DEPARTMENT OF TAXATION

TAXATION 705 (BEL705)

EXAMINATION – 29 OCTOBER 2024

Marks: 120
Time: 4 hours

Internal Examiners:
K Stark
N Monageng
SJ Pienaar
U Böhmer
External Examiner:
Prof Riley Carpenter (UCT)

PERUSAL: Marked exam scripts and the suggested solution will be uploaded to click-
up on Saturday 9 November 2024.

PROVISIONAL SUPPLEMENTARY EXAM DATE: 25 November 2024.

Supplementary examinations are granted if a final mark of between 45% and 49% is obtained (or at
the discretion of the head of department).

UP © 2024
QUESTION 1 (26 marks)

Mr Sipho Mbhele was a 47-year-old South African resident who passed away on 1 October
2023 on his way to a jazz music festival. Sipho was married out of community of property to
Ntsakisi, a South African resident and they had two sons, Jabulani who is 21 years old and
Sibusiso who is 19 years old. Sipho has no assessed capital loss carried forward from
previous years of assessment. major major

In terms of his will, Sipho’s assets were to be divided as follows:

Asset Beneficiary Cost Market value on Note

1 October 2023
Residence – KZN Jabulani R3 075 000 R5 695 000 1
Residence – Gauteng Ntsakisi R3 660 000 R5 280 000 2
Insurance policy Ntsakisi and the R1 300 per R3 300 000 3
two sons month
Motor vehicle (BMW XM) To be sold to R3 880 000 R3 200 000 4
cover debt
Rental property Sibusiso R4 500 000 R5 200 000 5
Bank account Ntsakisi R6 880 000 R6 880 000 6

Notes:
primary res - 2m exclusion
1. This residence is situated in Sipho’s place of birth near Mtubatuba, KwaZulu-Natal. Sipho
built this home and ordinarily resided in this house since completion on 1 October 2007.

2. This residence is situated in Fourways, Johannesburg. Sipho purchased this home on

1 October 2012 and used it as his primary residence from that date. Even though he still
regularly stayed in the house near Mtubatuba when visiting his extended family in KZN,
this new property in Fourways was from 1 October 2012 considered to be his primary
residence for tax purposes.

3. This is a domestic life insurance policy and Sipho was the policy holder and he paid all
the premiums. Ntsakisi and the two sons each received a third of the total payout of
R3 300 000. 1100k
PUA
4. Sipho purchased the BMW XM on 2 February 2023 and only used it for private purposes.
The executor of the estate sold the vehicle on 1 December 2023 to a non-connected
person for a market-related price of R3 150 000. cgt

5. Sipho acquired vacant land on 1 March 2015 for R1 000 000 in Hatfield, Pretoria. Seven
residential units were constructed at a cost of R500 000 each and brought into use on
1 February 2016 when 7 students occupied the units. The cost related to this property
was partly financed by a loan from a South African bank. At the time of his death a total
of R2 790 000 was still outstanding. The value of the land included in the market value
on date of death was R2 000 000. (Refer to note 9 for income and expenses relating to
Sipho’s 2024 year of assessment.)

6. Sipho’s bank account balance includes R6 650 000 related to a retirement lump sum
received from a foreign retirement fund (refer to Note 7).

Page 1 of 9
Before his death the following amounts, related to the 2024 year of assessment, accrued to
Sipho:

Item Amount Note

Salary – FinalEnergies SE R75 800 7
Pension lump sum R8 000 000 7
Salary – Pump Petroleum (Pty) Ltd R820 000 8
Gross rental income R340 000 9
Interest income R130 000 10

Notes:

7. Sipho received his last monthly salary from FinalEnergies SE on 31 March 2023. He
worked as a petroleum engineer for a non-resident petroleum company, FinalEnergies
SE for 20 years. Of these 20 years, he worked 12 years in France and for the last 8 years
of his employment, he worked in South Africa. During his entire employment period of
20 years he contributed to FinalEnergies SE’s pension fund which is registered in France
and is not a pension fund as defined in section 1 of the South African Income Tax Act.
On his resignation effective on 1 April 2023, the gross lump sum of R8 000 000 accrued
to him and he received R6 650 000 (after deduction of tax in France) (see note 6) on
8 June 2023. (Ignore s11F for purposes of this question.)

