UNIVERSITY OF LIMPOPO

FACULTY OF MANAGEMENT & LAW

SCHOOL OF ACCOUNTANCY

DEPARTMENT OF TAXATION

DEGREE AND DIPLOMA EXAMINATION SUGGESTED SOLUTION

MODULE: CTAA 032 OCT/NOV : 2020

(TAXATION)

TIME: 2.5 HOURS PAPER : P1

MARKS : 100

FIRST EXAMINER : MS M.S NGOETJANA CA (SA)

SECOND EXAMINER : Ms. P NEELEMAN CA (SA)

THIS PAPER CONSISTS OF…06…PAGES INCLUDING COVER PAGE

INSTRUCTIONS:

1. Answer all the questions

2. Write neatly and legibly
3. Show all the calculation clearly and round to the nearest rand
4. Cross out all empty spaces on your answer sheets
 CTAA032 OCT/NOV SUGGESTED SOLUTIONS 2020

i Suggest at least one strategy that Mr Zachariah Mokgalong can use to 4

minimise his donations tax liability.
Mr Zachariah Mokgalong can minimise his donation tax liability by making a
donation to Public Benefit Organisation√ and which qualify for section 18A 2
certificates because those organisation are exempt from Donation tax √

Alternatives he can ensure that whatever he is donating the value does not
exceed R100 000√ each year as natural person qualifies for an exemption of 2
R100 000 per year√
ii Will the above strategy be regarded as tax evasion or avoidance 2
Tax evasion is illegal while tax avoidance is legal as it is within the jurisdiction
of the legislation. √ Therefore since the above strategies are within the 2
prescribed sections in the Income tax act it would be regarded as tax
avoidance √
iii Advise Mr Zachariah Mokgalong on the donations tax implications of the 15
transactions mentioned and Motivate your answers with reasons and
show all calculations

Date Asset Value Exemptions Donation Reasons marks

No tax
@20%
01/01/2019 1 55 000√ 55 000√ 0 As the value of the 3
donation (R55 000) is
less than the R100
000 (section 56(2)(b))
annual exclusion,
Mokgalong will not
incur any donations
tax liability on
01/03/2019√

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 CTAA032 OCT/NOV SUGGESTED SOLUTIONS 2020

10/03/2019 2 1 800 000 n/a√ 0 Mokgalong donated 3

√ assets for the
benefit of his wife√
and such donation is
exempt from
donations tax,
provided the couple
are not permanently
separated. (s
56(1)(b)) (1)
15/06/2019 3 95 000 √ 45 000 10 000 The motor car 3
(100k-55k√) donated to his
daughter) is also a
taxable donation.
Mokgalong will incur
donations tax liability
on this donation, √
17/10/2019 4 910 000 0 182 000 Game farm donated 4
1 300 (100-55-45) to his brother) is
000√*70 √ also a taxable
%√ donation.
Mokgalong but the
value will be
reduced by 30 and
100 000 annul
exemption is fully
utilized in the YOA√
Assets sold at the 4
5 200 000 0√ 40 000 price less than the
(650k√ – market value are
31/01/2020 850k) √ deemed to be
donation as defined √

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 CTAA032 OCT/NOV SUGGESTED SOLUTIONS 2020

The 650
is the
selling
price
25/02/2020 6 110 000√ 110 000√ 0 The study fees, book 3
and hostel fees paid
on behalf of his
grandson while
studying full-time at a
University, should
also be exempt in
terms of s 56(2)(c), √
27/02/202 7 562 500 100 000√ 92 500 Inters free loan is a 3
deemed donation as
5 000 defined √
000*7,5%
√
Donation tax @20% √ 1
TOTALS 24
Make reference to
iv CGT CALC ONLY Assets No 1, 5 and 7 on table A and provides 9
reasons for your calculations
Assets No Descri Proceeds Base cost Gain/loss reasons MARKS
ption
1 55 000 35 000 0 Antique motor vehicle 2
Is a persona use
assets√ in terms of
para 53 of 8th
schedule as results
the gain or losses are
disregarded√
5 650 000 √ 850 000√ 0 12 meter Yacht 7
Max 5

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 CTAA032 OCT/NOV SUGGESTED SOLUTIONS 2020

Sold to his sister is

excluded from
personal use assets√
as its lengths exceed
9m√.However any
loses realised (R
200k=650-850) will
be disregarded in
terms of para 15√
Donation tax will not
be added to base
cost√ since the
assets was sold at a
loss√
7 0 0 0 5000 000 loan is not 2
an assets√ as defined
therefore no CGT
implication√
TOTALS 9
V Suggest at least one strategy Mr Zachariah Mokgalong that he use minimise 3
his tax liability besides making a donations and state the loopholes of that
strategy
Mr Zachariah Mokgalong can create a trust√ and transfer all his Assets 3
to the trust to minimise the tax liability and appoint a trustee to administer
those assets on his behalf
Loopholes is any distribution to a minor child might be taxed in his own
hands√ in terms of section 7(3)
Any income retained in the trust might be included in his taxable income
interns of section 7(5) √
The tax rates for income retained in the trust are higher @45%√

