TAX2601/101/3/2016

Tutorial Letter 101/3/2016

PRINCIPLES OF TAXATION

TAX2601
Semesters 1 & 2
Department of Taxation

This tutorial letter contains important information

regarding this module

Note: This is an online module and therefore available on myUnisa.

However, in order to support you in your studies, you will also
receive study material in printed format.

Bar code
 CONTENTS
Page

1 INTRODUCTION AND WELCOME .................................................................................................. 3

2 ASSESSMENTS .............................................................................................................................. 3

ASSESSMENT CRITERIA ............................................................................................................... 3

ASSIGNMENTS ............................................................................................................................... 3
EXAMINATION................................................................................................................................. 5
FINAL MARK .................................................................................................................................... 5
CALCULATOR POLICY ................................................................................................................... 6
SUPPLEMENTARY, AEGROTAT OR SPECIAL EXAMINATIONS ................................................... 6

3 SUBMISSION OF ASSIGNMENTS .................................................................................................. 6

4 ASSIGNMENTS FOR FIRST SEMESTER STUDENTS ................................................................... 8

5 ASSIGNMENTS FOR SECOND SEMESTER STUDENTS .............................................................21

6 SELF-ASSESSMENT ASSIGNMENT 3 FOR BOTH SEMESTERS ................................................33

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 TAX2601/101

1 INTRODUCTION AND WELCOME

Dear Student

Welcome as a student to the module, PRINCIPLES OF TAXATION. We hope that you will find your stu-
dies interesting and rewarding and that you will be successful in the examination.

This tutorial letter contains the assignment one and two for the first and the second semester. You must
read the MO001 (module on-line) document that has all the information to orientate yourself with the re-
quirements specific to on-line studying for this module (should you have opted to study on-line).

We would like to take this opportunity to extend our best wishes for success in your studies.

2 ASSESSMENTS
ASSESSMENT CRITERIA

Assignment 1 Assignment 2 Assignment 3 Exam

Compulsory for Self-assessment Sub-minimum
exam admission 75% of year Does not count of 40% to take
25% of year mark mark towards year year mark into
mark account
(Tutorial Letter 201)

20% OF FINAL MARK 80% OF FINAL MARK

ASSIGNMENTS

There are three assignments per semester.

As a Unisa student, you do not write tests and, therefore, you need to use the assignments as a substitute.
The completion of your assignment will also help you, as you will only obtain a total understanding of this
module through practice by working through the questions. It is part of your learning process to receive
feedback in the form of a marked assignment.

Assignment 1 and 2 counts 25% and 75% respectively towards your year mark. Only Assignment 1 is
compulsory; this means that you have to do Assignment 1 and submit it before the due date if you
would like admission to the exam. Assignment 2 is not compulsory, but counts towards your year mark.
Assignment 3 is a self-assessment assignment and does not count towards your year mark.

The assignments do not cover ALL the essential work of the module they are just a tool to assist you to
study the material in good time. Furthermore, just doing assignments is not sufficient preparation for the
examination. For your own good, and in preparation for the examination, it is necessary to go through the
study material over and above the assignments. Please note that previous exam papers will not benefit
your learning process, since the legislation changes annually and the exam papers and solutions are out-
dated and incorrect.

Compulsory assignment

Assignment 1 is a compulsory assignment. The submission of the compulsory assignment will prove that
you are an active student and will therefore earn you admission to the examination.

3
Admission to the examination will be obtained by submitting the compulsory assignment before or on the
due date and not by the marks obtained for it.

You will undoubtedly realise the importance of commencing your study programme in good time so that you
can obtain admission to the examination and earn a good year mark.

Submission of assignments

You may submit assignments electronically via myUnisa. Although assignments may still be submitted by
post, we would like to encourage you to submit your assignment online on myUnisa. Refer to section 3 of
this document for guidelines on how to submit electronically.

PLEASE NOTE: We have experienced in previous semesters that students have difficulty to submit
their assignments on the myUnisa system on the due date. This is probably because so many stu-
dents are accessing the system on the same day. Therefore, please be advised to submit your on-
line assignment WELL IN ADVANCE to avoid this problem.

You MUST keep a copy of your completed assignment, so that in the event of the assignment getting lost,
before it can be assessed, you will have a copy that we can mark. Also, keep proof of submission if you
submitted the assignment online.

Enquiries about assignments must be addressed to assign@unisa.ac.za. Information about assignments

(eg whether or not the University has received your assignment or the date on which an assignment was
returned to you) can be obtained on myUnisa. The lecturers cannot provide you with this information.

Please note: Although students may work together when preparing assignments, each student
must write and submit his or her own individual assignment. It is unacceptable for
students to submit identical assignments on the basis that they worked together.
That is copying (a form of plagiarism) and none of these assignments will be mark-
ed. Furthermore, you may be penalised or subjected to disciplinary proceedings
by the University.

Plagiarism is the act of taking words, ideas and thoughts of others and passing them off as your own. It
is a form of theft, which involves a number of dishonest academic activities The Disciplinary Code for
Students (2004) is given to students at registration. Students are advised to study the Code, especially
Sections 2.1.13 and 2.1.14 (2004:3-4). Kindly also read the Universitys Policy on Copyright Infringe-
ment and Plagiarism.

Marking of assignments

Assignment 1 will be marked electronically.

Assignment 2 will be marked by the lecturers.

Assignment 3 is a self-assessment assignment, which means that you do not submit it to Unisa, but that
you mark it yourself. It is an old exam paper with an updated solution and you can find it in Tutorial Letter
201 (both the questions and the solutions).

The solutions to all assignments will be sent to all students registered for this module in a follow-up tutorial
letter, and not only to those students who submitted the assignments. The tutorial letters will be numbered
202 and 203.

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 TAX2601/101

Due dates

The due dates for the assignments are as follows:

FIRST SEMESTER
ASSIGNMENT DUE DATE UNIQUE NUMBER

1 (compulsory) 7 March 2016 767048

2 11 April 2016 773279

SECOND SEMESTER
ASSIGNMENT DUE DATE UNIQUE NUMBER

1 (compulsory) 22 August 2016 698733

2 12 September 2016 868368

Finality of due dates

Please remember that assignment 1 is marked by the Unisa system and these marks are finalised on a
given date. Therefore, NO extensions can be granted WHATSOEVER.

The receipt of assignment 2 after the due date disrupts our marking program and as the uncontrolled sub-
mission of assignments furthermore creates administrative problems for us, you are requested to note care-
fully the below-mentioned requirements and suggestions and to adhere strictly to it.

NO EXTENSION OF TIME WILL BE GIVEN FOR THE SUBMISSION OF ASSIGNMENTS, SINCE

SOLUTIONS WILL BE AVAILABLE ON MYUNISA AUTOMATICALLY TO ALL STUDENTS AFTER
THE DUE DATES.

