FACULTY OF ECONOMICS AND FINANCE

DEPARTMENT OF ACCOUNTING

EXAM PREPARATION QUESTION

NAME OF QUALIFICATION: ADVANCE DIPLOMA IN ACCOUNTING

DEPARTMENT OF ACCOUNTING

NQF NQF MODULE

MODULE NAME
LEVEL CREDITS CODE

7 12 TAXATION III TAA117V

1
PREP 1
QUESTION 1 (20 MARKS)

Lethabo Ltd is a company that is specialized in the construction sector, the most familiar
product of the company is the repairs and maintenance of tall buildings. On 23 March
2024, Lethabo Ltd was contracted by Tshepho Holdings to repair windows of Tshepho
Holdings’ commercial flats to the value of R2 600 000. The construction started 1 April
2024 and Lethabo Ltd started with the staging of the scaffolding in preparation to the
work. 0n 30 April 2024 during the execution of constructed work, a glass from a third
floor fell accidentally and hit a person who was passing underneath the scaffolding. The
individual sustained injuries and was taken to hospital. The individual, on 1 May 2024,
submitted a legal claim of R200 000 for the injuries suffered. Lethabo Ltd’s lawyers met
with the individual on 15 May 2024 after deliberation parties agreed on the amount of
R200 000 as suitable payment. 1 June 2024 Lethabo Ltd settled the legal claim through
electronic funds transfer that was directly deposited into the individual’s account.

Lethabo Ltd incurred the following expenses regarding the legal claim:

• Payment of the legal claim of R200 000 on 1 June 2024.

• Legal invoice for the assessment of the legal claim of R15 000.
• The contingent liability of R100 000 for the matter of illegal dumping by Lethabo
Ltd and the lawyers of Lethabo Ltd are of opinion that matter will not be
successful.

Lethabo Ltd’s year end is at 30 June 2024.

YOU ARE REQUIRED TO: Discuss whether or not the amounts incurred in regard of
the legal claims should be deducted in the 2024 year of assessment in terms of the
income tax act.

2
 QUESTION 2 (30 MARKS)

Fhulu Madi is a 30-year-old medical doctor and he is married to his wife Lindi Madi.
There are married out of community of property.

Transaction Note Amount (R)

Total basic salary 292 500
Interest income 35 900
Taxable capital gain 44 000
Retirement annuity fund monthly contribution 2 600
Pension fund monthly contribution 1 3 100

NOTES

1. Fhulu Madi’s employer contributes 10% of the basic salary to pension fund.
2. Fhulu Madi belongs to his medical aid and his two children (15-year-old Mary and
Raz, 2 years old) and his wife belong to his medical aid.
3. Madi trust has a fixed deposit which distributes interest to the two beneficiaries who
are Fhulu’s children. During the current year, ompha received R10 000 and Rendi
R50 000.
4. Fhulu Madi contributed R30 000 towards his medical aid and the employer did
contribute, a further R12 000 was paid as a qualifying expense.

YOU REQUIRED TO: Calculate the tax liability of Fhulu Madi for the year ending 2023
year of assessment.

3
 QUESTION 3 (15 MARKS)

Mabanda (Pty) Ltd is a company engaged in the business of picture framing and
Mabanda (Pty) Ltd is a registered VAT Vendor. The year of assessment is 30 June 2024.

All amounts are exclusive of VAT unless stated otherwise. Frames (Pty) Ltd’s taxable
income amounted to R970 000 before the following transaction:

Salaries

Salaries paid to employees amounted to R245 000 and in addition the company`s
contribution to the pension fund amounted to R50 000.

Restraint of trade

Lerato Mashaba resigned on 01 December 2023 and was paid R150 000. The
agreement stipulated that she shall not work for any competitors of Mabanda (Pty) Ltd
for a period of four years.

Security Service

After numerous break-ins at the leased offices, Mabanda (Pty) Ltd decided to source in
the services of Phaphala (Pty) Ltd, a security company that offers security guards who
patrol the premises 24 hours a day. The accountant paid an annual security fee – R240
000 on 1 February 2024.

Traffic Fines
Mabanda (Pty) Ltd was fined a traffic fine amounting to R1 200 for driving 132km per
hour on 120km zone. The driver was rushing to deliver the photo frame to one of their
prestigious clients.

Dividends

Received dividends from a company that is listed on JSE. Company owns 100 000
shares and dividends were declared at twenty cent per shares.

YOU ARE REQUIRED TO: Calculate with reasons the taxable income of Mabanda (Pty)
Ltd on 30 June 2024. (Commence your calculation with taxable income of
R970 000).

4
 QUESTION 4 (35 MARKS)

PART A 6 MARKS

As results of retirement, Letho decided to withdraw his interest-bearing investment from

a local bank and move it to a safer bank product. This meant Letho lost out on the
opportunity to earn interest of R100 000.

YOU ARE REQUIRED:

Explain whether this notional interest can give rise to gross income in his hands for the
2024-year assessment.

PART B 15 MARKS

Malibu (Pty) Ltd has been running a supermarket for 10 years. During the 2022 year of
assessment, the company was approached by Leda Ltd with an offer of R2 million to
buy this business.

