TAXA6212T2a BAC

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22 2022

MODULE NAME: MODULE CODE:


TAXATION 2A TAXA6212

ASSESSMENT TYPE: TEST (PAPER ONLY)


TOTAL MARK ALLOCATION: 60 MARKS
TOTAL TIME: 1 HOUR (10 minutes reading time)
By submitting this assessment, you acknowledge that you have read and understood all the rules
as per the terms in the registration contract in particular the assignment and assessment rules in
The IIE Assessment Strategy and Policy (IIE009) the intellectual integrity and plagiarism rules in the
Intellectual Integrity Policy (IIE023) as well as any rules and regulations published in the student
portal.

INSTRUCTIONS:
1. Please adhere to all instructions in the assessment booklet.
2. Independent work is required.
3. Five minutes per hour of the assessment to a maximum of 15 minutes is dedicated to
reading time before the start of the assessment. You may make notes on your question
paper, but not in your answer sheet. Calculators may not be uses during reading time.
4. You may not leave the assessment venue during reading time, or during the first hour or
during the last 15 minutes of the assessment.
5. Ensure that you name is on all pieces of paper or books that you will be submitting. Submit
all the pages of this assessment’s question paper as well as your answer script.
6. Answer all the questions on the answer sheets or in answer booklets provided. The phrase
‘END OF PAPER’ will appear after the final set question of this assessment.
7. Remember to work at a steady pace so that you are able to complete the assessment within
the allocated time. Use the mark allocation as a guideline as to how much time to spend on
each section.
Additional instructions:
1. This is a CLOSED BOOK assessment.
2. Calculators are allowed.
3. Show all calculations, where applicable (marks may be awarded for this).
4. Round all calculations to the nearest Rand where applicable.

© The Independent Institute of Education (Pty) Ltd 2022


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22 2022

Question 1 (Marks: 15)

Arnold Tilwick, a South African resident, is a successful sugarcane farmer in Tongaat, KwaZulu-Natal.
He purchased his land in 1952 for R3 000 and had been farming on the land ever since. During the
1990s, Arnold erected a sugar mill on a corner of the farm which he handed over to his son Anthony
as he was still extremely passionate about continuing with the farming operations. His main focus
was making the farm a profitable business.

In 2008, Anthony got married, and he and his wife moved into one of the two residences on the
farm.

During the last five years, Arnold has received several offers to buy part of the land, especially the
portion located adjacent to the N2 (a national highway). Various developers wanted to buy the land
to develop new properties on it. Arnold, however, continuously refused these offers as he wanted
to continue his farming operations. During March 2021 though, Arnold received an offer for part of
the land that he simply could not refuse. On 15 April 2021, Arnold sold a small piece (15%) of his
land to a local, commercial property developer, Propmax (Pty) Ltd. Arnold received R2.5 million for
this 15% portion of land sold. The open market value on this land at the time of the sale was R2
million. Arnold was not involved in the development of the land but did attend various meetings on
the process of developing, as it impacted the operations of the farm.

Required:
Discuss if the R2.5 million received by Arnold for the piece of land will be included in his gross
income for the 2022 year of assessment. Refer to the relevant principles in relevant case law.
You are not required to discuss all parts of the definition, but rather your focus should be on
whether the amount is capital in nature or not.

© The Independent Institute of Education (Pty) Ltd 2022


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22 2022

Question 2 (Marks: 45)

Cast It In (Pty) Ltd (hereafter referred to as Cast It In) was formed by Jean Pierre who originated
from Fresnoy Le Grand in France, where his family had an existing foundry that produced porcelain
enameled cast iron pots from the early 1900s. Jean Pierre emigrated to South Africa in the 1990s
and established his own Foundry nestled in Magaliesburg and continued to produce the same range
that was manufactured in France.

Jean Pierre has expanded the type of products Cast It In offers and has taken advantage of many
technological advances since his family business started in the early 1900s. However, the company
has continued to use the hand-crafted techniques and the original process of forging and casting in
the manufacturing of its cookware. This attention to its heritage is also characteristic of the design.
As a result, Cast It In’s products are now sold in more than 40 countries across the world, including
the UK, US and Australia.

The company is NOT a small business corporation as defined. The current financial year ends on 30
September 2022. You may assume that current legislation applies to Cast It In. All amounts exclude
VAT unless otherwise stated or implied.

The following information relates to Cast It In’s activities for the current financial year:

1. Gross income from South African companies amounts to R14 375 000 (including VAT), while
sales from overseas customers including the USA, UK and Australia amounted to R3 250 000
(including VAT).

