TAX 242 Week 6 :Tuts
General deductions 26 August 2024
DAMAGES PAID
Zidane Pty Ltd employs approximately 100 people who work from the office building
which they own. One of the employee's, Mr Dent who is the building repairman, filed
a case against Zidane Pty Ltd . While inspecting a heater in the building, it exploded
and unfortunately Mr Dent lost an arm and a leg in the explosion. As he was no longer
able to work, he sued Zidane Pty Ltd for R 25 Million arguing that they should have
provided him with a flame resistant suit. Zidane Pty Ltd believed the reason that the
explosion occurred was simply due to him being clumsy. Wanting to avoid a court case
and any negative publicity, they offered him a payment of R8 million, which he
accepted on 1 December 2023. Of the R8 million, R5 Million was to compensate him
for lost earnings, and R3 Million was for the damage to his limbs. Mr Dent took the R8
Million he received and purchased an annuity from Old Mutual with the full amount.
The annuity is to pay R50 000 on the 1st day of each month for a period of 10 years.
Mr Dent received his first payment on 1 January 2024.
Required:
Discuss whether the amount paid to Mr Dent would be deductible for the purposes of
Zidane (Pty) Ltd's Normal tax for the 2024 year of assessment.
Communication mark - logical argument
General deductions 26 August 2024
DAMAGES PAID
Zidane Pty Ltd employs approximately 100 people who work from the office building
which they own. One of the employee's, Mr Dent who is the building repairman, filed
a case against Zidane Pty Ltd . While inspecting a heater in the building, it exploded
and unfortunately Mr Dent lost an arm and a leg in the explosion. As he was no longer
able to work, he sued Zidane Pty Ltd for R 25 Million arguing that they should have
provided him with a flame resistant suit. Zidane Pty Ltd believed the reason that the
explosion occurred was simply due to him being clumsy. Wanting to avoid a court case
and any negative publicity, they offered him a payment of R8 million, which he
accepted on 1 December 2023. Of the R8 million, R5 Million was to compensate him
for lost earnings, and R3 Million was for the damage to his limbs. Mr Dent took the R8
Million he received and purchased an annuity from Old Mutual with the full amount.
The annuity is to pay R50 000 on the 1st day of each month for a period of 10 years.
Mr Dent received his first payment on 1 January 2024.
Required:
Discuss whether the amount paid to Mr Dent would be deductible for the purposes of
Zidane (Pty) Ltd's Normal tax for the 2024 year of assessment.
Communication mark - logical argument
