lOMoAR cPSD| 48047628
,UNIVERSITY EXAMINATIONS
Oct/Nov Exam 2023 LML4804
INCOME TAX LAW
60 Marks
24-Hours
EXAMINERS:
FIRST: DR EM MALEKA SECOND:
MR KE BAPELA
EXTERNAL: MR CD DE MATOS ALA
,QUESTION 1 (TAX ADMINISTRATION AND TAX AVOIDANCE)
The Tax Administration Act 28 of 2011 (“TAA”) empowers the Commissioner for the South
African Revenue Service (“the Commissioner”) to conduct audits on taxpayers.
The Commissioner has over the years announced that the South African Revenue Service
(“SARS”) will conduct audits on all taxpayers that enjoy a certain lifestyle. Most recently, the
Commissioner announced that taxpayers who buy certain premium brand goods will be
subjected to audits. In doing so, SARS is upholding its commitment to keep a close eye on the
so-called High-Net-Worth (“HNW”) taxpayers.
A HNW taxpayer is one who is worth more than R50 million. In the 2023 tax season, SARS
will request the HNW taxpayers to provide extremely detailed information in their tax returns.
The Commissioner also announced that should SARS find irregularities pertaining to the HNW
taxpayers, a decision will be taken to impose penalties and refer them for criminal
investigations.
Molefe Khunou (“Molefe”) is one of the taxpayers affected by the decision of the Commissioner
to conduct audits. Molefe caught the attention of SARS via a video on social media. In that
video, he was seen in a club throwing cash in the air for everyone to pick up. He was also
seen wearing premium Italian fashion brands and drinking a premium French Champagne.
During the investigation, Molefe admitted to certain irregular, unlawful and undeclared
transactions. As a result, the Commissioner issued an additional assessment and penalties.
In addition, the Commissioner referred Molefe for criminal investigation.
The additional assessment provided that Molefe must pay R2 million within 48 hours. Molefe
objected to this assessment and further requested that the payment be suspended but the
Commissioner refused to grant the request. The Commissioner further informed Molefe that
should he fail to make the payment, SARS would request Molefe’s Bank, Bruto Bank to pay
over the R3 million that Molefe owes to SARS.
WHAT IS REQUIRED OF YOU:
, Advise Molefe with relevant authority on whether he must pay the amount while the objection
is ongoing. Also, on whether the Commissioner may request the bank to pay over the amount.
[15]
SUB-TOTAL FOR QUESTION 1 [15 marks]
QUESTION 2 (GROSS INCOME)
After Mike retired from playing professional football, he applied for a liquor licence on 04 April
2021 in order to start-up a business of selling liquor. Although Mike only received his licence
on 08 July 2021, he immediately started trading in April 2021 under the name Mike’s Pub. On
23 January 2022, Mike’s Pub earned a profit of R420 000. After seeing the success, his friend
advised him to join Events Supports Club (“ESC”). When a person become a member of the
ESC, he or she is placed on the list of panels that supplies organisations, companies or
individuals with liquor on credit and as a supplier. As a member, one receives payment three
months after such organisation, company or individual have hosted the event.
On 15 December 2022 Mike’s Pub, as a member of the ESC, supplied liquor worth R400 000
to Date & Wedd CC, a catering company. After successfully hosting a top celebrity marriage
during December 2022, Date & Wedd CC paid R250 000 to Mike’s Pub on 28 February 2023.
Unfortunately, Date & Wedd CC refused to pay the balance owing to a dispute related to the
quantum of liquor that was supplied by Mike’s Pub. On 29 April 2023, the dispute was resolved
when it was proved that Mike’s Pub had indeed supplied the correct amount of liquor to Date
& Wedd CC. The outstanding balance of R150 000 was paid the day after the dispute was
resolved.
