PINV05B-2014-10-E-1 - UNIVERSITY EXAMINATIONS U N I SA Wm...

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Unformatted text preview: UNIVERSITY EXAMINATIONS UNIVERSITEITSEKSAMENS U N I SA Wm PINVOSB OctoberI‘November 2014 TAX PLANNING FOR INVESTMENTS Duratlon 2 Hours 70 Marks EXAMINERS FIRST PROF AC ENGELBRECHT SECOND PROF GK GOLDSWAIN ‘ '1 Use of a non-programmable pocket calculator Is permrsslble Closed book examination. 1 This examinatlon question paper remalns the property of the Unwersfly of South Africa and may not be removed from the exammatron venue This examInatIon paper conSIsts of TWO SECTIONS ThIs examInatIon paper conSIsts of SEVEN PAGES Includlng the page Answer fl questions In the paper (both sectIons) [TURN OVER] 2 PINVOSB OctoberlNovember 2014 SECTION A: Multiple Chonce Questions Total Marks 48 Instructions: | Answer ALL of the followmg multiple Chelce questions rn SBCtIOl‘l A tn your answer book Please note You must not fill m a mark reading sheet You merely have to Indicate the number of the MOST correct alternative next to the question number Write your answers legibly 1 Indicate the period covered by the year of assessment of a company A 1 January to 31 December B 1 March to 28 February C 1 Apnl to 31 March D 1 July to 30 June E The financual year of such company (3) 2 Indicate the current amount of the pnmary resrdence exclusnon for Wthh a natural person can quallfy Rnll R1 mllllon R1,5 million R2 mllllon R5 million (3) “10003) 3 What IS the current specmed maXImum exempt amount to be recelved by natural persons under the age of 65 that can give rise to tax-free local Interest In their hands? A Rnll B R10 000 C R15 000 D R18 000 E None of the above (3) [TURN OVER] 4 3 PINVOSB OctoberlNovember 2014 Indicate which of the followmg busmess expenses should normally qualify for deduction under the general deduction formula A Purchases of trading stock B Interest on overdraft taCiIity to fund working capital C Entertainment expenses D Salaries and wages paid to employees E All of the above (3) Indicate which of the followmg statements relating to the nng-fencmg of assessed losses (section 20A) is false A The nng—fencmg of assessed losses cannot apply to legal persons (for example. a company) B Its application Will imply that the loss from such “suspect trade” Will not be allowed to be set—off taxable income earned by the taxpayer from another trade C “Suspect trades” WIII be those listed in the lncome Tax Act as well as trades producmg a loss for three out of the last five years of assessment D Ring-fencmg WIII not erase an assessed loss, but merely postpone its set-off until and to the extent that that particulartrade generates taxable income in the future E None of the above (3) Indicate which of the followmg amounts received by the respective parties (reSIdent in the Republic) mentioned below. Will not constitute gross income in such taxpayer's hands A Local diVidends received by an investor B Foreign leldendS received by an investor C Local interest received by an investor D .Rental collected by an agent (on behalf of the property owner) E Salary earned by an employee (3) A taxpayer may claim a deduction under the general deduction formula only once he can show such expenditure to have been A Actually paid B Prepaid (the expenditure relates to a subsequent year of assessment) C Actually incurred (either paid, or a definite legal Ilablllty is in exrstence at the end of the year of incurral) D Necessarily incurred (meaning that such expenditure has been incurred as E part of a trade carried on in a prudent and non-wasteful fashion) None of the above (3) [TURN OVER] 1O 4 PINVOSB OctoberlNOVember 2014 Indrcate whrch of the followrng statements regarding the clarmrng of expenses Incurred wrth regards to the use of a home study rs false A A deductron can only be alarmed where such portron of a resrdence Is specrfrcally equrpped and rs regularly and exclusrvely used for trade purposes B Even an employee wrll qualify for usrng a home study where more than 50% of hrs dutres are carrred out rn such home study C By clarmrng expendrture rn respect of a home study, the taxpayer wrll end up wrth an Increased caprtal garns tax lrabrlrty on the eventual sale of such resrdence D Only a proportronal amount (based upon floor area) of the total revenue expenses rn connectron wrth such resrdence used fortrade purposes, may be clarmed E None of the above (3) A company has three separate branches that are operated rn the followrng crtres and whrch have realrsed the followrng respective taxable rncomesl(assessed loss) for the current year of assessment 3 Cape Town 400 000 Durban (1 300 000) Johannesburg 800 000 Indrcate the taxable rncome of the company for the current year of assessment A Rnrl B R100 000 assessed loss C R600 000 D R1 200 000 E None of the above (3) A taxpayer wrll not be carryrng on a trade for the purposes of the Income Tax Act A He rs employed and earns a salary B He carrres on busrness operatrons C He Is earnrng passrve rnvestment Income D He acts as a director of a company and earns director‘s fees E He lets property to tenants and earns rental Income (3) [TURN OVER] 11 ‘12 13 5 PtNV05B OctoberINovember 2014 Mr Belling Phosa sold hrs total grape harvest, Wthh has a value of