Name

Module TAXC371
Test Second Opportunity 2020 - Paper 1

Question 1
Part A
(i) Kagiso

Kagiso is an employee as he receives remuneration in the form of a salary from Khoza Logistics(employer) for services
rendered as Harriet's
suggests that bookkeeper.
he declared in writing that he has no other employment, therefore he is not in standard employment. He is
in part time employment.

Khoza Logistics must withhold employee's tax at a rate of 25%.

Part A (i) Total

(ii) Mr Sebata

A labour broker is included in the definition of an employee, the issue is whether there is an employee.

A labour broker is defined as:

A natural person.

Mr Sebata is a natural person

who conducts or carries on a business of providing/procuring workers to clients

Mr Sebata through his business, provides Khoza Logistics(i.e a client) with drivers
for the month on November 2020

for a reward.
The drivers are provided in return for a fixed fee / remuneration of R50 000 for the month of November 2020

Since Mr Sebata in not in possession of an employees tax exemption certificate(i.e. IRP30), Khoza Logistics must withhold
employees tax from the payment made to Mr Sebata.

Khoza Logistics must withhold employee's tax from the amount paid to Mr Sebata at a rate of 18%
Part A (ii) Total
Part A Total
Comments:
0
0

Part B
Amount to be withheld:
Calculations
Annual equivalent excluding bonus [35 000 x 12]
Tax on annual equivalent excluding bonus [67 144 + ((420 000 - 321 600) x 31%]
Less Primary rebate

Employees' tax for November 2020 82 690 / 12

Annual equivalent including bonus [420 000 + 25 000]

Tax on annual equivalent including bonus [67 144 + ((445 000 - 321 600) x 31%]
Less Primary rebate

Tax on bonus [90 440- 82 690]

Employees tax for November 2020 [7750 + 6891]
Part B Total
Comments:
0

Part C
s80A determines the criteria that should be met for a transaction to be an "impermissible avoidance arrangement"
All of the following criteria have to be met for this transaction to be an "impermissible avoidance arrangement"
1. The must be an arrangement
An arrangement includes any transaction, operation, scheme, agreement, understanding and any holding or foregoing
involving the alienation of property (s80L),
The agreement that amends the original lease agreement that was entered into by Harriet and Khoza Logistics constitutes
an arrangement as defined.

2. The arrangement should be an avoidance arrangement

An avoidance arrangement is an arrangement that results in a tax benefit

Original lease agreement:

As a consequence of the original lease agreement, a rental receipt of R280 000 had to be included on Harriet's gross
income in terms of s1 of the gross income definition.
The rental receipt was taxable in full since the Income Tax Act does not provide an exemption for rental income.

Taxable income (355 000 + 280 000) 635,000

Normal tax (155 505 + ((635 000-584 200) x 39%) 175,317

Amended agreement:
In terms of the amended agreement, Harriet includes the R280 000 distributed as a dividend in her gross income in terms
of s1 par(k) of the gross income definition.

Although the dividend of R280 000 is included in Harriet's gross income, it is fully exempt in terms of s10(1)(k).

Although the dividend of R280 000 is exempt from normal tax, it is subject to dividends tax at a rate of 20%.

Taxable income (355 000 + 280 000 -280 000) 355,000

Normal tax (67 144 + ((355 000 - 321 600) x 31%) 77,498
Dividends tax (280 000 x 20%) 56,000
Total tax 133,498

Tax saving (178 857 -135 090) 41,819

Therefore the restructuring of the rental receipt is an avoidance arrangement.

3. The sole or main purpose of the arrangement was to obtain a tax benefit.
An avoidance arrangement is presumed to have been entered into for the sole or main purpose of obtaining a tax benefit
provided the party obtaining the tax benefit proves otherwise(s80G).

It is presumed that the restructuring of the rental receipts was done for the sole purpose of reducing Harriet's taxable
income and therefore her normal tax liability.

