PERSONAL FINANCIAL MANAGEMENT (FTX2000S)

MODULE 7 – Tax Planning

TUTORIAL 11 - HAND IN DATE: MONDAY 14 OCTOBER 2024
Question 1 Submit
Module 7 - practice quiz

1. An example of an indirect tax is:

a. Value added tax

b. Capital gains tax
c. Estate duties
d. Transfer duties

2. The South African Revenue Services (SARS) is responsible for managing the finances of the South
African government.

a. True
b. False

3. The illegal non-payment of tax is known as tax avoidance.

a. True
b. False

4. South Africa’s tax system is a ______ system for companies, and a ______ system for individuals.

a. Fixed, progressive
b. Fixed, fixed
c. Progressive, fixed
d. Progressive, progressive

5. The effective tax rate for an individual in South Africa is 40%.

a. True
b. False

6. Provisional taxpayers include:

a. Self-employed people
b. Company directors
c. Large investors
d. Employees

7. The “base price” is an important input in the calculation of ______.

a. Capital gains tax
b. PAYE
c. Provisional tax

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Assignment 8
8. A primary residence sold for R2 million is exempt from capital gains tax.

a. True
b. False

9. Which of the following are not exempt from capital gains tax?

a. Holiday homes
b. Gold coins
c. Jewellery
d. Antique household furniture

10. Three-quarters of an individual’s taxable capital gains are excluded from taxation.

a. True
b. False

11. If a person is out of the country for ______ days during the tax year, the person is not liable for tax
during that year.

a. 330 consecutive
b. 91 consecutive
c. 330, not necessarily consecutive
d. 91, not necessarily consecutive

12. Income becomes taxable when it is physically received during the tax year.

a. True
b. False

13. In terms of the South African Income Tax Act, interest is:

a. Partially tax exempt

b. Fully tax exempt
c. Fully taxable
d. Treated as a tax deduction

14. For capital gains tax purposes, the base value of a house bought in 2000 will be its original purchase
price.

a. True
b. False

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Assignment 8
15. Which of the following are not possible tax deductions?

a. Provident fund contributions

b. Dividends
c. Retirement annuity fund contributions
d. Medical expenses

16. Pension fund contributions are a tax deduction that is available to employees, but not to self-
employed people.

a. True
b. False

17. For self-employed people, computer software used for business purposes is a trade expense that
may:

a. Be written off over three years

b. Not be written off at all
c. Only be written off over five years
d. Be fully written off in the year of purchase

18. Tax rebates are only available to those who are 65 or older.

a. True
b. False

19. The maximum rate an individual will pay as capital gains tax is:

a. 10%
b. 14%
c. His or her effective rate
d. Not possible to calculate

20. For the purposes of tax calculations, gross income includes only those forms of income that result in
cash being received by the taxpayer.

a. True
b. False

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Assignment 8
Question 2 Submit

Jakes Green is 60 years old, unmarried and works on a fulltime basis at Cabana Ltd. Jakes earned a salary of
R400 000 for the current tax year that ends on 28 February 2024 and a bonus of R40 000. Jakes invested
R500 000 with a local collective investments firm. He decided to reinvest the amount. During the current
year he received interest income of R45 000 and dividends amounting to R30 000. Both these amounts
were re-invested.

Jakes owns a flat in Plettenberg Bay which he lets out during the year. He received rental income of
R150 000 during the current year of assessment and incurred deductible rental costs of R50 000.
Employers deducted employees tax of R78 000 from his salary and bonus. Jakes made two provisional tax
payments totalling R40 000 during the current tax year.

YOU ARE REQUIRED TO:

Calculate Jakes net tax liability for the tax year ended 28 February 2024.

Question 3 Submit

Your friends have discovered that you are studying a little bit of tax. They raise the following independent
queries regarding the completion of their annual tax return:

1. Nei fills in crossword competition every now and then. On 1 June 2016 Nei won a big crossword
competition, with prize money of R1 000 000.

