LML4804 Assignment 1 (COMPLETE ANSWERS) Semester 2 2026 - DUE 19 August 2026

LML4804 Assignment 1 (COMPLETE ANSWERS) Semester 2 2026 - DUE 19 August 2026; 100% TRUSTED Complete, trusted solutions and explanations. For assistance, Whats-App 0.8.1..2.7.8..3.3.7.2... Ensure your success with us.. Expenditure can only be deducted under section 11(a) if the taxpayer carries on trade. Because employment is not a trade, no expenditure relating to employment may be deducted under section 11(a). A taxpayer whose only income is derived from employment can claim all expenses incurred as a section 11(a) deduction. Interest paid on a loan used by shares in a company in order to earn dividend income may never be deducted under section 11(a) or section 24J. In order to be actually incurred, an expense must be paid. Mr X is a South African and an attorney trading as a sole proprietor in the city of Tshwane. In terms of his work policy, he does not render any service to his clients without prior payment into his trust account. Accordingly, at the end of the 2025/26 year of assessment Mr X had an amount of R175 000 in his trust account for the work he needed to do. Despite his work policy, Mr X failed to ensure that other clients deposit money in his trust account before rendering legal services. Therefore, he issued invoices to those clients who did not make payments into his trust account to collect the outstanding amounts. The invoices specified that if the client settled the outstanding account before 1 April 2025, the client would only need to pay ninety per cent (90%) of the invoiced amount. Failure to pay before this date would mean that the client must pay the entire amount (100%). At the end of the 2025/26 year of assessment, none of the clients who received invoices had made a payment. Discuss the income tax consequences for Mr X’s 2025/26 year of assessment. In December 2025, Mr Soap purchased a new plot in Tzaneen, Limpopo on which he erected a house. On 1 March 2026, Mr Soap decided to rent out the house on a permanent basis. He entered into a three-year renewable lease agreement with Ms Brown. In terms of the lease agreement, Ms Brown will pay a monthly rental of R12 000. The lease agreement also provided that Ms Brown must erect a wooden deck and outdoor braai (Barbeque) at her own expense. In consideration, Mr Soap will upon completion of the construction of the deck and braai waive two months of rental. Ms Brown duly completed the construction, and Mr Soap waived the rental for April and May 2026. Advise Mr Soap whether the value of the improvements to the leased property must be included in his gross income for the 2025/26 year of assessment. Also advise him on waiver of the rental for April and May 2026. Mrs Gomolemo Molate (Momo), is a South African resident residing in Bela-Bela, Limpopo Province. She worked for one of the top auditing firms in the country, PMP Auditors, as a chartered accountant for 10 years. On 15 May 2023, she was invited to an interview at the South African Renewable Energy Agency, a State-Owned Enterprise, for the position of Chief Executive Officer (CEO). After going through a gruelling interview with other potential candidates, she received an appointment letter from the chairperson of the board informing her that she was the successful candidate. Her responsibilities would include, amongst others, implementing government’s plan to transition to renewable energy. After a long discussion with her husband, in June 2023 Momo decided to resign from PMP Auditors to take her new role as a CEO. 3.1. Discuss how the residency of a taxpayer influences their capital gains tax consequences. [5 marks] 3.2. Discuss the capital gains tax consequences should Momo receive R3 million worth of shares and R5 million as severance package from PMP Auditors. [5 marks] 3.3. Discuss the capital gains tax consequences should Momo use part of her R5 million severance package to buy a penthouse in the CBD of Johannesburg. [2 marks] 3.4. Discuss the capital gains tax consequences should Momo donate her Kruger Rands worth R500 000 to her husband. [2 marks] 3.5. Briefly provide an example to illustrate the difference between repairs and improvements for capital gains tax purposes. S’Celo graduated from the University of Biology with a BSc in Agriculture Economics in 2024. In April 2025, after completing his internship program at the Eyethu Sonke Farmers Association, he was not retained for permanent employment due to lack of funds. In May 2025, he registered a company called S’Celo’s Fresh Farm Produce (Pty) Ltd. The company specialised on the supply of chicken eggs, chickens and vegetables in the Province of Mpumalanga. In addition, the company was awarded a 24-month project to provide agricultural economics advise to the Department of Agriculture in Mpumalanga province. On 1 June 2025, S’Celo purchased an old house in eMalahleni which he transformed into an office space. This house cost him R650 000 including estate agent’s commission and transfer costs. On 10 June 2025, S’Celo paid Mandlendoda Construction R500 000 to transform the house into an office space. S’Celo also purchased office furniture at a cost of R30 500. On 1 September 2025, S’Celo commenced with business. Advise S’Celo, with reference to case law and relevant authority, on the deductibility of the above expenditures. Expenditure can only be deducted under section 11(a) if the taxpayer carries on trade. 1.2 Because employment is not a trade, no expenditure relating to employment may be deducted under section 11(a). 1.3 A taxpayer whose only income is derived from employment can claim all expenses incurred as a section 11(a) deduction. 1.4 Interest paid on a loan used by shares in a company in order to earn dividend income may never be deducted under section 11(a) or section 24J. 1.5 In order to be actually incurred, an expense must be paid.