about 4 years ago

How to prepare income tax liability for a full year of Harry and his wife Megan for the year of assessment 2021/22

Harry is employed as marketing manager by Famous Ltd since 1 July 2020. He has provided you with the following information and asks you to explain his taxation position. (i) His basic salary is Rs 1,400,000 per annum plus an end of year bonus of 15 % of his annual salary. He also receives an allowance of Rs 5,000 per month to be spent exclusively in providing business entertainment. (ii) He has the sole use of a fully furnished house rented by the company for him and his family. The company pays a monthly rent of Rs 25,000 for the house. (iii) The company provides him with a new 2500 cc car costing Rs 2.2 million and all his running expenses including servicing, fuel and insurance (estimated at Rs 240,000 per annum) will be paid. He estimates that his annual mileage will be 40,000 kms, broken down as follows: 10% - unconnected with business 10% - travel from home to company’s office and back 80% - on business (iv) The company contributes to an approved medical scheme to provide for medical expenses for its employees. The cost attributable to Harry is Rs 16,875. (v) He takes his meal in the company’s canteen together with all other employees. No charge is made to employees, though the meals would cost approximately Rs 100 per day in a restaurant. (vi) Harry had, in July 2020, paid Rs 15,000 to the employment agency who found him that position in consideration of special advice and assistance given by the agency and subscriptions of Rs18,000 for one year to a recognized professional marketing body and Rs 22,000 for one year’s subscription to a golf club where he expects to meet business acquaintances. He also paid Rs 30,000 for new clothing of a standard considered necessary for the marketing manager of Famous Ltd. (vii) He and his wife Megan expect to pay mortgage interest of Rs 200,000 p.a on a bank loan of Rs 2.5m used exclusively for the purchase of land to be used for the construction of their residence. (viii) Harry and Megan also expect to pay school fees of Rs 60,000 p.a. in respect of their son who attends a private primary school. These fees are largely covered by bank interest of Rs 70,000 credited to Megan’s bank savings account. (ix) Megan is employed as a full-time secretary at a salary of Rs 450,000 p.a. plus an allowance of Rs 50,000 to cover the costs incurred for a child minder to look after their infant daughter. Based on the above information you are required to prepare an estimate of the income tax liability for a full year of Harry and his wife Megan for the year of assessment 2021/22 (i.e., income year ended 30 June 2021). You should give in your answer concise but clear explanations of your treatment of their income, benefits and payments.

Primrose20

about 3 years ago

Business Taxation and Tax Management

Discuss with reference to the relevant case law, whether the proceeds of R1 200 000 on the disposal of the excess land will form part of Mr Zuma’s gross income for the year of assessment ended 28 February 2022.

Lungile Zuma is a 45-year-old married resident of the Republic of South Africa. He is a lecturer by profession and lectures in the field of commerce, more specifically Financial Accounting at the University of Capetown. Not only has this interest in commerce resulted in him lecturing on the topic, but it has also resulted in him owning various sole proprietorships as he chases his dream of becoming a successful entrepreneur. He was recently in the market for a new home for himself and his wife. After many months of internet surfing and travelling around to view show houses, they finally found the ideal home in the Northern Suburbs. The only problem was that the house was on a massive 10 hectare plot. He and his wife decided that they only wanted 2 of the 10 hectares of land and the extra 8 hectares would be unnecessary for their needs. The seller of the house informed them that he was unwilling to sell them only 2 hectares and that if they wanted to purchase the house, they would need to buy the full 10 hectare plot with the house. Mr and Mrs Zuma decided that the house was too perfect to slip through their fingers and that they would buy the house plus the 10 hectares of land as required by the seller. Once the couple had moved into the home, Mr Zuma approached the local town planning authorities in order to get permission to sub-divide the extra 8 hectares of land into 4 equally sized plots of 2 hectares each and sell these off. Mr Zuma had previously done some research and found that there was almost no demand for plots bigger than 2 hectares due to the high price of land. Mr Zuma then identified that he would not be able to sell the land unless potential buyers knew that it was for sale. He approached an estate agent who, in turn, placed adverts for the plots in various local newspapers. By the end of the 2022 year of assessment (2 months after acquiring the property), three of the four 2 hectare plots were sold. The combined receipts from the sales were R1,200,000, and the profit realised on these sales was R300,000. None of Mr Zuma’s businesses are actively involved in the purchasing and selling of land or fixed property at a profit and Mr Zuma has not sold property (other than his previous home (his primary residence)) for over 10 years.