SAMPLE COMPETENCY EXAMINATION:1 TAX TECHNICIAN (SA)
Outcomes to be tested in the 2013 competency assessment:
The following topics will be covered:
Framework of the income tax system (including the capital gains
tax framework)
Gross income, residence-based taxation, specific inclusions in
income and specific exemptions from income
General deductions, specific deductions and capital allowances
Capital gains tax
Trading stock and share dealers
Income tax liability of individuals, including allowances and fringe
benefits
Employees’ tax and provisional tax
Donations tax
Estate duty
Retirement benefits
Taxation of trusts
Value added tax and transfer duty
Recommended reading material:
1
Silke: South African Income Tax 2013
This sample competency assessment is based on the Certificate in Taxation at the University of Pretoria.
Page 1 of 12
QUESTION 1
(30 marks, 90 minutes)
Amabokoboko(Pty) Ltd (‘Amabokoboko’) is a resident company with a February year end.
The company is a manufacturer of sport equipment and the Commissioner has indicated
that this process is regarded as a process of manufacture for Income Tax purposes.
Amabokoboko is a registered VAT vendor. It should be noted that all amounts reflected in
the draft statement of comprehensive income below and in the notes that follow, exclude
VATunless indicated otherwise and Amabokoboko is in possession of all tax invoices
where relevant. You may assume that all transactions were conducted with registered VAT
vendors, unless indicated otherwise.
The detailed draft statement of comprehensive income of Amabokoboko for the financial
year ended 28 February 2011 is set out below:
Notes
R
R
Sales
16 250 000
Less: Cost of sales
(8 100 000)
Opening inventory
(5 525 000)
Purchases
(18 575 000)
(24 100 000)
Less: Closing inventory
16 000 000
8 150 000
Gross profit
931 360
Add: Sundry income
Dividend income (local – accrued on 30 May 2010)
129 000
Insurance settlement received
1
127 360
Profit on sale of Machine A
3b
675 000
9 081 360
(8 112 100)
Less: Expenditure
Bad debts
2
(207 000)
Depreciation
3
(512 050)
Insurance premiums
4
(81 000)
Interest on bank overdraft for operational expenses
(100 000)
Rentals
5
(675 000)
Restraint of trade
6
(660 000)
Salaries, wages and benefits
(4 000 000)
Other tax-deductible admin and marketing expenses
(1 877 050)
Net profit before tax
969 260
Additional notes:
1. A road freight contractor had collected an order of sport equipment (trading stock) from
Amabokoboko’s premises for delivery to a customer. On its way to its destination, the
road freight contractor’s delivery van, along with the trading stock, was stolen. On
15 February 2011, Amabokobokoreceived an insurance settlement from its insurer of
R127 360 for the stolen trading stock. The amount of the insurance settlement,
Page 2 of 12
including VAT, was recorded in the accounting records. The sale was never recorded as
the stock did not reach the customer. Closing stock was already adjusted with the loss.
2. Bad debts written-off of R207 000 consist of R180 000 for trade debtors and a loan of
R27 000 to a supplier that has been liquidated. The loan (an interest-free loan) came
about during the previous financial year of Amabokoboko when it lent the money to a
supplier (not a connected party) who was experiencing liquidity problems. The supplier
was liquidated on 1 December 2010 and Amabokoboko has been unable to recover any
portion of the loan.
3. Depreciation is made up as follows:
Motor car
Machine A
Machine B
Other machinery and depreciable assets
(Note)
(a)
(b)
(b)
(c)
R 37 050
R125 000
R187 500
R162 500
R512 050
a. On 1 June 2010, a motor car (as defined for VAT purposes), used by Amabokoboko
sales staff for visits to customers, was purchased for R296 400 (including VAT)and
immediately brought into use. SARS provides for a five-year write-off period for
motor vehicles in terms of section 11(e).
b. On 1 March 2009, Amabokoboko purchased a new machine (Machine A) for cash in
an arm’s length transaction for R1 000 000. Machine A was immediately brought
into use in its process of manufacture. On 31 August 2010, Machine A (with a
carrying amount of R625 000) was traded in for a more advanced machine
(Machine B). A trade-in price of R1 300 000 was obtained for Machine A.Machine B
was purchased as a new machine for cash in an arm’s length transaction for
R1 500 000 and was immediately brought into use in the process of manufacture.
