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					QUESTION 1                                                                          (13 marks)

Willem Prinsloo is a sixty-six year-old unmarried taxpayer who immigrated to Hong Kong
where he is ordinarily resident since 1998. The only time he visited the Republic after
immigration, was 1 March until 29 May 2002. The reasons for his visit were to check on his
property in Cape Town, render advise to the company (refer number 5) and to have a nice
long holiday.

The following information relates to the 2003-year of assessment:

 No                                                                                      Rand
 1. Willem’s profit share of a business carried on in a manufacturing
    partnership in Cape Town.                                                           95 000

 2.   Dividends from shares in a South African company.                                 12 000

 3.   Interest on a loan to a South African company. The funds were made
      available in Johannesburg (South Africa), when he visited his uncle in
      Johannesburg.                                                                     22 000

 4.   Interest on SA Transport Services Stock purchased with foreign funds. The
      necessary approval was obtained from Treasury.                                    15 000

 5.   Royalties for the use of his patented process in South Africa (net amount
      after deducting tax). The process was developed in Hong Kong.                     88 000

 6.   Fee for assisting the company (refer 5) with advice in relation to the
      patented process, when the company, using his patented process, started
      manufacturing their products.                                                     20 000

 7.   Traveling expenses in relation to the visit to South Africa to provide advice
      concerning the patented process, to the South African company (refer 5).          10 000

 8.   Net rent from fixed property in Cape Town.                                        45 000

 9.   Interest from his HSBC bank account in Hong Kong.                                 50 000


Calculate all taxes for which Willem will be liable in South Africa in respect of the 2003-year
of assessment.                                                                              (13)

Show all your calculations and round your answer off to the nearest Rand.

QUESTION 2                                                                         (17 marks)

On 30 November 2001, a mere four years before he was due to retire, a motorcar accident
claimed the life of Horton Wood. For the past seven years Horton Wood had been the
managing director of Putt-Tee Golf Accessories Limited (Putt-Tee).

In terms of his contract of employment, from the time of his promotion to managing director
of Putt-Tee, Horton Wood was entitled to a monthly salary of R7 800.

Horton was entitled to certain options enabling him to acquire shares in the company. On
1 October 2001 he was given an option to acquire 100 shares in the company, which had a
value of R5,00 per share. The option price was R0,30 per share and he would have had to
pay R5,00 per share should he exercise his option. On 10 October 2001 the value of a share
was R7,80. He exercised his option on the same day and purchased 50 shares. He ceded
his option to the other 50 shares to his son, Kevin for R0,30 a share on the same day. The
next day Kevin exercised his option in respect of all his shares when the market value
dropped to R7,40 per share. On 1 November 2001 Kevin sold his 50 shares for R8,00 a

Horton has enjoyed the use of a company-owned car since 1999. The car originally cost
Putt-Tee R180 000 (including VAT) on 1 March 1999. Putt-Tee pays all maintenance costs
(R2 100 per month including VAT) but Horton pays all fuel costs (R1 500 per month). On
31 August 2001, Putt-Tee gave the car to Horton as a gift (on this date the market value was
R100 000). From 1 September 2001 Horton pays all the cost in respect of the car.

Horton Wood was a member of Putt-Tee Golf Accessories Provident Fund. This fund is a
recognised fund in terms of the Income Tax Act. It is the only fund of which Horton Wood has
at any stage been a member.

To the time of his death, Horton Wood had been a member of the fund for twenty-two years.
Upon death, a lump-sum award of R200 000 became payable to Horton Wood’s estate. The
number of years he would have been a member, had he reached retirement age, were taken
into account in arriving at the lump-sum award of R200 000. He had contributed R68 250 to
this fund during his years of membership, his contribution being 5% of his gross salary.

Horton received interest until date of death, on his bank account at Investec in respect of the
2002-year of assessment amounting to R3 500.

Horton Wood was fifty-six years of age when he died, and apart from the amounts as set out
above, was in receipt of no other amounts during the 2002 year of assessment, nor did any
other amounts accrue to him.

Horton Wood’s 2001 taxable income was R96 000 and the normal tax payable thereon was
R27 800.


Calculate Horton Wood’s taxable income for the 2002-year of assessment.                    (17)

Show all your calculations and round your answer off to the nearest Rand.

QUESTION 3                                                                         (10 marks)

The creditors of Mr Wannabee (35 years old) applied for the sequestration of his estate on
15 October 2001. Mr Wannabee was the owner of a sports bar in Yuppie Park, Sandton.
The trustee of his insolvent estate continued with the operation of the sports bar on behalf of
the insolvent estate (and ultimately the benefit of the creditors) until 31 January 2002.

