Renier Jooste, a natural person, submitted his second provisional tax return for the 2020 year of assessment on 29 February 2020. He was 51 years old at that time.
He estimated his taxable income for the 2020 year of assessment at R1 200 000 and used this amount for his second provisional tax payment. Renier’s basic amount was R1 150 000. His first provisional tax payment was made on 31 August 2019 for R190 000. He received his assessment on 15 November 2020, which indicated that his final assessment of taxable income for the year was R1 650 000. Assume that Renier did not qualify for any medical credits.
Required:
1.1. Determine whether Renier is liable for an understatement penalty in terms of Paragraph
20 of the Tax Administration Act. (4)
1.2. If Renier is liable for the penalty, then calculate the amount of the penalty. (16)
Show all calculations. Amounts must be stated to the nearest rand.
Question 2 [25]
We-Fix Plumbing (Pty) Ltd trades solely in South Africa and is neither a small business corporation nor a personal service provider as defined by the Income Tax Act.
The following information was given to you:
• The year end of the company is 30 June.
• The company submitted its second provisional return IRP6 for its 2020 year of assessment on 30 June 2020.
• The company’s estimated taxable income for the 2020 year of assessment is R860 000.
• The estimated income of R860 000 was used for purposes of calculating the second provisional tax payment. The payment was made on time on 30 June 2020.
• The company’s basic amount was R880 000 according to SARS.
• The company made a first provisional tax payment on 31 December 2019 for R120 000.
« The company received its assessment for the 2020 year of assessment on 15 February 2021, which indicated its final taxable income for the year as R900 000.
• The company incurred interest, penalties and additional taxes on its PAYE account, which SARS did not consider in the calculation of the company’s taxable income amount. The amount not considered was R54 600.
• The company paid a bribe of R100 000 to ensure that it obtains a contract. The company believes that this expenditure was incurred in the production of income and therefore deductible. SARS did not include this amount in the taxable income.
Required:
2.1. Calculate the correct taxable income for We-Fix Plumbing (Pty) Ltd for the year of assessment ended 30 June 2020. Consider deductions not considered by SARS. (4)
2.2. Determine whether We-Fix Plumbing (Pty) Ltd is liable for an underpayment penalty for
provisional tax. (6)
2.3. If the company is liable to pay the penalty, calculate the amount of the penalty. (1)
2.4. Determine the net tax liability for We-Fix Plumbing (Pty) Ltd for the year ended 30 June
2020. (7)
2.5. If SARS’s prescribed rate of interest is 10%, calculate the interest on the underpayment
of provisional tax according to Paragraph 20 of Section 213 of the Tax Administration Act for the 2020 year of assessment. (7)
Show all calculations. Round off all amounts to the nearest rand.
Question 3 [15]
The Brooklyn Trust had a taxable income from business operations of R800 000. The trust also sold an asset and had a capital gain of R220 000 for the year ended 29 February 2020.
The trust paid R400 000 provisional tax for the 2020 year of assessment.
Required:
3.1. If the trust is a normal trust, calculate the tax payable for the 2020 year of
assessment. (6)
3.2. If the trust is a special trust, calculate the tax payable for the 2020 year of
assessment. (9)
Show all calculations and round off all answers to the nearest rand.
Question 4 [20]
Mr Jaco Smit is 46 years of age and had the following receipts and accruals for the 2020 year of assessment:
• Receipts from a scrapyard business operated in his name – R650 000
• Salary received from part-time employment – R180 000
• Dividends from a South African company – R50 000
o Interest from a South African bank – R43 800
° Taxable capital gain on the sale of an asset – R20 000 (Assume that the annual exclusion of R40 000 has already been deducted.)
Jaco incurred the following expenses during the 2020 year of assessment:
® Allowable expenses related to the scrapyard – Sectionl 1(a) – R120 000
o Medical contributions paid – approved medical aid – R26 152 (Jaco and his wife are the only members of the medical aid fund.)
Jaco paid the following prepaid taxes for the 2020 year of assessment:
® PAYE regarding part-time employment, R45 000, and provisional tax, R80 000.
Required:
4.1. Calculate Jaco’s taxable income for the 2020 year of assessment. (10)
4.2. Calculate Jaco’s normal tax liability for the 2020 year of assessment. (10)
Show all calculations. Answers must be stated to the nearest rand.
SBS
Southern Business School
otherwise stated):
Output:
Sale of trading stock R445 000
Insurance claim on stolen equipment R12 000
Interest received R4 000
Input:
Purchase on trading stock R138 000
Salaries and wages R60 000
Office rental R46 000
Purchase of warehouse (including transfer duty of R15 000) R915 000
Prepaid electricity (for business use) R1 150
Motor vehicle expenses: R5 600
Repairs and maintenance R2 600
Petrol and diesel R3 000
Entertainment of clients R6 840
Fines R6 000
Other information:
• Oxford Trading CC provided one of its employees with the use of a car during this VAT period. The car had originally cost R115 000 and the close corporation was denied an input claim by SARS in terms of Section 17(2). Oxford Trading CC covered all costs related to the car.
• A member of the close corporation brought a desk from his private home to be used in the reception area of the business. The desk originally cost R5 700 and has a current market value of R4 000.
o Oxford Trading CC gave two employees trading stock which cost R4 600 including VAT (with a market value of R6 000) as gifts.
® A debtor (Drury Investments (Pty) Ltd) who owed Oxford Trading CC R28 750 went into liquidation and the debt was established as unrecoverable.
