TAX II (ACCN2013A/ACCN2014A)

TAX II
Modules 4 and 5 – Special inclusions and exempt income

Question Source Marks Writing time allocation

(minutes)
Question 1 Provided 32 48
Question 2 Provided 21 31.5
Question 3 Provided 26 39
Question 4 Provided 8 12
Additional question 1 Provided 12 18
Additional question 2 Provided 19 28.5
Unseen Provided 20 30
Total 138 207

© School of Accountancy, University of the Witwatersrand Page 1 of 18

 TAX II (ACCN2013A/ACCN2014A)

QUESTION 1 32 MARKS

Ignore Value-Added Tax (VAT) when answering this question.

Faith Dube is a registered nurse. She is 38 years old, unmarried and a South African tax
resident. Faith has a 13-year-old son named Roman. Faith and Roman moved to Dubai
(United Arab Emirates) at the end of 2019 as Faith was offered and accepted a two-year
employment contract as a senior nurse at United Dubai Hospital. Faith’s first day of
employment at United Dubai Hospital was 1 January 2021. United Dubai Hospital is a non-
resident company for South African tax purposes.

Faith’s job at United Dubai Hospital was very demanding which resulted in her cancelling her
vacation that she had planned for April 2022 to visit her friends and family in South Africa. For
this reason, Faith was outside South Africa for an unbroken period of 311 full days from
1 March 2022 to 5 January 2023 during the 2023 year of assessment.

Faith did not extend her two-year employment contract with United Dubai Hospital which
ended on 31 December 2022 as she wanted to spend more time with her son Roman and had
managed to save up a substantial amount of cash. Faith and Roman left Dubai on
5 January 2023 and were back in South Africa the next day. Faith found a job where she could
have work-life balance at Hope Retirement Village which is an old age home in Fourways
(Johannesburg) that provides nursing care. Faith started her job at Hope Retirement Village
on 1 February 2023.

During the 2023 year of assessment Faith had the following receipts and expenses:

Receipts

Description Amount Notes

Salary received from United R 420 000 Remuneration earned during the period
Dubai Hospital correctly 1 March 2022 to 31 December 2022. No
converted into Rands foreign taxes were paid on this amount.
Salary received from Hope R18 000 Remuneration for the month of February
Retirement Village 2023.
Cell phone allowance from R1 000 Faith receives a monthly cell phone
Hope Retirement Village allowance from Hope Retirement Village
Annuity R5 000 Refer to Note 1
Local Interest R4 100 Refer to Note 2

© School of Accountancy, University of the Witwatersrand Page 2 of 18

 TAX II (ACCN2013A/ACCN2014A)

Local Dividends R9 000 Refer to Note 3

(gross dividends)
Rental R80 000 Refer to Note 4

Expenses

Description Amount Notes

Municipal rates (R8 700) Refer to Note 4

Note 1

On 16 January 2023, Faith purchased an annuity for R300 000 from an insurer with the money
that she had saved while working in Dubai. In terms of the annuity contract, Faith would receive
with effect from 1 February 2023 an amount of R5 000 on the first day of every month for the
next 6 years.

Note 2

Faith invested in a tax free savings account that qualifies as a tax free investment as defined
in section 12T(1) of the Income Tax Act. Faith earned local interest of R4 100 on her tax-free
investment for the 2023 year of assessment. Faith’s contributions to her tax-free savings
account have never exceeded the stipulated investment contribution limits.

Note 3

Faith earned local dividends (gross dividends) of R9 000 from her shares in Butterfly (Pty) Ltd
for the 2023 year of assessment. Butterfly (Pty) Ltd is a South African resident company.

Note 4

Faith owns a house in Edenvale (Gauteng) that she inherited in 2016 from her late
grandmother. Faith rented out her house fully furnished to Jamie Green. In terms of the lease
agreement, the period of the lease was two years from 1 January 2021 to 31 December 2022
as Faith intended to move back into her house upon her return to South Africa. The agreed
upon monthly rental of R8 000 was due and payable to Faith on the first day of every month.
Faith paid municipal rates of R8 700 in total during the period 1 March 2022 to
31 December 2022.

© School of Accountancy, University of the Witwatersrand Page 3 of 18

 TAX II (ACCN2013A/ACCN2014A)

REQUIRED MARKS
Calculate the normal tax payable by Faith Dube for the year of assessment ended
28 February 2023. Give brief reasons or references to legislation for your
treatment of all information provided. Provide reasons for amounts that may 32

have a nil effect.

TOTAL MARKS 32

REFERENCE: WITS- SEPTEMBER 2017- QUESTION 2A

© School of Accountancy, University of the Witwatersrand Page 4 of 18

 TAX II (ACCN2013A/ACCN2014A)

QUESTION 2 21 MARKS

Lily Lambert (Lily) is unmarried and a South African tax resident. She was born in
Johannesburg, South Africa on 12 March 2000. Her true calling has always been Latin
American dance. Lily started her own business of providing Latin American dance lessons on
1 January 2021. She carries on her business as a sole proprietor. Lily is not a registered VAT
vendor.