On 30 April 2023, the board of the directors of Malibu (Pty) Ltd informed Leda Ltd that
they would accept the offer and Leda Ltd took the necessary steps to occupy the
premises with effect from 1 July 2023. The turnover of the supermarket for the first 3
months of trading during the year of the assessment was the following:

January R200 000

March R150 000

April R250 000

YOU ARE REQUIRED TO:

1. Explain to Malibu (Pty) Ltd whether they should include any part of, or entire
turnover realised during 3 months of the current year assessment. (5 Marks)

5
 2. Discuss whether the selling price of R2 million should be included in gross income
for the 2023 year of assessment. (10 Marks)

PART C 7 MARKS

During the 2023 year of assessment, Miss SA 2015, purchased a rent-producing flat as
an investment. The purchase was financed with R750 000 cash and the balance out of
borrowed funds.

During the 2024 year of assessment, rental losses of R11 750 on the letting of the flat
due to recession were suffered.

YOU ARE REQUIRED TO: Discuss whether the losses suffered is correctly deductible
in the determination of the relevant taxpayer’s taxable income.

PART D 5 MARKS

Whale Ltd is a South African company situated in Durban. The company manufactures
surfing boards. During the year it purchased second hand machine A6 for R250 000 to
manufacture surfing boards. The machine was delivered on 01 June 2023 and was
brought into use immediately.

YOU REQUIRED TO: Discuss whether the cost incurred to purchase the second-hand
machine is deductible in terms of section 11(a) of the income tax act. Refer to court cases.
The year of assessment of Whale Ltd is 31 December 2023.

PART E 2 MARKS

Who is the Commissioner of South African Revenue Services?

6
 ANNEXURE A

Tax Table 2023/2024

Individuals Tax Table 2023/2024

Taxable Income (R) Rate of Tax (R)
1 – 237 000 18% of taxable income
237 101 – 370 500 42 678 + 26% of taxable income above 237 100

370 501 – 512 800 77 362 + 31% of taxable income above 370 500

512 801 – 673 000 121 475 + 36% of taxable income above 512 800

673 001 – 857 900 179 147 + 39% of taxable income above 673 000

857 901 – 1 817 000 251 258 + 41% of taxable income above 857 900

1 817 001 and above 644 489 + 45% of taxable income above 1 817 000

In South Africa, you are liable to pay income tax if you earn more than:

• R95 750 and you are younger than 65 years.

• If you are 65 or older but younger than 75 years old, the tax threshold (i.e. the
amount above which income tax becomes payable) is R148 217.
• For taxpayers aged 75 years and older, this threshold is R165 689.

7
SUGGESTED SOLUTION

QUESTION 1 (20 MARKS)

Legal claim
The requirements of the section 11(a) are met except for the in production of income
(√) and will therefore assess the following condition to determine whether the in
production of income is met (√):
Port Elizabeth Electrical Tram Co Ltd case (√) state the following should be asked to
determine whether the legal claim and legal cost meet the criteria of incurred in
production of income:
1. What action gives rise to the expenditure and what is the purpose of this action?

The falling of a glass during repairs of the Tshepho building (√) and this
action enables Lethabo (Pty) Ltd to perform the contracted work of repairing
commercial flat (√) of Tshepho building.

2. Is this action closely connected with the income-earning business from which the
expenditure arose?

The staging of the scaffolding is required for execution of the contracted work
agreed (√) on and the repairs forms part of cost performing activities of
Lethabo Ltd earnings activities. (√)

The amount of the legal claim of R200 000 (√) should be deducted (√) as it meets the
requirement of section 11(a)

Legal expense
The legal expense is not going to be deducted in terms of section 11(a) (√) and a
special deduction is allowed in terms of section 11(c) (√), the deduction will be
allowed when the legal expense was actually incurred (√) on any claim occurring as
a result of ordinary operation of the taxpayer. The legal claim was incurred to prevent
a claim of compensation (√)
Lethabo Ltd incurred the R15 000 (√) in defending itself from the legal claim from a
third party (√). The amount will be deducted in terms of section 11(c). (√)

Contingent liability
In terms of section 11(a) the expense should be deducted when the expense is
actually incurred (√). Contingent liability is not actually incurred as condition
should be met for the expenditure to be paid (√). In Nationale Pers BK case,

8
restricted the deduction of contingent liability. R100 000 (√) of contingent liability will not
be deducted in the current year (√).
QUESTION 2 (30 MARKS)

GROSS INCOME R
Salaries 292 500 √
Interest income 35 900 √
Interest income: s7(3) 10 000 √
Interest income: s7(3) 50 000 √
Fringe benefits [R298 800 x 10%] 29 880 √
Exempt income
Interest income (23 800) √
Income 394 480
Less: Deductions
ADD: TAXABLE INCOME 44 000 √
Subtotals 438 480
Less: section 11F contributions 94 815 √
[(R2 600 + R3 100) x 12 + R29 880] = R98 280 √√√
Limited to lesser of [ R92 064 - R98 280] = R6 186 will √
be carried forward to the next year.

