TAX2601 Assignment 1 (DETAILED ANSWERS) Semester 2 2025 - DISTINCTION GUARANTEED

TAX2601 Assignment 1 (DETAILED ANSWERS) Semester 2 2025 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references ,... QUESTION 1 (12 marks, 14 minutes) Groundhog (Pty) Ltd (Groundhog) manufactures motorcycle parts for WMB (a SARS-approved manufacturing process) in Johannesburg, South Africa. Groundhogs’ year of assessment ends on 31 March 2025. On 1 May 2024, Groundhog purchased a vacant piece of land for R2 650 000. The company plans to use this land to build a new factory for its manufacturing business. They plan to build the factory in the next year of assessment and to start using it on 1 March 2026 if the building goes according to plan. In January 2025, Groundhog received an offer to purchase the vacant land for R4 300 000 from GHC Developers (Pty) Ltd. After considerable consideration, the directors of Groundhog decided that the offer was too good to refuse and, on 1 February 2025, accepted the offer from GCH Developers (Pty) Ltd. On 1 March 2025, Groundhog received the R4 300 000 from GCH Developers (Pty) Ltd. REQUIRED MARKS Discuss whether the amount of R4 300 000 received by Groundhog (Pty) Ltd will be regarded as gross income as defined in the Income Tax Act for the year of assessment ending on 31 March 2025. Note: You can support the main issue in the question with relevant case law from the module's prescribed case law. 12 QUESTION 2 (12 marks, 14 minutes) Kganya Solutions (Pty) Ltd is a wholesale company situated in Durban, South Africa. The company is not a small business corporation as defined in the Income Tax Act. Its year of assessment ends on 31 March 2025. The following information is presented to you: Year of assessment Taxable income Date of assessment 2022 R2 853 972 03 May 2022 2023 R2 371 254 20 September 2024 2024 R3 287 685 15 February 2025 2025 R3 628 493 Estimated – not yet assessed REQUIRED MARKS Calculate the first and second provisional tax payments for Kganya Solutions (Pty) Ltd for its 2025 year of assessment to ensure that the company does not incur any underestimation penalties. Note: • Provide a reason for all the amounts used, explaining whether they may be used as the basic amount, and specify any adjustments made (if any) calculating the basic amount. • Clearly indicate on which date the payments must be made. 12 Downloaded by Chandrey De Villiers () lOMoARcPSD| TAX2601/2025/S2/ Assessment 1 Page 4 of 5 QUESTION 3 (36 marks, 42 minutes) Titan Tech (Pty) Ltd (TT) is a South African resident company that manufactures custom robotics. TT is not a small business corporation as defined in the Income Tax Act. TT's year of assessment ends on 28 February 2025. You are presented with the following information for the 2025 year of assessment. TT’s taxable income (before taking the information below into account) is R3 880 000. 1. Trading stock Opening stock (at cost) on 1 March 2024 amounted to R695 000. Trading stock at the end of the year was recorded at a cost of R795 000, but its market value was R770 000. Miscellaneous electronic parts were purchased during the year of assessment for R1 230 000. 2. Employee expenses TT contributed R400 000 to a registered pension fund for the benefit of the employees and paid net salaries and wages amounting to R860 000. 3. Restraint of trade TT made a restraint of trade payment of R240 000 to a former design engineer on 1 November 2024. The restraint agreement was effective for 4 years. The full amount was included in the engineer’s taxable income (Provide a brief reason). 4. Doubtful debts The doubtful debt allowance claimed and approved by SARS in the 2024 year of assessment was R29 000. The accountant provided you with the list of doubtful debtors as of 28 February 2025 which shows a total of R322 680. The company adopted IFRS 9 for financial reporting purposes and the total doubtful debts amount relates to the lifetime expected credit loss. 5. Patent A patent was acquired for R95 000 on 1 June 2024 and registered on 1 July 2024. It relates to a new robotic component. 6. Donation TT donated R180 000 to a registered PBO on 30 November 2024. A section 18A certificate was issued on 15 December 2024. Downloaded by Chandrey De Villiers () lOMoARcPSD| TAX2601/2025/S2/ Assessment 1 Page 5 of 5 QUESTION 3 (continued) 7. Assets register The following capital assets were acquired or sold during the year: 7.1 A new robotic arm machine used in the manufacturing process and costing R520 000 was purchased and brought into use on 1 April 2022. The machine experienced continuous issues and was eventually sold on 1 July 2024 to another tech company for R350 000. 7.2 Four second-hand laptops, each costing R12 500, were purchased and brought into use on 1 September 2024. 7.3 A delivery vehicle that was purchased and brought into use for an amount of R256 000 on 1 April 2023, was sold to a non-connected person for an amount of R120 000 (an arm’s length price) on 30 September 2024 (Provide a brief reason). 8. Legal fees 8.1 R22 000 to recover unpaid sales invoices from a client. 8.2 R8 000 to defend a director in a personal civil case. The amount was credited to the director’s loan account. (Provide a brief reason). 9. Factory TT purchased part of a newly erected factory building in Sandton to expand its robotic production capabilities. The factory was purchased and brought into use on 15 November 2024 at a cost of R5 500 000. Binding General Ruling: No. 7 allows for the following write off periods for assets (where applicable): • Laptop computers 3 years • Delivery vehicles 4 years REQUIRED MARKS Calculate Titan Tech (Pty) Ltd’s normal tax liability for its 2025 year of assessment. Notes: • Ignore any capital gains tax consequences. • Show amounts that are deductible in terms of different sections of the Income Tax Act in separate lines in the answer. • TT always elects to utilise any available options in terms of the Income Tax Act to legally minimise its normal tax liability. • Provide brief reasons in the body of your calculation (not as a separate note elsewhere in your answer) for the treatment of transactions 3, 7.3, 8.2