Details of Lily’s receipts and accruals for the 2023 year of assessment are as follows:

(1) Gross dividends of R34 000 accrued to Lily on 17 April 2022 from JProp Ltd. JProp Ltd
is a South African tax resident company that is listed on the Johannesburg Stock
Exchange (JSE) as a Real Estate Investment Trust (REIT).

(2) On 12 December 2022, which was three months before her 23rd birthday, Lily
purchased a life annuity for R80 000 from a South African insurer. In terms of the
annuity contract, from 31 December 2022 (including the month of December 2022) Lily
is entitled to a monthly amount of R800 payable to her on the last day of each month
for the rest of her life.

(3) Lily earned fees of R600 000 in respect of the dance lessons that she had conducted
during the 2023 year of assessment. As Lily has always prioritised giving back to those
who are less fortunate than herself, she entered into a written agreement on
1 April 2022, to give away all her dance fees earned between 1 May 2022 and
31 August 2022 to Precious Children. This amounted to R200 000. Precious Children
is a home for abused, abandoned and orphaned children, and is not a Public Benefit
Organisation as per section 30 of the Income Tax Act.

(4) Lily received interest of R13 000 on her 32-day notice deposit account that she has with
GH Bank (a South African resident bank) during the 2023 year of assessment. She also
received interest of R6 500 (gross amount) from her deposit in UU Bank which is an
American Bank during the 2023 year of assessment.

© School of Accountancy, University of the Witwatersrand Page 5 of 18

 TAX II (ACCN2013A/ACCN2014A)

(5) Lily owns a house in Fourways (Johannesburg) that she rents to Sandra Sayers
(Sandra) for a monthly amount of R18 000. Sandra uses the house as a dance school.
In terms of the lease agreement, Sandra was required to install ballet barres and
mirrors. Ballet barres are handrails that are used in ballet training to provide support to
the dancers. The lease agreement, which was signed by both parties on
20 September 2022 and was effective from 1 October 2022, stipulated that the amount
to be expended on the ballet barres and mirrors was R 7 500. Sandra rented the house
from 1 October 2022 and completed the required installations on 15 October 2022. The
amount actually spent by Sandra on installing the ballet barres and mirrors was R7 900.

EXPECTATION OF LIFE TABLE

AGE EXPECTATION OF LIFE

MALE FEMALE
20 47,42 54,41
21 46,53 53,45
22 45,65 52,50
23 44,77 51,54
24 43,88 50,58
25 43,00 49,63

REQUIRED MARKS
Calculate Lily Lambert’s income as defined in section 1 of the Income Tax Act
for the year of assessment ended 28 February 2023.

Give reasons or references to legislation for all your calculations. Provide reasons 21
for amounts that may have a nil effect.

Round your answers to the nearest Rand

TOTAL MARKS 21

REFERENCE: WITS-ANNOUNCED TEST 2A 2017 (ADAPTED)

© School of Accountancy, University of the Witwatersrand Page 6 of 18

 TAX II (ACCN2013A/ACCN2014A)

QUESTION 3 26 MARKS

Ignore Value-Added Tax (VAT) when answering this question.

Prudence Mashaba (33 years old) is a South African resident. Prudence is a widow and the
mother of Grace Mashaba (7 years old). Grace is her only child.

Prudence is employed by T-Solutions (Pty) Ltd (T-Solutions) as an information technology

technician (IT technician). Prudence was appointed to this role from 1 January 2017.

T-Solutions specialises in providing IT solutions to multinational entities locally and abroad. T-

Solutions only has offices in South Africa which are located in Sandton, Cape Town and
Umhlanga from where it operates its business. T- Solutions is a South African resident
company and its financial year ends on the last day of February each year.

Prudence was based at T-Solutions’ Umhlanga office in KwaZulu-Natal (South Africa). On

1 September 2022, Prudence was promoted to a managerial position and transferred to T-
Solutions’ office in Sandton (South Africa).

Assisting Prudence

You are a tax practitioner. Prudence has requested your assistance in completing her tax
return for the 28 February 2023 year of assessment. Prudence provided you with the following
relevant details:

1. Prudence earned a gross monthly salary of R30 000 for the period 1 March 2022 to
31 August 2022. From 1 September 2022 to 28 February 2023, Prudence earned a monthly
salary of R40 000.

2. Prudence did not join the provident fund of T-Solutions as becoming a member was not
compulsory for employees. In order to plan towards her retirement, however, Prudence
invested R38 000 in an Alon Greys tax-free investment (as defined in section 12T(1)) on 3
March 2022. This was the only tax-free investment contribution made by Prudence for her
2023 year of assessment. Prudence earned gross dividends of R2 500 from this tax-free
investment for the 2023 year of assessment.

© School of Accountancy, University of the Witwatersrand Page 7 of 18

 TAX II (ACCN2013A/ACCN2014A)

3. On 1 December 2015, Prudence obtained a national diploma in IT from the Tshwane

University of Technology. On 25 February 2022, Prudence informed T-Solutions that she
wished to study further to obtain a Bachelor of Science degree in information technology &
systems. Prudence was granted a bursary by T-Solutions on 5 March 2022 to cover her
tuition fees and study material for the 2022 academic year to the value of R35 000. On 6
March 2022, T-Solutions paid the amount of R35 000 to Prudence. On 7 March 2022,
Prudence registered late as a part-time student with the University of South Africa (UNISA).
Prudence does not have a disability (as defined) in terms of section 6B. The bursary
agreement concluded between Prudence and T-Solutions does not require her to repay the
bursary should she fail to complete the degree for any reason other than death, ill-health or
injury.

