergency callouts four nights a week. After normal working hours he is allowed to take the vehicle home. Alex only works a half-day shift when he is on standby at night. He only travels between his home and places of work for private purposes, and sometimes to the local supermarket on his way home from work. The employer purchased the vehicle on 1March 2022 for R250 000 (VAT inclusive), subject to a maintenance plan. Alex's logbook shows that he travelled a total of 4500 kilometres for private purposes out of a total of 30000 kilometres travelled during the period of his employment. [TURN OVER] 11 TAX3761 Oct / Nov 2023 QUESTION 2 (continued) 4. Investment income Alex's father, Jabulani, passed away on 31 July 2022. Alex inherited the following from Jabulani's estate: a portfolio of shares listed on various stock exchanges; a cash amount of R1 500000 , which Alex invested in a fixed deposit. None of the investment income was derived from tax-free investments. Alex received the following gross income from the listed shares and fixed deposit: - Gross SA dividends R - Foreign dividends [(not fully (100%) exempt)] - Real Estate Investment Trust (REIT) dividends 34000 - SA interest 45000 87000 5. Retirement fund lump sum benefits and current pension fund contributions A gross amount of R1 250000 accrued to Alex on 31 October 2022, in respect of a lump sum retirement benefit from the employer's pension fund that Alex belonged to. Alex received a taxable retirement annuity fund lump sum benefit of R750 000 on 28 February 2022. Alex and DAR contributed to the pension fund up to the date of his retirement. The total contributions during Alex's 2023 year of assessment amounted to R108 000, of which Alex contributed sixty percent (60%). Assume Alex's remuneration, as defined, from employment was R685 000, for purposes of calculating any applicable deductions. On 28 February 2022, Alex has a balance of R35 000 that had not been allowed as retirement contribution deductions in previous years of assessment. 6. Medical expenses Alex contributed R144 000 to a medical scheme for the entire year of assessment. Alex's employer was aware that he is a member of a medical scheme and Alex provided the necessary proof. Alex, Prudence and his father (Jabulani) are members of the medical scheme and none of them have a disability, as defined in terms of section 6B (1) of the Income Tax Act (Act No. 58 of 1962), as amended. 7. Trust Alex read that intervivos trusts are being used for several reasons, amongst others, the protection of Alex and Prudence have a son, Gift (28 years old), who lives and works in Canada and will remain there permanently. Alex and Prudence are in the process of adopting a 14-year-old girl, Flower, who will live with them and be taken care of by them. Should an intervivos trust be registered, Alex, Prudence and their lawyer will be the trustees, and Gift and Flower will be beneficiaries. The trust will be discretionary. Funds will be distributed to Gift and Flower when necessary. No conditions will be stipulated in the trust deed. 8. Assets and liabilities in Jabulani's estate Jabulani passed away on 31 July 2022 and his wife had passed away 11 years before him. Jabulani was the sole heir of her estate. Jabulani was 89 years old when he passed away