Amabokoboko will elect any option that is available to it to defer any of its tax
liabilities.
c. All other machinery and depreciable assets had a nil tax value on 1 March 2010.
4. Insurance premiums of R81 000 relating to the 2011 year of assessment were paid by
Amabokoboko. In addition, on the advice of its insurance broker, Amabokoboko paid
insurance premiums of R88 750 covering the period 1 March 2011 to 28 February 2012.
No portion of the advance insurance premium amount was expensed to its statement of
comprehensive income for the 2011 year of assessment.
5. The rentals paid are paid monthly for the use of an office building that is leased by
Amabokoboko for trade purposes.
6. The restraint of trade payment of R660 000, which iseffective for two years commencing
on 1 October 2010, was paid to a sport equipment engineer who had been employed by
Amabokoboko. He left the company’s employment on 30 September 2010.
REQUIRED:
Calculate (supported with brief reasons OR references to legislation) the taxable
income of Amabokoboko (Pty) Ltd for its year of assessment ended 28 February 2011.
Start your answer with net profit before tax of R969 260. Also address nil effects. (30)
Page 3 of 12
QUESTION 2
(38marks,114minutes)
This question consists of two related parts. Ignore VAT for purposes of this question.
PART 1
(20 marks, 60 minutes)
Kitty Scuffles, aged 55, was ordinarily resident in South Africa until she and her husband
(married out of community of property)immigrated to Australia on 31 August 2010. The
day before her immigration she sold the following assets:
Description
Note
Farm
1
Holiday home
2
Aircraft (300 kg)
3
Block of flats (including improvements)
4
Cost
3,000,000
500,000
800,000
2,160,000
Proceeds
6,300,000
1,500,000
500,000
6,300,000
1. On 1 October 2001, Kitty acquired a farm (100 hectares of which 2 hectares were
used by Kitty for domestic purposes). The land and the farmhouse were acquired for
R3 million.The purchase price can be allocated as follows:
Land (100 hectares)
R2 500 000
Farmhouse
R 500 000
The proceeds on date of sale can be allocated as follows:
Land (100 hectares)
R4 200 000
Farmhouse
R2 100 000
Kitty practiced as a beauty consultant over weekends. She used 20% of the
farmhouse as a consultation room, but never claimed any expenses relating to the
house for normal tax purposes. Kitty lived in this house with her husband until their
immigration.
2. Kitty acquired a holiday home in Langebaan (South Africa) on 1 March 2000 for
R500 000. A valuator valued this house for capital gains tax purposes on valuation
date at R900 000. She elected this value as valuation date value for this house.
3. Kitty acquired an aircraft on 1 March 2002 that she used only when on holiday. She
sold this aircraft at the market value of R500 000 to a third party.
4. Kitty held a block of flats (with only four flats) as an investment. She purchased this
rent-producing property for R360 000 on 31 August 2000 and by the end of
August 2002, improvements to the block of flats were completed at a total cost of
R1 800 000 and the flats were rented out immediately until the date of her immigration.
The market value of the block of flats on valuation date was R2 400 000. She did not
select a valuation method for this investment, but indicated that the most favourable
option must be selected. As from 1 January 2010 until Kitty’s immigration, the monthly
rental received per flat remained constant at R4 500.
5. Kitty made a capital loss of R400 000 in the 2010 year of assessment when she sold a
property to her best friend. This was her only disposal during the 2010 year of
assessment.
Page 4 of 12
REQUIRED:
Based on the information provided in part 1 only, calculate Kitty Scuffles’ South African
taxable capital gain or assessed capital loss for the year of assessment ended
28 February 2011. Show detailed calculations and supporting reasons for each inclusion,
exclusion or limitation. Ignore VAT.