4. On 10 December 2021, Patrick Mashaba (Prudence’s husband) unexpectedly died in a car

accident on his way home from work. On 23 February 2022, a life insurance policy taken
out by Patrick on his life paid out a lump sum of R3 000 000 to Prudence.

On 5 March 2022, Prudence decided to use a portion of the insurance policy pay-out to
fund the purchase of a new 2-bedroom flat for her and Grace to live in. The reason for this
purchase was that the lease of the flat occupied by the Mashaba family was to terminate
on 31 March 2022. The leased flat was situated in Umhlanga. On 1 April 2022, Prudence
purchased a new and secure 2-bedroom flat in Umhlanga, close to the offices of T-
Solutions, for R1 800 000 and paid for it in cash.

On 1 August 2022, Prudence contacted a local estate agent to sell the 2-bedroom flat as is
(without any modifications). Prudence needed to relocate to Johannesburg after being
promoted to an IT manager in T-Solutions’ Sandton office with effect from 1 September
2022. Due to the high demand for 2-bedroom flats close to the business district of
Umhlanga, the estate agent received 5 offers to purchase within the first week of advertising
the 2-bedroom flat. Of the 5 offers received, 3 offers exceeded the selling price that was
advertised by the estate agent. Prudence accepted the highest of the 3 offers and sold the
2-bedroom flat on 15 August 2022 for R2 100 000 in cash. Prudence had not sold any other
property prior to this sale. On 25 August 2022, Prudence and her daughter relocated to
Sandton. T-Solutions agreed to pay Prudence’s relocation costs of R73 000 which
comprised of the following:

© School of Accountancy, University of the Witwatersrand Page 8 of 18

 TAX II (ACCN2013A/ACCN2014A)

The cost to transport Prudence’s furniture and personal belongings from Umhlanga to
Johannesburg: R50 000;
The estate agent’s fee to sell her flat in Umhlanga: R21 000; and
The new school uniforms for Grace who was accepted as a pupil by Sandton Primary
School: R2 000.
The relocation costs of R73 000 were paid by T-Solutions on 28 August 2022.

5. T-Solutions requires staff to wear a grey branded golf shirt to work each day. The golf shirt
is branded with T-Solution’s name and logo, the employee’s name and the employee’s job
title. In October each year, T-Solutions pays all employees an amount to buy 5 new grey
golf shirts for each day of the week and to have it branded by Branding-Are-Us (Pty) Ltd (T-
Solutions’ preferred supplier). On 25 October 2022, Prudence received R3 500 in this
regard.

6. Prudence was caught speeding on 28 November 2022. Prudence drove 140km/h in a

120km/h zone on the M1 highway. A fine notice of R1 560 was sent to her by the
Johannesburg Metro Police Department (JMPD) in December 2022. Prudence paid this
amount on 5 February 2023.

7. On 1 March 2021, Prudence inherited R100 000 from her late father’s estate. She invested
it in a fixed deposit with Wealth Bank Ltd (a South African resident company) for 5 years at
an interest rate of 8% per annum. Interest is capitalised annually. Interest of R8 640 accrued
to Prudence in respect of the 2023 year of assessment.

REQUIRED MARKS

Calculate the normal tax payable by Prudence Mashaba in terms of the South
African Income Tax Act 58 of 1962 for the year of assessment ended 26
28 February 2023. Ignore any possible capital gains tax implications.

Provide brief reasons or references to legislation for all your calculations.

Provide reasons for amounts that have a nil effect.

TOTAL 26

© School of Accountancy, University of the Witwatersrand Page 9 of 18

 TAX II (ACCN2013A/ACCN2014A)

REFERENCE: WITS – 2020 JUNE – Q1 PART C (Parts A and B are not included here)

QUESTION 4 8 MARKS

Bedford Bakery (Pty) Ltd (Bedford Bakery) bakes brown bread that it sells to the general public
and local restaurants for cash. Bedford Bakery is situated in Befordview (Gauteng). Bedford
Bakery is a South African tax resident with a financial year that ends on the last day of
February. Bedford Bakery is a registered Category B VAT vendor. Bedford Bakery is not a
small business corporation as defined in section 12E(4) of the Income Tax Act. The South
African Revenue Service (SARS) considers the baking of bread to be a process of
manufacture.