NO CORRESPONDENCE OR TELEPHONE CONVERSATION WILL BE CONDUCTED REGARD-

ING THE LATE SUBMISSION OF ASSIGNMENTS. ASSIGNMENTS RECEIVED AFTER THE DUE
DATE WILL NOT BE MARKED.

EXAMINATION

The examination counts 100 marks and is written in two hours. The entire syllabus is covered in the exami-
nation and you can therefore not afford to leave out any part of it.

The mark obtained for this examination will contribute 80% towards the final mark for this module. All the
important information regarding the administration of the exam is contained in the My studies @ Unisa
brochure.

FINAL MARK

The final mark for this module is calculated as follows, an example:

Final mark
Assignment Weighting Mark achieved (weight x actual mark)
1 25% x 20% 80% 4%
2 75% x 20% 68% 10,2%
3 0% 75% 0%
Examination 80% 64% 51,2%
Final mark (rounded) 65%

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You must obtain a final mark of 50% or more in order to pass this module.

You have to achieve 40% or more in the exam before your year mark will be taken into account
when calculating your final mark.

CALCULATOR POLICY

Candidates may only use silent, electronic, battery-driven pocket calculators subject to the following condi-
tions:

Calculators must be cordless, and may not have print-out facilities or alpha keys

Any financial calculator will be allowed

The calculator function on mobile telephones or any electronic device (i.e. laptops and/or any Smart
Phone) may not be used

Candidates may not share a calculator with another candidate in the examination room.

SUPPLEMENTARY, AEGROTAT OR SPECIAL EXAMINATIONS

Supplementary, aegrotat and special examinations are allowed in this module.

Each year the Income Tax Act is amended. We expect you to update yourself but you will not be issued
with any new study material. You can visit the SARS website on www.sars.gov.za for relevant updates/
changes. Work through the study material that you have at your disposal together with updates/changes.
Remember that if you become a tax practitioner, you will need to continually update your knowledge.

You will not be required to submit assignments but your year mark from the previous semester will be car-
ried forward. You will still have access to myUnisa and we encourage you to make use of all the resources.

3 SUBMISSION OF ASSIGNMENTS
Submit assignment 1 using myUnisa:

Go to www.unisa.ac.za
Go to myUnisa
Enter your student number and password
Select your module from the orange strip
Click on Assignments
Find the TAX2601 course code in the Course column
Find the corresponding number of the assignment, e.g. 01 or 02 in the Ass.No. column
Click on the Submit link in the Action column next to the assignment number
Enter the total number of questions for your assignment in the Number of Questions field
Click on the Continue button
The number of questions requested in the previous step will now be displayed with five answer op-
tions next to each one. Please note that each row represents a question in your assignment
Click on the radio button [the small circle] that corresponds to your answer for that question. If you
want to restart the assignment, click on Clear Form to remove all your selections and start from new
Click on the Continue button after you have completed all the questions and checked if you are happy
with all your answers
If you want to redo the answers to the assignment, click Back

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 TAX2601/101

Click on the Continue button to submit your assignment. If you do not click Continue, no submission
action will take place
The assignment submission report is your proof that your assignment was submitted. You must print
this page for your record purposes
Click on the Return to Assignment List button to go back to the Assignment overview screen.

Submit assignment 2 using myUnisa:

Go to myUnisa.
Log in with your student number and password.
Select the module.
Click on assignments.
Click on the assignment number you want to submit.
Follow the instructions on the screen.

Remember that your assignment document (attachment) must be in a PDF-format only.

Do not save it as read only, otherwise we are not able to mark the assignment.

The RESUBMIT feature for online assignments submission

If you have made a mistake while completing a multiple choice questionnaire online or uploaded the wrong
file for an assignment, this feature in the myUnisa Assignments tool allows you to replace your assignment
submission without any intervention from Unisa staff. Its called the RESUBMIT function. It is optional and
you dont have to resubmit if you dont have to.

The SUBMIT and RESUBMIT links

If the action is displayed as SUBMIT, then click on the link to upload your assignment file or complete the
multiple choice questions.

If, after the first submission you still have time left before the due date, a RESUBMIT action link will display.
Click on it ONLY to reload a file or redo the multiple choice questions if you have to - it is NOT mandatory.
After you resubmitted an assignment successfully, your previous submissions will show as Cancelled.

The CLOSED action link

The assignment action link will display as CLOSED under one of the following conditions:

Your submitted assignment file or multiple choice questions is already in the process of marking (if
you submit early, this can happen before the due date and you will therefore not be allowed to re-
place the file).

You have not obtained admission to the examination.

The assignment is no longer open for submissions.

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4 ASSIGNMENTS FOR FIRST SEMESTER STUDENTS

NOTE: SUBMISSION OF ASSIGNMENT 1 IS COMPULSORY IN ORDER TO OBTAIN

ADMISSION TO THE EXAMINATION. ADMISSION WILL BE OBTAINED BY
SUBMITTING THE ASSIGNMENT AND NOT BY THE MARKS YOU OBTAIN FOR
IT. THIS ASSIGNMENT WILL COUNT A MAXIMUM OF 5% OF YOUR FINAL
MARK. PLEASE ENSURE THAT THIS ASSIGNMENT REACHES THE UNIVER-
SITY ON OR BEFORE THE DUE DATE, SINCE LATE SUBMISSION WILL
RESULT IN YOUR NOT BEING ADMITTED TO THE EXAMINATION. NO COR-
RESPONDENCE OR TELEPHONIC CONVERSATION WILL THEREFORE BE
ENTERED INTO IN THIS REGARD.

IF YOU INTEND MAILING YOUR ASSIGNMENT, MAKE A COPY OF IT BEFORE

YOU POST IT TO UNISA, IN CASE YOUR ASSIGNMENT IS LOST IN THE
POST.

WE ADVISE YOU, IF AT ALL POSSIBLE, TO SUBMIT YOUR ASSIGNMENT

ELECTRONICALLY.

IMPORTANT INFORMATION ON MULTIPLE-CHOICE ASSIGNMENTS:

(1) Questions must be answered on a mark-reading sheet or submitted electronically via the
myUnisa online system.

(2) Before completing the mark-reading sheet, study the instructions in My studies @ Unisa.
Read these instructions carefully and follow them closely to avoid mistakes.

(3) Do your calculations on a separate piece of paper before you complete the mark-reading
sheet.

(4) There is only one correct answer to each question.

(5) All questions are equal in value.

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 TAX2601/101

FIRST SEMESTER

ASSIGNMENT 1 (30 marks, 36 minutes)

MODULE DUE DATE UNIQUE NUMBER

TAX2601 7 March 2016 767048

ASSESSMENT CRITERIA FOR THIS ASSIGNMENT

For this assignment, you will need to have achieved the learning objectives set out in learning
units 1 to 3 as contained in MO001/4/2016. This assignment will assess your ability to select the
appropriate alternative that best reflects the quantitative/qualitative answer to a problem. This
assignment will count a maximum of 5% towards your final mark.