(20)
PART 2
(18marks,54minutes)
You can assume that Kitty did not earn any income of a South African source after her
immigration.
The following additional information is relevant up until the date of Kitty’s immigration:
Employment
Kitty was a full-time employee of Braby Ltd (“Braby”) until her immigration. Relevant
information is as follows:
R
Basic salary (R39 727 x 6 months)
238 362
Medical scheme contributions (R1 600 x 6 months)
9 600
Kitty was the main member of the medical scheme, with her husband
registered as her only dependant. Up until 31 August 2010 Braby paid 70%
of her total monthly contributions of R1 600. All Kitty’s medical costs were
covered by the medical scheme.
Contributions to Braby Pension Fund (until 31 August 2010).
19 068
Kitty has always contributed 8% of her basic salary to this fund. Total
contributionsnot claimed for income tax purposes up until 28 February 2010
amounted to R16 250.
Lump sum received from Braby Pension Fund - paid to Kitty’s on 31 August
350 000
2010. Kitty has never received a lump sum from any fund during her lifetime.
Part-time beauty consulting service
Up until Kitty’s immigration, Kitty carried on a part time business as a beauty consultant.
You obtained the statement of comprehensive income for this business for the period
1 March 2010 to 31 August 2010 from Kitty:
Net fee income
Interest earned on fixed deposit investment
Less: Cash donation to a PBO (section 18A receipt was obtained)
Net income for the period
R
150 000
25 000
(6 000)
169 000
REQUIRED:
Taking the relevant information of Part 1 into account and assuming that a taxable
capital gain of R991 500arose during Kitty’s 2011 year of assessment from the disposals
mentioned in Part 1, calculate Kitty’sSouth African normal tax liability for the 2011 year of
assessment. Clearly show nil effects.
(18)
Page 5 of 12
QUESTION 3
(12marks, 36minutes)
Lilly Green, aged 53, is ordinarily resident in South Africa. She created the Pond Trust on
1 August 2009 by way of donating a complex of townhouses with a market value of
R1 500 000 to the Pond Trust. The complex of townhouses is rented out and the rental
income that is not distributed is reinvested by the trustees in local shares and in money
market funds. You may assume that the causal link between the reinvestment of the rental
income attributable to the original donation of the complex of townhouses and the income
of these investments (dividends and interest) has been broken. (In other words, there is
no link between the original donation of the complex of townhouses and the
dividends and interest earned by the trust.)The Trust is a resident trust.
The trust deed provides for three trustees, namely Lilly, her husband Max Green (married
out of community of property) and their accountant.
The following relevant items are contained in the trust deed:
1. The beneficiaries of the Trust are:
• Rose Green (28 years old) – Lilly’s oldest daughter, living permanently in
Switzerland.
• Palm Green (25 years old) – Lilly’s second daughter (a South African resident),
married to Frik on 30 April 2009.
• Bush Green (4 years old) – Lilly’s son (a South African resident).
2. The complex of townhouses must be rented out by the trustees to earn rental income.
3. Rose is entitled to receive an annuity of R5 000 per month paid pro rata out of the
various net receipts and accruals of the Trust.
4. Lilly retained the right to name another beneficiary in Palm’s place at any time she
wants, because she dislikes Frik and does not want him to obtain a share of the family
assets.
5. Trustees may pay out any additional amounts during the year according to their
discretion, pro rata out of the various net receipts and accruals of the Trust, to the
beneficiaries.
6. The amounts not distributed must be reinvested by the trustees in local shares and in
money market funds.
Detail of the Pond Trust’s income and distributions for the 2011 year of assessment:
Asset
Nature of receipt / accrual
Receipts and accruals
Trustee remuneration
Net receipts and accruals
Annuities – Rose
Distributions – Rose
Distributions – Palm
Distributions – Bush
Retained in trust
Total
100%
630,000
(25,000)
605,000
(60,000)
(90,000)
(150,000)
(150,000)
155,000
Money
market
funds
Interest
7%
40,000
Local
shares
Dividends
8%
50,000
40,000
(4,200)
(6,300)
(10,500)
(10,500)
8,500
50,000
(4,800)
(7,200)
(12,000)
(12,000)
14,000
Page 6 of 12
Complex of
Townhouses
Rentals
85%
540,000
(25,000)
515,000
(51,000)
(76,500)
(127,500)
(127,500)
132,500
Rose, Palm and Bush received no other income other than their distributions from the
Trust during the 2011 year of assessment.