The onus to prove that the sole or main purpose was not to obtain a tax benefit rests on Harriet.

4. One of the following must be met:

means or manner not normally employed
rights or obligations not normally created
misuse or abuse of provisions of the Act

Harriet seems to have abused the provisions of the act as the restructuring of the rental receipt results in an exemption
that would have otherwise not been granted had the R280 000 been paid as rental income.

Conclusion

The restructuring of the rental receipt constitutes an impermissible avoidance arrangement.

Communication skill - application of s80A-L and supporting with calculations

Part C Total
Comments:
0

Part D
Low interest limit calculation
Market interest
rate 9.5%

Interest rate
charged to the
trust 0%
Difference 9.5%

Maximum to
accrue to donor in
terms of s7 R3 500 000 x 9,5% x 334/365 R 304,260

Donation element 9,5%/9,5% 100%

Amount that will

accrue to Mzi in
terms of s7
Rental annuity -
Reabetswe s7(3) R48 544 x 6/11 x 100%
Rental - Harriet s7(2) R145 000 x 100%
Rental - Trust s7(5) R121 465 x 100%
Limited to

Therefore 100% of the income accrues to Mzi, the donor.

Amount
Reason/Section Calculation Column 1
Gross income
s1 Gross income definition
Salary par (c) R41 000 x 12

s1 Gross income definition

Commission par (c)

s1 gross income definition

Rolex watch par (i) 12 000 x 100/115 10,435
Par 2(a) and 5 of the 7th
Schedule Exemption (5,000)
Taxable fringe
benefit 5,435
Lump sum from s1 Gross income definition
pension fund par (e) 600 000 - 450 000 150,000
par 2 and 5 of the Second
Schedule

s1 Gross income definition

Annuities par (a) 6 500 x 4

Employer
contribution to
pension fund s1 gross income def par (i) 2300 x 8 x 50%
Par 2(l) and 12D of the 7th
Schedule

Market value on
Shares in Trend vesting date
Setters s8C (600 x 138) 82,800

Consideration paid
(600 x 100) (60,000)
22,800

Shares in Trend Market value (400 x

Setters s1 Gross income definition 135) 54,000
Consideration
paid(400 x 100) (40,000)
14,000

Value of private use

- March
Right of use of s1 gross income definition
BMW X3 par (i)
(682 000 x 3,25%) 22,165
(22 165 x 18/31) 12,870

Value of private use

- April onwards
(682 000 x 3,25% x
11) 243,815
Total value of
private use 256,685

Par 2(b) and 7 of the 7th Consideration paid

Schedule (300 x 11) (3,300)
Cash equivalent 253,385
 Paragraph 7(7)
adjustment
(256 685 x 11
500/16 000) (184,492)

Paragraph 7(8)
adjustment
(4 500 x 1,584) (7,128)
Taxable benefit 61,765

Dividends annuity s1 Gross income definition

- Reabetswe par (k) 14 335 x 6/11
s7(3)

s1 Gross income definition

Dividends - Kagiso par (k) Gross dividends 20,000

S10B(3)
exemption(20 000 x
s7(8) 25/45) (11,111)
Income 8,889

s1 Gross income definition

Dividends - Trust par (k)
s7(5)

Rental annuity -
Reabetswe s1 Gross income definition 48 544 x 6/11
s7(3)

Rental - Harriet s1 Gross income definition

s7(2)

Rental - Trust s1 Gross income definition

s7(5)
Exemptions

Shares in Trend
Setters not yet
vested s10(1)(nD)

Dividends - Trust s10B(3) 58 665 x 25/45

 s10B(5) or s10B(3) not
Dividends annuity- applicable to dividend paid
Reabetswe by way of an annuity

Income 150,000

Deductions

Other amounts
included in
taxable income

Travel allowance s8(1)(b) (16 000 x 1,2)