A: 350 000 and √

B: the higher of 27.5% x TI or Remuneration = R94 815

Taxable income R344 780 √
Remuneration [R292 500 + R29 880] = R322 380 √√

C: Taxable income inclusive of a TCG= R378 780 √

Taxable income 343 665 √P

Tax on table 72 057 √P

R38 916 + 26% (R343 665 – R216 200)
Primary rebate (14 958) √
Medical credit
Section 6A (664 + 224) x 12 (10 656) √√√
Section 6B 30 000 Nil √√√
Qualifying expense 12 000 √
Less: s6A (R10 656 x 4) (42 624) √√
(624)
Less: 7.5% x 343 665 (25 775) √
7.5% x Taxable income
Tax liability 46 443

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QUESTION 3 (15 MARKS)

No Description Amount
1 Taxable income 970 000 √
2 Salaries (245 000) √
2.1 Contribution to pension fund (50 000) √
3 Restraint of trade limited to the lesser of: (37 500) √
R150 000/4 = R37 500 √
R150 000/3 = R50 000 √
4 Security services (100 000)
R240 000/12 = R20 000 √
Current year> R20 000 x 5 = R100 000 √
Prepaid > R20 000 x 7 = R140 000 √
The prepaid expense will not be deductible in the √
current year in terms of section 23H of the income tax
act as the amount was paid for a period more than 6 √
months after year end (7) and the amount exceeds
100 000
Therefore R140 000 will be deducted in the next √
year of assessment
Traffic fines are prohibited in terms of section 23g 0 √
Dividends 0 √
Dividends received (R100 000 x 20%) R20 000
Exempt (20 000)
Taxable income 573 500 √P

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QUESTION 4 (35 MARKS)

PART A 6 MARKS
ISSUE To determine whether notional interest of R100 000, should be
included in the gross income of Letho (√)
Court case Lategan case (√)

Principles The amount must be in cash or otherwise to be received and included

in the gross income (√)
Application The notional interest amount was not received on the behalf and
benefit of Letho as there is no amount received (√√)
Conclusion Notional interest should not be included in the gross income of Letho.

(√)

PART B 15 MARKS
1. Malibu (Pty) Ltd will receive realisation of income to the value of R600 000 for
three months (√). Wits Association of Racing Clubs case (√) irrespective of
their dealings the income should be included in the gross income (√). In this
case the turnover is already accrued to Malibu (Pty) Ltd at the time of reaching
a decision (√). The amount should be included in their gross income (√).

2. Supermarket is a tree (capital assets) as opposed to the fruits (profits or

turnover – revenue) Visser case (√√).
The intention (√) was never to speculate with business as the business was
held for 10 years (√).
The company did not advertise but was approached by Leda Ltd (√).
Company may realise their capital assets to the best advantage without fear
of change of the intention (√) Stott case (√).
Malibu is a company not involved in the sales of properties (√) inclusion the
accounting treatment of the sold property was non-current assets (√).
The proceeds will be capital in nature and will not form part of the gross
income (√).

11
PART C 7 MARKS
ISSUE To determine whether the loss from rental of R11 750 should be
deducted in the current year of assessment
Principles The deductions provided in s11 are restricted to expenditure
incurred in carrying on a trade. (√)
Application For the loss incurred by MissSA to be deductible in the determination
of her taxable income, it must comply with the dual tests laid down
by section 11(a) (the so-called positive test) and section 23(g) (the
so-called negative test) of the Income Tax Act (√√)
The rental earned during the 2024 year of assessment is income
(√). The expenditure incurred by her on interest, rates, repairs, and
insurance for the townhouses was therefore incurred in the
production of her income (√).
“Trade” is widely defined in section 1(1) of the Income Tax Act. It
includes the letting of property (√). For the purposes of section 23(g),
MissSA’s expenditure incurred was therefore trade expenditure.

Conclusion MissSA would therefore succeed in discharging the onus of

proving that the expenses incurred by her fulfil the dual
requirements of section 11(a) and section 23(g) (√).

PART D 5 MARKS
The Issue To determine whether the R250 000 incurred by WhaleLtd is
deductible or not
Court Rand Mines or New States Area Ltd
Cases
Principles Expenditure incurred to obtain an income earning rights or
structure will be of capital nature.
or
Cost of establishing/improving /adding income earning plant is
capital in nature (√)
Application The second-hand machine purchased by WhaleLtd will be used to
produce the surfing boards (√). The surfing boards will be sold to
and generate an income (√).

Conclusion The cost of R250 000 will therefore not be deductible (√) as is of
capital in nature (√)

PART E
Mr. Edward Kieswetter

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PREP 2
QUESTION 1 (30 MARKS)

You are tax practioner at Tax consulting firm called Loadsheading Inc., specialise in the
consultation of the income tax act. You were given the matters that relate to gross
income issues and general deduction matters from various customers in South Africa.

ISSUE 1
Bossy Maduba is a resident in South Africa who owns properties in United state of
America, she received rental amount to the value of in United Kingdom amount to $105
000 per annum. She has a property agency company that facilitate business in United
Kingdom for a fee of R102 000 per annum. The exchange rate on the date of transaction
was $1=R18.90.
ISSUE 2
Builderware LTD, is resident company situated in Matsulu in Mpumalanga province of
South Africa, during 2023 the company Risk department identified natural disaster and
theft as one of the high risks’ areas, in response to those risks the company opted to
transfer risk by entering into insurance contract with Out insure. Out insure charge a
R35 000-monthly premium. Builderware LTD paid 20 months premium in 2023 financial
year.

ISSUE 3
Zimonda (Pty) Ltd is motor dealer company that is a resident, during 2022 year of
assessment, the company sold a bakkie for R40 000. The customer paid 60% of the
selling value for cash and 40% was paid Holiday vacation to Zanzibar, the vacation
market value is valued at R55 000.
ISSUE 4
Five Star hotel is a luxury hotel based in Cape Town, a resident company. The company
has a policy of 15% deposit pre booking and has forfeiture clause if you don’t commit to
the booking. During the 2022 assessment year received a deposit of R340 000.

YOU ARE REQUIRED TO:

Discuss whether the amounts in the above issues will be included in gross income, or
they will be deducted in terms of the general deduction formula. Support your answers
with relevant case studies where applicable.

