LML4804 Assignment 3 (ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED

Well-structured LML4804 Assignment 3 (ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED. (DETAILED ANSWERS - DISTINCTION GUARANTEED!).. QUESTION 1 (CAPITAL GAINS TAX) Ms. Kru, a South African resident worked for O Insure (Pty) Ltd (“O Insure”) as a specialist for 15 years. As a result of the Covid-19 pandemic that hit the world, O Insure decided to retrench her team including Ms. Kru. She was given a severance package of R5 million. Ms. Kru is married in community of property to Lolo and they stay in Blue Halley, Pretoria They bought the house in 2011 for R900 000. They also own a holiday house in Hermies, Western Cape which they bought in 2012 for R800 000. The couple also own a BVM X and a Range Sports Car that Ms. Kru bought for Lolo as a graduation present. As a result of the retrenchment, the couple decided to downsize their lifestyle. They therefore embarked on the following transactions: • They appointed REX Real Estate agents at a cost of R200 000 to sell the house in Blue Halley for R2,5 million; replaced all bathrooms’ taps with gold plated ones at a cost of R30 000; appointed Fix It (Pty) Ltd (“Fix it”) to fix the leaking swimming pool at a cost of R10 000; • They also sold their holiday house in Hermanes for R2 million; • They sold Range Sports Car for R1 million; • They sold their Kruger Rands for R500 000 WHAT IS REQUIRED OF YOU: Without calculating the capital gain of Ms. Kru, discuss the capital gains tax principles applicable in the scenario. [25 marks] QUESTION 2 (TAX AVOIDANCE AND ADMINISTRATION) 2.1 Phephisi and Carlifonia are married in community of property, and they have three children: Mahlaku aged 20, Mologadi aged 19 and Kabelo aged 17. Phephisi is a well-known businessman who owns a chain of chicken outlets. After deciding to prepare his children for the future, he embarked on the following transaction: he donated R100 000 to each of his children. Mahlaku invested the amount at Blue Bank and received R5000 interest. Mologadi kept the money in the safe. Kabelo opened women’s boutique outlet and earned a profit of R10 000. Phephisi also donated R200 000 to his wife, Carlifonia as a Valentine’s gift. Phephisi also formed a trust for the benefit of their children. He donated a block of flats to the trust. The trust earned rental income in the amount of R500 000 from the letting of the flats during the 2022/23 year of assessment. The trust deed stipulated that the income should not be paid out to the beneficiaries until they reach the age of thirty years, or until the trustee exercises his discretion in this regard. WHAT IS REQUIRED OF YOU: (a) Discuss the income tax consequences for Mahlaku, Mologadi, Kabelo and Carlifonia as a result of the money Phephisi donated to them during the 2022/23 year of assessment. [10 marks] (b) Discuss the income tax consequences for Mahlaku, Mologadi and Kabelo as a result of the donation made to the trust that Phephisi formed. [5 marks] 2.2 Edy overhears on the radio that South African Revenue Service (“SARS”) demands payment of tax due irrespective of whether a taxpayer has appealed against an assessment. He further overhears that SARS has a power to approach a taxpayer’s bank to request it to pay over the tax debt to SARS from the taxpayer’s account. WHAT IS REQUIRED OF YOU: Edy approaches you as tax consultant. With reference to relevant authority, briefly explain whether the Commissioner or SARS is empowered to demand payment of tax due or to approach the taxpayer’s bank for the payment of the tax due.