TAX2601 Oct / Nov 2021 QUESTION4 (25 marks, 30 minutes) You are the newly appointed accountant at Spice Factory (Pty) Ltd, a company selling herbs and spices online and making deliveries to its customers across South Africa. The company also has a large storage facility and shop in Durban, KwaZulu Natal from where local customers could buy the spices. The company's current year of assessment is 28 February 2021 and it is not a small business corporation as defined in the Income Tax Act. PARTA (10 marks, 12 minutes) (, As part of your duties, you are responsible for calculating the provisional tax payments. On 20 February 2021, you discover that the first provisional tax payment for the 2021 year was not calculated nor paid to SARS. You quickly manage to gather the following relevant information: Information gathered on 20 February 2021: Year of assessment Taxable income 2020 2019 2018 R7 450 680 R5 469 120 R4677 000 assessed) Date assessment was received not yet assessed not yet assessed 12 March 2019 On 28 February you gather the following information to calculate the second provisional tax payment for the current year: Information gathered on 28 February 2021: Year of assessment Taxable income Date assessment was received 2021 2020 2019 R6 156 000 (estimated taxable income seriously calculated) R7 450 680 R5 469 120 assessed) not yet assessed 24 February 2021 REQUIRED: MARKS Calculate the first and second provisional tax payments of Spice Factory (Pty) Ltd for the year of assessment ending 28 February 2021 and specify by which date the first and the second provisional tax payment should be made. Ignore any penalties and interest. 10 Provide brief reasons why you used the chosen basic amount for the first and second provisional tax payment calculations. (TURN OVER] TAX2601 Oct/Nov 2021 QUESTION 4 (continued) PARTB (15 marks, 18 minutes) During the finalisation of the accounting records for the current year of assessment, the chief financial officer of Spice Factory (Pty) Ltd asks you to explain whether the proceeds arising from the following transaction will be included in gross income. Information gathered on the matter. The company decided to sell herbs and spices online only and therefore no longer needed a large premises. They decided to put the building they operated from up for sale. A sale agreement was signed on 2 May 2020 and the building was sold for R1 800 000 cash, which was a very good offer as it was higher than the market value of R1 200 000 at the time. The building was purchased in 2005 by a means of loan (with a market related interest rate) and was purchased to operate from i.e. to sell herbs and spices to the public and for storage. No allowances for tax purposes were ever claimed on the building. REQUIRED: MARKS 15 List all the requirements and discuss whether the proceeds of R1 800 000 received from the sale of the building will constitute gross income for Spice Factory (Pty) Ltd, as defined in the Income Tax Act, for the year of assessment ending 28 February 2021. (Hint: Besides applying the facts of the transaction to the other requirements of the gross income definition, you must discuss the capital (or revenue) nature of the transaction at length.) You can ignore case law in your discussion. . TAX2601 Oct / Nov 2021 QUESTION4 (25 marks, 30 minutes) You are the newly appointed accountant at Spice Factory (Pty) Ltd, a company selling herbs and spices online and making deliveries to its customers across South Africa. The company also has a large storage facility and shop in Durban, KwaZulu Natal from where local customers could buy the spices. The company's current year of assessment is 28 February 2021 and it is not a small business corporation as defined in the Income Tax Act. PARTA (10 marks, 12 minutes) (, As part of your duties, you are responsible for calculating the provisional tax payments. On 20 February 2021, you discover that the first provisional tax payment for the 2021 year was not calculated nor paid to SARS. You quickly manage to gather the following relevant information: Information gathered on 20 February 2021: Year of assessment Taxable income 2020 2019 2018 R7 450 680 R5 469 120 R4677 000 assessed) Date assessment was received not yet assessed not yet assessed 12 March 2019 On 28 February you gather the following information to calculate the second provisional tax payment for the current year: Information gathered on 28 February 2021: Year of assessment Taxable income Date assessment was received 2021 2020 2019 R6 156 000 (estimated taxable income seriously calculated) R7 450 680 R5 469 120 assessed) not yet assessed 24 February 2021 REQUIRED: MARKS Calculate the first and second provisional tax payments of Spice Factory (Pty) Ltd for the year of assessment ending 28 February 2021 and specify by which date the first and the second provisional tax payment should be made. Ignore any penalties and interest. 10 Provide brief reasons why you used the chosen basic amount for the first and second provisional tax payment calculations. (TURN OVER] TAX2601 Oct/Nov 2021 QUESTION 4 (continued) PARTB (15 marks, 18 minutes) During the finalisation of the accounting records for the current year of assessment, the chief financial officer of Spice Factory (Pty) Ltd asks you to explain whether the proceeds arising from the following transaction will be included in gross income. Information gathered on the matter. The company decided to sell herbs and spices online only and therefore no longer needed a large premises. They decided to put the building they operated from up for sale. A sale agreement was signed on 2 May 2020 and the building was sold for R1 800 000 cash, which was a very good offer as it was higher than the market value of R1 200 000 at the time. The building was purchased in 2005 by a means of loan (with a market related interest rate) and was purchased to operate from i.e. to sell herbs and spices to the public and for storage. No allowances for tax purposes were ever claimed on the building. REQUIRED: MARKS 15 List all the requirements and discuss whether the proceeds of R1 800 000 received from the sale of the building will constitute gross income for Spice Factory (Pty) Ltd, as defined in the Income Tax Act, for the year of assessment ending 28 February 2021. (Hint: Besides applying the facts of the transaction to the other requirements of the gross income definition, you must discuss the capital (or revenue) nature of the transaction at length.) You can ignore case law in your discussion