PINV05B-2013-10-E-1 - UNIVERSITY EXAMINATIONS U N I S A m...

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Unformatted text preview: UNIVERSITY EXAMINATIONS UNIVERSITEITSEKSAMENS U N I S A m; PINVOSB OctoberlNovember 2013 TAX PLANNING FOR INVESTMENTS Duration 2 Hours 70 Marks EXAMINERS : FIRST PROF AC ENGELBRECHT SECOND PROF GK GOLDSWAIN Use of a non-programmable pocket calculator Is permissible. Closed book examination This examination question paper remains the property of the Universrty of South Afrlca and may not be removed from the examination venue (a) This examlnation paper consrsts of TWO SECTIONS. (b) This examination paper consusts of EIGHT PAGES including this page (c) Answer A; questions In this paper (both sections) [TURN OVER] 2 PINVOSB OctoberlNovember 2013 SECTION A: Multiple Choice Questions Total Marks: 42 Instructions: i Answer ALL of the foilowing multiple chorce questions in Section A in your answer book Please note: You must not fill in 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 The foliowmg IS an example of an indirect tax. A Normal (income) tax B Value-added tax C Capital gains tax D. Divrdends tax E All of the above (3) 2 indicate Wthh of the foliowmg statements regarding amounts accrued Is false- A. A taxpayer will have to include an amount of gross Income In his tax calculation on the earlier of receivrng an amount or such amount accrurng to him B Once an amount of gross income has accrued to a taxpayer, he will be taxed on It unless It quallfies for exemption from normal tax or he can claim a deduction against It C A taxpayer cannot be taxed on an amount before he actually receives it as this would be unfair towards him in the sense of havmg to pay tax on an amount not yet collected D. If a condition Is attached to an outstandmg amount of a revenue nature, the taxpayer cannot be taxed on such an amount before the COI'IdltIOl'l has been met E None of the above (3) [TURN OVER] 3 5 3 PINVOSB OctoberINovember 2013 Mr Lategan sold his total grape harvest, which has a value of R800 000. to the Peoples Farmers Winery dunng the current year of assessment However, as the Peoples Farmers Winery's products would only be bottled SIX months into the next year of assessment and ultimately only be sold thereafter, the following agreement was reached 3 Payment during the current year 500 000 Payment during the next year 300 000 The present value of the payments to be made during the next year, If discounted at a market—related rate of return, amounts to R290 000. What amount will be included in Mr Lategan’s gross Income for the current year of assessment? A Ran B R290 000 C. R300 000 D R790 000 E. R800 000 (3) Indicate which of the followrng statements regarding the R2 million primary residence exclusion for capital gains tax purposes. is false. A It Is only available where a natural person (or a specral trust) disposes of a primary resrdence B Only one resrdence can be a primary resrdence of a person for any period during which he held an interest in more than one resrdential property 0 The natural person or spouse of such person must ordinarily resrde therein and mainly use It for domestic purposes In order to qualify for the exclusron D Land as does not exceed two hectares which is used mainly for domestic purposes together with the resrdence and which is disposed of at the same time and to the same person as the res:dence also qualify for the exclusion E. A capital gain or capital loss In excess of R2 million will cause the full gain or loss to be taken into account in calculating the aggregate capital gain or loss of the taxpayer (3) Indicate Wthh of the following assets Will not be treated as a personal-use asset of a natural person for the purposes of capital gains tax (CGT): Private motor vehicle Private jewellery Boat exceeding 10 metres In length Private collection of stamps None of the above (3) moow> [TURN OVER] 6 4 PINVOSB OctoberINovember 2013 Indicate which of the followmg tests would establIsh whether a natural person WIII be treated as a reSIdent of the RepublIc for normal tax purposes. A B A person who has a valId IdentIty document (ID) Issued by the Department of Home Affairs A person who has a valId passport Issued by the Department of Home AffaIrs A person who has a valid Identity document as well as a valId passport Issued by the Department of Home Affairs A person who has a valid identIty document Issued by the Department of Home Affairs as well as a foreign passport A person who IS eIther ordinarily resident In the Republic or was physically present In the RepubIIc for the reqUIred number of days as specified in sectIon 1 of the Income Tax Act (3) IndIcate which of the followmg amounts Will not be allowed as a deduction for normal tax purposes. A B. C D E A penalty Imposed under the Income Tax Act AddItIonal tax imposed under the Value-added Tax Act Value-added tax relating to an allowable expense (for normal tax purposes) where such VAT can be claImed back by way of an input tax deductIonlcredIt for VAT purposes Interest on the late payment of any tax leVIable under any act administered by the CommIssioner All of the above (3) IndIcate for an employee, who earns hIs income by way of a fixed salary, which of the following expenses (incurred by such employee) or allowance, wfll be prohibited from qualifyIng for any deductIon agaInst remuneration earned (assume that amounts will meet the prescrlbed lImIts, If appllcable). A B C D E ContrIbutIons to a penSIon fund