Mr Wannabee purchased new furniture on 1 March 2000 for R180 000. The furniture can, in
terms of Practice Note 19, be written off over 6 years on the straight-line basis.

Depreciation allowances of R100 000 have previously been allowed in respect of kitchen
equipment, which had a tax value of RNIL on 28 February 2001.

Sports bar income of R301 998 was generated for the period 1 March 2001 to 14 October
2001 and allowable expenditure (before any allowances have been taken into account)
amounted to R310 667 for the same period. Interest income of R6 000 was received in
respect of the same period.

Sports bar income of R120 081 was generated for the period 15 October 2001 to 31 January
2002 and allowable expenditure (before any allowances have been taken into account)
amounted to R98 660 for the same period.

Interest income of R1 500 was received in respect of the period 15 October 2001 to
28 February 2002.

The sports bar was sold on an auction on 31 January 2002 for R400 000, of which R80 000
was paid for the furniture and R20 000 for the kitchen equipment.


Calculate the tax liability in respect of the 2002-year of assessment for all the applicable
taxpayers in the question. Ignore CGT and VAT.                                          (10)

Show all your calculations and round your answer off to the nearest Rand.

QUESTION 4                                                                          (40 marks)

Bert Bright retired at the age of 65 on 30 September 2000. Bert has been ordinarily resident
in the RSA his whole life.

In 1984 Bert had inherited a small dairy farm from his father. The farm is situated in the
Republic. The farm is operated by a farm manager and its principal product is milk. In 1999
Bert had decided to commence a cheese making business on a small scale and in order to
do so he acquired the services of a young cheese maker. The cheese making business is
carried on in a building that was erected on the farm at a cost of R1million in May 1999. All
the cheese making equipment was purchased and brought into use in June 1999. The
Commissioner for Inland Revenue regards cheese making as a process of manufacture.
Bert keeps separate accounting records for the dairy farm and for the cheese business. The
Income Statements for the two operations for the year ended 28 February 2002 are as

Dairy Farm Income Statement for the period
1 March 2001 to 28 February 2002

                                                             Notes                R
Income       - Sale of milk                                   (1)           1 040 000
Expenses     - Salaries and wages                             (2)           (400 000)
             - Fertilizer                                                     (50 000)
             - Veterinary fees                                                (20 000)
             - Water and electricity                                          (55 000)
             - Depreciation                                      (3)        (100 000)
Net profit                                                                    415 000
1. Included in the sales figure is milk sold to the cheese business for R200 000.

2. When Bert retired he took over the management of the farm. The existing farm manager
   retired on 1 April 2001 and, in addition to his normal salary, was given a retirement lump
   sum in recognition of his services of R50 000.

3. All assets used in the dairy operation are depreciated for accounting purposes on the
   straight-line basis at 20% per annum.

      Dairy assets, i.e. tractors, machines, etc., were all acquired new in June 2000. No
       dairy assets have been bought or sold during the current year. Depreciation on these
       assets for the year is R80 000.

      Office equipment is for accounting purposes depreciated on the straight line basis at
       10% per annum. All office equipment was purchased in 2000. Depreciation for the
       year is R10 000. The Commissioner allows wear and tear at a rate of 20% per annum
       on the straight-line basis.

      On 1 July 2001 new irrigation equipment was acquired for R100 000. The equipment
       was brought into use on 1 September 2001. Depreciation for the year amounted to
       R10 000.

4. Livestock (on hand on 1/3/2001) had a market value of R800 000 and a standard value of
   R30 000. Livestock (on hand on 28/2/2002) had a market value of R900 000 and a
   standard value of R35 000. Included in closing stock are 20 cows, which Bert inherited
   from his uncle in May 2001. The market value of all the animals inherited is R20 000 and
   the standard value is R1 000.

5. In August 2001 Bert built a dam on the farm at a cost of R50 000. No other capital
   expenditure was incurred.

Cheese Business – Income Statement for the period
1 March 2001 to 28 February 2002
                                               Note             R                 R
Income - Sale of cheese                                                        500 000
Less:        - Opening stock                                   50 000
             - Internal purchases: milk                       200 000
             - Closing stock                                (100 000)     (150 000)
             Gross profit                                                   350 000
Less:        - Salaries and wages                                          (20 000)
             - Other expenses (tax deductible)                             (50 000)
             - Depreciation                     (1)                        (60 000)
Net profit                                                                  120 000

1. The building in which the cheese is manufactured is not depreciated for accounting
   purposes. All cheese making equipment was purchased on 1 June 1999 and brought into
   use on 1 July 1999. Depreciation is 10% per annum on the straight-line basis. No
   equipment was bought or sold during the year.