8. After his resignation from FinalEnergies SE, Sipho was unemployed during April, but
obtained employment at Pump Petroleum (Pty) Ltd, a South African resident company,
from 1 May 2023 at a monthly salary of R164 000. Furthermore, in terms of his
employment contract, he acquired 10 000 shares in the company at a cost of R12 per
share on 1 May 2023, which was below the market value of R23 per share on that date.
Sipho was not entitled to sell the shares for a period of five years from the date of his
employment, but in the event of death, this restriction will be lifted immediately. The
market value of the shares on 1 October 2023 was R25 per share.

9. Sipho used the rental income of R340 000 from the units in Hatfield to cover tax-
deductible repairs of R115 000 relating to the units (refer note 5).

10. Interest income accrued on his bank account (refer note 6).

REQUIRED:

(a) Calculate Sipho’s taxable income for his year of assessment ended
1 October 2023. Show gross income and exemptions separately. Provide
brief reasons for nil-effects. 20

(b) State the effect of the following assets on the net value of Sipho’s estate for
estate duty purposes:
• Lump sum amount of R6 650 000 included in the bank account (2)
• Insurance policy (2)
• Rental property and related bank loan (2)
6

TOTAL QUESTION 1 26

Page 2 of 9
 QUESTION 2 (42 marks)

This question consists of two unrelated parts.

PART A commacc (32 marks)

Kupumzika (Pty) Ltd (‘Kupumzika’) is a registered category C VAT vendor and all its
suppliers are VAT vendors. Kupumzika has a 31 October year-end and is involved in several
business activities. Amongst others, Kupumzika owns a game lodge on a 40-hectare (ha)
piece of land in the greater private Balule Nature Reserve (South Africa), close to Hoedspruit
(Limpopo). Of the 40 ha, 22 ha are used for luxury all-inclusive client accommodation and
lodge facilities aimed at foreign tourists, 1 ha is used for private accommodation by
res acc Kupumzika’s game ranger, Jaco and 4 ha with domestic dwellings are rented out to non-
FB res employees at a market-related rental. The remaining 13 ha are used for paid game drives
in a dedicated game viewing vehicle capable of carrying 10 passengers. enterprise
FB s10(23)
Apart from obtaining the accommodation (at no charge), Jaco also receives 30GB of data
per month at no charge that he mainly uses for private purposes. Furthermore, Jaco’s wife
and minor children visit him the last weekend of every month and Kupumzika pays all of
their travel costs, namely return flight tickets from O.R Tambo airport (Johannesburg) to
Hoedspruit airport. Jaco’s family home is in Johannesburg, which is 484km from the Balule
Nature Reserve. Jaco may only return home once a year during his annual leave. Jaco is
only involved in the taxable supplies of Kupumzika and has been employed by Kupumzika
for a number of years.

Kupumzika is considering to sell the 40-ha property with all assets on 31 October 2024 for
R25 million (excluding VAT) on the condition that the new owner will continue with the
business as it is currently and retain all staff.

Mr Stedall is considering to buy the property at the asking price and subject to the stated
conditions. He is the sole shareholder of Big Six (Pty) Ltd (a registered VAT vendor).
Mr Stedall is also the founder of SDL Family Trust (not a VAT vendor and does not intend
to register) of which all the beneficiaries are his “relatives” as defined in the Income Tax Act.
connected person?
PART B (10 marks)

Rohmer Jewellers (Pty) Ltd (‘Rohmer’) is a VAT vendor operating from a variety of stores
inside shopping malls across South Africa. Rohmer offers a variety of jewellery to customers,
including various forms of diamond, gold and silver jewellery. Additionally, Rohmer has
started to speculate in gold coins, more specifically Kruger Rands. Rohmer started this trade
in the 2023 year of assessment by offering to buy 10 Kruger Rands in cash from an individual
(a resident but not a registered VAT vendor) who has previously owned the Kruger Rands
and desperately needed cash flow from the sale of the coins. Rohmer will then aim to sell
these coins at a profit by providing it at a mark-up to customers in their store, at times when
the Kruger Rands have appreciated in value.

The directors of Rohmer decided to reward its top-performing sales employee with a Kruger
Rand as a bonus. On 31 December 2023 (Rohmer’s year-end), the Kruger Rand was
awarded to Mr John Baloyi as the top-performing employee. The Kruger Rand had a market
value of R40 000 on that date. John owns 1% of the equity shares of Rohmer.

John however was concerned that the Kruger Rand would decrease in value with the
expected downturn in the economy and therefore sold the Kruger Rand for R42 000 on
31 January 2024. John does not speculate in Kruger Rands.

