Integrated Question: Natural Person PDF

INTEGRATED QUESTION: NATURAL PERSON ` [55 MARKS] Mrs. Love is a 66-year-old South African Resident. She is married out of community of property to Mr Love. Details of Mrs. Love’s various receipts and expenses for the 2024 year of assessment are as foll...

INTEGRATED QUESTION: NATURAL PERSON ` [55 MARKS] Mrs. Love is a 66-year-old South African Resident. She is married out of community of property to Mr Love. Details of Mrs. Love’s various receipts and expenses for the 2024 year of assessment are as follows: Income and expenses Note R Basic salary R746 000 Bonuses 1 R? Travelling allowance 2 R? Right to use of a motor vehicle 3 R? Right of use of the company accommodation 4 R? Long service award 5 R8 600 Bursary 6 R36 000 Company computer 7 R? Pension fund contribution 8 R? Interest received: From Tax free investment (qualifying investment) R12 000 From Local interest investment R39 000 Local dividends R14 900 Donations 9 R125 000 Medical aid 10 R? Notes: 1. Bonuses Mrs. Love is entitled to a production bonus and a 13th cheque. A. Production bonus According to her employer’s policy, a production bonus of R4 800 is payable quarterly where the production exceeds a total of 400 000 units produced during that particular quarter. The following actual production units were recorded during the current year of assessment: Quarter Actual production. 1 600 000 2 370 000 3 470 000 4 230 000 1  B. 13th Cheque Mrs. Love is also entitled to a 13th cheque. She was paid R92 000 as a 13th cheque during the current year of assessment. 2. Travelling allowance Mrs. Love was given a travelling allowance of R17 110 every month from 1 March 2023 to 31 December 2023 when she was involved in a car accident and her car was written off. She bought the car on 1 March 2023 for R750 000 excluding VAT. She kept valid and accurate records of business distances travelled and records of costs incurred. During that period, she had travelled a total KM of 41 000 KM of which 24 000 KM was for business purposes. The following costs represent the actual cost she incurred: Car maintenance costs R12 000 Annual Car license cost R1 700 Fuel costs R38 000 Mrs. Love’s drivers’ licence R1 400 3. Right to use of a motor vehicle After the accident that happened on 31 December 2023, Mrs. Love was given a right to use a company car on 1 January 2024. The employer bought the motor vehicle on 1 November 2023 for R540 000 including VAT. The vehicle did not have a maintenance plan. She kept valid and accurate records of business distances travelled and records of costs incurred. She had travelled a total of 15 000 KM of which 9 000 KM was for business purposes’ trip. Mrs. Love paid for the following costs: Car maintenance costs R1 200 Insurance R1 350 p.m. Fuel costs R12 000 2 4. Right of use of the company accommodation Mrs. Love have a right to use a company accommodation. She started to use the company accommodation on 01 March 2023. The accommodation is a five-bedroom house with a kitchen and a dining room. The accommodation is fully furnished, and employer pay for water and electricity. Mrs. Love pays a monthly rental of R1 200 towards the use of the company accommodation. Her remuneration proxy is R650 000. 5. Long service award: Mrs. Love has been with her employer for 15 years. It is her employer’s policy to award any employee who has been in service for 15 year or more with a long service award. Mrs Love was awarded R8 600 during the current year of assessment as a long service award. 6. Bursary Mrs. Love was awarded with a bona fide bursary of R36 000 to register for an Advanced diploma in Accounting (NQF 7) at Mangosuthu University of Technology. The bursary was to cover the cost of the course for the current year of assessment. Mrs Love is not required to reimburse the employer if she fails to complete her studies. 7. Company computer and telephone. Mrs Love’s employer gave her the right to use a company-owned computer including WiFi router from 1 March 2023. Her employer bought the computer for R36 000 (which is equal to market value) including WiFi router and data for 12 months on 1 March 2023. The company purchased the phone at a cost of R7 200 on 1 November 2023. This phone was given to Mrs Love on the same date. Mrs Love used the computer and telephone 60% for business purposes and 40% for private purposes. 