Other information:
1. Bert had never been a member of a retirement annuity fund but, after he retired, his
   financial advisor advised him to take out a single premium Retirement Annuity on 1 July
   2001. The premium was R65 000.

2. Bert received the following investment income:

      Dividends from listed RSA companies                                         R1 050

      Dividends from overseas companies, classified as s9E dividends              R1 500

      Dividends from a property unit trust                                        R8 400
       The dividend consists of R6 000 interest and R2 400 s11(s) dividends

      Interest earned on financial instrument                                    R16 000
       Bert decided to use part of the lump sum he received on retirement
       (30 September 2000) to purchase a financial instrument on
       1 November 2000. He purchased the financial instrument at a
       discount of 3% on its face value of R200 000. Interest is receivable
       six-monthly (on 30 April and 31 October) calculated on the face value
       at 8% per year. The instrument will mature on 31 October 2004,
       when Bert will receive the face value plus a premium of 5%.

3. Bert, thinking he would have more spare time now that he was a farmer, purchased a
   14 meter boat on 1 November 2001 for R65 000. On 15 February 2002, Bert, after
   realizing he had no spare time now that he was farming, sold the unused boat for
   R73 000. Market value at date of sale was R70 000.

4. Bert has elected to be taxed in terms of the general rating provisions for farmers
   (paragraph 19). His farming taxable income for the years of assessment ending February
   1997, 1998, 1999, 2000 and 2001 was (R10 000) loss, R20 000, R15 000, R30 000 and
   R55 000 respectively.

5. Bert's average rate of tax in 2001 was 30%.


Compute Bert's income tax liability for the year of assessment ended 28 February 2002.
Start your part of the calculation for the Dairy Farm with the net profit of R415 000 and for the
Cheese Business with the net profit of R120 000.
(You may ignore VAT.)                                                                        (40)

Show all your calculations and clearly indicate if no adjustment is necessary. Round
your answer off to the nearest RAND.

QUESTION 5                                                                           (25 marks)

Question 5 consists of 5 independent queries.

Query 1

Easyinvest (Pty) Ltd (a registered category C VAT vendor) carries on the business of
property investment. It derives rentals from the various properties it owns.

On 1 January 2002 Easyinvest (Pty) Ltd concluded a contract to purchase a shopping center
located in a residential area. The ground floor of the shopping center comprises 25 shops,
which are let to various retailers, whilst the four floors above the shopping area comprise
residential flats, which are let to residential tenants. All the existing tenants (commercial and
residential) will remain in the building after its transfer to Easyinvest (Pty) Ltd.

The purchase price for the building is R3 750 000, which is payable to the seller in six
monthly installments of R625 000 each, commencing on 1 February 2002. The seller of the
building is not a registered vendor for VAT purposes.

The financial manager of Easyinvest (Pty) Ltd has calculated the expected rental return from
this building to be:
 70% from the residential flats
 30% from the retail shops

The Commissioner has accepted this as a reasonable basis of apportionment.


Explain the resulting VAT implications arising from the purchase and letting of this building.
You can accept that transfer duty if applicable, is calculated @ 10%.                          (5)

Query 2

Advocate Dippenaar (a registered VAT vendor in Pretoria) went on business to
Pietermaritzburg. He spent a total of 53 days in the local Protea hotel, which charged a room
charge of R250 (excluding VAT) per day (room only). He ate all his meals in the hotel and
the total cost during his stay for meals was R1 800 (including VAT). Advocate Dippenaar did
receive tax invoices in respect of all these costs.


Calculate the VAT input which advocate Dippenaar would be able to claim in respect of the
above mentioned business trip.                                                           (3)

Query 3

Stephan, a 60-year old bachelor spent the first 40 years of his life in South Africa after which
he emigrated to Florida, USA where he has been living since.

He inherited his grandfather’s estate 40 years ago and has not worked since. He has various
investments inside and outside of South Africa. He spends all his time pursuing his hobby,
namely the study of South Africa’s indigenous plants, and he is regarded as a world expert in
this field.

He owns a flat in Cape Town where he stays from December to March every year. The flat is
vacant for the remaining eight months of the year.

During his stay in South Africa he visits his relatives and friends. He also addresses
gardening clubs nationwide for which he is not remunerated and he bears his own costs.


a. Discuss (with reference to relevant court cases) whether Stephan will be considered to be
   ordinarily resident in South Africa.                                                   (4)

b. State whether Stephan could be taxed as a resident in South Africa if you assume that
   the answer in (1.) is no. Your answer should just include the requirement(s) that Stephan
   does not meet.                                                                         (2)


Query 4

Mervin Nyoni, aged 43, is self employed and registered as a provisional taxpayer. On 15 July
2001 Mervin received his income tax assessment for the tax year ended 28 February 2000.
His first provisional tax payment in respect of the 2002 year of assessment was therefore
based on his 2000 assessment. A first provisional payment of R14 730 was paid on
31 August 2001.