Taxable capital
gains s26A
Holiday Home 8th schedule par 35 Proceeds 3,500,000
8th schedule par 20 Base cost (2,200,000)
Capital gain 1,300,000

Shares in Perago 8th schedule par 38 Proceeds 620,000

8th schedule par 20 Base cost (420,258)
Purchase price (380,000)

Portion of
donations tax=(M-
A)/M x D
((620 000-380
000)/620 000) x 104
000) (40,258)

Capital gain 199,742

Aggregated Capital gain 1,499,742

8th schedule par 5 Annual exclusion (40,000)
Net capital gains 1,459,742
Taxable capital gain
8th schedule par 10 @40% 583,897

Contributions to
retirement funds s11F
Employee
contributions (2 300 x 8) 18,400
Employer
contributions (2 300 x 8 x 50%) 9,200
27,600

Taxable income 150,000

Part D Total
Comments:
0

Part E
Reason/Section Calculation
Gross income
s1 Gross income
Salary - Khoza Logistics definition par(c ) 50 400 x 9

RSA source income

as services were
rendered in South
Africa

Not RSA source

income as services
were rendered
Salary - Hong Kong academy outside South Africa
s1 Gross income
Tutorial sessions definition

RSA source income

as services were
rendered in South
Africa

Not RSA source

income as it is paid
by a foreign
Dividends - Trust company

Markers comment: Included 20 000 less amount included in part D (line 171)
s25B(2)

RSA residents are

taxed on World
wide income
s1 Gross income
Interest - Trust definition
s25B(2)
 RSA residents are
taxed on World
1 March 2020 - 30 November 2020 wide income 30 000 x 275/365
1 December - 28 February 2020 s9(2)(b) 30 000 x 90/365

Exemptions

Interest - Trust

s10(1)(h) not
applicable as >183
days in RSA during
12 months before
the interest was
received. Therefore
1 March 2020 - 28 February 2021 apply s10(1)(i) 22 603+7 397=30 000 limited to 23 800

Income
Part E Total
Comments:
0

Part F

Martin(purchaser) acquired an immovable property(house) situated in South Africa from a non-resident seller(Kagiso) for
aThe
total amount
amount of R3 000
payable 000(i.e
for the R2 500 000
immovable + 500 000) exceeds R2 000 000 (i.e R3 000 000 > R2 000 000) therefore s35A
property(house)
will apply.
the house from the payment of R2 500 000 made after the non cancellable agreement to purchase the house was
concluded.

Since Kagiso(seller) is a natural person, withholding tax on the R3 000 000(i.e R2 500 000 + 500 000) will be withheld at a
rate of 7,5%
The amount to be withheld will therefore be calculated as (R2 500 000 + 500 000) x 7,5% = R225 000

Since Martin is a resident purchaser, he must pay the R225 000 withheld to the commissioner by 14 March 2021 (i.e.
within 14 day after the date on which the amount was so withheld)

Upon paying the R225 000 withheld over to the commissioner, Martin must also submit a return to accompany the
payment.
Communication skill - application of the requirements of s35A and calculating the amount to be withheld
Part F Total
Comments:
0
 Student No.
Sort by: NWU Number

Marker Joani

KEYWORD MARKS

Kagiso = employee
Salary = remuneration 1 0
mployer) for services Khoza Logistics = employer
ndard employment. He is
Part time employment 1 0
Works <22 hours a week 1 0
Employee's tax withheld
1 0
@ 25%
3 0

Issue = whether there is an

1 0
oyee. employee

Mr Sebata = natural
1 0
person

Provides workers through

1 0
his business

ember 2020 Reward = R50 000 1 0

a Logistics must withhold No IRP 30/ exemption

1 0
certificate
Employee's tax withheld
1 0
% @ 18%
5 0
8 0
 Amount
420,000 420,000 1 0
97,648 97 648 (P) 1 0
(14,958) (14,958) 0.5 0
82,690
6,891 /12 1 0

445,000 445,000 1 0
105,398 105 398 (P) 1 0
(14,958) (14,958) 0.5 0
90,440

7,750 7 750 (P) 1 0

14,641 14 641 (P) 1 0
6 0

ce arrangement"
arrangement"

holding or foregoing

oza Logistics constitutes Lease agreement=

1 0
arrangement

d on Harriet's gross R280 000 = included in

1 0
Harriet's income
rental income.

