Taxation Assignment Solutions for Income Tax, VAT and Gross Income Questions

Question 1 (Marks: 30)

Task:

 

Question 1 (Marks: 30)

 

Kabelo Nkosi (72 years old) established the Nkosi Family Trust in South Africa in 2019 for the benefit of his three unmarried children, Sipho, Brigitte and Damian. The children are all South African tax residents. On 28 February 2022, Sipho was 26 years old. He lives and works in  urban.
Brigitte was 22 years old and a full-time student at Varsity College. Damian was a 15-year-old scholar. The assets of the trust were all donated by Kabelo. The trustees are independent third parties and the provisions of the trust deed include the following:

Required:

Q.1.1 Calculate the taxable income of Kabelo Nkosi, Sipho and Damian for the tax year of assessment ending 28 February 2022.

Q.1.2 Calculate the normal tax payable by the trust for the tax year of assessment ending 28 February 2022, if it is assumed Kabelo Nkosi died on 28 February 2021. 

Question 2 (Marks: 20)

CDE Ltd, a vendor registered for VAT on the payment’s basis, provides the following information for the period May 2021 and June 2021 (all amounts, where applicable, include VAT at 15%, and tax invoices have been issued for all sales and, where applicable, received from all suppliers):

Q.2.1 Calculate the VAT payable to or refundable by SARS for the period May 2021 and June 2021.

Note: • Please indicate amounts even if zero, including a reason why the amount is zero. For example: zero rated supply, exempt supply, etc.

• Calculations should be rounded to the nearest second decimal.
• Clearly state if the amount is payable to or refundable by SARS.

Question 3 (Marks: 10)

 

a) Mrs Meyer, a South Africa tax resident, is a landlord owning several properties in Johannesburg. Each tenant is required to pay a deposit of a month’s rent before taking occupation of any of the properties. These deposits are held in a trust account that was set up for this purpose. The deposit is refundable to the tenant if, they occupied the premises for more than six months, gave proper notice and left the premises in the condition it was in when they first occupied the property. In the event of a tenant not complying with the conditions then the funds are withdrawn from the trust account and retained by Mrs Meyer, otherwise the funds are used to refund the deposit. Mrs Meyer received R15 000 into the trust account in the 2022 tax year.

b) Mr Duma, a sole trader, decided at the age of 62 that he wanted to retire and spend the rest of his time with his grandchildren. He wanted to sell his business for R1 980 000 but could not find a buyer who was able to pay this amount in a lumpsum. He therefore decided to sell his business to a friend, Mr Lee who would pay Mr Duma a cash amount of R500 000, on condition that Mr Lee settles the remaining balance at R8 000 per month for the next 20 years. These terms were included in an agreement drawn up between Mr Duma and Mr Lee.

 

Required:

Q.3.1 Critically discuss whether the income received by the individuals in scenarios (a) and(b) will form part of their gross income for the year of assessment ended 28 February 2022. Include reasons for your inclusion or exclusion of these amounts in gross income and refer to the requirements of the ‘gross income’ definition. Note: Five marks will be awarded for each of the two scenarios.