REQUIRED MARKS
Select the number ((1) (4)) that represents the correct answer to the question.
(The mark-reading sheet has 5 options please ignore option 5 for each question in
this assignment.) 30

QUESTION 1

Who is the current minister of finance in South Africa?

(1) Trevor Manuel

(2) Jill Marcus
(3) Nhlanhla Nene
(4) Pravin Gordhan

QUESTION 2

In South Africa, taxpayers are taxed on a residence basis. What does this mean?

(1) All South African residents are taxpayers.

(2) People are taxed according to the area in which they reside.
(3) Non-residents do not pay any tax in South Africa.
(4) Residents are taxed on all income they earn, from anywhere in the world.

QUESTION 3

Which interpretation rules are binding on SARS and taxpayers?

(1) Binding class rulings

(2) Binding general rulings
(3) The opinion of SARS
(4) Interpretation notes

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ASSIGNMENT 1: FIRST SEMESTER 2016 (continued)

QUESTION 4

Which one of the following statements is true for the Alternative Dispute Resolution process?

(1) SARS has to accept the taxpayers interpretation then the dispute will be resolved.
(2) The taxpayer has to accept SARSs interpretation then the dispute will be resolved.
(3) SARS does not keep a register of disputes settled through this process as all cases are unique.
(4) The process may be used to settle any dispute that relates to a dispute on interpretation of facts.

QUESTION 5

Which one of the following statements is true relating to legal precedent?

(1) A decision by the High Court is binding on the Supreme Court of Appeal.
(2) A decision by the High Court is binding on the Tax Court.
(3) A decision by the Tax Court is binding on the Supreme Court of Appeal.
(4) A decision by the Supreme Court of Appeal is binding on the High Court.

QUESTION 6

Which one of the following best depicts the taxable income calculation framework?

(1) Deductions and allowances less income plus taxable capital gain.
(2) Income less deductions and allowances plus taxable capital gain.
(3) Income less taxable capital gain.
(4) Deductions and allowances less taxable capital gain.

QUESTION 7

What does the following statement mean: the burden of proof vests with the taxpayer?

1) It is the taxpayers responsibility to calculate his own tax payable.

2) It is the taxpayers responsibility to prove that the assessment is incorrect.
3) It is the taxpayers responsibility to prove that he submitted his tax return.
4) It is the taxpayers responsibility to notify SARS of his change in address.

QUESTION 8

What does the understatement penalty not relate to?

(1) Payment of incorrect amount to SARS.

(2) Shortfall paid in respect of a penalty.
(3) Omission or incorrect statement in the return.
(4) Default in rendering a return.

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 TAX2601/101

ASSIGNMENT 1: FIRST SEMESTER 2016 (continued)

QUESTION 9

Neo has a refund of R600 outstanding for five months from SARS for the 2016 year of assessment. SARS
credited her account with R6 interest and she now has a total refund of R606 owed to her by SARS. She
wants to know if the interest credit is an error.

(1) The interest credit is an error as SARS does not pay interest on outstanding refunds.
(2) The interest credit is not an error as SARS pays interest on outstanding refunds so Neo is entitled to
the interest.
(3) SARS will reverse the interest credit and only pay Neo the R600 refund owed to her.
(4) SARS only charges interest on outstanding accounts and does not pay interest on outstanding re-
funds.

QUESTION 10

Which one of the following statements does not apply to the understatement penalty calculation?

(1) The understatement penalty percentages are not the same for each offence.
(2) If more than one behaviour applies, SARS will add the understatement penalty table percentages
together.
(3) The understatement penalty percentage is applied only to the shortfall of the tax.
(4) The maximum tax rate applicable to the taxpayer is used.

QUESTION 11

Which one of the following statements is true for the requirements of the Tax Administration Act (TAA)
with regards to the conduct of tax practitioners?

(1) Not all tax practitioners are required to be registered as tax practitioners.
(2) All persons have 21 business days to register as a tax practitioner from when they first provide the
advice.
(3) The TAA does not deal with the recognition of controlling bodies.
(4) Not all tax practitioners are required to be registered with a recognised controlling body.

QUESTION 12

Which one of the following statements is true for a partnership?

(1) A partnership is a separate taxpayer.

(2) A partnership is a separate legal entity.
(3) The individual partners are the taxpayers.
(4) A partnership is a legal relationship between at least four people.

QUESTION 13

How is a partnership treated for value-added tax (VAT) purposes? Select the most appropriate description
of the treatment.

(1) The partnership is treated as a separate person because it is a legal entity.

(2) A change in partners will result in the partnership having to re-register for VAT.
(3) The partnership cannot be registered as a VAT vendor because it is not a legal entity.
(4) A change in partners does not affect the VAT status of the vendor as long as one of the original part-
ners remains in the partnership.

11
ASSIGNMENT 1: FIRST SEMESTER 2016 (continued)

QUESTION 14

A partner, who purchases interest in a partnership by paying the former partner an annuity, gets no deduc-
tion for the annuity. Why is this the case?

(1) The annuity is capital in nature.

(2) They receive profits from the partnership.
(3) The seller is not taxed on the annuity received.
(4) The annuity is a termination gratuity.

QUESTION 15

Which one of the following statements is correct with regards to companies?

(1) A company is a separate taxpayer.

(2) A company is not a separate legal entity.
(3) The companys profit is added to the shareholders income from other sources to determine their tax-
able income.
(4) A company cannot register for income tax because it is not a person who has to pay tax to SARS.

QUESTION 16

The applicable tax rate is the rate that is applied to the taxable income of the company to calculate the tax
liability. What is the current applicable tax rate for companies in South Africa?

(1) 18%
(2) 40%
(3) 33%
(4) 28%

QUESTION 17

What is the tax that the company has to pay over to SARS on the distribution of the companys profits to
the shareholders?

(1) Income tax

(2) Value added tax
(3) Dividend tax
(4) Capital gains tax

QUESTION 18

Mosa is a 38 year old school teacher. She heard in the budget speech during February 2016 that the indi-
vidual tax rates will increase by 1%. She wants to know when this new rate will take effect.

(1) Immediately, with effect from 1 March 2016 until 28 February 2017.
(2) With effect from 1 April 2016.
(3) In the following year of assessment (2018).
(4) With effect from 28 February 2017.

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 TAX2601/101

ASSIGNMENT 1: FIRST SEMESTER 2016 (continued)

QUESTION 19

Which one of the following companies will automatically classify as a public company for tax purposes?

(1) A close corporation

(2) A public benefit organisation
(3) A small business corporation
(4) A private company

QUESTION 20

Why is it necessary to identify small business corporations for tax purposes?

(1) Small business corporations are exempt from provisional tax.

(2) Small business corporations pay tax at a lower rate.
(3) Small business corporations are exempt from VAT.
(4) Small business corporations do not have to pay tax.