2. Dividends received from investments in South African companies amounted to R70 000.

3. The following information is applicable to stock for the year:

Date Details Cost Market Value


30 September 2021 Stock on hand R2 585 000 R2 980 000
30 September 2022 Stock on hand R1 782 000 R1 685 000
30 September 2022 Purchases for the year R6 857 000 R6 857 000

© The Independent Institute of Education (Pty) Ltd 2022


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22 2022

4. Cast It In made a donation that had a cost of R308 000 of cookware to the Maokeng
Child and Family Welfare (an approved Public Benefit Organisation). The market value
of this stock was R320 000. A section 18A certificate was obtained.

5. Due to the fierce competition that was developing in the cookware industry, Jean Pierre
decided to investigate patenting its products and sought legal advice on the Intellectual
Property Acts (see point 8 below). As a result, a patent was acquired at a cost of R23 000
and a trademark was registered at a cost of R8 600.

6. The marketing director, Ms Peggy Traitor, resigned on 30 June 2022. To prohibit her from
trading in direct competition to Cast It In for the next four years, the company paid her
an amount of R600 000 as compensation.

7. The new marketing director travels quite extensively between various cities as he prefers
a very “hands on” approach to various marketing campaigns and the opening of various
Cast It In stores in various shopping malls. He was given the use of a Toyota Corolla, which
was on the 1 July 2022 and given to the marketing director immediately. The following
expenses were recorded in the accounting records from 1 July 2022 to 30 September 2022
in relation to this vehicle:
• Fuel: R12 800 (including VAT)
• Speeding fines: R2 000
• New tyres due to pothole damage: R1 500 (including VAT)
• Depreciation: R3 200

8. Tea, coffee, and other refreshments were purchased for the staff kitchen which amounted to
R27 500 for the 2022 year of assessment.

9. The company incurred the following legal fees:


• Collection of outstanding trade debtors – R7 800
• To draw up the contracts for the acquisition of the intellectual property – R15 000

10. Employee costs for the year comprised the following:

© The Independent Institute of Education (Pty) Ltd 2022


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22 2022

Details Amount
Salaries – permanent employees R 1 600 000
Wages – part time employees R 240 000
Medical aid contributions R 850 000
Pension fund contributions R 120 000
Restraint of trade payment (note 6) R600 000
Increase in bonus provision R 15 000

11. General expenses totaled R 575 000 for the year.

12. The doubtful debt allowance claimed in the 2021 year of assessment amounted to R162 000
as at the 30 September 2022. The list of doubtful debts amounted to R320 000. The company
adopts IFRS9 in the preparation of the annual financial statements.

13. Bad debts written off comprise R5 000 which was a loan to Miss Peggy Traitor and R23 000
(including VAT) in respect of trade debtors. R20 000 related to sales made in South Africa
while the remaining R3 000 related to sales made to foreign customers.

14. The following prepayments were made during the year:


• Rental of all the store spaces used in the various malls as this rental is payable for the
year. This was for the period 1 January 2022 to 30 December 2022 and was R552 000
(including VAT).
• Insurance paid for the vehicle above was R27 600 (including VAT) for the period 1 July
2022 to 31 June 2023.

15. The company paid R180 000 in respect of provisional tax.

Required:
Calculate the tax liability for Cast It In (Pty) Ltd for the year ended 30 September 2022. Show all
calculations and indicate nil effects with a brief reason. Round off to the nearest rand.

© The Independent Institute of Education (Pty) Ltd 2022


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22 2022

Annexure

The following tax tables are applicable for the 2022 year of assessment:

Tax table for a Small Business Corporation for financial years ending on any date between 1
April 2021 and 31 March 2022:

Taxable income (R) Rate of tax (R)


0 – 87 300 0%
87 301 – 365 000 7% of taxable income above 87 300
365 001 – 550 000 19 439 + 21% of taxable income above 365 000
550 001 and above 58 289 + 36% of taxable income above 550 000

Tax table for a Microbusiness for 1 March 2021 to 28 February 2022

Taxable income (R) Rate of tax (R)


0 – 335 000 0%
335 001 – 500 000 1% of each R 1 above 335 000
500 001 – 750 000 1 650 + 2% of the amount above 50 0000
Above 750 001 6 650 + 3% of the amount above 750 000

END OF PAPER

© The Independent Institute of Education (Pty) Ltd 2022


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