TAX2601 Assignment 3 (DETAILED ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED

TAX2601 Assignment 3 (DETAILED ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references ... QUESTION 1 (12 marks) Easy Elevators (Pty) Ltd’s (“EE”) core business is the maintenance of elevators in residential and commercial buildings in the Gauteng region. It has service agreements with each of its customers and in terms of these, a monthly maintenance fee of R15 000 is payable on or before the seventh (7th) day of each month before that month’s service occurs. EE is a company incorporated in South Africa and its year of assessment ends on 31 March. One of EE’s customers paid an amount of R45 000 into EE’s bank account on 7 March 2024. This amount is for the maintenance service fees in respect of the following three months i.e. March 2024 to May 2024. EE was informed by the customer that the building’s caretaker decided to pay three months’ fee upfront as he would be out of the country for an extended period and wanted to ensure the maintenance of the elevators would continue as usual during this time. REQUIRED MARKS Discuss whether the receipt of the R45 000 maintenance service fee would constitute gross income of Easy Elevators (Pty) Ltd as defined in the Income Tax Act 58 of 1962 for the year of assessment ending 31 March 2024. List all the gross income definition requirements, discuss each one and briefly refer to case law to strengthen your argument. 12 4 TAX2601/2024/Semester 2/Assessment 3 QUESTION 2 (12 marks) Katlego (Pty) Ltd is a company selling designer glassware. It is not a small business corporation as defined in the Income Tax Act and its year of assessment ends on 31 August 2024. The financial accountant provides you with the following information: Year of assessment Taxable income Date of assessment Note 2022 R834 200 25 August 2023 Includes a taxable capital gain of R17 500 2023 R998 700 10 February 2024 Includes a taxable capital gain of R10 000 2024 R900 600 Estimated - not yet assessed No taxable capital gain REQUIRED MARKS a. Calculate the first and second provisional tax payments for the 2024 year of assessment of Katlego (Pty) Ltd. Provide brief reasons why you selected the basic amount for the first and second provisional tax payment calculations. Also state the latest date by which each payment must be made. 10 b. State which provisional tax payment(s) should be paid on 28 February 2025, assuming the actual taxable income for the 2024 year of assessment was R1 200 000. Your answer must provide which payment and for what year: e.g. “The second provisional payment for the 2024 year”. No calculations are required. 2 5 TAX2601/2024/Semester 2/Assessment 3 QUESTION 3 (11 marks) Twice as Nice (Pty) Ltd is a newly established company, started by a friend of yours. The company sells secondhand clothing to the public. The company started trading 1 July 2023 and has a February year-end. Your friend asks you for some advice relating to micro businesses. You obtain an extract from the accounting records with the following information pertaining to the period 1 July 2023 to 29 February 2024: Amount Additional information Turnover R600 000 Customers pay for the items upon purchase, credit sales occur. Interest income R12 000 Interest earned on a long-term fixed deposit at a local bank. Operating expenses R95 000 Assume all are deductible for income tax purposes. Proceeds of a capital nature R7 700 One of the two washing machines was sold, which was used for washing the secondhand clothing when it was acquired. REQUIRED MARKS a. Determine the qualifying turnover limit for Twice as Nice (Pty) Ltd and conclude, supported with a brief explanation, whether the company qualifies to register as a micro business. 5 b. Calculate the tax liability for the 29 February 2024 year of assessment, assuming Twice as Nice (Pty) Ltd meets the requirements to register as a micro business. 6