On 12 January 2002 Mervin received his assessment in respect of the tax year ended
28 February 2001, which reflected a taxable income of R158 350.

At the time of calculating his second provisional payment, Mervin estimated that his taxable
income for the 2002-year of assessment would be R150 000. He was reluctant to pay any
more tax than was necessary, as he was experiencing cash-flow problems at the time. He
therefore based his calculation on his estimate. He was out of town at the end of February
but arranged with his accountant to submit his return for the second provisional payment on
time. He however only submitted his second payment to SARS 5 March 2002 (when he got

Mervin’s accountant completed the accounting records for Mervin’s business for the 2002-
year in July 2002. When Mervin signed his financial statements for the business he was very
pleased to see that his business reflected a taxable income of R180 000. He is however
concerned that he might have to pay in additional tax and he has sought your advice in this
regard. Mervin has no taxable income other than from his business.


a. Calculate the second provisional payment that Mervin made in respect of the 2002 year of
   assessment.                                                                          (3)

b. Calculate the penalties, additional tax and interest that Mervin Nyoni has incurred in
   respect of the second provisional payment for the 2002 year of assessment.         (6)

Query 5

Select the correct answer for each of the following questions, e.g. no 5.1. A.

5.1 During 1990 a company made a capitalisation issue of preference shares by utilising
    accumulated capital reserves. The capitalisation was journalised as follow:
    DT       Accumulated capital reserves 100 000
       CT         Preference share capital                 100 000

     During the 2002-year of assessment the company reduced its preference share capital.
     The share reduction was journalised as follow:

     DT          Preference share capital        50 000
          CT          Bank                                    50 000

          Which of the following statements are correct:
           a) The reduction of preference share capital is a dividend as defined; therefore the
              company has to pay STC of R6 250.
           b) The reduction of preference share capital would only be a dividend if the
              company was in liquidation.
           c) The reduction of preference share capital is a dividend as defined, but is
              exempt from STC.
           d) The reduction of preference share capital is not a dividend as defined.


5.2 Which one of the following transactions is exempt from STC?

           a) Company A grants an interest free loan to a shareholder who is not an
           b) Company B, whose retained income consist only of capitalised capital
              reserves, distributes a liquidation dividend to its shareholders.
           c) Company C grants an interest free loan to Company D. Company C holds 25%
              of the issued equity shares of Company D.
           d) Company E makes a capitalisation issue of one equity share for every five
              equity shares held.

QUESTION 6                                                                       (15 marks)

Mauritz Dittrich (23 years old) is married in community of property with Tania. He started to
work for the first time in his life on 1 January 2001 at Pinky and the Brain (Pty) Limited.
Mauritz and Tania have a one-year-old paraplegic son.

Attached is the IRP 5 document (Annexure A) issued by Pinky and the Brain (Pty) Limited to
Mauritz in respect of the 2002 tax year.

Over and above the income and expenditure as indicated on his IRP 5, Mauritz provided
you with the following information regarding the 2002 tax year:

Rental received (1 March 2001 – 28 February 2002)           18 000
Interest received (1 March 2001 – 28 February 2002)         12 000

Medical expenditure (1 March 2001 – 28 February 2002)         5 500


Verify whether Pinky and the Brain (Pty) Limited deducted the correct amount of SITE and
PAYE from Mauritz.                                                                   (15)

Show all your calculations and round your answer off to the nearest Rand.

Annexure B: Tax rates for INDIVIDUALS for the 2002 year of assessment
Taxable income (R)      Rates of tax (R)

0 – 38 000              18% of each R1

38 001 – 55 000         R6 840 + 26% of the amount above R38 000

55 001 – 80 000         R11 260 + 32% of the amount above R55 000

80 001 – 100 000        R19 260 + 37% of the amount above R80 000

100 001 – 215 000       R26 660 + 40% of the amount above R100 000

215 001 and above       R72 660 + 42% of the amount above R215 000

Annexure C: Tax rates for INDIVIDUALS for the 2003 year of assessment
Taxable income (R)      Rates of tax (R)

0 - 40 000              18% of each R1

40 001 - 80 000         R7 200 + 25% of the amount above R40 000

80 001 - 110 000        R17 200 + 30% of the amount above R80 000

110 001 - 170 000       R26 200 + 35% of the amount above R110 000

170 001 - 240 000       R47 200 + 38% of the amount above R170 0000

240 001 and above       R73 800 + 40% of the amount above R240 000


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