R600 000, to the Peoples Farmers Wlnery durrng the current year of assessment However, as the Peoples Farmers Wmery's products would only be bottled srx months Into the next year of assessment and ultimately only be sold thereafter, the followmg agreement was reached 3 Payment during the current year 300 000 Payment during the next year 300 000 The present value of the payments to be made during the next year, lfdlSCOUHted at a market-related rate of return, amounts to R290 000 What amount Will be Included m Mr Phosa's gross Income for the current year of assessment? A Rnll B R290 000 C R300 000 D R590 000 E R600 000 (3) A natural person (aged 60 and married out of communlty of property) has realised a capltal gain of R40 000 on the dlsposal of one of ms capital assets, whereas a second capital asset resulted rn a capital loss of R4 000 durlng the same year of assessment Nelther of these assets would qualify the taxpayer for any excluswn, limitation of the loss or any roll-over relief Indlcate the taxable capital gain to be Included In the taxable Income of the taxpayer A Rnll B R2 000 C R5 000 D R6 000 E R10 000 (3) The rarsnng of expenditure relatlng to leave pay (for accounting purposes) Will only be allowed for normal tax purposes where The amount has actually been paid by the end of the year of assessment The amount has actually been Incurred (uncondltlonal legal llablllty In exnstence or actually paid) by the end of the year of assessment The amount has either been paid or l5 due and payable by the end of the year of assessment The amount was due and payable by the end of the year of assessment None of the above (3) mo O W) [TURN OVER] 6 PINVOSB OctoberlN ovember 2014 14 The acqursmon of trading stock generally has the followrng effect on the calculation of taxable Income 15 16 A B C D E Opening stock and purchases are deducted from Income and closrng stock Is added to Income Opening stock and purchases are added to Income and closnng stock IS deducted from Income Closmg stock and purchases are deducted from Income and opening stock Is added to Income Closmg stock 15 deducted from Income and opening stock IS added to Income whlle the deduction of purchases IS postponed untrl the relevant stock Items are sold None of the above (3) Mr Zuza has made a donatron of R50 000 to a public benefit organisation (PBO) as approved by the Commrssroner and IS In possessron of the requrred receipt Issued by the relevant PBO Mr Zuza's taxable Income for thus year amounts to R230 000 before any deduction In thrs regard Indicate the amount that can be deducted In thlS regard by Mr Zuza In respect of the current year of assessment [110003) R5 000 R10 000 R25 000 R50 000 None of the above (3) Indlcate Wthh one of the followmg supplies wrll not constltute an exempt supply In terms of the Value-added Tax Act mUO W) ’i u' flat-a:luau-slur;Mamas!-1I"'.=.m)3¥1'lr.‘.!n :m. The servrce of caring for children by a creche or after-school care centre The supply of a 90an concern by a registered vendor, meeting the requrrements of the Act The supply of accommodation In a dwelling The supply of servrces to members of a body corporate The supply of public educational servrces (3) sir» -'. "érf éh"'f. r'V-‘vé 3"? "-""Im '2-’."" ' $.35: fi‘viffilrfiééifilf’v'a “J. 2”." " = '5“: .v»’_1‘:€"41’gi§ ;_‘__3 Val [TURN OVER] 7 PINVOSB OctoberlNovernber 2014 SECTION B Total Marks: 22 Instructions: l 17 18 19 20 Answer ALL of the followmg questions in your answer book. Show all calculations and motivate your answer, where reqmred Explain how a taxpayer can benefit from the postponement of an accrual of income from the current to a future year of assessment where no amount has as yet been received (3) Can a taxpayer legitimately reduce his normal tax liability for the current year of assessment by making prepayments in respect of insurance premiums due only in respect of the next year of assessment and, if so, are there any statutory limitations Within which the taxpayer should stay in order to successfully claim such prepayments as a deduction for the current year of assessment? (4) Mr Prop (married out of community of property) sold a property which he had held for the last five years for an amount of R500 000 He originally achired the property at a total cost of R200 000 and you may assume that this Will also represent its base cost for the purposes of capital gains tax The proceeds Will, depending upon aspects such as the taxpayer's intention, possrble change of intention etc, either be capital or revenue in nature Indicate separately, the tax consequences (normal tax and capital gains tax) for both possubilities (ie either capital or revenue in nature) where it IS assumed that Mr Prop’s marginal rate of tax is 40% and that such property does not qualify as his primary resiidence (8) Indicate for each of the followmg capital assets whether a capital gain realised on its disposal, Will be subject to capital gains tax (i) Krugerrand (1) (ii) Shares in a listed company (1) (iii) Shares in a private company (1) (iv) Private motor vehicle (1) (v) Private Jewellery (1) (VI) A second house (1) (Vii) Winnings from a Lotto draw in the United Kingdom (1) END OF EXAMINATION PAPER UNISA 2014 ...
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