TAX2601 EXAm PAck 2023

S - The study-notes marketplace 3 TAX2601 Oct / Nov 2021 [TURN OVER] QUESTION 1 (25 marks, 30 minutes) GoSolar (Pty) Ltd (GoSolar) is a South African company that manufactures solar panels for commercial and residential use, in an industrial area of Johannesburg. The company’s year of assessment ends on 31 March 2021. It is not a small business corporation as defined in the Income Tax Act. Since the company’s accountant is unfamiliar with tax matters, they have requested your assistance to calculate the tax liability of the company. The company has provided you with a list of items relating to the current year of assessment, which must be used to do your calculation for taxation purposes. Each item and the information per the notes must be addressed: Income Note R Sales Lease premium & rental 2 ? Expenses Capital allowances on assets 3 ? Dividend 4 350 000 Doubtful debts & prior year allowance 5 332 000 Penalties and interest (late payment of skills development levy) 23 777 Provisional tax payment Salaries Rented office equipment 8 800 000 Notes: 1. Sales Included in sales, is an amount of R2 000 000 received on 31 March 2021 from a new customer of GoSolar for residential solar panels purchased on the same date. GoSolar was only able to deliver these solar panels on 2 April 2021. 2. Lease premium & rental On 1 June 2020, GoSolar purchased a piece of vacant land for R350 000 in Johannesburg and constructed a two-floor office block on the land. The construction cost R1 400 000 and soon after its completion the company entered into a lease agreement with a tenant for the rental of the entire office block. The agreement was signed on 1 February 2021 between the parties. The agreement stipulates a lease premium of R110 000 must be paid once-off, once the agreement is signed. Monthly rental of R20 000 was paid at the beginning of February 2021 and March 2021 to GoSolar. The tenant paid the lease premium on 1 April 2021. 3. Capital allowances on assets Below are the details of the assets: Asset Cost R Relevant information 1. Factory building 4 000 000 A newly built building that was purchased from a developer and brought into use on 1 November 2019. The factory building is in an Urban Deve- lopment Zone. 2. New two-floor office block (refer to note 2 above): - Land - Construction 350 000 1 400 000 Land purchased and building erected by GoSolar. Construction completed on 16 January 2021, brought into use on 1 February 2021. (Not in an Urban development zone) S - The study-notes marketplace Downloaded by: lungilemasango | Distribution of this document is illegal S - The study-notes marketplace 4 TAX2601 Oct / Nov 2021 [TURN OVER] QUESTION 1 (continued) Asset Cost R Relevant information 3. Manufacturing machine: AAA 1 700 000 Purchased new and brought into use on 1 July 2020 4. Manufacturing machine: BBB 900 000 Purchased second hand and brought into use on 30 April 2019 and then sold on 1 August 2020 for R200 000. 5. Delivery vehicle 1 380 000 Purchased new and brought into use on 1 May 2010. 6. Heavy duty truck 1 800 000 Purchased 6 May 2020 and brought into use on 1 July 2020. Note: Where applicable, Binding General Ruling (BGR) no.7 makes provision for the following write-off periods: Delivery vehicle: 4 years Heavy duty truck: 5 years 4. Dividend declared A dividend of R350 000 was declared on 28 March 2021 and paid out on 10 April 2021 to the GoSolar shareholders. 5. Doubtful debts The total list of doubtful debts (all older than 60 days but less than 120 days) amounted to R278 000 at the end of 31 March 2021. A doubtful debt allowance of R54 000 was claimed for tax purposes in the 2020 company tax return. The company does not apply IFRS9. 6. Provisional tax payment GoSolar made a first provisional tax payment of R2 679 000 for the 31 March 2021 year of assess- ment on 20 September 2020. 7. Salaries The salaries expense is R6 300 000 for the year of assessment. Contributions of R700 000 was paid by GoSolar to a pension fund for its employees. (This amount is excluded from the salaries expense.) 8. Rented office equipment All the office equipment was rented from a service provider. The total cost amounted to R800 000 for the year. REQUIRED: MARKS 1. Calculate the income tax liability of GoSolar (Pty) Ltd for the year of assessment ending 31 March 2021. Note: Address each item and amount and provide a brief reason if you consider any amount not taxable/not deductible for tax purposes (hint: “not deductible” is not a reason). You may ignore any capital gains tax (CGT) effect and assume that the company has elected the Section 11(o) scrapping allowance, where applicable. 2. Calculate the amount that the shareholders of GoSolar will receive (combined) in respect of the dividend declared? 24 1 S - The study-notes marketplace Downloaded by: lungilemasango | Distribution of this document is illegal S - The study-notes marketplace 5 TAX2601 Oct / Nov 2021 [TURN OVER] QUESTION 2 (25 marks, 30 minutes) Shisanyama Catering Equipment Supplies (Pty) Ltd (Shisa) is a company that manufactures and supplies a full range of catering equipment. The company has been trading for 23 months since 2 May 2019 and its current year of assessment ends on 31 March 2021. The company had sales over R10 million in their first and second year of trade. Shisa is a small business corporation as defined in the Income Tax Act. Shisa’s financial accountant has given you a correctly calculated taxable income amount of R7 890 000 before taking the below transactions into account: 1. Bad debts Bad debts of R28 000 was written off in the accounting records. R8 000 of this amount relates to a loan made to an employee who has died recently, and the rest of the amount relates to debtors that are considered irrecoverable. 2. Capital allowances on assets and related costs Asset Date purchased & brought into use Cost for Shisa Notes Factory 2 May 2019 R1 200 000 The factory is an old/used building which was originally erected in 1988. The previous owner claimed a 2% allow- ance on the building. Machine Metal – new 2 May 2020 R870 000 Machine Plastic – second hand 15 June 2020 R560 000 Sold on 1 November 2020 for R400 000. Computer system - new 2 November 2019 R600 000 Installation costs of R12 500 were incurred to install the new computer system. Office equipment - all new 2 May 2020 R940 000 Repairs to factory building - The outside of the building was repainted, as it was last painted 10 years ago and looked run down; and - An awning (outside covering) was fitted (added) at the entrance of the building for protection from the sun. R42 000 R15 000 Costs incurred on 1 November 2020. Costs incurred on 1 December 2020. 3. Donation Shisa made a R50 000 donation to “Siyabonga Africa” Fund (a public benefit organisation) and re- ceived a section 18A receipt on 14 February 2021. 4. Insurance A prepaid insurance amount of R500 000 was paid on 1 September 2020 for a 12-month period from 1 September 2020 to 31 August 2021. S - The study-notes marketplace Downloaded by: lungilemasango | Distribution of this document is illegal S - The study-notes marketplace 6 TAX2601 Oct / Nov 2021 [TURN OVER] QUESTION 2 (continued) 5. Inventory The below inventory adjustments must all still be considered: • Opening stock as at 1 April 2020 was correctly valued for tax purposes at R643 000 • Purchases of inventory materials during the year was R542 000 (this amount includes import duties of R68 000 relating to materials imported from India) • Catering equipment with a market value of R13 000 was sold to a retirement home (not a regis- tered public benefit organisation) for R2 000 • Closing stock as per the auditor’s stock count indicates a cost of R378 000 and a market value of R430 000 Other information: Where applicable, BGR no.7 makes provision for the following write-off periods: Computers: 5 years Office equipment: 5 years Furniture & fittings: 6 years Shisa has elected to apply the section 11(o) scrapping allowance, where applicable, and not to write off their non-manufacturing assets in terms of the BGR