13
 QUESTION 2 (35 MARKS)

Thato Maboks a 45-year female accountant, she is married in community of property

with Joel Maboks both persons are residents. The couple are blessed with two children,
Maika a 13-year grade 6- and 3-year Samson still in pre-school. Thato has a medical
aid which covers all members of her family. She provided you with the below information.

Income Note R
Salary 1 200 000
Dividends received 100 000
Interest income 60 000
Interest from United Kingdom 25 000
Dividends received from United Kingdom R30 000
Pension fund and retirement fund contribution Note 1 R65 000
Donation Note 2 50 000
PAYE paid for 2023 assessment 80 000

Note 1
Pension fund contribution her employer pays 60% and she contribute 40%.
During the year she paid R90 000 which qualifies as qualify medical expense, she kept
all the receipt of the medical cost. She belongs to discovery medical aid; she pays the
50% amount of R7 800 per month.
Note 2
She donated a R40 000 to an old age home and received a section 10 certificate and
for R10 000 to blue cross humanitarian non-profit organization, she still waits for
certificate at end of the 2023 year of assessment.

YOU ARE REQUIRED TO:

Calculate the normal tax liability that Michelle Lewis should pay to or be refunded from
SARS for the 2023 year of assessment.

14
 QUESTION 3 (20 MARKS)

You are tax practioner at Tax consulting firm called See it Inc., specialise in the
consultation of the income tax act. You were provided with the company information to
assist in calculating the taxable income of Buildware LTD for the year ended 31
December. Buildware LTD is a company in wholesale of building hardware. All the
transactions occurred in 2023 year of assessment.

1. The company received R10 million in sales and there is a five percent
commission to be paid to online platform fees.
2. The company sold the machinery for R40 000 and the recoupment was R15 000.
The base cost of the machinery was R35 000 and the capital allowance claim
was R15 000.
3. The company entered into sterilization contract for the one employee were a lump
sum of R80 000 was to restrict from competition with company for four years.
4. Entered into lease agreement for a building on 30 October 2023 for the following
condition:
Lease premium R150 000
Rental R20 000 per month
Lease period 15 years
Sub lease fee R7 500 per month

5. During the year the company entered into learnership with the two interns with
National diploma (NQF6). The internship started in January 2023, one internship
of supply chain and management ended on 30 June 2023 and other is for quantity
survey it takes three years, the salaries of intern are included in the total
employee cost of the company refer to point 8. The learner from supply chain
department is considered disable.
6. Credit customer of the company was recent economic challenges as, customer
owed R550 000. Customer filed for liquidation and company managed to receive
80% of the owed amount.
7. There was a R20 000 capital loss carried forward from 2021 year of assessment.
8. The salary of the employees amounted to R750 000, of the total amount R80 000
of the amounts relates to the payment of domestic workers of the directors. The
payment of the domestic workers forms part of the incentive to the directors.

YOU ARE REQUIRED TO:

Calculate the taxable income of Buildware LTD for the 2023 year of assessment.

15
 QUESTION 4 (15 MARKS)

You are tax practioner at Tax consulting firm called Lucky Inc., which specialise in the
consultation of the income tax act. You are required to response to.
Query 1
Mr. Know received the dividend of R150 000 from a listed company in South Africa. As
a condition of employment Mr. Know was given a uniform to the value of R10 000.

Query 2
Mr. Dream a resident of England was in South Africa for 135 days continuously and
received a Salary to the value of R250 000 and interest amount of R35 000.

Query 3
Mrs. Luck received a R200 000, maintainace from her ex-husband for the 2023 year of
assessment.

YOU ARE REQUIRED TO:

Calculate the taxable income of all queries and support your answer with the relevant
section of the income tax act.

16
Appendix A

Natural persons and special trusts – 2023

Taxable income Rate of tax

From But does not exceed

R0 -------------- R226 000 R0 + 18% of each R1

R226 001 --------------- R353 100 R40 680 + 26% of the amount above R226 000

R353 101 ----------------- R488 700 R73 726 + 31% of the amount above R353 100

R488 701 --------------- R641 400 R115 762 + 36% of the amount above R488 700

R641 401 ---------------- R817 600 R170 734 + 39% of the amount above R641 400

R817 601 ---------------- R1 731 600 R239 452 + 41% of the amount above R817 600

R1 731 601 + R614 192 + 45% of the amount above R1 731 600

Additional Information Amount/Rates

2023 2022

Primary rebate R16 425 R15 714

Secondary rebate (65 years or older) R9 000 R8 613

Tertiary rebate (75 years or older) R2 997 R2 871

Medical credits: Main Member R347 R332

Medical credits: First dependent R347 R332

Medical credits: Additional dependant R234 R224

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SUGGESTED SOLUTION

QUESTION 1 ( 30 MARKS)

ISSUE 1
Bossy Maduba is a resident and will be taxed on the world wide tax, the gross rental
of R1 984 500√ received will be included in the gross income as it satisfies all the
requirement of gross income√ is supported by Geldenhuys case√. The letting of
property is included in the trade definition of the income tax act√.
R102 000 was incurred by Bossy Maduba is deductible in determining of her
taxable income in terms of section 11(a) as the amount was incurred in production
of income√ supported by PE Tramway case√, therefore the amount should be
deducted when determining the Taxable income of Bossy Maduba.
Bossy Maduba should include R1 984 500√ in her gross income√ and she also must
deduct the R102 000√ in terms of section 11(a) as this is deductible expenditure√.

