QUESTION THREE [40] Furnco (Pty) Ltd ("FumCo" or "the company") operates as a fumiture manufacturer in Durban. The company is a resident in the Republic and is not regarded to be a small business corporation. The Commissioner is satisfied that FumCo carries on a process of manufacture. For the year ended 29 February 2020, a taxable profit of R14 650 000 was calculated, before taking into account the following (ignore Value Added Tax (VAT) for the purpose of this question): 1. Local dividends and local interest During the year, gross local dividends of R15 000 were paid to the Furnco. In addition, local interest of R27 000 accrued to the company 2. Trading stock: Opening and closing stock were as follows: Trading stock as at 1 March 2019 R675 000 Trading stock as at 29 February 2020 R940 000 . 3. Bad debts A trade debtor owing an amount of R30 280 went into liquidation. The liquidators paid FurnCo an amount of R7 570. The remaining amount outstanding is not considered to be recoverable. 4. Doubtful debts The total provision for doubtful debts for the year ended 29 February 2020 is R154 000, while the prior year provision was R142 000. The Commissioner has agreed to a 25% allowance for doubtful debts. 5. Annuities paid During the 2020 year of assessment, the following annuities were paid by Furnco: R24 000 to Busi Ndlovu, the widow of a former employee who had been killed in a work- related accident; R20 000 to Heather Smith, a former employee who resigned to care for her disabled child 6. Restraint of trade payment The head fumiture designer at FumCo decided to retire early. A payment of R375 000 was made to him on 1 March 2019 to restrain him from working for a competitor company or starting a similar business within the province for four years. 7. Legal expenses Legal expenses of R3 000 were incurred in respect of the drawing up of the restraint of trade agreement (see note 6 above). 8. New lease On 1 September 2019, the company entered into a 20-year lease agreement for a factory building large enough to accommodate the expanding production of the company. The lease agreement stipulated that Jozi Shoes pay a premium of R750 000 on 1 September 2019 and monthly rentals of R95 000 on the 1st day of every month, commencing on 1 September 2019. The company moved to the new premises on 1 September 2019, 9. Finos paid The company was fined R5 000 for attempting to bribe a safety officer when he inspected the new factory building for adherence to safety requirements. 10.New machinery purchased The following machinery was purchased (for use in the process of manufacture): Machine 1 (new and unused) was purchased on 1 October 2019 for R245 000. It cost a further R5 000 to have the machine installed. Due to an unforeseen problem with the installation, the machine was brought into use on 1 November 2019, Machine 2 (second-hand) was purchased for R52 000 on 1 January 2020 and brought into use immediately 11. New delivery vehicle purchased A new delivery vehicle was purchased on 1 November 2019 for R525 000 and brought into use immediately. The Commissioner will allow for delivery vehicles to be written off over 4 years on a straight-line basis. 12. Sale of land The company owned land, purchased on 1 January 2018 for R800 000, on which it intended to build a factory. Due to unrest in the area, the directors decided not to commence with the building of the factory and passed a resolution to sell the land, The land was sold on 1 April 2019 for R805 000. 13. Assessed loss brought forward For the year ended 28 February 2019, FumCo had an assessed loss of R1 234 000, Required Calculate the normal tax liability of FumCo (Pty) Ltd for the 2020 year of assessment. Round off your calculations to the nearest Rand, TAXATION TABLES AND RATES COMPANIES AND CLOSE CORPORATIONS 2019/2020 year of assessment 28% RATES OF TAX FOR INDIVIDUALS 2019 tax year (1 March 2018 - 28 February 2019) & 2020 tax year (1 March 2019-29 February 2020) Taxable income (R) Rates of tax (R) 1 - 195 850 18% of taxable income 195851 - 305 850 35 253 +26% of taxable income above 195 850 305851 - 423 300 63 853 +31% of taxable income above 305 850 423 301-555 600 100 263 + 36% of taxable income above 423 300 555601 - 708 310 147 891 + 39% of taxable income above 555 600 708 311 - 1 500 000 207 448 + 41% of taxable income above 708 310 1 500 001 and above 532 041 +45% of taxable income above 1 500 000 SMALL BUSINESS CORPORATIONS (SBC) ) Financial years ending on any date between 1 April 2019 and 31 March 2020: Taxable income (R) 0-79 000 79 001 - 365 000 365001 - 550 000 550 001 and above