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REQUIRED: PART A (32 marks)

(a) Discuss (supported with reference to legislation) the VAT consequences

for Kupumzika in respect of the original acquisition of the game viewing
vehicle and the supply of game drives to foreign tourists. 5

(b) Discuss the normal tax implications for Jaco in respect of the information
provided. 5

(c) Discuss the

(i) VAT; and 6
(ii) normal tax 3
implications for Kupumzika in respect of information relating to Jaco
and his family. 9

(d) Discuss (supported with reference to legislation) the VAT and transfer duty
consequences for Kupumzika and Big Six (Pty) Ltd if the property is
acquired by Big Six (Pty) Ltd and the full purchase price is settled in cash.
Ignore time of supply. 8

(e) Briefly discuss how your answer in (d) would change for Kupumzika if the
SDL Family Trust (and not Big Six (Pty) Ltd) acquired the property. 2

(f) Calculate the tax consequences for Mr Stedall in his 2025 year of
assessment if he were to grant an interest-free loan to the SDL Family Trust
on 31 October 2024 to finance the entire purchase price. No capital would
be repaid by the end of 2025. Assume current legislation remained
unchanged and the repo rate for the entire period was 8.25%. 3

TOTAL QUESTION 2 PART A 32

REQUIRED: PART B (10 marks)

(a) Discuss, with reference to legislation, the VAT consequences for Rohmer
on the trading in Kruger Rands as well as the granting of the Kruger Rand
to John. 6

(b) Discuss the normal tax consequences for John for his 2024 year of
assessment. 4

TOTAL QUESTION 2 PART B 10

Page 4 of 9
QUESTION 3 (20 marks)

Godfrey Pietersen is a 32-year old celebrity and social media influencer in South Africa. He
is regularly contracted as master of ceremonies for extravagant events and also makes
guest appearances as an actor in local television productions. Mr Pietersen employs a diary
manager who decides which events suits his public profile and which product he should
promote as well as a social media manager who designs all his social media postings.

Over the last few years, the South African Revenue Service (SARS) has conducted an
increased number of lifestyle audits. SARS does not disclose exactly how these lifestyle
audits are performed but it is suspected that social media accounts are investigated to
identify possible income which is not declared by the taxpayer.

Mr Pietersen believes that he is in good standing with SARS as he made two provisional tax
payments on time for the 2024 year of assessment. He based these payments on a basic
amount of R850 000 and paid R230 942 (correctly calculated) in total. No PAYE was
withheld from any payments he received. His taxable income based on his tax return
submitted to SARS in August 2024 was R950 000.

Mr Pietersen was selected for the first time for a verification and audit by SARS after
submitting his 2024 income tax return. During the audit, SARS discovered that Mr Pietersen
did not declare his guest appearances as an actor as gross income, and levied an additional
assessment indicating R550 000 undeclared income relating to the cash receipts.
Mr Pietersen acted on a written opinion obtained from a newly registered tax practitioner
who stated that the guest appearance amounts are capital in nature, given that he merely
appeared in the shows as a favour to his producer friend to improve the viewer numbers.
SARS does not accept the omission to be a bona fide inadvertent error.

During March 2024, Mr Pietersen signed a three-year contract with Mercedes Benz to obtain
the right of use of a Mercedes Maybach S680. In exchange for the right to use the vehicle,
Mr Pietersen should exclusively support Mercedes and may not be associated with any other
vehicle brand. Furthermore, he must publish weekly social media posts with photo or video
evidence of the Maybach, tagging @MercedesSA in these posts.
REQUIRED:
(a) Calculate the normal tax due by Mr Pietersen to SARS on conclusion of the
audit. Ignore the impact of any possible interest that SARS may levy and also
any penalties levied in terms of the Tax Administration Act (TAA). 6
(b) State, supported with a brief reason whether Mr Pietersen could be liable for a
substantial understatement penalty (SUP) in terms of the TAA. 2
(c) On the assumption that Mr Pietersen is liable for an SUP, state, with a brief
reason and reference to legislation, if the penalty could be remitted. 2
(d) State, supported with a brief reason and reference to legislation, what SARS
can do if they feel aggrieved by the opinion given by the tax practitioner. 3
(e) Critically evaluate whether the supply of the right of use of the Mercedes
Maybach to Mr Pietersen will be a taxable benefit as contemplated in the
Seventh Schedule. Assume that legislation for the 2025 year of assessment
will remain unchanged. 7

TOTAL QUESTION 3 20

Page 5 of 9
QUESTION 4 (32 marks)

We-Bi-Cycles Ltd (‘WBC’) is an unlisted retail company, which was incorporated in South
Africa with a 30 September year end. WBC was effectively managed in South Africa until
31 August 2024, but from 1 September 2024 its head office and board of directors moved
to the United Kingdom (UK) (see further details below).

