TAX3701 Assignment 1 (ANSWERS) Semester 1 2026 - DISTINCTION GUARANTEED

Comprehensively structured TAX3701 Assignment 1 (ANSWERS) Semester 1 2026 - DISTINCTION GUARANTEED. Prepared to a distinction standard with detailed and well-developed responses. A vendor purchases goods for R11,500 (incl. VAT). What is the input tax? R1150 R1500 R1750 R1200 R1000 A vendor who charges VAT on goods and services sold is levying: Input tax Output tax Exempt tax Zero-rated tax Standard rated tax What does the term “actually incurred” mean in tax law? Paid in cash Legal obligation to pay Contract signed Invoice received Amount budgeted What is the standard VAT rate in South Africa as of 1 April 2018? 10% 12.5% 14% 15% 16% What is the maximum qualifying turnover for a micro business under turnover tax? R500 000 R1 million R1,5 million R2 million R3 million Which legal form is ineligible for turnover tax? Natural person Partnership of individuals Close corporation Trust Private company with R1m turnover Which of the following is not required for turnover tax registration? Natural person or qualifying entity Turnover R2m Application before year of assessment Permanent physical office SARS approval A supply of basic brown bread is classified as: Exempt Zero-rated Standard-rated Imported Not a supply VAT in South Africa is classified as which type of tax? Direct tax Indirect tax Provisional tax Capital gains tax Corporate tax What is the effect of exceeding R1 million turnover during the year? Deregistration the next year Switch to standard tax immediately Penalty of R50 000 VAT must be paid SARS audit triggered Which section prohibits deductions not incurred in the production of income? Section 7 Section 11(e) Section 23(g) Section 12B Section 10(1)(o) What is the correct definition of gross income for companies? Total amount received/accrued excluding capital nature All receipts from any source All receipts and accruals of a capital nature All amounts received in cash Total taxable turnover Which case clarified the term “in the production of income”? PE Tramway Co Ltd CIR v Pick n Pay Share Trust ITC 1783 Sub-Nigel Ltd v CIR Smith v CIR Which section of the Income Tax Act provides for the general deduction formula? Section 1 Section 11(a) Section 23(g) Section 10 Section 12C Which of the following may not be claimed as input tax? Fuel for delivery vehicles Raw materials Business entertainment Rent for business premises Telephone expenses Which of the following is excluded from turnover? Sale of goods Commission income Interest income Cash services Trading stock sales When must a taxpayer elect turnover tax treatment? Any time in the tax year Before year-end By 31 October Before the start of the tax year After submitting provisional tax Which of the following cannot be claimed as input VAT? VAT on business machinery VAT on office supplies VAT on a sedan used for business travel VAT on raw materials used in production VAT on stock purchased for resale Which of the following is an exempt supply? Sale of books Lease of commercial building Supply of water Financial services Import of machinery Which of the following best describes the purpose of the turnover tax system? Tax profits at a reduced rate Simplify tax for small business Encourage imports Eliminate the need for financial records Tax shareholders directly When is a business required to register for VAT in South Africa? When it makes taxable supplies of R50 000 per year When it makes taxable supplies of over 2.3 million a year When it makes taxable supplies of R10 million per year When it imports goods When it makes zero-rated supplies Which of the following disqualifies a company from using turnover tax? Only one shareholder Owns fixed property Employs 10 workers Holds shares in another company Trades in cash only Which of the following is included in gross income? Capital receipt Donation received Rent received Loan proceeds Share capital Which of the following is an exempt supply for VAT purposes? Bread Public transport fares Medical aid Petrol Baby formula How is tax calculated under the turnover tax system? Based on net income Using PAYE tables On gross turnover On taxable capital gains On profits minus expenses Which of the following is an advantage of turnover tax? Lower effective tax rate All expenses are deductible Reduced compliance burden Allows capital gains roll-over Full VAT refund eligibility What does “accrued to” mean in terms of the gross income definition? Physically received Legally entitled Deferred income Deposited in bank Records in financials What is the starting point for calculating taxable income for a company? Accounting profit Capital gains Turnover Gross income