2. Joseph won the Lotto on 12 August 2016. He won R12 000 000 but was scared to invest so much
money, so instead he chose to receive R1 000 000 every year on 31 October for the next 12 years.
He received his first payment on 31 October 2016.

3. Gugu an old school friend now lives in Italy and is not a resident of the Republic, contacted her old
South African school friends from Italy and sold some of them timeshare that is situated in Italy. She
made sales of R750 000 during the 2016 year of assessment to South African residents.

4. Walker owns a jewellery shop in the Karoo. During September 2016 a good friend of his, Justin,
wanted to get engaged but could not afford an engagement ring. Walker agreed to accept 20 sheep
in exchange for the ring. The ring had a market value of R14 000 and the 20 sheep had a collective
market value of R20 000.

5. Prudence is a nurse but she does not like to work night shift, so she works for a labour broker, who
outsources her services on a temporary basis to Health Institutions that requires daytime nurses.
During January 2016 Prudence worked for Universal Hospital and she only got paid on 5 March 2016.

YOU ARE REQUIRED TO:

Advise each of your friends with reasons whether the receipt should be declared as gross income in their
tax return or not.

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Assignment 8
Question 4

Jack is not a resident of South Africa his Holland firm sent him over to South Africa to work here and gain
some work experience in the mining field.

He spent the following days in South Africa during the years of assessment:

2007 He spent 95 days in South Africa

2008 He spent 100 days in South Africa
2009 He spent 200 days in South Africa
2010 He spent 200 days in South Africa
2011 He spent 321 days in South Africa
2012 He spent 300 days in South Africa
2013 He spent 100 days in South Africa

He returned to Holland in 2013 and did not return to South Africa. Ignore double tax agreements between
the two countries.

YOU ARE REQUIRED TO:

Determine whether Jack will be classified as a resident for South African income tax purposes for each of
the years of assessment.

Question 5

Marvin sold his primary residence for R4 400 000 during the current tax year. The house was purchased in
1996 for R900 0000. On 1 October 2001 the market value of the house was R2 300 000. Marvin used 20%
of the primary residence as an office for his business and claimed these costs as an expense deduction for
income tax purposes every year.

YOU ARE REQUIRED TO:

Calculate the taxable gain on the sale of the primary residence and the amount that will be included in
Marvin’s Gross Income.

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Assignment 8
QUESTION 6 (15 MARKS : 18 MINUTES)
Source: Personal Financial Management (FTX2000S) 2014 June final examination Q#

6.1 Don sold the following assets for the tax year ended 28 February 2024:

Base cost Selling price

His old car R150 000 R120 000
Three Nelson Mandela gold coins 85 000 R160 000
His old antique dining room suite R3 000 R25 000
Land and buildings (for investment purposes) R140 000 R900 000
Primary residence 200 000 4 500 000
Don is taxed as an individual and his Capital Gains Tax inclusion rate is 40%.

REQUIRED

Calculate the amount of Capital Gains Tax (CGT) that Don would be liable for (the amount that would be
included in the calculation of his taxable income).
(8 marks)

6.2
South African Revenue Services (SARS) allows Marvin, a taxpayer to deduct R364 for both primary and first
dependent member and R246 for each subsequent dependant members. On 1 September 2023, six
months into the tax year Marvin married Gwendoline who had three children.

As Marvin suffered from a chronic illness his medical expenses were R45 000 of which R15 000 was
recovered from the medical aid fund. His total medical aid contributions were R55 000 and his taxable
income was R300 000. Marvin is under 65 years.

REQUIRED

Calculate the amount that Marvin can claim as a deduction against his gross income (Medical aid scheme
tax credit (S6A) and Additional medical expense tax credit (S6B) for the tax year ended 28 February 2024.
(7 marks)

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Assignment 8
EXAMINATION TYPE QUESTION
QUESTION 1 Submit (40 MARKS : 48 MINUTES)
Source: Personal Financial Management (FTX2000S) October 2015 Final examination Adapted

Please use the tax tables provided below on page 8.