8. Pension fund contribution: Mrs. Love contributes 13% of her basic salary to a registered pension fund. Her employer also contributes 16% of her basic salary towards the same pension fund. You may assume that Mrs. Love’s remuneration as defined in the Fourth Schedule to the Income Tax Act equals to her basic salary for the 2024 year of assessment. 3  9. Donations Mrs Love donated a total of R125 000 during the current year of assessments to one of the registered Public Benefit Organisations. A section 18A certificate was received for this donation. 10. Medical aid Mrs Love is a member of a medical aid scheme. During the current year of assessment, she contributed R4 200 per month to a registered medical aid scheme for herself and four depends. Her employer contributes R1.50 for every R1.00 she is contributing. During the current year of assessment, she incurred and paid qualifying medical expenses of R31 000 out of her own pocket. Required: 1. Calculate the normal tax liability of Mrs. Love’s for the 2024 year of assessment. 2. Calculate VAT payable or refundable from note 3 for a period of 01 November 2023 to 28 February 2024. You may assume that the vehicle is a motor vehicle as defined. 4 Solution: Gross income 1 238 967.50 Basic salary 746 000 Production bonus (4 800 x 2) 9 600 13th Cheque 92 000 Right to use company car (w2) Nil Right to use company accommodation 90 907.50 Long service award (8 600 – 5 000) 3 600 Bursary 36 000 Right to use company computer and telephone ( mainly used for business) Nil Employer contribution to pension fund (746 000 x 16%) 119 360 Employer contribution to medica aid (4 200 x 12) xR1.5/R1 75 600 Interest Tax free investment 12 000 Local interest 39 000 Local dividends 14 900 Exempt income (61 400) Bursary (unconditional bursary) 0 Interest from tax free investment (12 000) Local interest (lmt to 34 500) (34 500 Local dividends (14 900 Income 1 177 567.50 Less: Deduction 0 1 177 567.50 Add: Section 8 allowances Travel allowance (w1) 0 1 177 567.50 Add: Taxable capital gains 0 1 177 567.50 Less: Section 11F deduction (216 340) [119 360 + (746 000 x 13%)] = 216 340 limited to the lesser of: ▪ 350 000 or ▪ 27.5% of higher of: o Remuneration: 746 000 or o Taxable income before section 11F: 1 177 567.50 o 1 177 567.50 x 27.5% = 323 831 ▪ Taxable income before capital gains: 1 177 567.50 Lesser: 323 831, therefore deduct 216 340 961 227.50 Less: Donation (125 000) limited to 10% of taxable income before s18A: (96 122.75) 961 227.50 = 96 122.75 Taxable income 865 104.75 Tax as per table [251 280 + 41% (865 104.75 – 857 900)] 254 233.95 Less: Primary rebate (17 235) Less: Secondary rebate (9 444) 227 554.95 5  Less: Section 6A (w4) (17 592) Less: Section 6B (w5) (34 706.59) Normal tax 175 256.36 Workings W1: Travel allowance DV: 750 000 x 115 / 100 = 862 500 Travel allowance (17 110 x 10) 171 100 Less: Actual costs Wear and tear (800 000 /7 yrs) x 10/12 95 238 Maintenance 12 000 Licence cost (1 700 x 10/12) 1 417 Fuel 38 000 Driver’s licences – not deductible 0 Actual cost 146 655 Actual cost per km (146 655 / 41 000 km) R3.576 Deemed cost Fixed cost (209 685 / 41 000 km) x 10/12 4.262 Maintenance (113.1 cents / 100) 1.131 Fuel (234.3 cents / 100) 2.343 Deemed cost per km 7.736 Less: business travel (7.736 x 24 000 km) (185 664) Taxable allowance Nil W2: Right to use company car: DV: 540 000 Private value (540 000 x 3.5%) = 18 900 p.m x 2 37 800 Less: Business travel (37 800 x 9 000km / 15 000 (22 680) km) 15 120 Less: Actual costs Maintenance (1 200 x 6 000 km / 15 000 km) (480) Insurance (1 350 x 2) x 6 000 km / 15 000 km) (1 080) Fuel (226.6 cents / 100) x 6 000 km (13 596) Nil W3: right to use company accommodation (A -B) x C/100 x D/12 6 (650 000 – 95 750) x 19/100 x 12/12 = 105 307.50 – (1 200 x 12) =90 907.50 W4: section 6A [(364 + 364) + (246 x 3)] x 12= 17 592 W5: Section 6B Contribution (4 200 x 12) + 75 600 126 000 Less: 3 x section 6A (17 592 x 3) (52 776) 73 224 Add: Qualifying expenses 31 000 104 224 X 33.3% 34 706.59 2. VAT Payable or refundable Time Details Amount 01 Nov Purchase of Vehicle – motor car as defined - VAT denied RNil 2023 31 Jan 2024 540 000 x 100/115 = 469 565 x 0.6% = 2 817 x 2 months 204 output and = 28 Feb 5 634 – [1 200 – (1 350 x 2)] = 1 734 – (85 x 2) = 1 564 x 2024 15/115 = 204 x 100% = 204 for Jan and Feb 28 Feb [1 200 + (1 350 x 2)] = 3 900 x 15/115 508.70 output 2024 Payable R712.70 7 QUESTION 2 [13 MARKS] Mr Phiri has just been employed by Marvellous Ltd. He receives his basic salary of R45 000 per month and a wide range of other benefits. His employer has given him an option to choose between a right to use a company car and receiving a travel