The following query was received from a staff member of Bedford Bakery and all amounts
include VAT, unless otherwise stated, or if the context indicates otherwise:

Query 1
Michelle Thomas (the creditors clerk at Bedford Bakery) queried whether she will have to
include the bursary of R50 000 granted to her son, Mark Thomas (refer to further information
below), in her gross income for the 2023 year of assessment and whether she would qualify
for any exemption in the 2023 year of assessment in respect thereto. Further information:

Bursary granted by Bedford Bakery

Michelle Thomas (aged 48) is a South African resident. Michelle has been employed as the
creditors clerk at Bedford Bakery for the last 10 years. On 25 January 2023, Bedford Bakery
granted her son, Mark Thomas, a bursary of R50 000 to pay for his tuition fees to study a
Bachelor of Commerce in Financial Accounting which is an NQF Level 7 qualification at the
University of the Witwatersrand (Wits). Mark is a first-year student during the 2023 academic
year. Mark is not disabled in terms of section 6B of the Income Tax Act. Michelle’s
remuneration proxy applicable in her 2023 year of assessment amounted to R350 000.

© School of Accountancy, University of the Witwatersrand Page 10 of 18

 TAX II (ACCN2013A/ACCN2014A)

REQUIRED MARKS
Query 1
Discuss whether Michelle Thomas will have to include the bursary of R50 000
granted to her son, Mark Thomas, in her gross income for the 2023 year of
8
assessment, and whether she would qualify for any exemption in respect
thereto.
TOTAL MARKS 8

REFERENCE: WITS – 2020 NOVEMBER – Q3 QUERY 1

© School of Accountancy, University of the Witwatersrand Page 11 of 18

 TAX II (ACCN2013A/ACCN2014A)

ADDITIONAL QUESTION 1 12 MARKS

Patrick Dlamini (aged 45) is a South African resident and not married. Patrick is a qualified
chemical engineer.

Patrick was employed by AR Oil Limited, an oil exploration company, in Buenos Aires
(Argentina) on 1 March 2021 for a 5-year period. AR Oil Limited is not a South African tax
resident. South Africa has not entered into a double tax agreement (DTA) with Argentina.

On 1 March 2022, Patrick arrived in South Africa to spend his holiday with his parents and
friends. Patrick was scheduled to return to Argentina on 31 March 2022. On 25 March 2022,
Patrick received communication that his visa was invalid and needs to apply again which
restricted him from traveling outside of South Africa.. Patrick, therefore, only arrived in Buenos
Aires on 1 August 2022. Patrick returned to the office on the same day. For the period 1 April
2022 to 31 July 2022, Patrick worked remotely from his parents’ study in South Africa. Patrick
did not return to South Africa at any other time during the 2023 year of assessment.

Patrick earned the following amounts for the year of assessment ended 28 February 2023:

1. Patrick earned a monthly gross salary of R220 000 (correctly converted to South African
Rands) from AR Oil Limited.

2. On 31 December 2022, Patrick received a net dividend of R20 000 from Cell SA Limited
(Cell SA), a South African resident company. Dividend tax of 20% was withheld by Cell SA
in respect of the dividend earned by Patrick and was paid to SARS on 15 January 2023 by
Cell SA.

3. On 28 February 2023, Patrick earned interest of R30 000 on his South African bank
account for the 2023 year of assessment.

© School of Accountancy, University of the Witwatersrand Page 12 of 18

 TAX II (ACCN2013A/ACCN2014A)

REQUIRED MARKS
Calculate the taxable income of Patrick Dlamini in terms of the Income Tax Act
12
58 of 1952 for the year of assessment ended 28 February 2023.

Give brief reasons or references to legislation for your treatment of ALL

information provided (including amounts that have a nil effect) that pertain to the
2023 year of assessment of Patrick Dlamini.
TOTAL 12

SOURCE: Tax II - November Exam 2021

© School of Accountancy, University of the Witwatersrand Page 13 of 18

 TAX II (ACCN2013A/ACCN2014A)

ADDITIONAL QUESTION 2 19 MARKS

Ignore Value-Added Tax (VAT) when answering this question.

Information relating to Maryanne Dube

Maryanne Dube is 27 years old and is unmarried. Maryanne was born in the Eastern Cape on
1 December 1995. Maryanne grew up and lived in the Eastern Cape with her parents until she
matriculated. After school, Maryanne became an au pair (a young person from a foreign
country who helps with housework or childcare in exchange for food, lodging and payment)
and started travelling the world. Maryanne is currently employed by Kids Care (Pty) Ltd (“Kids
Care”), an au pair agency. Kids Care was incorporated as a private company in 1991 and is a
South African resident for tax purposes. Kids Care runs various au pair programmes. Kids
Care employs and places au pairs with host families throughout the world. To qualify to take
part in a Kids Care au pair programme, an au pair must be between the ages of 18 and 30.

Maryanne has been living and working abroad as an au pair since she matriculated 10 years
ago. Being an au pair has allowed Maryanne to travel the world and learn new languages.
Maryanne’s travels have not only exposed her to many different people and places but has
also deepened her appreciation and love for her beautiful home country, South Africa.
Maryanne has managed to save a substantial amount of money by working abroad. As she
loves South Africa, she intends to use her savings to purchase a flat in Morningside (Gauteng)
in which to reside when she returns to South Africa.

Maryanne is goal driven and always plans ahead. She intends, within the next two years, to
return and settle in South Africa and open a day care centre. Maryanne’s day care will be
based in Gauteng and cater for toddlers aged between 18 months and 3 years. Maryanne has
already started researching the process that needs to be followed before opening a day care,
specifically the educational and licensing requirements and staffing needs. Maryanne intends,
during her next visit to South Africa, to start looking for a possible location and premises from
which to conduct her day care business. Maryanne also intends, during her next visit to South
Africa, to purchase a flat in Morningside.