Excluding all amounts that are deemed to accrue to Lilly from the Trust, she received a
salary of R400 000 for the 2011 year of assessment.
REQUIRED:
a)
Calculate the normal tax payable by the Pond Trust for the 2011 year of
assessment.Show all inclusions and exemptions separately and support your answer
with reasons or references to the relevant sections of the Income Tax Act. Clearly
indicate where an exemption is not applicable.
b)
Calculate the taxable income for the 2011 year of assessment of:
i.
Rose and
ii.
Lilly
Show all inclusions and exemptions separately and support your answer with
reasons or references to the relevant sections of the Income Tax Act. Clearly indicate
where an exemption is not applicable.
(12)
Page 7 of 12
QUESTION 4
(12 marks, 36minutes)
Green Innovation (Pty) Ltd (“Green Innovation”) is a company that was established in
South Africa by the agricultural-, chemical- and engineering students of a South African
university.Green Innovation manufactures bio-diesel, which is considered “fuel levy
goods”for purposes of the VAT Actby means of a combination of mealie rice (qualifies as a
zero rated supply) and the remanufacturing of used ethanol.The mealie rice is purchased
from local farmers, who are all VAT-vendors, and the used ethanol (accept that it does not
qualify as “fuel levy goods” for purposes of the VAT Act) is purchased from the Chemistry
department of the university, which is not a VAT-vendor.
Green Innovation is a Category B VAT-vendor.For purposes of this question, all amounts
include VAT (where applicable).You can assume that Green Innovation (where
applicable) is in possession of valid tax invoices for goods and services received and
rendered.All transactions were incurred with registered VAT vendors, unless specifically
mentioned otherwise.
Income and expenses for the tax period ending 31 August 2011:
Description
Income:
Sale of bio-diesel to local clients
Sale of machine A to an Australian(assume correctly converted to rand)
Expenses:
Purchase of mealie rice
Purchases of used ethanol from the Chemistry department at market value
Purchase of barrels (to store bio-diesel in)
Salaries
Purchase of machine B
Purchase of delivery vehicle
Notes
Amount
1
R91 200
R39 900
2
3
R34 200
R9 120
R12 540
R17 000
R67 200
?
Notes:
1.
An Australian, who is also involved in the manufacturing of bio-diesel in Australia, purchased
one of Green Innovation’s machines, namely machine A on 25 July 2011. Machine A was
originally purchased as a second-hand machine from a South African non-vendor for R45 600
and Green Innovation claimed a deemed input tax of R5 600 thereon. Green Innovation had
machine A shipped to the Australian and delivered in Australia.
2.
Machine B was imported on 30 July 2011 from a Namibian supplier (not a VAT-vendor). It has
a cost price and a customs duty value of R64 000 ($64 000 in Namibian dollars) and was
purchased interest-free on credit. No import tax had to be paid. According to the purchase
agreement, Green Innovationpaid the Namibian supplier by 31 October 2011.
3. On 12 August 2011, Green Innovation purchased a delivery vehicle from a local VAT-vendor.
The ‘date of delivery’ was 15 August 2011. The vehicle is financed by a local bank in terms of
an ‘instalment credit agreement’ of the VAT Act and ownership of the vehicle will only be
transferred to Green Innovation after the final instalment has been paid. The sales agreement
requires that Green Innovation makes a monthly payment of R5 000 (including capital and
financing costs) for the next three years. Total financing costs will amount to R22 000. The first
payment was made on31 August 2011.
REQUIRED:
Calculate(with brief reasons) the VAT owed to or by SARS with regard to Green
Innovation (Pty) Ltd’s taxperiod ending on 31 August 2011.Clearly indicate (with reasons)
where there are no VAT consequences. Indicate output and input tax separately.
