Yun Mee is a Chinese citizen and has been offered a three-year contract by a Botswana manufacturing company commencing on 1 July 2021. The remuneration package offered is P528,000 per annum plus an entitlement for herself and her family, to travel at the company’s expense on recruitment and repatriation to China, as well as an annual entitlement for herself and her family for private travel at a cost of up to P45,000 within each year of the three-year contract.

The company estimates that it will incur recruitment and travel costs of P24,000 and holiday travel costs of P32,000 in the first year of the contract.

Other Information

Yun Mee will need housing and transport, and will incur education and medical expenses, throughout the three-year period of her contract estimates the cost of these are as follows:

Rent of a residence with a rateable value of P680,000 for P85,000 per annum.

Furniture and other household effects by purchase at a cost of P66,000.

Buy a motor vehicle for P260,000. The vehicle can be purchased for under a lease agreement over 3 years, lease payment being P8,100 per month. The running cost are estimated to be at P14,000 per annum.

School fees and other educational expenses for her children currently amounting to P45,000 per annum and are expected to increase by 10% each year.

Medical fund contributions for herself and her family at a cost of P14,600 per annum

Yun Mee is not interested in including a pension in her salary but would like to receive a gratuity.

Required:

Assuming that Yun Mee has the opportunity to restructure her P528,000 remuneration package and that the tax legislation remains unchanged:

Advise Yun Mee on how she might construct a tax-efficient remuneration package. (22 marks)

Tax on un-restructured salary

Cash salary P528,000

Tax on P156,000 P13,050

Tax on Excess (P528,000 – P156,000) P93,000

Tax payable on cash salary P106,050

(this entails sacrificing cash salary for favorably taxed benefits to reduce overall tax payable)

Pula

Basic salary Less Cash sacrifice Rent for residence Furniture cost (P66,000/3 years) Motor vehicle lease costs (P8,100 x 12 months) School fees and educational expenses Medical aid contributions Salary including gratuity Less Gratuity @ 25% as 1st contract [25/125 x P323,800] Cash salary payable Housing benefit (P680,000 x 10%) Furniture benefit ((P66,000-P15,000)x 10%) Motor vehicle benefit (P260,000 x 15%) Medical aid contributions The taxable portion of gratuity (2/3 x P64,760) Taxable income on restructured salary Tax on P156,000 Tax on excess at 25% (P414,313 – P156,000) Tax payable on restructured salary

528,000 (85,000) (22,000) (97,200) 0 0 323,800 64,760 259,040 68,000 5,100 39,000 0 43,173 414,313 13,050 64,578.25 77,628.25

Tax saving on restructured salary

Tax liability on un-restructured salary P106,050.00

Tax liability on restructured salary P77,628.25

Tax saving P28,421.75

b)Determine the amount of tax savings for the tax year 2020/21 resulting from your advice.