QUESTION 21

Miroh Vibes (Pty) Ltd is a small business corporation based in Johannesburg. The company recently ac-
quired a machine that is used in the process of manufacture and started using it immediately. How much of
the cost of the machine can the company claim as a tax allowance in the first year of assessment?

(1) 100%
(2) 50%
(3) 40%
(4) 20%

QUESTION 22

Which one of the following are disqualified from registering as a micro business?

(1) Sole traders

(2) Companies
(3) Trusts
(4) Close corporations

QUESTION 23

Which one of the following would be included in the calculation of qualifying turnover in determining
whether a business qualifies to register as a micro business?

(1) Total receipts from sales of trading stock.

(2) Total debtors at the date of registration.
(3) Total receipts from the sale of the factory building used for the business.
(4) Total receipts from certain Government grants and Government scrapping payments.

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ASSIGNMENT 1: FIRST SEMESTER 2016 (continued)

QUESTION 24

Which one of the following statements does not apply to trusts?

(1) A trust is a separate legal entity and therefore a separate taxpayer.

(2) It is taxed at a fixed rate of 41%.
(3) Profits earned can be held in the trust or distributed to beneficiaries.
(4) The distribution amount depends on the beneficiaries of the trust.

QUESTION 25

What is the method used by SARS to collect tax due to them from salaried taxpayers?

(1) Capital gains tax

(2) Employees tax
(3) Turnover tax
(4) Dividends tax

The following information relates to questions 26 to 29 (round off all your calculations to the nearest rand):

Lucky Bread CC is a start-up company established by two sisters which started trading on 1 July 2015 and
have a year of assessment ending on 29 February 2016.

The sisters make bread and crackers which are suitable for diabetics and sell them at various food markets
in the Gauteng region over weekends. They recently started selling their products in a well-known super-
market.

Additional information:
R
Total receipts for the period 540 000
Capital receipts (from the sale of baking equipment- not included in total receipts) 28 000
Taxable turnover 554 000
Taxable income 275 300

QUESTION 26

Lucky Bread CC would like to determine if it qualifies as a micro business. What is the qualifying turnover
limit for Lucky Bread CC for the 2016 year of assessment?

(1) R1 000 000

(2) R554 000
(3) R540 000
(4) R666 667

QUESTION 27

Assume Lucky Bread CC qualifies as a micro business. What would its tax liability be for the 2016 year of
assessment?

(1) R1 652
(2) R77 084
(3) Rnil
(4) R2 730

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 TAX2601/101

ASSIGNMENT 1: FIRST SEMESTER 2016 (continued)

QUESTION 28

Assume Lucky Bread CC does not qualify as a micro business. Which one of the following statements
would cause it not to qualify as a small business corporation?

(1) If the year of assessment does not end on 28/29 February.

(2) If the CCs gross income for the year of assessment exceeds R20 million.
(3) If all the shareholders of the CC are natural persons.
(4) If one of the members of the CC holds a permitted shareholding in a listed company.

QUESTION 29

Assume Lucky Bread CC does not qualify as a small business corporation. What would its tax liability be
for the year of assessment ending 2016?

(1) R14 116

(2) R77 084
(3) R151 200
(4) R155 120

QUESTION 30

The following information relates to a company with a 31 March year-end.

2014 assessment received on 20 January 2015, reflecting assessed taxable income of R760 000.
2015 assessment received on 21 September 2015, reflecting assessed taxable income of R650 000.

Which one of the following amounts must be used as the basic amount in order to determine the first pro-
visional tax payment for the 2016 year of assessment?

(1) R650 000

(2) R760 000
(3) R881 600
(4) R820 800

END OF ASSIGNMENT 1

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 FIRST SEMESTER

ASSIGNMENT 2 (35 marks, 42 minutes)

COURSE DUE DATE UNIQUE NUMBER

TAX2601 11 April 2016 773279

NOTE NOTE THAT THE MARK YOU HAVE OBTAINED FOR THIS ASSIGNMENT
WILL FORM 75% OF YOUR YEAR MARK FOR THIS MODULE. YOUR YEAR
MARK WILL CONTRIBUTE 20% TO YOUR FINAL MARK.

PLEASE ENSURE THAT THIS ASSIGNMENT REACHES THE UNIVERSITY ON

OR BEFORE THE DUE DATE BECAUSE IF YOU SUBMIT IT LATE, THE MARK
YOU HAVE OBTAINED FOR THIS ASSIGNMENT WILL NOT FORM PART OF
YOUR YEAR MARK! WE WILL NOT ALLOW ANY CORRESPONDENCE OR
TELEPHONIC CONVERSATION IN THIS REGARD.

YOU MAY SUBMIT THIS ASSIGNMENT ELECTRONICALLY, BUT IT MUST BE

IN A PDF FORMAT.

ASSESSMENT CRITERIA FOR THIS ASSIGNMENT

For this assignment, you will need to have achieved the learning objectives set out in learning
units 1 to 6 as contained in MO001/4/2016 and MO002/4/2016.

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 TAX2601/101

ASSIGNMENT 2: FIRST SEMESTER 2016

QUESTION 1 (23 marks, 28 minutes)

You are a tax practitioner and you have been instructed by one of your clients, during a meeting held on
20 March 2016, to attend to a few tax related matters.

Your client, Sea Spray (Pty) Ltd (Sea Spray), is an importer of swimming apparel and beach accessories
in South Africa and its year of assessment ends on 29 February 2016. The company imports directly from
the holding company in Australia and sell to various stockists nationwide.

The following information is available to calculate the 2016 taxable income:

Receipts and accruals Note R

Sales 4 000 000

Expenditure
Purchases of swimming apparel 1 950 000
Salaries (including employer contributions) 2 1 800 000
Bad debts written off 3 14 450
Doubtful debts provision 4 28 700
Research and development 5 872 000
Rental paid 6 240 000
Renewal of trademark 7 32 000
Penalty and interest 8 12 647

Notes:

1. Purchases of swimming apparel

Swimming apparel costing R950 000 was purchased during the year. The following opening and clo-
sing inventory amounts must also be taken into account:

Date Cost Market value

1 March 2015 R168 000 R202 000
29 February 2016 R192 000 R175 000

2. Salaries R
Salaries 1 400 000
Employer contributions on behalf of employees to a medical aid fund
(Sea Sprays total remuneration approved by the Commissioner was R1 200 000) 400 000

3. Bad debts written off consist of:

- Debts, in respect of prior year sales, amounting to R9 450 were written off as bad.
- A loan of R5 000 was made to an employee during the year who has not been at work for the last
five months and cannot be located.

4. Doubtful debts provision

A list of doubtful debts of R28 700 was compiled by Sea Sprays financial accountant for the 2016
year of assessment. The doubtful debts provision for the previous year was R38 310.