© School of Accountancy, University of the Witwatersrand Page 14 of 18

 TAX II (ACCN2013A/ACCN2014A)

Maryanne was placed by Kids Care with the Garcia family in Argentina (South America) in
January 2020. The Garcia family have three young children and Maryanne is responsible for
their care. South Africa has not entered into a double tax agreement (DTA) with Argentina.

Completion of Maryanne’s personal income tax return (ITR 12) for the 2023 year of
assessment

Larry Noah is Maryanne’s close childhood friend. Larry has offered to help Maryanne with
completing her tax return for the year of assessment ended 28 February 2023. Larry is in his
second year of studies towards becoming a Chartered Accountant (South Africa). Larry is keen
to assist Maryanne as this will afford him the opportunity to apply what he has learnt during
his studies.

Maryanne was in Argentina with the Garcia family during the period 1 March 2022 to
28 February 2023. Due to problems with visa, Maryanne did not utilise any of her vacation
leave during this period.

Maryanne had the following receipts and expenditure for the 2023 year of assessment:

1. Maryanne earned a monthly gross salary of R14 000 (correctly converted into Rands) with
effect from 1 March 2022. The Garcia family did not withhold any tax from Maryanne’s
monthly salary.

2. Maryanne invested in a tax free investment (as defined in section 12T(1)) based on the
advice she received online from Cynthia Shave, a financial advisor at Orange Bank Ltd.
Cynthia advised Maryanne on the various investment options available and assisted
Maryanne in opening her tax free investment account online. Maryanne contributed, with
effect from 1 March 2022, R3 000 per month to her tax-free investment. This was the only
tax-free investment contribution made by Maryanne during the 2023 year of assessment.
Interest of R2 200 accrued to Maryanne from her tax-free investment during the 2023 year
of assessment. As Maryanne had received advice and assistance from a financial advisor
when opening her tax-free investment account, she incurred a once-off advisor fee of R500.

© School of Accountancy, University of the Witwatersrand Page 15 of 18

 TAX II (ACCN2013A/ACCN2014A)

3. On 1 August 2021, four (4) months before her 26th birthday, Maryanne purchased an annuity
from Prosper Holdings Limited (Prosper Holdings). The cash consideration paid by
Maryanne for this annuity was R100 000. Prosper Holdings is a large insurance company
in South Africa. In terms of the annuity contract, Maryanne is entitled to receive R600 a
month for the next 25 years. Maryanne received her first monthly payment on 1 September
2021 and has received each respective payment thereafter on the first day of the following
month.

The table below reflects the life expectancies of males and females over various ages:

Age Expectation of life

Male Female
25 43 49.63
26 42.10 48.67
27 42.20 47.71

REQUIRED
For this part of the question assume that Maryanne Dube is a resident of
South Africa for tax purposes.

Calculate the normal tax payable of Maryanne Dube for the year of assessment 19
ended 28 February 2023.

Give brief reasons or references to legislation for your treatment of ALL

information provided (including amounts that have a nil effect) which pertains to
the 2023 year of assessment.
TOTAL 19

Source: TAX II – June exam 2021

© School of Accountancy, University of the Witwatersrand Page 16 of 18

 TAX II (ACCN2013A/ACCN2014A)

UNSEEN QUESTION 20 MARKS

Assume it is now 20 February 2022.

Mr Blue Jay is 43 years old, unmarried and a South African tax resident. For the past 15 years,
Blue was employed as a Quality Inspector at Deep Mines (Pty) Ltd (‘Deep Mines’), which
supplies high quality iron ore.

The significant decrease in Deep Mines’ mining production, which was caused by the
slowdown in the Chinese economy and the protracted labour strikes, resulted in the company
embarking on a massive retrenchment drive towards the end of 2021 and beginning of 2022.
Blue was retrenched in January 2022. On 15 February 2022, he received a R600 000 after-
tax lump sum severance package from his employer.

Blue used half of his package to pay off his home loan and decided to invest the remaining
R300 000 on 1 March 2022. As Blue had never invested before and was financially illiterate,
he contacted Mrs Apple Pitt, his long-time friend and confidant, for advice in this regard. Apple
provided Blue with the following two investment options:

OPTION 1: Invest R200 000 in local unit trusts and R100 000 in a tax-free investment account

Unit Trusts

Apple explained, in simple terms, that a unit trust fund was a collection of financial assets such
as shares and bonds, in which investors can purchase units. These funds are managed by
professionals and pay out distributions to its investors after set periods of time.