1. Simone Hansen had the following income details for the year ended 28 February 2024:

R
Gross salary 250 000
Interest income 35 000
Dividends received 40 000
Rent income 102 000
Additional income 30 000
Expenses related to the rental income:
Insurance 5 000
Repairs and maintenance 15 000
Rates and taxes 24 000
Employees tax deducted (gross salary) 135 000
Employees tax deducted of additional income 7 500

2. Medical aid details:

Simone belongs to a medical and total medical aid contributions were R37 500. South African
Revenue Services (SARS) allows Simone, a taxpayer to deduct R364 for both primary and first
dependent member and R346 for each subsequent dependant members. On 1 November 2014,
Simone married Adam who had one child. Simone suffered from a chronic illness and his medical
expenses were R45 000 of which R15 000 was recovered from the medical aid fund. Simone is under
65 years.
Simone qualifies for the following medical aid rebates R6 808 (Sec 6A) and R886 (Sec 6B).

3. Simone sold the following assets for the tax year ended 28 February 2024:

Base cost Selling price

His old car R150 000 R120 000
Three Nelson Mandela gold coins 85 000 R160 000
His old antique dining room suite R3 000 R25 000
Land and buildings (for investment purposes) R140 000 R500 000
Primary residence 200 000 2 500 000
Simone is taxed as an individual and her Capital Gains Tax inclusion rate is 40%.

4. Assuming Simone earns a monthly net salary (disposable income) of R30 000 and she is planning to
purchase a flat for her son who intends to study at university. She is currently indebted to the tune of
R1 000 of her disposable income. The standard debt to disposable income ratio is 35 % and any ratio
above 35 % is considered to be very risky by lenders (Banks).

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Assignment 8
YOU ARE REQUIRED TO:

1. Refer to the information in 1, 2 and 3 above. Calculate Simone’s Normal Tax Liability after taking into
account all the information in 1, 2 and 3 for the year of assessment ending
28 February 2024.
Hints: Calculate Gross income (including gross salary, interest, dividends, capital gains tax)
(25 marks)

2. Simone wants to purchase a flat from Kemp Properties for her son. The flat costs R1 200 000 and she
will pay a deposit of R200 000. The balance will be obtained as a loan from Savannah Bank at 12 % per
annum, compounded monthly. The first instalment will be paid at the end of the month. Calculate
the monthly instalment that Simone would have to pay if she agrees to repay the amount over 20
years (240 months).
(5 marks)

3. Refer to the information in 4 above. If Simone qualifies for a loan of R1 000 000 from the bank (see 2
above), would she be able to afford the repayments and stay within the 35 % high credit risk debt to
income ratio. Briefly explain with calculations (debt to disposable income ratio) and reasons.
(5 marks)

4. What other factors would Simone have to consider before submitting an offer to the estate agent to
purchase the flat.
(3 marks)

5. Name two costs that would be incurred by Kemp Properties (seller) in a property transaction.
(2 marks)

TAX RATES - INDIVIDUALS – 2023/2024 Rates of tax

Taxable income
Income band Tax calculation
R0 to R237 100 18% of each R1
R237 101 to R370 500 R42 678 + 26% of the amount over R237 100
R370 501 to R512 800 R77 362 + 31% of the amount over R370 500
R512 801 to R673 000 R121 475 + 36% of the amount over R512 800
R673 001 to R857 900 R179 147 + 39% of the amount over R673 000
R857 901 to R1 817 000 R251 258 + 41% of the amount over R857 900
R1 817 001 and above R644 4819 + 45% of the amount over R1 817 000
Table 3E: Tax bracket for 2023/2024

Tax threshold below 65 R95 750 Age 65 and under 75 R148 217

Tax rebates
Amounts deductible from the tax payable
2023 / 2024
Persons under 65 R17 235
Persons 65 and under 75 R26 679
Persons 75 and over R29 824

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Assignment 8