Limited to 5 Marks

ISSUE 2
In terms of section 11(a)√ and section 23H√, it applies as follows:
R700 000 qualify for the section 11(a), the amount is deductible as is incurred in
production of income√.
Section 23H will apply as restrictive clause allows the 12 months deductible expense,
the amount of R420 000√ will be deductible in terms of the section 11(a)√ and the
amount of R280 000√ will apply the provision of section 23H√.
Provision 1
If the amount will be utilised in full within the 6 months√ the full amount of R280 000
should be deductible in full. In case of Buildware the amount after year end will be
utilised after 8 months√. Provision restricts the deduction√.
Provisio 2
In aggregate the amount should be equal or less than R100 000√, the greater amount
will be deductible in the following period which is 2024√. Buildware amount is
R280 000 which more than R100 000√, therefore the mount is restricted to paid in the
current year (2023) √.
The amount of R420 000 will be deductible in the current year (2023) √ and the
amount of R280 000 will be deductible in 2024 financial year√.

18
Limited to 10 Marks

ISSUE 3
Gross income includes amounts that are received by or accrued to a person in form
of cash√, and in a form other than cash√, provided that the benefit in a form other
than cash is capable of being valued and can be turned into money√.
Zimonda (Pty) Ltd received amount that was in cash and in a form other than cash√,
Butcher Bros - case√ that benefit received in cash should be included in the gross
income therefore the amount of R40 000 X 60% = R24 000√.
The amount received in kind √ it will be included in the gross income at a market value
of the Zanzibar vacation at R55 000√ which contributes 40%√ of the bakkie sold.√.
Zimonda (Pty) Ltd in gross income for 2022 year of assessment will include an
amount of (R24 000+ R55 000) R79 000√√.
Limit to 10 Marks

ISSUE 4
Gross income include amount received by or accrued to√ 3 Star hotel received a
R340 000 for 2022 year of assessment√.
Geldenhuys case√ received by for own benefit
Five Star hotel received the amount of R340 000√ as there is the forfeiture clause for
the pre booking the amount is for the benefit of the company as customer cannot
claim the money√
Therefore, the amount of R340 000, should be included in the gross income of Five
Star hotel at 2022 year of assessment√.

Limited 5

Limit to 30 MARKS

19
QUESTION 2 (35 MARKS)

R
Salary 1 200 000 √
Dividends received 100 000 X 50% 50 000 √
Interest income 60 000 X 50% 30 000√
Interest from United Kingdom 25 000 X 50% 12 500 √
Dividends received from United 30 000 X 50% R15 000 √
Kingdom
Fringe: benefits: Pension fund (R65 000) X 60% 39 000√√
Medical aid (R7 800 X 12) X 50% 46 800 √
1 393 300
Exempt income (83 133)√
Dividend received (50 000)√
Interest income SA interest only (23 800)√√
Dividends from United Kingdom 15 000 X 28/45 (9 333)√√
1 227 034
Deduction (65 000) √√
Pension contribution
Contribution R65 000
Limited to lesser of:
R350 000√ or 27.5% higher
Remuneration R1236 000√
Taxable income R1224 367√
1 224 367 X 27.5% = 336 701 √
1 162 034
Donation (40 000)√√√
R40 000
R10 000 - excluded
Limited to 10% 1 185 367 X 10% =118 537

Taxable income 1 122 034√P

Normal tax 239 452 + (817 600 – 1145 367 X 373 836√P
41%)
Primary rebates (16 425) √
6A – Medical tax credit 694 + (234 +234) X 12 (13 944) √√
6B – Medical tax credit Contribution 7800 X12 = 93 600 R10 918
6A – (4 X13 944) = (55 776) √√√√√√√
37 824
Qualify medical exp 90 000
127 824
7.5% TI
1 122 034 X 7.5% (84 153)

20
 43 671 X
25%
Prepayment taxes (80 000)√
Normal tax payable 252 549 √P

Limit to 35 Marks

QUESTION 3 (20 MARKS)

Re
Revenue R10 000 000 X 95% 9 500 000√√
Recoupment 15 000 √
Capital gains Proceeds (40 000 – 15 000) = 25 000 Nil√√√√√
Base cost (35 000 – 15 000) = 20 000
5000
Capital loss (20 000)
(15 000)
Restraint of trade Limited to lesser of: (20 000)√√
80 000/3 = 26 666
80 000/4 = 20 000
Lease premium 150 000/15 X 2/12 (1 667)√√
Rental 20 000 X 2 (40 000)√
Sublease - Rental 7500 X 2 15 000√
Legal fees (65 000)√
Learnership Supply chain.
Allowance R30 000√√
Completion R60 000√

Quantity Survey
Allowance R40 000√
Bad debts 550 000 X 20% (110 000)√√
Salary 750 000 – 80 000 (670 000)√√
80 000 private use prohibited
expense
Government grant 2 000 000√

Taxable income 1 208 333√P

Limit to 20 MARKS

21
 QUESTION 4 (15 MARKS)

Query 1
Dividends include in gross income para k√ R150 000 √
Fringe benefit – uniform para c√ R10 000√
Exemption – section 10(k) √ (R150 000) √
Section 10(nA)√ (R10 000)√
Taxable income Nil

Query 2
Salary gross income – section 1√ R250 000√
Interest gross income para i- √ R35 000√
Exemption section 10(o)√ (R250 000)√
Section 10 (h) √ (35 000)√
Taxable income Nil

Query 3
Maintenance gross income para b√ R200 000√
Exemption section 10(u)√ (200 000)√
Taxable income Nil
Limit to 15 MARKS
If student did not provide the relevant section limit marks to 4 marks per query.