Apple suggested that Blue invest a lump sum amount of R200 000 in a unit trust fund that
invests in South African shares and local bonds. It is expected that this investment will result
in the following distributions in the first year (1 March 2022 to 28 February 2023):

Unit Trust Distributions R

South African dividends (gross dividends) 6 598
These dividends are not paid by Headquarter Companies, Real Estate
Investment Trusts or subsidiaries thereof.
Local Interest 13 167
Total 19 765

© School of Accountancy, University of the Witwatersrand Page 17 of 18

 TAX II (ACCN2013A/ACCN2014A)

Tax Free Investment

Apple mentioned that she had heard part of Gold Bank South Africa’s (‘Gold Bank’) radio
advertisement promoting tax free investments. Apple suggested that Blue consider this type
of investment as the benefits were simply amazing. According to Apple, an individual could
open multiple tax free investment accounts that each invest in different tax free investments,
and not pay any tax on the income earned by the investments. She also noted that capital
gains and losses on disposal of the investments were disregarded.

Apple suggested that Blue start off by investing R100 000 in a tax free cash deposit account
as this could earn him interest of R8 470 in the first year of the investment.

OPTION 2: Invest R300 000 in Fixed Rate Retail Bonds

Fixed Rate Retail Bonds

This is a type of investment where investors lend money to the South African Government for
a set period of time at a fixed interest rate.

The second investment option presented to Blue was the purchase of 300 Fixed Rate Retail
Bonds with a face value of R1 000 and an 8% coupon interest rate. This investment would
earn local interest of R24 000 from 1 March 2022 to 28 February 2023.

REQUIRED MARKS
PART A
For this part only, assume that Mr Blue Jay is considering investing R100 000
in a tax-free investment on 1 March 2022.
7
Briefly discuss whether Apple Pitt’s advice regarding ‘tax free investments’ was
sound in informing Mr Blue Jay of the key aspects that could impact his normal tax
payable for the year of assessment ended 28 February 2023.
PART B
Advise Mr Blue Jay, based on calculations of the total after tax returns of the
investments for the year of assessment ended 28 February 2023, which of the two 13
options would be more beneficial for him, for that year. Assume that Mr Blue Jay is
taxed at the maximum marginal rate of tax. Ignore dividends tax.
TOTAL MARKS 20

REFERENCE: WITS – 2016 AUGUST/SEPTEMBER – Q2

© School of Accountancy, University of the Witwatersrand Page 18 of 18

Question 1 - Suggested Solution
Description Reason Calculation Amount Marks
GROSS INCOME
Salary - United Dubai Hospital Par (c) of the gross income definition OR services rendered - 420 000 1 Amount
special inclusion 1 Reason

Faith is a South African tax resident and will be taxed on her 1 Reason
worldwide receipts and accruals
Salary - Hope Retirement Village Par (c) of the gross income definition OR services rendered - 18 000 1 Amount
special inclusion 1 Reason
Cell phone allowance from Hope Retirement Village Allowances are included in taxable income (NOT gross 0
income). Refer to below in solution.
Purchased Annuity Par (a) of the gross income definition OR annuity - special 5 000 1 Amount
inclusion 1 Reason

Local Interest- Tax free savings account s 1(1): general gross income definition 4 100 1 Amount
1 Reason

Local Dividends Par (k) of the gross income definition OR dividends - 9 000 1 Amount
special inclusion 1 Reason

Rental income s 1(1): general gross income definition 80 000 1 Amount

1 Reason

EXEMPT INCOME
Remuneration - United Dubai Hospital s 10(1)(o)(ii) OR exemption for remuneration in respect of 420 000 -420 000 1 Amount
services rendered outside SA 1 Reason
The remuneration in respect of the services rendered in Dubai is 0.5 Reason
exempt in terms s 10(1)(o)(ii) as: 0.5 Reason
0.5 Reason
Faith was outside South Africa for an unbroken period of 311 0.5 Reason
full days (1 March 2022 to 5 January 2023) during the 12
month period 1 March 2022 to 28 February 2023. She,
therefore, exceeds both the 183 day (0.5) and 60 continuous
day requirements (0.5). In addition, the remuneration earned
by Faith is in respect of services rendered in Dubai which is
outside South Africa (0.5), and the services were rendered on
behalf of her employer United Dubai Hospital. (0.5)

This amount is below R1.25 million and is exempt in full.

(Note: The requirement of 117 days instead of the 183 days

would apply to the 2021 year of assessment, not applicable
here.)

Purchased Annuity s 10A(2) OR the capital portion of the purchased annuity is -4 167 1 Reason
exempt
Y=A/B x C
A = 300 000 0.5 Amount
B = 5 000 x 12 x 6 = 360 000 0.5 Amount
C = 5 000 0.5 Amount
Interest received from tax free investment s 12T(2) OR exemption for amounts accrued from tax free -4 100 1 Amount
investment 1 Reason
The s 10(1)(i) exemption does not apply to interest earned 0 1 Reason
on tax free investments as defined in s 12T(1)

Local Dividends s 10(1)(k)(i) OR local dividend exemption -9 000 1 Amount

1 Reason
DEDUCTIONS
Municipal Rates s 11(a) OR general deduction formula -8 700 1 Amount
1 Reason
AMOUNTS INCLUDED IN TAXABLE INCOME
Cell phone allowance from Hope Retirement Village The taxable portion of the cell phone allowance needs to be Allowance: R1 000 1 000 1 Amount
included in taxable income (s 8(1)(a)(i)). No exemption can be Exemption: R - 1 Reason
claimed in respect of the cell phone allowance(OR no Taxable amount: R1 000
deduction allowed against cellphone allowance). Therefore, the
amount of R1 000 will be included in taxable income.