(12)
Page 8 of 12
QUESTION 5
(8marks, 24minutes)
You are the tax advisor of Lucky Luke (Pty) Ltd (“Lucky Luke”), a company that
manufactures and sells toys.Lucky Luke is a Category A registered VAT-vendor and is
situated in Durban.
The company’s accountant approached you to help with the following VAT journals for the
period stretching from 1 June 2011 to 31 July 2011:
(5 marks)
Journal entry 1:
Fixed property (R770 000 + R5 100)
Bank (R77 000 + R5 100)
Creditors
Dr
775 100
Cr
Cr
82 100
693 000
Recording of the purchase of a shop on 4 June 2011 for R770 000 from a non-vendor
living in Durban.Registration of transfer took place on 28 June 2011.On 28 June 2011,
Lucky Luke has only paid a deposit of R77 000 and the transfer duty of R5 100.
Journal entry 2:
Diverse expenses
VAT input account
Bank
(3 marks)
Dr
Dr
3 640
510
Cr
4 150
Recording of cash expenses incurred with regard to a cocktail function held for existing
clients free of charge on 30 June 2011 in the new shop.
REQUIRED:
Provide the correcting journal entries where needed.Support your answer with the
necessary reasons and calculations.Journal descriptions are not required.
(8)
Page 9 of 12
APPENDIXES
Appendix A:Rates of Tax: 2011
Natural persons
Taxable income
Rates of tax
R0 – R140 000
18% of each R1
R140 001 – R221 000
R25 200 + 25% of the amount above.............R140 000
R221 001 – R305 000
R45 450 + 30% of the amount above.............R221 000
R305 001 – R431 000
R70 650 + 35 % of the amount above............R305 000
R431 001 – R552 000
R114 750 + 38% of the amount above...........R431 000
R552 001 +
R160 730 + 40% of the amount above...........R552 000
Retirement fund lump sum benefit
Taxable
income
from Rates of tax
lump sum
Not exceed R300 000
0% of taxable income
Exceed R300 000 but does R0 plus 18% of taxable income that exceed R300 000
not exceed R600 000
Exceed R600 000 but does R54 000 plus 27% of taxable income that exceed
not exceed R900 000
R600 000
Exceed R900 000
R135 000 plus 36% of taxable income that exceed
R900 000
Retirement fund lump sum withdrawal benefit
Taxable income from
withdrawal
Not exceed R22 500
Rates of tax
0% of taxable income
Exceed R22 500 but does R0 plus 18% of taxable income that exceed R22 500
not exceed R600 000
Exceed R600 000 but does R103 950 plus 27% of taxable income that exceed
not exceed R900 000
R600 000
Exceed R900 000
R184 950 plus 36% of taxable income that exceed
R900 000
Page 10 of 12
Annexure B:
Par 26, 8th Schedule
Proceeds > Total par 20 expenditure
(or expenses cannot be determined)
20% of
(proceeds less
costs ≥1/10/01)
Market
value
Time
Apportionment
IF MV is
adopted &:
Proceeds ≤ MV
Valuation date value =
Proceeds less par 20
expenses after 1 Oct 01
Effect: limit loss to Rnil
Par 27, 8th Schedule
Proceeds ≤ Total par 20 expenditure
Determined the Market value
on 1/10/01
Did not determine the
Market value on 1/10/01
Par 20 expenses before 1 Oct 01
Time apportionment method
>=
Proceeds
YES
HIGHER OF
Proceeds less par 20
expenses after 1 Oct 01
LOWER
Market
AND
>
Market
value
NO
Time apportionment method
Market value
Page 11 of 12
Annexure C: Par 30, 8th Schedule: Time apportionment base cost
P =
R x
B
(A + B)
Y =
B
+
[(P- B) x N]
T+N
P1 =
R1 x B1
(A1+B1)
Y =
B
+
[(P1 - B1) x N]
T+N
Page 12 of 12