TAX3701 Ass1 S% pass mark guaranteed

1. Which of the following court cases established that an expense must be closely connected to
the taxpayer’s income-earning activities to be deductible?
A.
Port Elizabeth Electric Tramway Co Ltd v CIR
Port Elizabeth Electric Tramway Co Ltd v CIR
This case confirmed that an expense must be closely connected to income-producing activities to be
deductible.
B.
Joffe & Co (Pty) Ltd v CIR
C.
CIR v De Beers Holdings
D.
CIR v Witwatersrand Association of Racing Clubs
E.
Caltex Oil (SA) Ltd v SIR
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Your answer is correct.
Port Elizabeth Electric Tramway Co Ltd v CIR
This case confirmed that an expense must be closely connected to income-producing activities to be
deductible.
The correct answer is:
Port Elizabeth Electric Tramway Co Ltd v CIR




2. What is the tax treatment of a donation received by a business?
A.
Only taxable if from a foreign source
B.
Fully taxable as gross income
C.
Only taxable if above R1 million
D.

,Taxable at a flat rate of 10%
E.
Fully exempt from tax
Fully exempt from tax
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Your answer is correct.

Fully exempt from tax

A donation received is exempt from income tax as it is a receipt of a capital nature, however, the
business must still declare the donation received to SARS.


The correct answer is:
Fully exempt from tax



3. Which of the following is NOT a benefit of turnover tax?
A.
Lower tax liability for all businesses
Lower tax liability for all businesses
While turnover tax may reduce tax for some businesses, others may pay more tax compared to the
standard income tax system.
B.
None, as capital assets are excluded
C.
Reduced record-keeping requirements
D.
Fewer tax returns to submit
E.
Simplicity in tax calculations
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Your answer is correct.
Lower tax liability for all businesses
While turnover tax may reduce tax for some businesses, others may pay more tax compared to the
standard income tax system.
The correct answer is:
Lower tax liability for all businesses



4. Which of the following cannot be claimed as an input VAT?
A.
VAT on stock purchased for resale
B.
VAT on raw materials used in production
C.
VAT on business machinery
D.

, VAT on a sedan vehicle used for business travel
VAT on a sedan vehicle used for business travel
VAT on passenger motor vehicles (sedans) is denied unless the vehicle is used exclusively for taxable
purposes, such as a taxi or driving school vehicle.
E.
VAT on office supplies
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Your answer is correct.
VAT on a sedan vehicle used for business travel
VAT on passenger motor vehicles (sedans) is deniedunless the vehicle is used exclusively for taxable
purposes, such as a taxi or driving school vehicle.
The correct answer is:
VAT on a sedan vehicle used for business travel



5. A company purchases a delivery vehicle for R500,000. Can this expense be deducted under
section 11(a)?
A.
Yes, but only in the year of purchase
B.
Yes, because it is used to generate income
C.
No, because it is of a capital nature
No, because it is of a capital nature
The cost of a vehicle is capital in nature and cannot be deducted under section 11(a), but it may qualify
for capital allowances under section 11(e).
D.
Only 50% can be deducted
E.
No, because it is a personal asset
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Your answer is correct.
No, because it is of a capital nature
The cost of a vehicle is capital in nature and cannot be deducted under section 11(a), but it may qualify
for capital allowances under section 11(e).
The correct answer is:
No, because it is of a capital nature



6. VAT in South Africa is classified as which type of tax?
A.
Provisional tax
B.
Capital gains tax
C.
Corporate tax
D.