Available 4 limited to 3

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 CTAA032 OCT/NOV SUGGESTED SOLUTIONS 2020

QUESTION 2 22 MARKS
No Items Amount Marks
1 Salary Salary is included in the definition of remuneration√ 1
therefore it was correctly accounted for
2 Travel allowance The travel allowance were incorrectly calculated√. The 5
employer should include only 20%√ instead of 60%√ in
the employee tax calculation since the commissioner
is satisfied that he travels mail for business purpose√
as results the normal 80%√ rate will be reduced to 20%
3 Bonus The bonus amount is an once of payments√ therefore 3
excluded when calculating Net remuneration but the
tax is√ calculated separately√
4 Reimbursive Any amount that will be reimbursed√ by the employer 2
allowance will be excluded when calculating the employee tax√
5 Contribution by The contribution of R2 460 by the employer is a fringe 2
employer benefit as defined √ and also a remuneration as
defined. The amount was omitted and should form part
of employee tax √
5 Pension fund The contribution to the pension fund should be 4
contribution calculated in terms of sec 11F√ contribution which is
the lesser of R350 000 divide by 12√ and the 27.5%
of net remuneration. √
The deduction was calc without taking into account the
provisions of section 11F√
6 RAF Contribution RAF Contribution should be added together with the 1
pension fund contribution in terms of section 11F√

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 CTAA032 OCT/NOV SUGGESTED SOLUTIONS 2020

7 Rebates The rebates that was used in the calculation of R7 774 3

is incorrect√. Sarah is 32 years√ old and qualifies for
primary rebates of R14 220√
8 Tax liability Incorrect tax table threshold was used to calculation 1
of the tax liability√
TOTALS 22

QUESTION 3 22 MARKS

No Description Reason Amounts Marks

Property
1 Block of Flats in Acarcia 3 696 800√ 1
Pretoria estates
2 Residential home Ivy Park 3 100 000√ 1
Polokwane
3 Motor vehicles and 2 200 000√ 1
personal goods
4 Fixed deposit 678 921 √ 1
5 Painting by famous 1 250 000√ 1
American artists valued at
Annuity 496 538√P 4
PMT 5 000*12√
Next birthday 25√
PV 8,275 64√

Deemed property
Insurance 1 776 640√P 4
Amount received
2 260 000√
Less contribution
456 000√
Less 6% of the interest

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 CTAA032 OCT/NOV SUGGESTED SOLUTIONS 2020

27 360√
Exempt Property 2
Donated assets
Qualified for donation
tax√therefore not a
deemed donation√
Net gross value
Less Deductions
Funeral cost 128 000 1
Masters fees 367 900 1
Assets transferred to 3 100 00 1
spouse
Paintings 1 250 000 1
NET amount xxx
Joint estate /50% xxx 1
Married out of
community part the
assets form part of the
joint estate.NB
Less Abatement (3 500 000) 1
Net amount xxxx 1
Rate 20% if more than xxxx 1
R30M then 25%
TOTALS limited to 22 marks 23

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 CTAA032 OCT/NOV SUGGESTED SOLUTIONS 2020

QUESTION 4 14 MARKS
No REQUIRED MARKS
1 You have been appointed by South Africa Revenue Service (SARS) to draft a 13
memorandum to proof that Marais Pienaar is a South African Resident as defined
and an amount of R1 billion should be included in his gross income 1
Presentations, Logic and reason

MEMORANDUM

To: SARS
From: Students
Date: 08 February 2021
Subject: memorandum to proof that Marais Pienaar is a South African Resident as defined and an
amount of R1 billion should be included in his gross income.

Marais Pienaar can only be taxed provided he is a resident as defined. Section 1 of income tax act
defined residents as: √
Resident means any natural person who is ordinary resident in South Africa √.
The term ordinary resident is not defined in the act as results court cases will be used to determine
whether Mr Marais is an ordinary residents√

Court cases. Cohen v CIR√.

Principles: An ordinary resident will be the country to which a man would as matter of course return
from his wandering √.

Court case: Kuttel vs CIR√.

Principles: a person is an ordinary resident where he has his usual place or principal residence and
that will be his real home √.

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 CTAA032 OCT/NOV SUGGESTED SOLUTIONS 2020

Applications.
Mr Marias was born and raised in Pretoria and even studied at university of Pretoria√. And worked
in South Africa at Entelect (Pty) Limited until 2018√. In addition he didn’t immigrate to Canada but
only moved there because of his two businesses he established there√. .Furthermore when he
moved to Canada he didn’t sell his luxury house in Woodridge North of Pretoria apartment but rented
it out to one of his best friend for R14 900 per month. √. Therefore this is evidence that he will return
to his luxury house and does not have the intention to stay in Canada√. Marais also holds shares in
various South African companies after he moved to Canada he still retained his shareholding √. This
also an evidence that he didn’t sell his shares √. Therefore there is an intention to want to return to
South Africa √.

Conclusion

Mr Marais is an ordinary resident as defined√. and resident are taxed on their worldwide income√.
Therefore the salary of R1 billion will be included in his gross income √.

Hope you find the above in order and clarity please don’t hesitate to connect me

You’re sincerely

Tax student

Available 18 limited to 14

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