WBC generates revenue by purchasing second-hand motorcycles from individuals and then
reselling them at a profit. WBC is a registered VAT vendor, making 98% taxable supplies.
All amounts exclude VAT, correctly levied and/or claimed, unless specifically stated
otherwise. WBC has a South African Rand functional currency.

Apart from the income generated from the sale of second-hand motorcycles, WBC’s only
other forms of income arose in the current year from rental and interest (refer below).

WBC has only 1 000 000 equity shares in issue, originally issued at R3 each. The
shareholders of WBC are:
• We-Buy-Wheels Ltd – a South African resident company holding 72% (720 000
shares); (Note 1)
• Mr Richard Kettlebrough – a resident of the UK, holding 12% (120 000 shares);
• The remaining 160 000 shares (16%) are widely held by South African resident
individuals.

Note 1
We-Buy-Wheels Ltd acquired its 72% shareholding in WBC from the previous
shareholder on 1 May 2024 for R5 a share. It financed the whole purchase price of
R3 600 000 over a 5-year period. Repayments of R949 671 are to be made annually in
arrears. We-Buy-Wheels Ltd has a 31 October year-end and is not a share dealer.

Change in residency

After extensive consideration, the executive directors of WBC decided to formally immigrate
to the UK. Therefore, it was decided to make the London office the head office of WBC and
keep a branch in South Africa, which would be regarded as a permanent establishment of
WBC. This resulted in WBC being effectively managed in London, UK, from 1 September
2024 and exclusively a resident of the UK as per Article 4 of the DTA. The market value of
all WBC’s shares on 31 August 2024 was R7 000 000.

On 31 August 2024, the assets of WBC were as follows:

Assets Note Market Value Original Tax value on
on 31 August Cost 31 August
2024 2024
Delivery vehicles and other
movable assets remaining in 1 R800 000 R4 200 000 -
South Africa
Motorcycles 2 R3 800 000 R2 600 000 ?
Office building in Pretoria 3 R4 000 000 R2 000 000 R900 000
Second-hand building in UK 4 £325 000 £300 000 £300 000

Page 6 of 9
Notes:

1. These assets remained at the South African branch (i.e. permanent establishment of
WBC after its change of residency).

2. Assume all motorcycles were acquired after 1 October 2023 and no opening stock was
on hand due to a big auction that took place on 30 September 2023. Sales before
31 August 2024 equalled R2 200 000 at a mark-up on cost of 20%.

The right of use of one of the motorcycles acquired as trading stock on 1 July 2024 for
R80 000 (when the “retail market value” was R90 000 (including VAT)) was granted to
Chris, a WBC employee on 1 August 2024 for a 12-month period. The market value of
the motorcycle on that date was R85 000. Chris did not keep an accurate logbook of his
business kilometres and WBC bears all the costs relating to the motorcycle. The
motorcycle did not have a maintenance plan.

All motorcycles (including the one used by Chris) remained in South Africa and formed
part of the assets of the permanent establishment of WBC in South Africa. The market
value of trading stock never reduced below cost.

3. The office building was constructed by WBC when operations commenced 11 years ago
and has been in use ever since.

4. WBC purchased this second-hand building on 1 June 2024 in anticipation of moving its
head-office to the UK. During the period from 1 June 2024 until 31 August 2024, WBC
earned net foreign rental income of £4 000 (R91 200 correctly translated in terms of
s25D). The rental was deposited in a UK bank account and WBC earned interest of £100
(correctly translated to R2 300). Foreign tax of £400 (R9 000 correctly translated in terms
of s6quat) relating to the rental income (£390) and foreign interest income (£10) was the
only foreign tax proved to be payable to the UK tax authorities.
Available exchange rates:
Spot rate on 1 June 2024 £1 = R23.95
Spot rate on 31 August 2024 £1 = R23.40
Average exchange rate for the year of assessment ended
31 August 2024 £1 = R23.34

REQUIRED:

(a) Calculate the normal tax liability of We-Bi-Cycles Ltd (‘WBC’) for its year of
assessment from 1 October 2023 to 31 August 2024. Support nil-effects with a
brief reason. 17
(b) Discuss the value of the fringe benefit in the hands of Chris for his 2025 year
of assessment. (Assume no changes in legislation from 2024 to 2025.) 3
(c) Calculate the dividends tax payable as a result of the change in residency. 4
(d) Discuss, supported with reference to legislation, the normal tax consequences
for We-Buy-Wheels (the majority shareholder of WBC) resulting from the given
information for its year of assessment ended 31 October 2024. 8

TOTAL QUESTION 4 32

Page 7 of 9
 MONETARY CHANGES

Applicable in respect of years of assessment commencing on or after 1 March 2023 (i.e.