Taxable turnover A taxpayer sells trading stock for R50,000. Cost was R20,000. What is the gross income? R20 000 R30 000 R50 000 R0 Which of the following is not a requirement under the general deduction formula? Trade must be carried on Expense must be in the production of income Expense must be capital in nature Expense must be actually incurred Expense must not be of a private nature What type of expenditure is specifically disallowed under section 23(g)? Entertainment VAT Not incurred in production of income Staff bonuses Insurance Which of the following is an exempt supply? Sale of books Lease of commercial buildings Supply of water Financial services Import of machinery What is the output VAT on a sale of R230,000 (incl. VAT)? R30 000 R29 565 R34 500 R31 000 R25 000 What type of VAT invoice must a vendor issue for a sale over R5,000? Pro forma invoice Quotation Taxation Debit note Credit note Which of the following is excluded from turnover? Sale of goods Commission income Interest income Cash services Trading stock sales Which section of the Income Tax Act provides for the general deduction formula? Section 1 Section 11(a) Section 23(g) Section 10 Section 12C Which case confirmed the meaning of “in the production of income”? CIR v George Forest Timber Smith v CIR PE Electric Tramways Co Ltd v CIR CIR v Pick 'n Pay Employee Share Purchase Trust Sub Nigel Ltd v CIR An amount is deductible under the general deduction formula if: It's for private purposes It was approved by SARS It relates to capital assets It was incurred in the production of income It reduces the taxpayer's tax bill What is the correct definition of gross income for companies? All receipts from any source All receipts and accruals of a capital nature All amounts received in cash Total taxable turnover Total amount received/accrued excluding capital nature Which of the following is capital in nature? Long-term advertising campaign Repairs to delivery vehicle Interest on working capital Legal fees to collect trade debts Staff salaries A business receives a deposit of R100,000 for a future service. It is: Gross income Exempt income Capital in nature Not yet accrued Deferred revenue Which of the following qualifies as a deduction under section 11(a)? Loan repayment Purchase of land Repairs to factory Acquisition of patent rights Provision for doubtful debts Depreciation is not deductible. Which alternative is allowed? Revaluation surplus Capital allowance Wear and tear allowance under s11(e) Impairment loss Market value adjustment Which of the following best describes trade as defined in the Income Tax Act? Only sale of goods Sale of services Every profession, trade or business Agricultural activities only Passive investment What must be shown to satisfy “in the production of income”? Expense was paid Expense was necessary Expense was closely linked to income-producing activities Expense created assets Expense was in the budget What does the term “actually incurred” mean in tax law? Paid in cash Legal obligation to pay Contract signed Invoice received Amount budgeted Which case clarified the term “in the production of income”? CIR v Pick n Pay Share Trust Port Elizabeth Tramway Co Ltd v CIR Sub-Nigel Ltd v CIR Smith v CIR ITC 1783 Which supply is classified as exempt? Sale of gold coins Sale of milk Public bus transport Commercial rental Export of wine Which of the following is not required for turnover tax registration? Natural person or qualifying entity Turnover R2m Application before year of assessment Permanent physical office SARS approval Which of the following is not taxable as part of gross income? Services rendered Sale of stock Interest received Donation received Rent received What is the standard VAT rate in South Africa (2025)? 10% 12% 13% 14% 15% A vendor purchases goods for R11,500 (incl. VAT). What is the input tax? R1150 1500 R1725 R1200 R1000 Which of the following is a zero-rated supply under the VAT Act? Lease of residential accommodation Electricity Export of goods Sale of motor vehicle Sale of second-hand clothing What is the starting point for calculating taxable income for a company? Accounting profit Capital gains Turnover Gross income Taxable turnover What is the starting point for calculating taxable income for a company? Accounting profit Capital gains Gross income Taxable turnover Which legal form is ineligible for turnover tax? Natural person Partnership of individuals Close corporation Trust Private company with R1m turnover Which of the following is not a requirement for voluntary VAT registration? Expecting turnover R50 000 Business must be making taxable supplies Must keep proper records SARS must approve Must be a natural