TAX3761/ASSIGNMENT2/2021

TAX3761/ASSIGNMENT2/2021. TAX3761 - Taxation Of Business Activities And Individuals. During the current year of assessment, Gift kept an accurate logbook of his travelling. which indicated the following distances travelled: - 13 000 km: from home to employers’ customers; - 6 000 km: from employers’ office to employers’ customers; - 2 000 km: between employers’ customers; - 4 000 km: from home to employers’ office and back; and - 3 000 km: private. Gift kept accurate record of his motor vehicle expenses for the year of assessment, which is made up as follows: R Fuel 36 400 Repayment of financial institution instalment sale agreement: capital : interest 72 000 24 000 Toll fees 8 000 Insurance 21 000 Replacement of tyres (not covered by maintenance plan) 12 000 Maintenance covered by maintenance plan 15 000 Cleaning 6 000 Total 194 400 4. Use of employer equipment From 1 December 2020 to 31 January 2021, Gift’s employer allowed him to make use (at no cost) of some of its equipment in order to do maintenance work at his let residence (refer to note 6). The employer purchased some of the equipment three years ago at a cost of R210 000. The market value of this equipment is currently R180 000. The other equipment Gift used, is leased by the employer at R6 500 per month and has a market value of R375 000 and originally cost R415 000. Gift paid his employer R3 000 per month for the leased equipment. 5. Purchase of materials from employer for use in garden at let residence Gift purchased organic materials from his employer to use in the garden at his let residence (refer to note 6). The materials cost his employer R12 000 to produce and has a market value of R18 000. Gift paid his employer R9 000 for the materials. 6. Home office expenses and rental receipts/expenditure Gift utilised 5% of his primary residence as his home office in order to administer the rental activities of a second residence he owns, that is let to tenants. Gift’s home office expenses are deductible for income tax purposes. This study source was downloaded by from CourseH on :15:49 GMT -05:00 This study resource was shared via CourseH 5 TAX3761/Assign 2 QUESTION 1 (continued) Details of the home office expenditure and rental receipts and rental expenditure are as follows: Residence Primary R Let R Rental receipts from 1 March 2020 to 28 February 2021: Deposit received from new tenants on 1 March 2020 (kept in a separate bank account) - 12 000 Rental income – March 2020 to February 2021, R10 500 per month - 126 000 Deposit of previous tenant not paid back to tenant, used part in lieu of February 2020 rent (R10 000) not paid by previous tenant - 10 000 Residence Primary R Let R Home office expenditure and rental expenditure from 1 March 2020 to 28 February 2021: Property rates and taxes Electricity 22 000 42 000 17 000 - Monthly levies Payments to financial institution in respect of bond: - capital - 28 000 - interest - 4 000 Installation of an alarm system - 25 000 Agent’s commission - 12 600 Maintenance – payment to employer for use of equipment (note 4) Purchase of materials from employer for use in garden (note 5) General maintenance expenditure Security levies Balance of deposit refunded to previous tenant – the total deposit amounted to R11 000, of which only R1 000 was refunded to the tenant, due to the tenant not having paid the February 2020 rent of R10 000 (refer above under rental receipts) - - 3 000 7 000 - 6 000 9 000 5 000 3 400 1 000 7. Foreign dividends Gift holds less than 10% of the shares of foreign company X. The dividend he received was after withholding tax of 10%. No special exemptions apply to the above foreign dividends. 8. Medical The medical expenses are made up as follows: R Gift’s medical aid contributions for the entire year of assessment 70 000 Gift’s employer medical aid contributions for the entire year of assessment 110 000 Portia and the two minor children are the only dependents listed on Gift’s medical aid fund. One of the children has a disability as defined. This study source was downloaded by from CourseH on :15:49 GMT -05:00 This study resource was shared via CourseH 6 QUESTION 1 (continued) 9. Retirement fund contributions Gift contributed 15% of his total salary towards a pension fund. His employer also contributed 8% of his total salary towards the pension fund. These contributions were made the entire year of assessment. You may assume that Gift’s remuneration was R2 025 000 for the year for purposes of this calculation only. Gift further contributed R19 000 per month towards a retirement annuity fund for the entire year of assessment. 10. Income earned by Portia Portia earned the following income during the entire year of assessment: R Salary 300 000 JSE listed Real Estate Investment Trust (REIT) dividends (not from a tax-free investment) 72 000 REQUIRED: MARKS Calculate Gift’s net normal income tax for the 2021 year of assessment. 80 QUESTION 2 (10 marks, 18 minutes) On 1 July 2020, Grapefruit (Pty) Ltd, a resident company, made the following distributions: 1. ABC Ltd – Issued 65 000 shares to ABC Ltd (a resident company) at R15,40 per share. R12,93 of the R15,40 represents a reduction in contributed tax capital. 2. DEF Trust – Made a gratuitous distribution to the DEF Trust in respect of its shareholding in the company to the amount of R126 800. 3. Savemymoney pension fund – Issued 16 800 shares to the pension fund at R10,90 per share. 4. Thandeka Masela – Made a payment of R25 000 to Thandeka Masela (resident of RSA, not an employee of Grapefruit) for services rendered to the company and issued 5 000 shares to Thandeka Masela at R8,45. REQUIRED: MARKS Determine whether the distributions are dividends as defined, and if so, also determine the dividend amount payable to the shareholders and the dividend tax to be withheld by Grapefruit (Pty) Ltd for the 2021 year of assessment.