allowance. He is not sure which option to choose as it is his first time ever encountering such situation. The following represents the two above scenarios: Scenario 1: Travel allowance. His employer has promised to give him a monthly travel allowance of R21 000. Mr Phiri is going to buy a new vehicle for R870 000 to use for executing employer’s duties and for his private purposes. Included in the purchase price is VAT of 78 260 and Finance cost of R200 000. He estimates that, in any given year of assessment, he is going to travel 26 000 km in total of which 20 000 km represents business km travelled. If Mr Phiri is going to opt for travel allowance, he will be paying for all costs related to running the vehicle including fuel, maintenance, insurance and licensing costs. You may assume, he is not going to keep records of actual expenditure. Scenario 2: Right to use a company car. Mr Phiri will be given a right to use a company car, which will be bought by employer for R650 000 excluding VAT. The vehicle bought will be a double cab bakkie and comes with a standard maintenance plan. He estimates that in any given year of assessment, he is going to travel 26 000 km in total of which 20 000 km represents business km travelled. If Mr Phiri is going to opt for right to use company car, his employer will take care of all related costs of the vehicle including the cost for fuel. Required: Write a memo to Mr Phiri, advising him about: 1. Income tax consequences of both options (3) 2. Which option will be more beneficiary to him (show all your workings)? (9) 3. Format and language (1) 8 QUESTION 3 Mr Hlabeyakhe Nxamalala is a 50-year-old ordinary resident of South Africa. He is married in community of property to Mrs Khalangaye Nxamalala who is 40-year-old ordinary resident of South Africa. During the current year of assessment, they were both employed by Khulangaye Ltd, and both had the following: 1. Salary and 13th Cheque Mr Nxamalala earns a basic salary of R47 000 per month while Mrs Nxamalala earns a basic salary of R65 000 per month. They were both entitled to a 13th cheque equal to their one month’s basic salary during the current year of assessment. Mrs Nxamalala is entitled to a production bonus of R15 000 per 150 000 units produced by Khulangaye Ltd. During the current year, Khulangaye Ltd produces 600 000 units during the current year of assessment. The production bonus is paid on the last day of February every year. 2. Travel allowance and right to use a company car Mr Nxamalala is entitled to a travel allowance of R14 500 per month. Mr Nxamalala travelled 19 000 km during the current year of assessment, of which 10 500 km were for business purposes. He uses his personal car which he bought on 01 December 2022 for R450 000 excluding Value Added Tax. Mr Nxamalala paid for all cost but did not keep accurate records. Mrs Nxamalala was granted a right to use a company car on 01 July 2023. The vehicle costed Khulangaye Ltd R980 000 including VAT on 1 March 2023. The vehicle is a single cab bakkie and comes standard with maintenance plan. She kept accurate record of kilometre travelled which revealed that she travelled a total of 30 000 km of which 22 000 km were for business purposes. Mrs Nxamalala paid R24 000 toward fuel of during the current year of assessment. Employer bear the full cost of repairs and maintenance of the vehicle. 3. Company Asset Khulangaye Ltd gave Mrs Nxamalala a right to use a company-owned computer including WiFi router from 01 May 2023. Her employer bought the computer for R40 000 (which is equal to market value) including WiFi router and data for 12 months on 01 May 2023. Mrs Nxamalala used the computer 55% for business purposes and 45% for private purposes. Mr Nxamalala bought roman roof tile of R140 000 from Khulangaye Ltd. The tiles are part of Khulangaye Ltd’s trading stock. The cost price to Khulangaye Ltd was R215 000 with a market value of R210 000. 9  4. Retirement fund contributions Mr Nxamalala belongs registered pension fund. During the current year of assessment, he was contributing R8 100 per month toward pension fund while his employer was contributing R15 250 per month towards the same pension fund. Mr Nxamalala had R14 200 as a balance of assessed retirement of contributions which were previously disallowed. Mrs Nxamalala belongs registered pension fund. During the current year of assessment, she was contributing R14 250 per month toward pension fund while her employer was contributing R19 850 per month towards the same pension fund. You may assume the remuneration is equal to their basic salary for the purposes of calculating section 11F deduction. 