TAX3702 LATEST REVISION PACK-EXAM

TAX 3702 TAXATION OF INDIVIDUALS SIMULATED EXAM Question Subject Marks Minutes 1 Net normal tax and retirement benefits 38 68 2 Capital gains tax 14 25 3 Employees’ tax 20 36 4 Donations tax and estate duty 18 32 5 General deduction formula 10 18 TOTAL 100 180 TAX3702 LATEST REVISION PACK-EXAM 2 TAX3702 Simulated exam [TURN OVER] QUESTION 1 (38 marks, 68 minutes) ZA Apparel (Pty) Ltd, a South African clothing manufacturer, employed Richard (56 years old) as a regional sales manager in 2010. After a number of years of incurring losses, the company was forced to close all its operations and ceased trading on 31 October 2016. Richard, along with the rest of the workforce, was retrenched with effect from that date. He remained unemployed for the remainder of the 2017 year of assessment. Richard is married out of community of property. He supplies you with the following information relating to the 2017 year of assessment: Notes R Income/benefits Total salary received up to date of retrenchment 205 000 Travel allowance 1 60 000 Free airline tickets 2 ? Pension fund lump sum 3 600 000 Unemployment insurance benefits 4 11 000 Foreign dividends received 3 000 Expenses/contributions Medical expenses 5 32 600 Current pension fund contributions 6 18 000 Notes 1. Travel allowance Richard received a travel allowance from 1 March 2016 to the date of his retrenchment. His vehicle was purchased under a finance lease on 1 June 2015 at a cost of R260 000 (VAT inclusive). Richard kept an accurate record of all costs relating to his vehicle during the period in which he received the allowance. The insurance premiums of the vehicle amounted to R8 200 and fuel costs amounted to R9 500. Finance charges for the full five-year term of the finance lease amounted to R88 000. His logbook, for the period from 1 March 2016 to the date of his retrenchment, indicated that he travelled 9 800 kilometres in total (1 400 kilometres of which were for private purposes). 2. Free airline tickets During April 2016, Richard received two free return airline tickets to Durban from his employer. Richard used these tickets for a weeklong vacation for him and his wife. The tickets cost his employer R6 900. The normal market value of the tickets was R7 300. 3. Pension fund lump sum On 31 October 2016, Richard received his pension fund lump sum of R600 000 as his employer ceased trading. Previously (during the 2016 year of assessment), Richard had received a retirement annuity fund lump sum amounting to R550 000. 3 TAX3702 Simulated exam [TURN OVER] QUESTION 1 (continued) 4. Unemployment insurance benefits During his term of unemployment, Richard received benefits totalling R11 000 that were paid to him in terms of the Unemployment Insurance Act. 5. Medical expenses Richard’s medical aid contributions amounted in total to R2 600 per month, throughout the year of assessment. While he was employed, Richard’s employer contributed 40% of the monthly payment. Following his retrenchment, Richard paid 100% of the monthly contribution. A medical expense of R16 400 (paid during December 2016) was not covered by Richard’s medical aid. The expense was in respect of a consultation with a registered herbalist. Richard’s wife is his only dependant on the medical fund. Neither he nor his wife has a disability as defined. 6. Current pension fund contributions Richard’s current pension fund contributions amounted to R18 000 during the period that he was employed. His current pension fund contributions that were disallowed in previous years of assessment amount to R45 000. You may assume that Richard’s remuneration for the period was R270 000. REQUIRED: MARKS (a) Calculate Richard’s net normal tax (excluding the lump sum) for the 2017 year of assessment (b) Calculate the tax payable on the pension fund lump sum that Richard received during the 2017 year of assessment. 33 5 QUESTION 2 (14 marks, 25 minutes) Jerry Naidoo, a shop owner, is 62 years old and married to Vanessa in community of property. Jerry owns a building in Gauteng. The building has three stories (floors). The ground floor is used to run his shop and the first and second floors are used as the family’s primary residence. The shop comprises 30% of the building’s floor space. Jerry purchased the building in March 1993 and paid R850 000 for it. The ground floor area of the building had already been used as a shop when he purchased it. Jerry had the shop improved during 2006. The shop improvements were completed at a cost of R400 000 on 3 October 2006. During 2007, Jerry had the residential area improved at a cost of R300 000. This entailed the installation of jacuzzis and built-in cupboards in every bedroom. He also purchased new loose-standing kitchen equipment at a cost of R80 000. On 15 November 2016, a fire originated in the shop and destroyed the entire building.