17
ASSIGNMENT 2: FIRST SEMESTER 2016 (continued)

QUESTION 1 (continued)
5. Research and development
Sea Spray was instructed by its holding company in Australia to start a research and development
project in South Africa because of the favourable research and development tax incentives that exist
in the country. The company is developing a special sun tan lotion that will turn blue once the lotion
has expired. The group is hoping to sell the product nationally and internationally once the product
has met all the specifications. The project was approved by the Minister of Science and Technology
on 1 July 2015, before the following expenditure relating to the first phase of the project was incurred
in the 2016 year of assessment:
Costs relating to a clinical trial, amounting to R320 000
Costs relating to administrative matters and financing, amounting to R102 000
Cost of acquiring machinery, all brand new imported from overseas used solely for the research
and development project, amounting to R450 000

6. Rental paid
Sea Spray entered into a lease agreement where it rents a small kiosk at the Johannesburg Airport,
from which it sells swimming apparel to the public. A rental amount of R240 000, was paid in full on
1 December 2015 for a 12 month period commencing on the same date.

7. Renewal of registration for a trade mark

Sea Spray renewed the registration of the Sea Spray SA trademark which appears on all the swim-
ming apparel. This cost R32 000 and was paid on 1 July 2015.

8. Penalty and interest

Sea Spray failed to pay their first provisional tax payment for the 2016 year of assessment on time.
SARS imposed a late payment penalty of R12 399. In addition interest of R248 has also accrued until
full payment was made by Sea Spray in November 2015.

9. Donation
A donation to Swim 4 Life for R110 000 was made in the previous year of assessment (a section
18A receipt was received). Only R99 696 was claimed as a deduction.

10. Other information

The 2014 income tax assessment was received 28 October 2014 reflecting a taxable income of
R885 661. Sea Spray received the 2015 income tax assessment from SARS on 28 August 2015 re-
flecting a taxable income of R806 324.

The first provisional tax payment of R123 993 for the 2016 year of assessment was paid on
20 November 2015. No second provisional tax payment has been made for the 2016 year of assess-
ment yet.

The financial director instructs you to calculate the second provisional payment and make the pay-
ment as soon as possible. You are provided with an estimated taxable income for 2016 of R792 000.

REQUIRED: MARKS

i) Calculate the second provisional tax payment for the 2016 year of assessment that was
due on 29 February 2016, taking the relevant information into account. You can ignore
the interest and penalties that may be applicable for this period because of the late sub- 3
mission and payment.

ii) Calculate the actual tax liability of Sea Spray (Pty) Ltd for the 2016 year of assessment. 20

18
 TAX2601/101

ASSIGNMENT 2: FIRST SEMESTER 2016 (continued)

QUESTION 2 (7 marks, 8 minutes)

Pratley (Pty) Ltd (Pratley) is a start-up company that is in the business of maintaining buildings. The com-
pany does not keep records of its trading stock and expenses and has a February year of assessment.

The following is a summary of the transactions of Pratley for the 2016 year of assessment:

Notes R

Qualifying turnover 950 000

Taxable turnover 650 000
(before taking capital receipts and investment income into account)
Capital receipt 1 156 800
Investment income 2 23 000

Notes:

1. The capital receipt is from a sale of a manufacturing asset used mainly for business purposes. The
asset was purchased on 1 June 2015 for R45 000 and sold for R156 800 on 1 January 2016.

2. Investment income received is made up of dividends of R11 000 (received from a local company) and
R12 000 interest earned on a fixed deposit held with Plusplus bank.

3. Pratley paid a refund of R74 000 in respect of defective paint supplied to Rainbow (Pty) Ltd. This
amount is included as part of the taxable turnover.

4. Pratley paid interim tax of R12 864 on 31 August 2015.

REQUIRED: MARKS

Calculate Pratley (Pty) Ltds tax liability for the 2016 year of assessment, in accordance with
the Turnover Tax system. 7

19
ASSIGNMENT 1: FIRST SEMESTER 2016 (continued)

QUESTION 3 (5 marks, 6 minutes)

Select the letter (a), (b), (c) or (d) that represents the correct answer to the question and write it down next
to the question number (e.g. 1 - b).

1. The South African taxation system is

a) residence based, meaning that persons who are South African residents will be subject to
taxation in respect of all of the income that they earn, in South Africa.
b) source based, meaning that persons who are South African residents will be subject to taxation
in respect of income that they earn in South Africa.
c) residence based, meaning that persons who are South African residents will be subject to tax-
ation in respect of all the income that they earn, anywhere in the world.
d) source based, meaning that persons who are South African residents will be subject to taxation
in respect of all the income that they earn, anywhere in the world.

2. The following are examples of tax on consumption

a) Value added tax, excise duty and customs duty.

b) Value added tax, income tax and excise duty.
c) Value added tax, capital gains tax and excise duty.
d) Value added tax, donations tax and estate duty.

3. Which one of the following statements is true?

a) Interpretation notes form part of the Income Tax Act and are therefore binding.
b) Interpretation notes are not binding; however they assist in the interpretation of tax legislation.
c) Binding general rulings form part of the Income Tax Act and are therefore binding.
d) A taxpayer cannot object to an assessment if SARS has assessed that taxpayer in terms of an
interpretation note.

4. What recourse do taxpayers have with regards to service delivery issues or disputes with SARS?

a) The taxpayer may contact the SARS Service Monitoring Office (SSMO).
b) The taxpayer may lodge a complaint with the Tax Ombud.
c) The taxpayer may lodge a complaint with the Public Protector.
d) All of the above.

5. Which one of the following statements is true?

a) A sole trader is a separate legal entity and is therefore a separate taxpayer.

b) A partnership is a separate legal entity and is therefore a separate taxpayer.
c) A close corporation is a separate legal entity and is therefore a separate taxpayer.
d) None of the above.

20
 TAX2601/101

5 ASSIGNMENTS FOR SECOND SEMESTER STUDENTS

NOTE: SUBMISSION OF ASSIGNMENT 1 IS COMPULSORY IN ORDER TO OBTAIN

ADMISSION TO THE EXAMINATION. ADMISSION WILL BE OBTAINED BY
SUBMITTING THE ASSIGNMENT AND NOT BY THE MARKS YOU OBTAIN FOR
IT. THIS ASSIGNMENT WILL COUNT A MAXIMUM OF 5% OF YOUR FINAL
MARK. PLEASE ENSURE THAT THIS ASSIGNMENT REACHES THE UNIVER-
SITY ON OR BEFORE THE DUE DATE SINCE LATE SUBMISSION WILL RE-
SULT IN YOUR NOT BEING ADMITTED TO THE EXAMINATION. NO CORRE-
SPONDENCE OR TELEPHONIC CONVERSATION WILL THEREFORE BE
ENTERED INTO IN THIS REGARD.

IF YOU INTEND POSTING YOUR ASSIGNMENT, MAKE A COPY OF IT BE-

FORE YOU POST IT TO UNISA, IN CASE YOUR ASSIGNMENT IS LOST IN THE
POST.