Mike’s frustrations began when his business was not able to generate quick returns as a result
of the debtors only having to pay him three months after he had already made the supplies. In
order to accelerate his business profit margins, he came up with an idea in which he invites a
top Amapiano DJ to perform at his club every last Saturday of the month. He charges every
person an entrance fee of R50. During July 2023, Mike’s Pub earned a whopping profit of R1,5
,UNIVERSITY EXAMINATIONS
Oct/Nov Exam 2023 LML4804
INCOME TAX LAW
60 Marks
24-Hours
EXAMINERS:
FIRST: DR EM MALEKA SECOND:
MR KE BAPELA
EXTERNAL: MR CD DE MATOS ALA
,QUESTION 1 (TAX ADMINISTRATION AND TAX AVOIDANCE)
The Tax Administration Act 28 of 2011 (“TAA”) empowers the Commissioner for the South
African Revenue Service (“the Commissioner”) to conduct audits on taxpayers.
The Commissioner has over the years announced that the South African Revenue Service
(“SARS”) will conduct audits on all taxpayers that enjoy a certain lifestyle. Most recently, the
Commissioner announced that taxpayers who buy certain premium brand goods will be
subjected to audits. In doing so, SARS is upholding its commitment to keep a close eye on the
so-called High-Net-Worth (“HNW”) taxpayers.
A HNW taxpayer is one who is worth more than R50 million. In the 2023 tax season, SARS
will request the HNW taxpayers to provide extremely detailed information in their tax returns.
The Commissioner also announced that should SARS find irregularities pertaining to the HNW
taxpayers, a decision will be taken to impose penalties and refer them for criminal
investigations.
Molefe Khunou (“Molefe”) is one of the taxpayers affected by the decision of the Commissioner
to conduct audits. Molefe caught the attention of SARS via a video on social media. In that
video, he was seen in a club throwing cash in the air for everyone to pick up. He was also
seen wearing premium Italian fashion brands and drinking a premium French Champagne.
During the investigation, Molefe admitted to certain irregular, unlawful and undeclared
transactions. As a result, the Commissioner issued an additional assessment and penalties.
In addition, the Commissioner referred Molefe for criminal investigation.
The additional assessment provided that Molefe must pay R2 million within 48 hours. Molefe
objected to this assessment and further requested that the payment be suspended but the
Commissioner refused to grant the request. The Commissioner further informed Molefe that
should he fail to make the payment, SARS would request Molefe’s Bank, Bruto Bank to pay
over the R3 million that Molefe owes to SARS.
WHAT IS REQUIRED OF YOU:
, Advise Molefe with relevant authority on whether he must pay the amount while the objection
is ongoing. Also, on whether the Commissioner may request the bank to pay over the amount.
[15]
SUB-TOTAL FOR QUESTION 1 [15 marks]
QUESTION 2 (GROSS INCOME)
After Mike retired from playing professional football, he applied for a liquor licence on 04 April
2021 in order to start-up a business of selling liquor. Although Mike only received his licence
on 08 July 2021, he immediately started trading in April 2021 under the name Mike’s Pub. On
23 January 2022, Mike’s Pub earned a profit of R420 000. After seeing the success, his friend
advised him to join Events Supports Club (“ESC”). When a person become a member of the
ESC, he or she is placed on the list of panels that supplies organisations, companies or
individuals with liquor on credit and as a supplier. As a member, one receives payment three
months after such organisation, company or individual have hosted the event.
On 15 December 2022 Mike’s Pub, as a member of the ESC, supplied liquor worth R400 000
to Date & Wedd CC, a catering company. After successfully hosting a top celebrity marriage
during December 2022, Date & Wedd CC paid R250 000 to Mike’s Pub on 28 February 2023.
Unfortunately, Date & Wedd CC refused to pay the balance owing to a dispute related to the
quantum of liquor that was supplied by Mike’s Pub. On 29 April 2023, the dispute was resolved
when it was proved that Mike’s Pub had indeed supplied the correct amount of liquor to Date
& Wedd CC. The outstanding balance of R150 000 was paid the day after the dispute was
resolved.
Mike’s frustrations began when his business was not able to generate quick returns as a result
of the debtors only having to pay him three months after he had already made the supplies. In
order to accelerate his business profit margins, he came up with an idea in which he invites a
top Amapiano DJ to perform at his club every last Saturday of the month. He charges every
person an entrance fee of R50. During July 2023, Mike’s Pub earned a whopping profit of R1,5
