LML4804 October November Portfolio (ANSWERS) Semester 2 2025 - DISTINCTION GUARANTEED

Well-structured LML4804 October November Portfolio (ANSWERS) Semester 2 2025 - DISTINCTION GUARANTEED. (DETAILED ANSWERS - DISTINCTION GUARANTEED!)..... QUESTION 1 (GROSS INCOME) After retiring from playing professional hockey, Lentumetse applied for a liquor licence on 04 April 2023 in order to start a liquor business in Bopcity (Pretoria, Gauteng). Although Lentumetse only received her licence on 08 July 2023, she had already commenced trading in April 2023 under the name Lentumetse’s Pub. On 23 January 2024, Lentumetse’s Pub earned a profit of R420 000. Noticing the success of the business, her friend Kgopotso advised her to join Events Support Club (“ESC”). When a person becomes a member of the ESC, their name is added to the list of distributors which supply organisations, companies or individuals hosting events or functions with liquor on credit. The distributor will then receive payment within three months after the hosting of such event or function by such organisation, company or individual. On 15 December 2024, Lentumetse’s Pub (as a member of the ESC), supplied liquor worth R400 000 to Date & Wedd Event Organisers (Date & Wedd). After Date & Wedd had hosted a successful high-profile celebrity marriage during December 2024, it paid only R250 000 to Lentumetse’s Pub on 28 February 2025 from the total invoice of R400 000. However, Date & Wedd refused to pay the balance owing to a dispute related to the quantum of liquor that was supplied by Lentumetse’s Pub. On 29 April 2025, the outstanding balance of R150 000 was paid after the dispute was resolved as it was proven that Lentumetse’s Pub had indeed supplied the correct amount of liquor to Date & Wedd. Lentumetse’s frustrations began when the business was not able to generate quick profit as a result of selling liquor on credit. In order to increase her business profit margins, she came up with an idea to invite a top local DJ to perform at her pub on the last Saturday of every month. She charges each person an entrance fee of R50. During July 2025, Lentumetse’s Pub made a whopping profit of R1,5 million. However, the community raised complaints against Lentumetse’s Pub. Two of the complaints were that Lentumetse’s Pub sells alcohol to children under the age of 18 and also that the pub operated until 05:00 in the morning. The Liquor Board and South African Police Service (“SAPS”) investigated the complaints, and the investigations revealed that Lentumetse’s Pub sold alcohol to children under the age of 18 years and that Lentumetse’s Pub operated outside regulated hours. Further to the investigations, the police also discovered that Lentumetse’s Pub sold prohibited and illegal substances such as dagga and drugs. Lentumetse’s Pub liquor licence was terminated, and Lentumetse, as the owner, was subsequently arrested. WHAT IS REQUIRED OF YOU: 1.1 Discuss in which tax year/s the income received by Lentumetse’s Pub in January 2024, February 2025 and April 2025 will fall into and motivate your answer with reference to relevant applicable legal principles. [10] 1.2 Advise Lentumetse’s Pub on whether it will be liable for income tax on the income received from charging entrance fee. Also, advise whether it will be liable for income LML4804 OCT/NOV EXAM 2025 tax on the profit received from the sale of prohibited and illegal substances such as drugs and dagga. [5] SUB-TOTAL FOR QUESTION 2 [15 marks] QUESTION 2 (DEDUCTIONS) Iketleng Spa (Pty) Ltd (“Iketle”) is a well-known and respected spa that has been in this business for fifteen years. One of the reasons why Iketle has been successful in this industry is that Ms Moon, the CEO of Iketle, has introduced the following programmes; • Iketle pays for Miss Sun to attend a workshop held annually by the Department of Health in which the attendees are taught about wellness treatments, gaining expertise in basic salon services. The workshop costs R8 000 annually; • Miss Sun, a consultant, also attends the ethical leadership seminar held by Padi Business Leadership Consultant (Pty) Ltd (“PBLC”). The seminar costs R3 000 annually; • Miss Star and Miss Galaxy are somatologists and, as such, Mr Moon, on behalf of Iketle, has taken an insurance policy for injuries, death or illness which might occur to them in the performance of their duties. The company pays a total premium of R12 000 per annum respectively; and • Each year, mostly towards the end of the year, all the employees of the company go on a vacation sponsored by the company for team building purposes and the company spends R50 000 annually for such activities. WHAT IS REQUIRED OF YOU? 2.1 With reference to the Income Tax Act 58 of 1962 and case law, advise Iketleng Spa (Pty) Ltd on the deductibility of all the expenses. [15] QUESTION 3 (CGT) Mrs Gomolemo Molate (Momo), is a South African resident residing in Bela-Bela, Limpopo Province. She worked for one of the top auditing firms in the country, PMP Auditors, as a chartered accountant for 10 years. On 15 May 2023, she was invited to an interview at the South African Renewable Energy Agency, a State-Owned Enterprise, for the position of Chief Executive Officer (CEO). After going through a gruelling interview with other potential candidates, she received an appointment letter from the chairperson of the board informing her that she was the successful candidate. Her responsibilities would include, amongst others, implementing government’s plan to transition to renewable energy. LML4804 OCT/NOV EXAM 2025 After a long discussion with her husband, in June 2023 Momo decided to resign from PMP Auditors to take her new role as a CEO. 3.1. Discuss how the residency of a taxpayer influences their capital gains tax consequences. [5 marks] 3.2. Discuss the capital gains tax consequences should Momo receive R3 million worth of shares and R5 million as severance package from PMP Auditors. [5 marks] 3.3. Discuss the capital gains tax consequences should Momo use part of her R5 million severance package to buy a penthouse in the CBD of Johannesburg. [2 marks] 3.4. Discuss the capital gains tax consequences should Momo donate her Kruger Rands worth R500 000 to her husband. [2 marks] 3.5. Briefly provide an example to illustrate the difference between repairs and improvements for capital gains tax purposes. [1 mark] [15 marks] Question 4 (Tax Admin and Tax Avoidance) Early in 2023, RightToK, an organisation known for leading and advocating for transparency against government official representatives made an application to South African Revenue Service (SARS), in terms of the Promotion to Access of Information Act 2 of 2000 (PAIA), to gain access to Mr Brown’s tax records. The application was based on allegations that were published in an article by GossipNews Media House that during the years of 2019 and 2022 Mr Brown was not tax compliant. SARS rejected RightToK’s application on the basis that Mr Brown was entitled to confidentiality under sections 34(1) and 35(1) of PAIA as well as section 69(1) of the Tax Administration Act 28 of 2011. RightToK decided to take the matter to the court to seek a court order that will compel SARS to release Mr Brown’s tax information/records. 4. Advise RightToK’s chances of it being successful in its application to the court.