person Which of the following is an advantage of turnover tax? Lower effective tax rate All expenses are deductible Reduced compliance burden Allows capital gains roll-over Full VAT refund eligibility VAT returns are typically submitted: Weekly Monthly Bi-monthly (every 2 months) Quarterly Annually A taxpayer sells trading stock for R50,000. Cost was R20,000. What is the gross income? R20 000 R30 000 R50 000 R70 000 R0 Which of the following is a capital receipt and not included in gross income? Services rendered Sale of fixed property Management fees Rental income Interest on deposits Which of the following may not be claimed as input tax? Standard rated Zero rated Exempted Imported Deemed supply A supply of basic brown bread is classified as: Exempt Zero-rated Standard rated Imported Not a supply What is the maximum qualifying turnover for a micro business under turnover tax? R500 000 R1 million R1.5 million R2 million R3 million When must a taxpayer elect turnover tax treatment? Any time in the tax year Before year-end By 31 October Before the start of the tax year After submitting provisional tax How is tax calculated under the turnover tax system? Based on net income Using PAYE tables On gross turnover On taxable capital gains On profits minus expenses What type of income is specifically included in gross income regardless of capital nature? Winnings from legal lotteries Donations Interest Rental from private use Proceeds from fixed asset sales A vendor must retain VAT records for: 2 years 3 years 5 years 6 years 10 years When is a person required to register for VAT? If turnover exceeds R50 000 Once assets exceed R1 million When taxable turnover exceeds R1 million in 12 months Voluntarily at any time If expenses exceed income What is the effect of exceeding R1 million turnover during the year? Deregistration the next year Switch to standard tax immediately Penalty of R50 000 VAT must be paid SARS audit triggered Which of the following is not a requirement under the general deduction formula? Trade must be carried on Expense must be in the production of income Expense must be capital in nature Expense must be actually incurred Expense must not be of a private nature What is the correct definition of gross income for companies? All receipts from any source All receipts and accruals of a capital nature All amounts received in cash Total taxable turnover Total amount received/accrued excluding capital nature An expense of R20,000 was incurred for an advertising campaign. The campaign is expected to last 3 years. How is it treated for tax purposes? Deductible in full Capital in nature and not deductible Spread over 3 years Deferred expense Deductible under s11(e) Which of the following is included in gross income? Capital receipt Donation received Rent received Loan proceeds Share capital What does “accrued to” mean in terms of the gross income definition? Physically received Legally entitled Deposited in bank Deferred income Recorded in financials The recoupment of a previously deducted asset is: Capital receipt Deductible again Taxable income VAT inclusive Not taxed What is the main purpose of the general deduction formula? Increase tax revenue Determine exempt income Provide for allowances Calculate allowable business deductions Define capital expenditure If a vendor only makes exempt supplies, it: Must still register for VAT May register voluntarily Cannot register for VAT Must deregister annually Must submit monthly VAT returns Which of the following fails the general deduction formula? Salaries Repairs to machinery Loan repayments Business telephone bill Rent for business premises What is the tax treatment of exempt income? Included in taxable income Included in gross income Deducted from tax payable Excluded from gross income Offset against expenses Which of the following items is subject to standard VAT? Export of oranges Public transport Brown bread Sale of a used car by a dealer Lease of a residential house Which of the following is included in gross income? Capital receipt Donation received Rent received Loan proceeds Share capital Which of the following best describes the purpose of the turnover tax system? Tax profits at a reduced rate Simplify tax for small businesses Encourage imports Eliminate the need for financial records Tax shareholders directly Which of the following disqualifies a company from using turnover tax? Only one shareholder Owns fixed property Employs 10 workers Holds shares in another company Trades in cash only The taxpayer spent R10,000 on fines for traffic violations. How is this treated? Fully deductible Partially deductible Deferred for 3 years Disallowed Claimed under fringe benefit rules