Rate of Tax (R) 0% of taxable income 7% of taxable income above 79 000 % 20020 +21% of taxable income above 365 000 58 870+ 28% of the amount above 550 000 Tax Rebates Tax Rebate Financial years ending on any date between 1 April 2018 and 31 March 2019: : Younger than 65 65 and older 75 and older 2019 R14067 R21780 R24 354 2020 R14 220 R22014 R24 615 Taxable income (R) 0-78 150 78 151 - 365 000 365001 - 550 000 550 001 and above Rate of Tax (R) 0% of taxable income 7% of taxable income above 78 150 20080 + 21% of taxable income above 365 000 58930 + 28% of the amount above 550 000 Exempt Income (2019 & 2020 year of assessment) Total interest exemption including foreign interest Below 65 R23 800 65 and over R34 500 TURNOVER TAX FOR MICRO BUSINESSES Medical Scheme Credit (monthly) 2019 & 2020 years of assessment Main member Main member with one dependant Main member with two dependants 2019 R310 R620 R829 2020 R310 R620 R829 Taxable turnover (R) (R 0-335 000 335001 - 500 000 500 001 - 750 000 - 750 001 and above Rate of tax (R) 0% of taxable turnover 0 1% of taxable turnover above 335 000 1 650 + 2% of taxable tumover above 500 000 6 650 + 3% of taxable tumover above 750 000 Each additional de pendant qualifies for a further rebate or credit of R209 (2019: R209) per month. Travel allowance-cost scale - 2019 and 2020 years of assessment VALUE-ADDED TAX (VAT) From 1 April 2018 Prior to 1 April 2018 15% Value of the vehicle including VAT (R) Fixed cost (Rp.a) Fuel cost (c/km) Maintenance cost (c/km) 0-85 000 28 352 95.7 34.4 85 001 - 170 000 50 631 106.8 43.1 170001 - 255 000 72 983 1 16.0 47.5 255001 - 340 000 92 683 124.8 51.9 340001 - 425 000 112 443 133.5 60.9 425001 - 510 000 133 147 153.2 71.6 7 8 153 850 88.9 88.9 510001 - 595 000 153 850 158.4 more than 595 000 158.4 CAPITAL GAINS TAX (CGT) - 2019 & 2020 years of assessment Inclusion rates Individuals, special trusts and individual policyholder funds 40% Other taxpayers 80% R300 000 Exclusions . Individuals (annual non-cumulative): R40 000 Individuals in year of death: Primary residence exclusion on the disposal of a primary residence: R2milion (gain loss) Small business assets (when a person is at least 55 years of age): R1.8 million when a small business with a market value not exceeding R10 million is disposed of QUESTION THREE [40] Furnco (Pty) Ltd ("FumCo" or "the company") operates as a fumiture manufacturer in Durban. The company is a resident in the Republic and is not regarded to be a small business corporation. The Commissioner is satisfied that FumCo carries on a process of manufacture. For the year ended 29 February 2020, a taxable profit of R14 650 000 was calculated, before taking into account the following (ignore Value Added Tax (VAT) for the purpose of this question): 1. Local dividends and local interest During the year, gross local dividends of R15 000 were paid to the Furnco. In addition, local interest of R27 000 accrued to the company 2. Trading stock: Opening and closing stock were as follows: Trading stock as at 1 March 2019 R675 000 Trading stock as at 29 February 2020 R940 000 . 3. Bad debts A trade debtor owing an amount of R30 280 went into liquidation. The liquidators paid FurnCo an amount of R7 570. The remaining amount outstanding is not considered to be recoverable. 4. Doubtful debts The total provision for doubtful debts for the year ended 29 February 2020 is R154 000, while the prior year provision was R142 000. The Commissioner has agreed to a 25% allowance for doubtful debts. 5. Annuities paid During the 2020 year of assessment, the following annuities were paid by Furnco: R24 000 to Busi Ndlovu, the widow of a former employee who had been killed in a work- related accident; R20 000 to Heather Smith, a former employee who resigned to care for her disabled child 6. Restraint of trade payment The head fumiture designer at FumCo decided to retire early. A payment of R375 000 was made to him on 1 March 2019 to restrain him from working for a competitor company or starting a similar business within the province for four years. 7. Legal expenses Legal expenses of R3 000 were incurred in respect of the drawing up of the restraint of trade agreement (see note 6 above). 8. New lease On 1 September 2019, the company entered into a 20-year lease agreement for a factory building large enough to accommodate the expanding production of the company. The lease agreement stipulated that Jozi Shoes pay a premium of R750 000 on 1 September 2019 and monthly rentals of R95 000 on the 1st day of every month, commencing on 1 September 2019. The company moved to the new premises on 1 September 2019, 9. Finos paid The company was fined R5 000 for attempting to bribe a safety officer when he inspected the new factory building for adherence to safety requirements. 