Required:
5.1. Calculate the VAT output for Oxford Trading CC for the January/February 2020 VAT
period. (7)
5.2. Calculate the VAT input for Oxford Trading CC for the January/February 2020 VAT
period. (12)
5.3. Calculate the VAT payable/refundable for Oxford Trading CC for the January/ February
2020 period. (1)
Show all calculations. Answers must be stated to the nearest rand.
TOTAL: [100]
ANNEXURE A
Tax rates for the period from 1 March 2019 to 29 February 2020
Income tax: Individuals and special trusts
Taxable income (R) Rate of tax (R)
0-R195 850 18% of taxable income
R195 851 -R305 850 R35 253 + 26% of taxable income above R195 850
R305 851 – R423 300 R63 853 + 31% of taxable income above R305 850
R423 301 – R555 600 R100 263 + 36% of taxable income above R423 300
R555 601 -R708 310 R147 891 + 39% of taxable income above R555 600
R708 311 -R1 500 000 R207 448 + 41% of taxable income above R708 310
R1 500 001 and above R532 041 + 45% of taxable income above R1 500 000
Tax rebates and tax thresholds
Rebates: Individuals
Primary R14 220
Secondary (persons 65 and older) R7 794
Tertiary (persons 75 and older) R2 601
Tax threshold: Individuals
Below age 65 R79 000
Age 65 to below 75 R122 300
Age 75 and over R136 750
Local source interest: Exemptions – natural persons only
Below age 65: R23 800 per annum
Persons 65 and older: R34 500 per annum
Income tax rate: Trusts other than special trusts
Rate of tax 45%
Income tax rate: Companies
Financial years ending on any date between 1 April 2019 and 31 March 2020
Type Rate of tax (R)
Companies 28% of taxable income
r
s B S
Southern Business School
Income tax: Small business corporations
Financial years ending on any date between 1 April 2019 and 31 March 2020
Taxable income (R) Rate of tax (R)
0-R78 150 0% of taxable income
R78 151 -R365 000 7% of taxable income above R78 150
R365 001 – R550 000 R20 248 + 21% of taxable income above R365 000
R550 001 and above R59 098 + 28% of taxable income above R550 000
Turnover tax rate for micro business
Financial years ending on any date between 1 April 2019 and 28 March 2020
Taxable turnover (R) Rate of tax (R)
0 – R335 000 0% of taxable turnover
R335 001 – R500 000 1% of taxable turnover above R335 000
R500 001 – R750 000 R1 650 + 2% of taxable turnover above R500 000
R750 001 and above R6 650 + 3% of taxable turnover above R750 000
Travelling allowance: Individuals – 2020 year of assessment
Rates per kilometre, which may be used in determining the allowable deduction for business travel against an allowance or advance where actual costs are not claimed, are determined by using the following table:
Value of the vehicle (including VAT) (R) Fixed cost (R p.a.) Fuel cost (c/km) Maintenance cost (c/km)
0 – R85 000 R28 352 95.7 34.4
R85 001 -R170 000 R50 631 106.8 43.1
R170 001 -R255 000 R72 983 116.0 47.5
R255 001 – R340 000 R92 683 124.8 51.9
R340 001 – R425 000 R112 443 133.5 60.9
R425 001 -R510 000 R133 147 153.2 71.6
R510 001 -R595 000 R153 850 158.4 88.9
exceeding R595 000 R153 850 158.4 88.9
Medical and disability expenses: Individuals – 2020 year of assessment
Section 6A medical credit
In determining tax payable, individuals can deduct monthly contributions to medical schemes (a tax rebate referred to as a medical scheme fees tax credit) up to R310 each for the individual who paid the contributions and the first dependant on the medical scheme and R209 for each additional dependant.
Section 6B medical credit
And in the case of-
1. an individual who is 65 and older, or if an individual, his or her spouse, or his or her child is a person with a disability, 33.3% of the sum of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 3 times the medical scheme fees tax credits for the tax year; or
2. any other individual, 25% of an amount equal to the sum of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits).
Capital gains tax (CGT) (inclusion rates for 2020 year of assessment)
Taxpayer Rate
Individuals 40%
Special trusts 40%
Companies 80%
T rusts 80%
Taxation on capital gains tax
Capital gains on the disposal of assets are included in taxable income.
Maximum effective rate of tax
Individuals and special trusts 18%
Companies 22.4%
Other trusts 36%
Events that trigger disposal include a sale, donation exchange, loss, death and emigration.
The following are some of the specific exclusions:
• R2 million gain or loss on the disposal of a primary residence
• Most personal use assets
c Retirement benefits
• Payments in respect of original long-term insurance policies
• Annual exclusion of R40 000 capital gain or capital loss is granted to individuals and special trusts
• Small business exclusion of capital gains for individuals (at least 55 years of age) of R1.8 million
• When a small business with a market value not exceeding R10 million is disposed of
• Instead of the annual exclusion, the exclusion granted to individuals is R300 000 for the year of death
Value-added tax (VAT)
VAT is levied at the standard rate of 15% on the supply of goods and services by registered vendors.
Donations tax
• Donations tax is levied at a flat rate of 20% on the cumulative value of property donated not exceeding R30 million, and at a rate of 25% on the cumulative value exceeding R30 million.
• The first R100 000 of property donated in each year by a natural person is exempt from donations tax.
• In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R10 000 per annum in total.
• Dispositions between spouses and South African group companies, and donations to certain public benefit organisations are exempt from donations tax.
Source: Extracts from SARS Pocket Guide 2019/20