TAXABLE INCOME 91 133

NORMAL TAX PER TABLES s 5(1) OR normal tax per tables R91 133 x 18% (Individual tax 16 404 1P Amount
tables for the 2023 year of 1 Reason
assessment is used)
Rebates Section 6(2) or Faith is under 65 years of age. She is therefore -16 404 1 Amount
only entitled to the primary rebate. 1 Reason
NORMAL TAX PAYABLE 0

AVAILABLE MARKS 32.5

MAXIMUM MARKS 32
QUESTION 2 - SUGGESTED SOLUTION
Amount
Description Reason or reference to legislation Calculation Mark
(ZAR)
Gross Income
Paragraph (k) of the gross income definition OR dividend - special 1 reason
Local dividends 34 000
inclusion 1 amount
1 reason
Paragraph (a) of the gross income definition OR annuity - special
Annuity R800 x 3 2 400 1 amount
inclusion
Paragraph (c) of the gross income definition OR services rendered - 1 reason
Dance Fees 600 000
special inclusion 1 amount
Despite the fact that in terms of the written agreement, R200 000 of the
dance fees accrues to the orphanage and not to Lily,Lily will still include
this amount (R200 000) in her gross income as it relates to services
rendered by her.

OR

Anti-avoidance rule: Proviso (ii) of paragraph (c) of the gross income

definition. 1 reason

For information purposes:

Despite the fact that in terms of the written agreement R200 000 of the
dance fees accrues to the orphanage, the amount will still be included in
Lily's gross income due to the anti-avoidance provision contained in
paragraph (c) of the gross income definition. CIR v Witwatersrand
Association of Racing Clubs therefore does not apply.

Local interest (South African 1 reason

s 1(1): general gross income definition 13 000
source) 1 amount
s 1(1): general gross income definition
Foreign interest (not from a 1 reason
Lily is a resident and is therefore taxed on her world wide receipts 6 500
South African source) 1 amount
and accruals
1 reason
Rental income s 1(1): general gross income definition R18 000 x 5 90 000
1 amount
paragraph (h) of the gross income definition OR leasehold 1 reason
Leasehold improvements 7 500
improvements - special inclusion 1 amount
Exempt Income

par (aa) of the proviso to s 10(1)(k)(i) OR the dividend exemption does

Local dividends 0 1 reason
not apply as the dividend was distributed by a REIT

Capital portion of purchased s 10(A)(2) OR the capital portion of a purchased annuity is exempt
-381 1 reason
annuity from normal tax
Y= A/B x C
Y= R80 000/R504 000 x R2 400
A= R80 000 0.5 amount
B = *52.5 x R800 x 12 = R504 000 0.5 amount
C = R800 x 3 = R2 400 0.5 amount
* Life expectancy in years of a 22-
year-old female
s 10(1)(i) OR SA interest exemption
1 reason
Local interest -13 000
For purposes of completeness: As Lily is under the age of 65, we would 1 amount
consider the amount of R23 800 limited to the actual.
The exemption contained in s 10(1)(i) does not apply to foreign
Foreign interest 0 1 reason
interest

Income (as defined) 740 019

Available 21.5
Maximum 21
QUESTION 3 - Suggested Solution
Description Reasons or Legislation References Calculation Amount Marks
Normal Tax
Gross Income
Par (c) of the gross income definition OR 1 Reason
Salary (R30 000 x 6) + (R40 000 x 6) 420 000
Services rendered - special inclusion 1 Amount
Dividend income on tax-free 1 Reason
Par (k) of the gross income definition 2 500
investment 1 Amount
Par (c) of the gross income definition OR 1 Reason
Bursary of R35 000 35 000
Services - special inclusion 1 Amount
Sale of flat in Umhlanga Capital in nature, thus no amount included in gross income - 1P Reason
Par (c) of the gross income definition OR 1 Reason
Relocation benefits 73 000
Services rendered - special inclusion 1 Amount
Allowance are included in taxable income (not gross income). Refer to below.
Uniform allowance -
Comment to marker:
No amount mark if uniform allowance is included in gross income.
1 Reason
Local Interest income S1(1): General gross income definition 8 640
1 Amount
Less: Exempt income
S12T(2) OR
Dividend income earned on 1 Reason
Dividend income earned from a tax free investment is exempt in terms of -2 500
tax free investment 1 Amount
s12(T(2)

S 10(1)(q) does not apply OR

The bursary of R35 000 is not exempt, as the bursary is not repayable in full 1 Reason
Bursary of R35 000 -
to T-Solutions (Pty) Ltd (employer) if Prudence (employee) does not
complete the degree for reasons other than ill health, death or injury.