ContrIbutIons to a retirement annUIty fund Wear and tear on a computer used for trade purposes in his work Prequms on an Income protectlon polIcy Stationery acqwred (3) [TURN OVER] 5 PINVOSB OctoberINovember 2013 9 Khumalo CC runs a liquor store in its own name and has gross receipts of R900 000 for the current year while Its tax deductible expenditure amounts to R600 000. The Close Corporation further operates a fast food undertaking (first year of trading) where its gross receipts for this same tax year amounts to R240 000 while its tax deductible expenditure amounts to R320 000 indicate Khumalo CC’s taxable income for the year under discussmn: A Rnil B. R220 000 C R300 000 D R1 140 000 E None of the above (3) 10 A taxpayer Will not be carrying on a trade for the purposes of the Income Tax Act where A He is employed and earns a salary B He carries on busmess operations C He is earning passwe investment 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) 11 Indicate which of the followmg statements regarding the claiming of expenses incurred With regards to the use of a home study is false A A deduction can oniy be claimed where such portion of a reSIdence is specrfically equped and is regularly and excluswely used for trade purposes B Even an employee Will qualify for usmg a home study where more than 50% of his duties are carried out in such home study C By claiming expenditure in respect of a home study, the taxpayer Will end up With an increased capital gains tax liability on the eventual sale of such reSIdence D Only a proportional amount (based upon floor area) of the total revenue expenses in connection With such reSIdence may be claimed E None of the above (3) 12 A manufacturer acqwred a machine 2 years ago for R100 000. It qualified for a capital (machinery) allowance of 20% per annum for each of the last two years Thereafter, he sells the machine for R75 000. The recoupment on the sale of the machine would be A Rnil B R15 000 C R35 000 D R75 000 E R100 000 (3) [TURN OVER] 6 PINVOSB OctoberlNovember 2013 13 indicate which statement is true In relation to the effect that the acqursrtlon of trading stock generally has on the calculation of taxable Income A Opening stock and purchases are deducted from Income and closmg stock :5 added to Income B Opening stock and purchases are added to Income and closmg stock Is deducted from Income C Closrng stock and purchases are deducted from income and opening stock Is added to income D Closrng stock is deducted from Income and opening stock is added to Income while the deduction of purchases Is postponed until the relevant stock items are sold E None of the above (3) 14 Indicate Wthh of the followrng Is not a listed suspect trade for the purposes of the ring-fencing of assessed losses (section 20A) Any form of gambling or betting practiced by the taxpayer or his relative Any dealing in collectibles by the taxpayer or his relative Any sport practiced by the taxpayer or his relative Any animal showmg by the taxpayer or his relative Any retailing busrness carried on by the taxpayer or his relative (3) meow? END OF SECTION A m [TURN OVER] 7 PINVOSB OctoberlNovember 2013 SECTION B Total Marks: 28 Instructions: l 15 16 Answer ALL of the following questions in your answer book. Show all calculations and motivate your answer, where required Indicate, wrth a reason, whether the following amounts wrll qualify for a deduction under the general deduction formula In the hands of a close corporation which carries on a trade as a property dealer- (I) Acqursitlon of fixed property (trading stock) (2) (n) Acqursrtlon of a property to be used as offices for the corporation (2) (m) Interest on overdraft faculty solely used to pay a divudend to Its members (2) (Iv) Interest on overdraft facrllty to provrde working capital for the busrness (2) (v) Salaries and wages paid to employees (2) Mr R Ent has made an Investment some three years ago In a second property Wthh he re renting out to earn rental Income He believes that thlS was an excellent Investment as thlS property :3 expected to double In value over the next two to three years. Unfortunately, the rental trade dld not qurte prove to reach the same Ievel of success and Mr Ent has realised the following assessed losses over the last three years (the last being the current year of assessment) R Year of purchase 24 000 Next year 22 000 Current year 20 000 Hrs only other Income Is an annual cash salary of R640 000 as well as Interest on a savings account amounting to R18 000 for the current year of assessment He Is a member of hlS employer’s provrdent fund and has contributed 7.5% of his salary to thlS provident fund His employer makes an equal contribution for hlS benefit Calculate Mr Ent's taxable Income for the current year of assessment Provrde reasons for excluding any amounts from your calculation (8) [TURN OVER] 8 PINVOSB Octoben'Novemher 2013 17 Indicate, With a reason, whether the proceeds on the sale of a patent which the taxpayer developed locally and registered fifteen years ago and In respect of which royalty income accrued to him during those years of ownership, wull constitute gross income In the hands of a salaried reSIdent taxpayer (2) 18 What factors (tax and othenmse) should be taken Into account when deCIdIng whether to Invest in shares, securities, bonds, other negotiable certificates of deposit or property, outsrde South Africa? (8) END OF EXAMINATION PAPER UNISA 2013 ...
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