2024 year of assessment) – unless specifically stated otherwise.
REBATES (section 6) 2023 2024
Primary rebate R16 425 R17 235
Secondary rebate R9 000 R9 444
Tertiary rebate R2 997 R3 145

MEDICAL CREDITS (section 6A) 2023 2024

Benefits to the taxpayer R347 R364
Benefits to the taxpayer and one dependant R694 R728
Benefits to each additional dependant R234 R246

TRAVEL ALLOWANCE (section 8(1)) - unchanged 2023 2024

Cost limitation of vehicle (section 8(1)(b)(iiiA)(bb) R665 000 R800 000

RESIDENTIAL ACCOMMODATION (par 9 of Seventh Schedule) 2023 2024

Symbol B R91 250 R95 750

RATES OF NORMAL TAX: Small business corporation (as defined in section 12E) in respect of years
of assessment ending on or after 1 April 2023
Taxable income (R) Rate of tax
0 – 95 750 0% of taxable income
95 751 – 365 000 7% of the amount above R95 750
365 001 – 550 000 R18 848 + 21% of the amount above R365 000
550 001 and above R57 698 + 27% of the amount above R550 000

RATES OF NORMAL TAX: Natural persons and deceased estates

(in respect of the taxable income (excluding any retirement fund lump sum benefit, retirement fund lump
sum withdrawal benefit or severance benefit))
Taxable income (R) Rate of tax
0 – 237 100 18% of taxable income
237 101 – 370 500 R42 678 + 26% of the amount above R237 100
370 501 – 512 800 R77 362 + 31% of the amount above R370 500
512 801 – 673 000 R121 475 + 36% of the amount above R512 800
673 001 – 857 900 R179 147 + 39% of the amount above R673 000
857 901 – 1 817 000 R251 258 + 41% of the amount above R857 900
1 817 001 and above R644 489 + 45% of the amount above R1 817 000

Retirement fund lump sum withdrawal benefit

Taxable income (R) Rate of tax
0 – 27 500 0% of taxable income
27 501 – 726 000 18% of amount by which taxable income exceeds R27 500
726 001 – 1 089 000 R125 730 + 27% of amount by which taxable income exceeds R726 000
1 089 001 and above R223 740 + 36% of amount by which taxable income exceeds R1 089 000

Page 8 of 9
Retirement fund lump sum benefit and Severance benefit
Taxable income (R) Rate of tax
0 – 550 000 0% of taxable income
550 001 – 770 000 18% of amount by which taxable income exceeds R550 000
770 001 – 1 155 500 R39 600 + 27% of amount by which taxable income exceeds R770 000
1 155 001 and above R143 550 + 36% of amount by which taxable income exceeds R1 155 000

TRAVEL ALLOWANCE
Fixed cost Fuel cost Maintenance
Value of the vehicle (R)
(R/p.a.) (c/km) cost (c/km)
0 – 100 000 33 760 141,5 43,8
100 001 – 200 000 60 239 158,0 54,8
200 001 – 300 000 86 958 171,7 60,4
300 001 – 400 000 110 554 184,6 65,9
400 001 – 500 000 134 150 197,6 77,5
500 001 – 600 000 158 856 226,6 91,0
600 001 – 700 000 183 611 230,5 102,1
700 001 – 800 000 209 685 234,3 113,1
Exceeding 800 000 209 685 234,3 113,1

ALTERNATIVE FIXED RATE FOR CERTAIN REIMBURSIVE 2023 2024

TRAVEL ALLOWANCES (c/km) (c/km)
Simplified method 418 464

AMOUNTS DEEMED TO HAVE BEEN ACTUALLY EXPENDED 2023 2024

ON MEALS AND INCIDENTALS COSTS
Local travel
Allowance for incidental costs only (per day) R152 R161
Allowance for meals and incidental costs (per day) R493 R522
Overseas travel - unchanged
Amounts listed in the Regulation per country Will be Will be
provided provided

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