S 10(1)(nB) OR
The benefit of R73 000 that accrues to Prudence (employee) in respect of the
relocation costs incurred by T-Solutions (Pty) Ltd (employer) to transfer Prudence's
1 Amount
furniture and personal belongings from Umhlanga (her initial place of employment)
Relocation benefits -73 000 1 Reason
to Sandton (her new place of employment) is exempt from normal tax, as this
relates to transportation costs (R50 000), selling expenditure (estate agent’s fee of
R21 000) and settling-in costs (new school uniforms of R2 000) which are all
qualifying relocation expenditure.

s 10(1)(i) OR 1 Reason
Local Interest exemption Local interest exemption of R23 800 (as Prudence is younger than 65) is limited R8 640 limited to R23 800 -8 640 1 Amount
to interest earned of R8 640
Equals: Income 455 000
Less: Deductions and
Allowances
Contribution of R38 000 to
Capital in nature, not deductible in terms of s11(a ) - 1 Reason
tax free investment
Purchase of the 2-bedroom
Capital in nature, not deductible in terms of s11(a ) - 1 Reason
flat
S 23(o) OR
Traffic fine - 1 Reason
Fines are prohibited expenditure, therefore not deductible.
Amounts included in taxable
income
The uniform allowance received by Prudence of R3 500 will beexempt (in full) in
terms of s 10(1)(nA) since her uniform is clearly distinguishable from her
ordinary clothing as the grey golf shirt displays her employer's name and 1 Reason
Uniform allowance R3 500
logo AND as she is required to wear the uniform while on duty as a condition 1 Amount
Uniform allowances Exemption (R3 500) -
of employment. Therefore, no amount in respect of the uniform allowance will be 1 Amount
Taxable amount 0
included in her taxable income in terms of s 8(1)(a).
OR
S 10(1)(nA)

Taxable Income 455 000

R73 726 plus 31% of the

Normal tax per tables 105 315 1P Amount
amount above R353 100

1 Reason
Primary rebate S 6(2)(a) OR primary rebate OR younger than 65 -16 425
1 Amount
S12T(7) OR
Additional tax payable in 1 Reason
40% of the contribution in excess of R36 000 is deemed to be normal tax (R38 000-R36 000)*40% 800
terms of section 12T(7)(a) 1 Calculation
payable
Normal tax payable 89 690
AVAILABLE 29
MAXIMUM 26
QUESTION 1 - PART B
For this part of the question assume that Maryanne Dube is a resident for tax purposes.

Calculate the normal tax payable of Maryanne Dube for the year of assessment ended 28 February 2023.

Give brief reasons or references to legislation for your treatment of ALL information provided (including amounts that
have a nil effect) which pertains to the 2023 year of assessment.
Descript Comme
Reasons OR Legislation Reference Calculation Amount Marks
ion nt
Gross Income
Specific inclusion - services
rendered
1 Reason
OR 14 000 x 12
Salary Paragraph (c) of the gross income 168000
definition 1 Amount
Residents are taxed on worldwide
1 Reason
receipts and accruals
Interest-
tax free Section 1(1): general gross income 1 Reason
2200
investme definition
nt 1 Amount
Specific inclusion - annuity
Purchas
OR 1 Reason
ed 600 x 12 7200
Paragraph (a) of the gross income
Annuity
definition 1 Amount
Less: Exempt income
Section 10(1)(o)(ii)
OR
Exempt income - remuneration
received for services rendered
outside SA
OR
Maryanne is an employee of Kids Care.
She rendered the services in Argentina
Remuner which is outside the Republic. The
ation services were rendered on behalf of
received her employer, Kids Care. Maryanne 1 Reason
for was outside the Republic for more than -168000
services 183 full days in total during a 12 month
rendered period. This is evident as was
outside Maryanne was outside the Republic
SA
for the entire period 1 March 2022to
28 February 2023, which is 365 full
days. In addition the 12 month
period which Maryanne was outside
the Republic and rendering services
includes a continuous period of 60
full days. The section 10(1)(o)(ii)
Amount
exemption therefore applies. 1
(P)
Amounts
accrued
Section 12T(2)
from tax 1 Reason
OR
free -2200
Exempt income - amounts accrued
investme
in respect of tax free investment
nts Amount
1
(interest) (P)
1 Reason
Capital
Section10A(2) A = 100 000 0.5 Amount
portion
OR B = 600 x 12 x 25 = 180 000 1 Amount
of
Exempt income - capital portion of C = 600 x 12 = 7 200 1 Amount
purchase
purchase
d annuity purchased annuity Y = A/B x C
-4000 0.5
Formula
Y = (100 000/180 000) x 7 200 (P)
Equals: Income 3200
Less: Deductions
Contribut
ions of
R36 000
The contributions are of a capital
to tax - 1 Reason
nature- no section 11(a) deduction
free
investme
nt
Section 23(f)
OR
Once-off Section 23(g)
advisor OR
fee of Specific prohibition- expense
R500- incurred in respect of which - 1 Reason
tax free amounts accrued which do not
investme constitute income
nt OR
Specific prohibition- moneys not laid
out for the purposes of trade
Equals: Taxable Income 3200
Normal
Amount
tax per 3 200 x 18% 576 1
(P)
tax table
Section 6(2) rebate
Less:
OR 1 Reason
section R16 425 but limited to normal tax per
Primary rebate -576
6(2) table
OR Amount
rebate 1
Taxpayer is younger than 65 (P)
Normal tax payable -
Available Marks 20
Maximum Marks 19