635,000 1 0
Use individual's tax table
1 0
(P)
 er gross income in terms R280 000 = dividend
1 0
included in gross income

Dividends = exempt /
1 0
ms of s10(1)(k). s10(1)(k)
Subject to dividends tax @
1 0
20%

355,000 1 0
Use individual's tax table
1 0
(P)
56,000 1 0

43 768 (P) 1 0

Avoidance arrangement 1 0

obtaining a tax benefit

Presumed that the sole or

cing Harriet's taxable main purpose to obtain a 1 0
tax benefit

Onus on Harriet to prove

1 0
another purpose

esults in an exemption
Misuse of the act 1 0

Impermissible avoidance
1 0
arrangement.

Discussed all four 1 0

requirements, including
calculations and concluded
15 0
 3 500 000 x 9.5% 1 0

334 / 365 1 0 334

R 292,944
26,479 1 0
R 26,479
R 145,000 145,000 0.5 0
R 121,465 121,465 0.5 0
R 292,944

100 % income accrues 1 0

Amount
Column 3

492,000 1 0
492,000

120,000 0.5 0
120,000

10,435 1 0

(5,000) 0.5 0

5,435
 150,000 1 0

Correct column 0.5 0

26,000 1 0
26,000

9,200 1 0
9,200

82,800 1 0

(60,000) 1 0

22,800

14,000 14,000 1 0

682 000 x 3.25% 1 0

x 18/31 1 0

x11 1 0

(3,300) 1 0
 (184 492) (P) 1 0

(7,128) 1 0

61,765

8,362 1 0
8,362

20,000 1 0

(11,111) 1 0

8,889

58,665 0.5 0
58,665

26 479 (P) 0.5 0

26,479

145 000 (P) 0.5 0

145,000

121 465 (P) 0.5 0

121,465

(14 000) (P) 0.5 0

(14,000)

(32,592) 1 0
(32,592)
 Dividend paid by way of an
1 0
annuity - Not exempt
-

1,073,468

19,200 1 0
19,200

1,300,000 1 0

620,000 1 0

(380,000) 0.5 0

620 000 - 380 000 1 0

/620 000 x 104 000 1 0

(40,000) 0.5 0

@ 40% 0.5 0
583,897

18,400 1 0
 9 200 (P) 0.5 0

(27,600)

1,648,965
34 0

Amount

453,600 0.5 0
453,600

s1 Gross income definition

0.5 0
par(c )

Not RSA source income as

services were rendered 0.5 0
outside South Africa
-
73,000 0.5 0
73,000

s1 Gross income definition 0.5 0

Not RSA source income as

it is paid by a foreign 1 0
company

s1 Gross income definition

0.5 0
par(k )
s25B(2) 0.5 0
 22,603 1 0
22,603
7,397 7,397 1 0
s9(2)(b) 0.5 0

(23,800) 1 0

(23,800)
s10(1)(i) 0.5 0

532,800
8.5 0

Acquired immovable
property in South Africa
1 0
from a non-resident
esident seller(Kagiso) for seller(Kagiso)
2 000 000) therefore s35A
> R2 000 000 1 0
se the house was S35A 0.5 0
Martin should withheld 1 0

00) will be withheld at a Kagiso(seller) = natural

1 0
person
00 x7,5% 1 0

14 March 2021 (i.e. Pay commissioner = 14

1 0
March 2021

Martin must submit a

to accompany the return to accompany the 1 0
payment.
 Application of the
requirements of s35A and
1 0
calculating the amount to
be withheld

7 0