22
PREP 3
QUESTION 1 (35 MARKS)

Royalty Ltd is a company engaged in the business of making kitchen counters and is a
registered VAT Vendor. The year of assessment is 31 December 2023.

All amounts are exclusive of VAT unless stated otherwise. Royalty Ltd taxable income
amounted to R 100 000 before the following transaction:

• Salaries paid to employees amounted to R140 000 and in addition the company`s
contribution to the pension fund amounted to R60 000.
• Sharon Ntuli resigned on 01 December 2023 and was paid R100 000. The
agreement stipulated that she shall not work for any competitors in the kitchen
business for a period of four years.
• Royalty Ltd decided to buy a building to the value of R2 500 000 on the 1
November 2023. The building will be solely used for preparing orders.
• During the negotiation of purchasing of the building Royalty Ltd entered into the
lease contract for 12 months, each month rental was 10% of the revenue.
Revenue to 30 June 2023 was R1 500 000, it increase by 2% until year end. The
lease contract also included the lease premium of R6 000.
• Traffic fine to the value of R120 000 were issued during the year to the drivers
who delivers the food to the residents of Royalty Ltd.
• Royalty paid total amount of R150 000 for host the website which, Royalty Ltd is
trade on the amount was paid on 1 January 2023 for 24 months.
• Royalty Ltd donated R250 000, to two organization during the year. SafeHouse
NGO R150 000 a public benefit and the rest was for donation to SMME’s that
cook sushi and Mexica food.
• During the year a backup generator of the lease property was damaged by heavy
rains. Royalty Ltd repair the generator with the cost of R350 000. The engineers
after the repairs realised the machine capacity moved from 1200Kv to 3200Kv.
The cost of the diesel increased by 22% from 2021 diesel cost of R80 000 due to
price increase of diesel and consistence Royalty Ltd.

23
 • During the year Royalty Ltd purchased grocery for preparing food to the value of
R145 000 (Including VAT) of which the grocery to the value of R30 000 qualify
for section 12 of the VAT act.
• Royalty Ltd fleet of bikes was purchased in 1 August 2023 to the value of
R230 000 and SARS will allow capital allowance for six years in terms of section
11e of the income tax act.
• Royalty declared dividends of R125 000, to the shareholders for 2023 year of
assessment.

YOU ARE REQUIRED TO: Calculated with reason the tax liability of Royalty Ltd as at
31 December 2023. (Commence your calculation with taxable income of R900 000).

24
 QUESTION 2 (15 MARKS)

Shabalala Ltd is the company that is specialized in construction sector, the most familiar
products of the company is the repairs and maintenance of tall buildings. On the 23
March 2023, Shabalala Ltd was contracted by Mashaba holdings to repairs windows of
Mashaba holdings commercial flats to the value of R2 600 000.

The construction started 1 April 2023 and Shabalala started with the staging of the
scaffolding in preparation to the work. 0n 30 April 2023 during the execution of
constructed work a class from a third floor fell accidentally and hit the person who was
passing underneath the scaffolding and the individual sustain injuries and was taking to
hospital.

The individual on the 1 May 2023 submits a legal claim of R200 000 for the injuries
suffered. Shabalala Ltd lawyers met with the individual on 15 May 2023 after deliberation
parties agreed on the amount of R200 000 as suitable payment. 1 June 2023 Shabalala
settled the legal claim through electronic transfer funds that was directly deposited in
the individual account.

Shabalala Ltd incurred the following expense in regard to the legal claim:

• Payment of the legal claim of R200 000 on 1 June 2023.

• Legal invoice for the assessment of legal claim of R15 000.
• The contingent liability of R100 000 for the matter of illegal dumping by Shabalala
Ltd and the lawyers of Shabalala are of opinion that matter won’t be the
successful.

Shabalala Ltd year end is as at 30 June 2023.

YOU ARE REQUIRED TO: Discuss whether or not the amounts incurred in regard of
legal claim should be deducted in 2023 year of assessment in terms of the income tax
act.

25
 QUESTION 3 (20 MARKS)

Case study 1 (5 Marks)

Ntebie Mose is in a business of selling Tupper ware containers. Ntebie sells the
Tupper ware on behalf of a company in Ga - Rankuwa. She is paid commission of
20% for each product sold. For the 2023 year of assessment, she sold products to the
total value of R350 000. The full amount was deposited in Ntebie Mose’s Standard
Bank account by the clients she sold the products to.

YOU ARE REQUIRED TO: Advise Ntebie Mose whether the amount will be included in
her gross income. (Limit your answer to the relevant court case and components of the
gross income definition which are uncertain)

Case study 2 (15 Marks)

Mr. Signal is the owner and the founder of Signal investment (Pty) Ltd. During 2010 he
bought five two-bedroom residential unit in Cape Town for R420 000 each. Each tenant
pays R15 000 per month. The rental amount is exclusive of water and electricity. The
monthly rental amount was declared over to SARS. In 2020 Mr. Signal made some
improvement on the property amounting to R105 800 per units.

In 2023 upon the opening of the new mall at waterfront the value of the properties in the
surrounding area were increased drastically. Signal investment (Pty) Ltd took an
advantage of the opportunity and sold all the properties at R800 000 per unit by the end
of September 2023.