WE ADVISE YOU, IF AT ALL POSSIBLE, TO SUBMIT YOUR ASSIGNMENT

ELECTRONICALLY.

IMPORTANT INFORMATION ON MULTIPLE-CHOICE ASSIGNMENTS:

(1) Questions can be answered on a mark-reading sheet or submitted electronically via the
myUnisa online system.

(2) Before completing the mark-reading sheet, study the instructions in My studies @ Unisa.
Read these instructions carefully and follow them exactly to avoid mistakes.

(3) Do your calculations on a separate piece of paper before you complete the mark-reading
sheet.

(4) There is only one correct answer to each question.

(5) All questions are equal in value.

21
 SECOND SEMESTER

ASSIGNMENT 1 (30 marks, 36 minutes)

MODULE DUE DATE UNIQUE NUMBER

TAX2601 22 August 2016 698733

ASSESSMENT CRITERIA FOR THIS ASSIGNMENT

For this assignment, you will need to have achieved the learning objectives set out in learning
units 1 to 4 as contained in MO001/4/2016. This assignment will assess your ability to select the
appropriate option that best reflects the quantitative/qualitative answer to a problem. This assign-
ment will count a maximum of 5% towards your final mark.

REQUIRED: MARKS

Select the number ((1) (4)) that represents the correct answer to the question.

(On the mark-reading sheet there are 5 options; please ignore option 5 for each 30
question in this assignment.)

QUESTION 1

Which one of the following does not form part of income tax?

(1) Value-added tax

(2) Capital gains tax
(3) Turnover tax
(4) Dividends tax

QUESTION 2

The method used to calculate companies tax in South Africa is proportional. What does this mean?

(1) The tax rate increases with the amount of income earned by a company.
(2) The tax rate decreases with the amount of income earned by a company.
(3) The tax rate is fixed.
(4) The tax rate is not determined.

22
 TAX2601/101

ASSIGNMENT 1: SECOND SEMESTER 2016 (continued)

QUESTION 3

When interpreting the wording used in the Income Tax Act, the application of the contra fiscum rule may be
necessary. What does this mean?

(1) The court will apply the interpretation that places the smaller burden on the taxpayer.
(2) The court will apply the interpretation that places the bigger burden on the taxpayer.
(3) The court will apply the interpretation that is more favourable to SARS.
(4) The court will apply the interpretation that is fair for both SARS and the taxpayer.

QUESTION 4

Which one of the following is true of the hierarchy of legal remedies where a taxpayer disagrees with SARS
regarding an assessment?

(1) If the taxpayer is not satisfied with the decision of the Tax Court, they can take the matter to the High
Court.
(2) If the taxpayer is not satisfied with the decision of the Tax Court, they can take the matter to the Tax
Board.
(3) If the taxpayer is not satisfied with the decision of the Tax Board, they can take the matter to Alter-
native Dispute Resolution.
(4) If the taxpayer is not satisfied with the decision of the Supreme Court of Appeal, they can take the
matter to the High Court.

QUESTION 5

Which one of the following is not a tax levied on the consumption of commodities?

(1) Value-added tax

(2) Excise duty
(3) Customs duty
(4) Estate duty

QUESTION 6

Tumi is a newly appointed accountant at Zonke (Pty) Ltd. Tumi has to complete the companys tax return
for the 2016 year of assessment. Which form should she complete?

(1) ITR12
(2) ITR14
(3) IT77
(4) IT3

QUESTION 7

How long, after becoming obliged to register, does a person have to register for tax?

(1) 21 business days

(2) 21 days
(3) 14 business days
(4) 14 days

23
ASSIGNMENT 1: SECOND SEMESTER 2016 (continued)

QUESTION 8

According to the ITA34 issued by SARS for the 2016 year of assessment, Mpho (Pty) Ltd owes SARS
R30 000. The company is dissatisfied with the assessment and has lodged an objection in this regard
which is ongoing. The amount reflected in the assessment is now due for payment. What should the com-
pany do?

(1) Wait for SARS to finalise the objection process before paying anything.
(2) Pay the amount that the company believes is the correct one.
(3) Pay the R30 000 which is reflected on the assessment.
(4) Pay SARS half of the R30 000 and wait for the objection process to be finalised.

QUESTION 9

Which one of the following statements is true for the SARS tax liability payment process?

(1) Each taxpayer decides on the time and manner of the payment.
(2) SARS may not enter into instalment payment agreements with the taxpayer.
(3) Tax must be paid after the day notified by SARS and must be paid in a single amount.
(4) SARS can allocate payments on a first-in, first-out basis over all taxes due by a person.

QUESTION 10

Which of the following persons need to register as a tax practitioner?

I. Lora provides advice on the Income Tax Act.

II. Lebo provides advice on the Companies Act.
III. Lerole assists individuals to complete their tax returns.

(1) I and II
(2) II and III
(3) I and III
(4) I, II and III

QUESTION 11

Which one of the following statements is true of a sole trader for income tax purposes?

(1) The profits from the business are not included in the sole traders taxable income.
(2) A sole trader is not entitled to deductions and capital allowances.
(3) A sole trader is regarded to be a company.
(4) A sole trader is not a separate legal entity.

QUESTION 12

Which of the following statements is not true of a partnership?

(1) Insurance premiums paid by the partnership on the lives of the partners can be claimed as a deduc-
tion.
(2) The partnership is treated as a separate person for VAT purposes.
(3) Termination gratuities and fringe benefits of the gross income definition do not apply to partners.
(4) The partnership is not treated as a separate person for income tax purposes.

24
 TAX2601/101

ASSIGNMENT 1: SECOND SEMESTER 2016 (continued)

QUESTION 13

Which of the following is not a condition that must be fulfilled before an annuity payment to a former partner
can qualify for a s11(m) deduction?

(1) The former partner had been a partner for at least five years.
(2) The payment is in respect of services rendered by the former partner in the past.
(3) The partnership is satisfied that the amount is reasonable.
(4) The payment is in respect of profits made in the partnership.

QUESTION 14

Keamo CC distributed R85 000 of its profits to its members. What are the income tax consequences for
Keamo CC with respect to the distribution?

(1) There will be no Dividends Tax, as a distribution by a close corporation is not a dividend as defined.
(2) The close corporation will be charged with Secondary Tax on Companies of R12 750.
(3) The close corporation will be charged with Dividends Tax of R12 750.
(4) The members will be charged with Dividends Tax of R12 750.

QUESTION 15

Which of the following entities do not fall within the definition of a company for income tax purposes?

(1) Close corporations

(2) Co-operatives
(3) South African public entities
(4) Foreign farmers

QUESTION 16

Which one of the following statements correctly describes a companys year of assessment for income tax
purposes?