10.New machinery purchased The following machinery was purchased (for use in the process of manufacture): Machine 1 (new and unused) was purchased on 1 October 2019 for R245 000. It cost a further R5 000 to have the machine installed. Due to an unforeseen problem with the installation, the machine was brought into use on 1 November 2019, Machine 2 (second-hand) was purchased for R52 000 on 1 January 2020 and brought into use immediately 11. New delivery vehicle purchased A new delivery vehicle was purchased on 1 November 2019 for R525 000 and brought into use immediately. The Commissioner will allow for delivery vehicles to be written off over 4 years on a straight-line basis. 12. Sale of land The company owned land, purchased on 1 January 2018 for R800 000, on which it intended to build a factory. Due to unrest in the area, the directors decided not to commence with the building of the factory and passed a resolution to sell the land, The land was sold on 1 April 2019 for R805 000. 13. Assessed loss brought forward For the year ended 28 February 2019, FumCo had an assessed loss of R1 234 000, Required Calculate the normal tax liability of FumCo (Pty) Ltd for the 2020 year of assessment. Round off your calculations to the nearest Rand, TAXATION TABLES AND RATES COMPANIES AND CLOSE CORPORATIONS 2019/2020 year of assessment 28% RATES OF TAX FOR INDIVIDUALS 2019 tax year (1 March 2018 - 28 February 2019) & 2020 tax year (1 March 2019-29 February 2020) Taxable income (R) Rates of tax (R) 1 - 195 850 18% of taxable income 195851 - 305 850 35 253 +26% of taxable income above 195 850 305851 - 423 300 63 853 +31% of taxable income above 305 850 423 301-555 600 100 263 + 36% of taxable income above 423 300 555601 - 708 310 147 891 + 39% of taxable income above 555 600 708 311 - 1 500 000 207 448 + 41% of taxable income above 708 310 1 500 001 and above 532 041 +45% of taxable income above 1 500 000 SMALL BUSINESS CORPORATIONS (SBC) ) Financial years ending on any date between 1 April 2019 and 31 March 2020: Taxable income (R) 0-79 000 79 001 - 365 000 365001 - 550 000 550 001 and above Rate of Tax (R) 0% of taxable income 7% of taxable income above 79 000 % 20020 +21% of taxable income above 365 000 58 870+ 28% of the amount above 550 000 Tax Rebates Tax Rebate Financial years ending on any date between 1 April 2018 and 31 March 2019: : Younger than 65 65 and older 75 and older 2019 R14067 R21780 R24 354 2020 R14 220 R22014 R24 615 Taxable income (R) 0-78 150 78 151 - 365 000 365001 - 550 000 550 001 and above Rate of Tax (R) 0% of taxable income 7% of taxable income above 78 150 20080 + 21% of taxable income above 365 000 58930 + 28% of the amount above 550 000 Exempt Income (2019 & 2020 year of assessment) Total interest exemption including foreign interest Below 65 R23 800 65 and over R34 500 TURNOVER TAX FOR MICRO BUSINESSES Medical Scheme Credit (monthly) 2019 & 2020 years of assessment Main member Main member with one dependant Main member with two dependants 2019 R310 R620 R829 2020 R310 R620 R829 Taxable turnover (R) (R 0-335 000 335001 - 500 000 500 001 - 750 000 - 750 001 and above Rate of tax (R) 0% of taxable turnover 0 1% of taxable turnover above 335 000 1 650 + 2% of taxable tumover above 500 000 6 650 + 3% of taxable tumover above 750 000 Each additional de pendant qualifies for a further rebate or credit of R209 (2019: R209) per month. Travel allowance-cost scale - 2019 and 2020 years of assessment VALUE-ADDED TAX (VAT) From 1 April 2018 Prior to 1 April 2018 15% Value of the vehicle including VAT (R) Fixed cost (Rp.a) Fuel cost (c/km) Maintenance cost (c/km) 0-85 000 28 352 95.7 34.4 85 001 - 170 000 50 631 106.8 43.1 170001 - 255 000 72 983 1 16.0 47.5 255001 - 340 000 92 683 124.8 51.9 340001 - 425 000 112 443 133.5 60.9 425001 - 510 000 133 147 153.2 71.6 7 8 153 850 88.9 88.9 510001 - 595 000 153 850 158.4 more than 595 000 158.4 CAPITAL GAINS TAX (CGT) - 2019 & 2020 years of assessment Inclusion rates Individuals, special trusts and individual policyholder funds 40% Other taxpayers 80% R300 000 Exclusions . Individuals (annual non-cumulative): R40 000 Individuals in year of death: Primary residence exclusion on the disposal of a primary residence: R2milion (gain loss) Small business assets (when a person is at least 55 years of age): R1.8 million when a small business with a market value not exceeding R10 million is disposed of