YOU ARE REQUIRED TO: Discuss whether the amount received from the sale of the
five residential units is of revenue or capital in nature. (Limit your answer to the
relevant court case and components of the gross income definition which

are uncertain)

26
 QUESTION 4 (30 MARKS)

Hatfield Media Pty Ltd (hereafter “HM”) is a media company operating in Pretoria,
Hatfield. One of the employees of HM is Destiny Ngobeni (“Destiny”) has been working
at HM since March 2012. She started as a general employee and over the years she
was promoted due to her commitment and dedication to her work. She is now the Chief
Executive Officer, of HM. Destiny is married out of community of property. Destiny’s
mental health took a serious knock as a result of the covid-19 pandemic which made
her work become too much to handle and she therefore resigned from work on 31
August 2023.

She received the following benefits from HM from 1 March 2023:

1. Monthly salary of R55 000. She also received a bonus of R200 000 on 31 May 2023.
2. She was a member of the company’s pension fund. HM contributes R1 for each R1
the employee contributes. Destiny contributes 8, 5% of her cash salary to the
pension fund.
3. Destiny was granted the right to use the company-owned Evoque Range Rover
which had a cost price of R750 000 (including VAT) from 1 March 2020, HM bought
it for cash. Destiny kept an accurate logbook proving that she travelled a total of 18
000kms of which 10 500kms was for business purposes. Destiny did not keep
accurate records of expenditure incurred.
4. HM pays medical aid contributions for all employees in the executive management.
There are 50 employees in total and 10 executive management employees. HM
contributed a total of R800 000.
5. HM also paid Retirement Annuity Fund contributions of R7 500 per month for
Destiny’s benefit until 31 August 2023.

She also made the following contributions during the current year of assessment:

6. Destiny contributed R5 500 per month for Provident fund.

7. Destiny started paying her own medical aid contributions from 1 September 2023,
which amounted to R2 500 per member. There are currently three (3) dependents
on her medical aid being her husband Mr Journey Ngobeni, her 25-year-old daughter

27
 Masego and her father, who is a person of disability. Destiny’s daughter is studying
at University of Fort Hare and fully depends on her parents for her maintenance. She
has not become liable for normal tax. Destiny did not pay for medical expenses out
of her own pocket – all costs were covered by her medical aid scheme.

Other:

8. Destiny’s daughter is funded by HM, in the current year she received funding equal
to R40 000. She is studying for an NQF level 6 qualification at the University of Fort
Hare. Her remuneration proxy is R2 000 000.
9. Destiny earned local interest of R30 000 and foreign interest of R15 000 for the
period 1 March 2023 to 28 February 2023.

YOU ARE REQUIRED TO: Calculate Destiney Ngobeni’s normal tax liability for the
2023 year of assessment. Provide brief reasons where necessary. (Show all your
calculations as marks will be awarded

28
ANNEXURE

Individuals Tax Tables 2022 / 2023 Tax Year:

Taxable Income (R) Rates of Tax

0 – 226,000 18% of taxable income

226,001 – 353,100 40,680 + 26% of taxable income above 226,000

353,101 – 488,700 73,726 + 31% of taxable income above 353,100

488,701 – 641,400 115,762 + 36% of taxable income above 488,700

641,401 – 817,600 170,734 + 39% of taxable income above 641,400
817,601 – 1,731,600 239,452 + 41% of taxable income above 817,600
1,731,601 and above 614,192 + 45% of taxable income above 1,731,600

Rebates Value Tax Threshold

Below age 65 R16,425 R91,250

Age 65 to below 75 R9,000 R141,250
Age 75 and over R2,997 R157,900

Monthly Medical Aid Tax Credits

Principal member R347

First dependant R347
Each additional dependant R234

29
SUGGESTED SOLUTION

QUESTION 1 (35 MARKS)

R
Taxable income 1 000 000 √
Expenditure (844 972)
Salaries and Section 11 (a) incurred in the production of 200 000 √
contribution to income
pension fund (R140 000 + 60 000) √
Restraint of trade Lesser of: 25 000 √
R100 000/4 = R25 000 √
R100 000/3 = R33 333 √
Building Capital in nature √ 0 √
Rental Section 11(a) deduction√ 303 000√
(R150 000√ + R153 000√)
Lease premium Section 11f apply √ 6 000 √
Traffic fines Section 23 prohibits deduction √ 0√
Hosting cost Section 11(a) apply to: 150 000√
R150 000/24 = R75 000 – deduct in full√

Prepaid expense section 23H apply √

R150 000/24 =R75 000
Enjoyed within 6 months not applicable as the
prepaid is 12 months√
Aggregate amount not more than R100 000
applicable as the amount of prepaid R75 000√

Therefore deduct R150 000 in full√

Repairs cost Capital in nature in terms of section 11d√ 0√
The repairs improved the capacity of the
generator there this amounts to improvement.√
Grocery cost Section 11(a) deduction 130 000 √
(R115 000 X 100/115 + R30 000) √√
Capital allowance Section 11(e) 15 972 √
R230 000/6 X 5/12 = R15 972 √
Dividends Capital in nature √ 0√
declared
Donation Section 18A apply to: 15 000 √
SafeHome R150 000√
SMME do not qualify section 18A √
R150 000 X 10% = 15 000 √