(1) The year in which the company is assessed for tax, as companies are not assessed every year.
(2) The companys tax period which the company can select as its preferred date.
(3) The companys tax period which is the same as its financial year.
(4) The companys tax period which must end on the last day of February.

QUESTION 17

Extra-fit (Pty) Ltd is a company based in Tembisa with a 30 June year end. Which Income Tax Act should
the company apply in calculating its taxable income for 30 June 2016?

(1) The 2015 Income Tax Act because the year began on 1 January 2015.
(2) The 2015 Income Tax Act because the 2016 Act will be promulgated after 30 June 2016.
(3) The 2016 Income Tax Act because the new rates were announced in February in the budget speech.
(4) Any Act between 2015 and 2016 because the year end is in-between the two years.

25
ASSIGNMENT 1: SECOND SEMESTER 2016 (continued)

QUESTION 18

Bhekisizwe (Pty) Ltds actual taxable income for the year of assessment ended 29 February 2016 is
R2 670 000. On 31 August 2015, the company paid a provisional income tax payment of R395 000 and
another provisional income tax payment of R376 000 on 29 February 2016. How much income tax is due
to SARS assuming Bhekisizwe (Pty) Ltd is not a small business corporation?

(1) R747 600 payable by Bhekisizwe (Pty) Ltd

(2) R23 400 payable by Bhekisizwe (Pty) Ltd
(3) R177 400 refundable to Bhekisizwe (Pty) Ltd
(4) R23 400 refundable to Bhekisizwe (Pty) Ltd

QUESTION 19

Stacks (Pty) Ltd is a company with 55% shareholding in Pile Up (Pty) Ltd (Pile Up). Pile Ups invest-
ment income and income from a personal service is less than 10% of total receipts and capital gains.
How will the normal tax liability of Pile Up be calculated?

(1) By using the turnover tax table

(2) By applying a 28% tax rate to taxable income
(3) By using the small business corporation tax table
(4) By applying the capital gains tax rates

QUESTION 20

Kgaogelo is a young entrepreneur from Mokopane. She wants to know how her business can qualify as a
small business corporation. Which one of the following is not a requirement for a company to be recogni-
sed as a small business corporation?

(1) All shareholders must be natural persons.

(2) Investment income and personal service income is less than 20% of revenue and capital gains.
(3) None of the shareholders hold an interest in any other company except for certain permitted share-
holdings.
(4) The taxable income for the year of assessment must not exceed R20 million.

QUESTION 21

Siyathanda (Pty) Ltd, a small business corporation, has taxable income of R485 000 for the year of assess-
ment ended 31 December 2015. What is the normal tax liability due to SARS?

(1) R25 200

(2) R45 595
(3) R97 045
(4) R76 650

QUESTION 22

Assume, unlike in question 21, that Siyathanda (Pty) Ltd is a micro business with a taxable turnover of
R485 000. What would the normal tax liability due to SARS be?

(1) R3 350 payable to SARS

(2) R1 500 payable to SARS
(3) R3 350 refundable from SARS
(4) R1 500 refundable from SARS

26
 TAX2601/101

ASSIGNMENT 1: SECOND SEMESTER 2016 (continued)

QUESTION 23

Which of the following is not true of a micro business?

(1) A micro business is taxed on a turnover basis.

(2) A micro business is taxed on a receipt basis and the accrual basis.
(3) A micro business is not required to keep a record of expenses.
(4) A micro business is taxed at a very low rate.

QUESTION 24

Which of the following amounts would not be included in the calculation of taxable turnover for a micro
business?

(1) 50% of receipts from the disposal of immovable property

(2) Investment income if the micro business is a company or close corporation
(3) Dividends and foreign dividends
(4) Revenue received from the sales of goods and services

The following information relates to questions 25 to 30:

Lapeng (Pty) Ltd (Lapeng) is a property management company that manages rental properties on
behalf of its clients, i.e rental is collected from the tenants and paid over to the companys clients (the
owners of the properties). The following are the companys receipts for the year of assessment ending
31 January 2016:
Notes R

Fees for property management services 1 600 000

Interest 2 54 200
Local dividends 3 25 000
Rentals 4 6 329 000

Notes:

1. Included is an asset worth R35 000 given to Lapeng by one of its clients as a form of payment for ser-
vices rendered.
2. The interest earned is from a term deposit Lapeng invested with a local bank.
3. Lapeng received dividends from the shares held in Profit (Pty) Ltd.
4. The rentals received were from properties owned by Lapengs clients.

QUESTION 25

Calculate the taxable income of Lapeng (Pty) Ltd for the year of assessment ended 31 January 2016 assu-
ming the company incurred tax deductible expenditure of R317 400.

(1) R336 800

(2) R654 200
(3) R361 800
(4) R313 000

27
ASSIGNMENT 1: SECOND SEMESTER 2016 (continued)

QUESTION 26

Calculate the normal tax liability of Lapeng (Pty) Ltd for the year of assessment ended 31 January 2016
assuming the companys gross income is R654 200, it has incurred tax deductible expenditure of R317 400
and it is not a small business corporation.

(1) R183 176

(2) R101 304
(3) R94 304
(4) R87 640

QUESTION 27

Which court case should be considered in determining whether the asset worth R35 000 received by
Lapeng (Pty) Ltd will constitute gross income as defined?

(1) CIR v Butcher Bros (Pty) Ltd 13 SATC 21 (A) 1944

(2) Geldenhuys v CIR 14 SATC 419 (A) 1947
(3) CIR v Peoples Stores (Walvis Bay) (Pty) Ltd 52 SATC 9
(4) CIR v Visser 8 SATC 271

QUESTION 28

Which one of the following statements is incorrect with regard to interest received by Lapeng (Pty) Ltd?

(1) The interest is an amount received in cash or otherwise.

(2) The interest was received in favour of Lapeng (Pty) Ltd.
(3) The interest received is not capital in nature.
(4) The interest will be included in Lapeng (Pty) Ltds gross income but R23 800 will be exempt.

QUESTION 29

Which one of the following statements is incorrect with regard to dividends received by Lapeng (Pty) Ltd?

(1) The local dividends will be included in Lapeng (Pty) Ltds taxable income as a net amount of Rnil.
(2) The local dividends will be included in Lapeng (Pty) Ltds gross income as a special inclusion.
(3) The local dividends will be included in Lapeng (Pty) Ltds gross income but will be exempt.
(4) The local dividends will not be included in Lapeng (Pty) Ltds gross income as it will be exempt.

QUESTION 30

Which one of the following statements is incorrect with regard to rentals received by Lapeng (Pty) Ltd with
reference to the gross income definition?

(1) The rentals were received in cash.

(2) The rentals were received in the 2016 year of assessment.
(3) The rentals were received by Lapeng (Pty) Ltd for its own benefit.
(4) The rentals are not of a capital nature.