5. Other incomes During the current year of assessment, they received the following: South African interest income (received by Mrs Nxamalala): R11 200 South African dividend income (received by Mr Nxamalala): R15 100 6. Medical aid Mrs Nxamalala is a member of a medical aid. During the current year, her employer contributed R86 000 to the medical aid fund while she was contributing R45 000 to the same fund. She is contributing for herself and other two dependents. During the current year of assessment, she incurred medical costs of R51 250 which were not covered by medical aid. 7. Prepaid taxes During the current year of assessment, an employees’ tax of R211 000 was withheld from Mr Nxamalala’s remuneration while R254 000 was withheld from Mrs Nxamalala’s remuneration Required: 1. Calculate the net normal tax liability of both Mr and Mrs Nxamalala for the year of assessment ending on 28 February 2024. In your calculations, provide reasons for any amounts that are excluded or have a “zero” effect. 10 QUESTION 4 Ms Suzan is a 34-year-old ordinary resident of South Africa. She is employed by MFY Ltd, a company based in Durban. She is single with two minor children. One child is having a disability as defined in section 6B. During the current year of assessment, she had the following details: 1. Salary and bonuses She earns a monthly pensionable salary of R49 000. This salary was increased by 15% as from 1 September 2021. She was also given a bonus of R74 000 (non-pensionable) on 1 November 2023. 2. Right to use a company house Ms Suzan was given a right to use a company house on 1 May 2023. The house is a five-room house, fully furnished and the employer pays for water and electricity. Ms Suzan pays a monthly rental of R1 690. Her remuneration proxy is R520 000. 3. Travel allowance Ms Suzan bought a motor vehicle with the cost of R980 000 excluding VAT on 1 January 2023. The bank agreed to finance the vehicle at an interest rate of 12% per annum. Ms Suzan will be paying a yearly instalment of R200 000 on this vehicle starting from 28 February 2024. Her employer pays her a monthly travel allowance of R15 000 from 1 March 2023. For the 2024 year of assessment, she travelled a total distance of 30 000 km, of which 14 000 km were for private purposes. She paid for the following expenses: Insurance R14 000 Fuel R18 000 Vehicle license R3 000 Finance costs R45 250 4. Retirement contributions Ms Suzan belongs to a registered pension fund. During the current year of assessment, she was contributing R9 800 per month toward pension fund while her employer was contributing R14 650 per month towards the same pension fund. Ms Suzan also took a retirement annuity plan with Samlam on 1 August 2023. She is contributing R3 600 per month towards the retirement plan. R41 000 represents excess contributions previously disallowed. You may assume a remuneration of R650 000 for the purposes of calculating section 11F deduction. 5. Medical aid contributions and expenses Ms Suzan is a member of a registered medical aid scheme. During the current year of assessment, she contributed R2 400 per month while her employer was contributing R3 520 11  per month towards her medical aid. Both his children are registered as dependents on her medical aid. During the current year, she incurred medical costs of R32 000 which were not covered by the medical aid. 6. Annuity. Ms Suzan purchased an annuity on 1 September 2023 for R450 000. she will receive a monthly annuity of R3 900 p.m. for 13 years, starting from 30 September 2023. 7. Investment income During the current year of assessment, she received the following: South African interest income R14 580 South African dividend income R7 240 Foreign dividend income (she holds less than 1% participating equity) R1 600 8. Business trips Ms Suzan was required to attend a business meeting in Cape Town for 10 days. The business meeting was away from her home. Her employer booked her an accommodation. She was given an advance of R6 120 to defray meals and other incidental costs. 9. Donations During the current year of assessment, Ms Suzan donated goods to the value of R6 500 towards an old age home. She received a section 18A certificate. Required: Calculate the taxable income of Ms Suzan for the year of assessment ending on 28 February 2024. In your calculations, provide reasons for any amounts that are excluded or have a “zero” effect. 12