Taxable income 155 028 √P

30
 QUESTION 2 (15 MARKS)

Legal claim
The requirements of the section 11(a) √are met except for the in production of
income√ and will therefore assess the following condition to determine whether the in
production of income is met:
Port Elizabeth Electrical Tram Co Ltd case state √ the following should be asked to
determine whether the Legal claim and legal cost meet the criteria of incurred in
production of income√:
1. What action gives rise to the expenditure and what is the purpose of this
action√

The falling of a glass during repairs of the Mashaba building and this action
enables Shabalala Ltd to perform the contracted work of repairing
commercial flat of Mashaba building. √√

2. Is this action closely connected with the income – earning business from
expenditure arose to form part of cost performing it √

The staging of the scaffolding is required to execution the contracted work

agreed on and the repairs forms part of cost performing activities of
Mashaba Ltd earnings activities. √√

The amount of the legal claim of R200 000 should be deducted as it meets the
requirement of section 11(a) √

Legal expense
The legal expense is not going to be deducted in terms of section 11(a) √ and
special deduction is allowed in terms of section 11(c), the deduction will allowed when
the legal expense was actually incurred on any claim occurring as a results of
ordinary operation of the taxpayer. The legal claim was incurred to prevent claim
of compensation.√
Shabalala (Pty) Ltd incurred the R15 000 in defending itself from the legal claim from
a third party. The amount will be deducted in terms of section 11 (c) √

Contingent liability
In terms of section 11(a) the expense should be deducted when the expense is
actually incurred √. Contingent liability is not actually incurred as condition should be
met for the expenditure to be paid. In Nationale Pers BK case √ restricted the deduction

31
of contingent liability. R100 000 of contingent liability will not be deducted in the
current year √.
Limited to 15

QUESTION 3 (20 MARKS)

Case Study 1 5 Marks

Ntebie Mose
Geldenhuys 
The amount is only included in the gross income of the taxpayer if it is received by her
on her own behalf for her own benefit. 
Ntebie Mose received the amount of (R350 000 * 80%) R280 000 on behalf of
Tupperware. Only R70 000 (R350 000 *20%) was received by her for her on behalf for
her own benefit.  
Conclusion
Thus, Ntebie Mose will include only R70 000 in her gross income. 

Case Study 2 15 MARKS

Gross income is definition

The total amount
In cash or otherwise
Received by or accrued
During the year of assessment
Not of capital in nature 2

Issues
Whether the income received from the sale of six residential unit by
Signal Property investment is or capital in nature of revenue in nature
1

Court Cases
CIR v Visser Fruit and tree comparison
Tree is the residential unit and the fruit is the rent income 1

CIR vs Scott determine the intention at the date of acquisition 1

During the period of assets 1
Consider if the intention (ipse dixit) was changes whether the
Taxpayer has cross the rubicon and went into a profit making scheme
2

32
 Assets may be realised to best of advantage 1
Stephen v CIR
The fact that an asset was sold for a profit does not imply that the
owner changed his intention in respect of the property 1
was the profit the motive for the sale or did the sale results in
profit 1
Objective factors
Consider the purpose
length of time the units were held for six years 1
Reason of sale Increase in value of the property as results of the
opening of the new mall 2
Nature of assets its fixed assets 1
Application
signal property investment had the residential units for a period of 6 years (l)it
was never his intention to sell however after the opening of the new mall the
property increased in value {l)that were he decided to sell the property as there
were high in demand. Again, signal investment property we can say he realised
those residential units to the best of its advantage (l) and does not mean he
changed his intention and went into a profit making scheme (l). however if was
not reason of the new mall in the area he would not have sold the assets(l)

5
Conclusion

Therefore, the receipt from the sale of five residential unit is revenue in nature
and will be included in the gross income 1

QUESTION 4 (30 MARKS)

Calculations (or reason (s) Amount

Marks
# Description/Item where applicable R
Gross income 2 234 749 √p 1
1 Salary R55 000 x 6 √ 330 000 1
1 Bonus 200 000 √ 1
Pension fund
2 contributions - ER R330 000 √ x 8,5% √ 28 050 2
Medical aid contributions
5 - ER R800 000/10 √ 80 000 1
6 RAF contributions - ER
9 Long service award 450 000 √ 1
10 Asset acquired for less
than actual value -
Range Rover 600 000 √ 1
12 Annuity R64 500 x 6 √ 387 000 1

33
13 Bursary to relative 40 000 √ 1
14 Local interest 30 000 √ 1
14 Foreign interest 15 000 √ 1

Exemptions -23 800 √p 1

13 Bursary to relative Remuneration proxy exceeds
R600 000, therefore there is
no exemption √ 0 √ 2
14 Local interest exemption Taxpayer is below 65 years,
exemption is limited to R23
800 √ -23 800 √ 2
14 Foreign interest No exemption available √ 0 √ 2

Income 2 210 949 √p 1

Deductions -167 100 √p 1
2, Retirement fund Section 11 F
6, contributions
7 -167 100 √ 1

Taxable income 2 043 849 √p 1

(R2 043 849 - R1 731 602 ) x

Tax per table 45% + R614 192 754 703 √p 1
Less: Primary rebate -16 425 √ 1
Less: S6A medical (R694 + R234 + R234) x 12
rebate √ -13 944 √p 2
Less: S6B additional Contributions ((2 500 x 4 x 6) -32 689 √p 5
medical rebate + 80 000) 140 000 √
Less: 3 times section 6A (13
944x 3) (41 832) √p
Excess
98 168 √p
Multiply by 33,3% √
32 689
√p
Normal Tax liability excluding tax on lump sums 691,645.00 1
TOTAL 30

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