LML4804 Assignment 1 (DETAILED ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED

LML4804 Assignment 1 (DETAILED ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references .. QUESTION 01 (Gross-income) 1.1 Freedom Movement Party (FMP) is a newly established political party which was registered to contest 2024 National and Provisional elections. It concluded a contract with Green Print Media House (Pty) Ltd (GP Media House). In terms of the contract, GP Media House had to print 3000 3D posters on behalf of FMP depicting the image of its leader for its campaign. GP Media House was also expected to air FMP political advertisements through its media partners on radio stations and television. On April 2024, FMP paid a deposit of R150 000 and undertook to pay the remainder amount on 30 June 2024. After the conclusion of national elections, FMP reviewed its performance on the national elections and noted that it did not accumulate enough votes it hoped for. A report from the external service provider appointed by FMP to investigate its poor performance, concluded that FMP did not reach large audience. On August 2024, FMP wrote a letter to GP Media House notifying the company that it will no longer pay the outstanding amount to GP Media House and it also considered its options to sue the company for its failure to honour the contractual obligations between the parties. As part of the contractual obligation between the parties, FMP learned that GP Media house failed to air its political adverts on radio station and television according to the agreed dates. It transpired that FMP political advert was only aired on radio station and television a day prior the date of the national elections. GP Media House referred the matter to court to demand the outstanding amount owed by FMP. The matter was set down for hearing for 05 October 2024. WHAT IS REQUIRED OF YOU? With reference to tax law and case decision, discuss whether the deposit paid and the outstanding amount still owed by FMP will be included in the Gross Income of GP Media House. [10 marks] 1.2 Ian and Pogi are South African residents who were part of the cricket players selected to represent their national cricket team for 2023/2024 SA Cricket Tour. Due to the number of cricket matches which the national team has to participate in outside the country, Ian and Pogi found themselves spending 340 days outside South Africa. Johanna, a final year LLB student advised Ian and Pogi that the match fees and bonuses they receive while on tour outside South Africa will be excluded from their gross income tax in South Africa. WHAT IS REQUIRED OF YOU? With reference to the relevant authority, advise Ian and Pogi on the reliance of Johanna advice. [05 marks] QUESTION 02 (Deductions) 2.1 Xolani was retrenched from Biscuits & Cakes Bakers (B&C Bakers), a company that he worked for a period of 15 years. On 20 February 2023 he decided to use his severance package to start his own baking business in the garage at his hometown, Witbank, Mpumalanga. As part of a start-up, he purchased the following: • Electric Bread and Cake Machine Baker for R50 000 • Flour Mixer Machine for R30 000 • Bakkie for R300 000 • 2 X 100kg Flour for R3000 • 200 x 10kg of Anchor Yeast for R15 000 • 300 x 500g Butter for R6000 • 10kg of Table Salt for R300 • 20kg of White Sugar for R1200 In addition to the expenses mentioned above, Xolani paid R1200 for his trading certificate annually and he will also pay a bill of water and electricity when it becomes due every month end to the local municipality. On 05 April 2024, Xolani’s business started operating. WHAT IS REQUIRED OF YOU? Advise Xolani, with reference to case law and relevant legislation, on the deductibility of the expenses mentioned above. [10 marks] 2.2 The above facts apply. Whole Wheat (Pty) Ltd (WW) have agreed to pay Xolani R500 000 in settlement after they have supplied damaged goods to Xolani. Xolani also incurred R100 000 in legal fees on his case against WW. WHAT IS REQUIRED OF YOU? Advise Xolani, with reference to case law and relevant legislation, on the deductibility of the legal fees he incurred.