END OF ASSIGNMENT 1

28
 TAX2601/101

SECOND SEMESTER

ASSIGNMENT 2 (35 marks, 42 minutes)

MODULE DUE DATE UNIQUE NUMBER

TAX2601 12 September 2016 868368

NOTE: NOTE THAT THE MARK OBTAINED FOR THIS ASSIGNMENT WILL FORM
75% OF YOUR YEAR MARK FOR THIS MODULE. YOUR YEAR MARK WILL
CONTRIBUTE 20% TO YOUR FINAL MARK.

ENSURE THAT THIS ASSIGNMENT REACHES THE UNIVERSITY ON OR

BEFORE THE DUE DATE BECAUSE IF YOU SUBMIT IT LATE, THE MARK
OBTAINED FOR THIS ASSIGNMENT WILL NOT FORM PART OF YOUR
YEAR MARK! NO CORRESPONDENCE OR TELEPHONIC CONVERSATION
WILL THEREFORE BE ENTERED INTO IN THIS REGARD.

YOU MAY SUBMIT THIS ASSIGNMENT ELECTRONICALLY, BUT IT MUST BE

IN A PDF FORMAT.

ASSESSMENT CRITERIA FOR THIS ASSIGNMENT

For this assignment, you will need to have achieved the learning objectives set out in learning
units 1 to 6 as contained in MO001/4/2016 and MO002/4/2016.

29
ASSIGNMENT 2: SECOND SEMESTER 2016

QUESTION 1 (25 marks, 30 minutes)

Ntwa (Pty) Ltd (Ntwa) is a company that specialises in the manufacture and supply of military uniforms.
Ntwa has a March year end and is a small business corporation as defined in the Income Tax Act.

Ntwas newly appointed financial accountant requested you to assist him with the companys tax calcula-
tion. The following information was made available to you for the year of assessment ended 31 March 2016.

Receipts and accruals Notes R

Sales 12 500 000
Dividends 1 115 000
Lease premium and rent 2 165 000
Expenditure
Purchase of commercial building 2 1 100 000
Purchases of trading stock 3 ?
Depreciation 4 326 200
Employee expenses 5 2 095 000
Trademark and patent 6 184 850
Bad debts 7 519 000
Provision for doubtful debts 8 51 000
Donation to PBO 9 55 000

Notes:

1. Ntwa received dividends from shares it holds in a local company.

2. On 1 June 2015, Ntwa acquired an existing commercial building for R1 100 000. On 1 August 2015,
Ntwa entered into a lease contract with Thabazimbi (Pty) Ltd (Thabazimbi) whereby Thabazimbi
rents the commercial building from Ntwa for a period of 5 years. In terms of the contract, a monthly
rental of R15 000 is payable from 1 August 2015. A lease premium of R45 000 was also paid by
Thabazimbi on 1 August 2015.

3. The company purchased fabric worth R6 500 350 during the year. The information in the table below
relates to the trading stock balances.

01/04/2015 31/03/2016
Cost price Market value Cost price Market value
R1 535 450 R1 524 400 R1 318 000 R1 320 700

On 1 January 2016, Ntwa distributed stock with a cost of R125 300 and a market value of R115 450
to its employees for free.

4. Depreciation of R326 200 was calculated on all non-current assets. Ntwa owned the following non-
current assets during the year of assessment:
Cost Depreciation
R R
Commercial building refer to note 1 1 100 000 110 000
Manufacturing building (purchased on 15 August 2012) 890 000 89 000
Manufacturing machines (purchased on 1 July 2015) 450 000 90 000
Furniture and fittings (purchased on 1 November 2013) 186 000 37 200
2 626 000 326 200

30
 TAX2601/101

ASSIGNMENT 2: SECOND SEMESTER 2016 (continued)

QUESTION 1 (continued)

Binding general ruling No 7 allows for a write-off period of 6 (six) years for furniture and fittings.

5. Ntwa incurred the following employee expenses:

R
Salaries and wages 1 850 000
Provision for leave pay 245 000
2 095 000

6. Ntwa incurred costs of R180 000 to develop a trademark. These operating costs were incurred from
August 2015 to October 2015 and the trademark was brought into use on 1 November 2015.

A design was purchased for R4 850 and brought into use on 1 June 2015.

7. The following amounts relate to bad debts:

R
Trade debtors 504 000
Employee loans that have proven to be irrecoverable 15 000
519 000

8. Ntwa claimed an allowance for doubtful debts of R10 500 in the 2015 year of assessment.

9. On 22 November 2015, Ntwa donated R55 000 to a public benefit organisation. A section 18A-
receipt was obtained on the same day.

REQUIRED: MARKS

Calculate the normal tax liability of Ntwa (Pty) Ltd for the 2016 year of assessment. 25

Ignore any capital gains tax consequences.

31
ASSIGNMENT 2: SECOND SEMESTER 2016 (continued)

QUESTION 2 (10 marks, 12 minutes)

You are a tax practitioner and the following unrelated case studies are presented to you for your conside-
ration:

1. Ahanang (Pty) Ltd is an architectural firm. The company paid an amount of R500 000 to their former
employee on 1 June 2015 (the date of termination of employment), restraining her from accepting em-
ployment for a period of two years from the date of termination with any architectural firm within a
150km radius of the premises of the company. This amount will be included in the former employees
taxable income for the 2016 year of assessment.
(2)

2. Diyeta (Pty) Ltd is a shoe retailer. A fire broke out at the warehouse destroying shoes which had cost
R30 000. An insurance indemnity amount of R25 000 was received from their insurer.
(2)

3. Koloyi (Pty) Ltd is a truck hire and logistics company that operates nationally. On 1 October 2015, one
of the trucks was in an accident and the company incurred third-party damages of R54 000 as a result.
It was established that at the time of the accident, the driver was texting a message to his wife.
(2)

4. Ndivhu (Pty) Ltd is a pharmaceutical company that just opened a new research and manufacturing faci-
lity for the formulation and filling of modern insulin for the treatment of diabetes. The following expen-
ses were incurred in this regard:
R
Manufacturing machinery (new, unused and purchased on 1 April 2015) 350 000
Research building (purchased on 1 June 2015) 1 000 000
Salaries (related to research and development only, paid from 1 May 2015) 240 000
Testing (related to research and development only, paid from 1 May 2015) 150 000

The application for approval of this project was received and approved by the Department of Science
and Technology on 1 May 2015.
(4)

REQUIRED: MARKS

Indicate the amount deductible or the capital allowance allowable for the 2016 year of
assessment for each of the unrelated case studies listed above. Show all calculations and 10
considerations that need to be taken into account. Assume all companies have a February
year end.

32
 TAX2601/101

6 SELF-ASSESSMENT ASSIGNMENT 3 FOR BOTH SEMESTERS

This assignment is based on a previous examination paper. This is a self-

assessment assignment and you do not submit this assignment to Unisa.

You can find this assignment in Tutorial Letter 201

NOTES

UNISA
LW/(as)
Ref: TAX2601_2016_TL_101_3_E.docx

33