Phakamile Hardware Ltd (Phakamile) is a company that sells construction materials to customers around the Mpumalanga Province,
Question:
Phakamile Hardware Ltd (“Phakamile”) is a company that sells construction materials to customers around the Mpumalanga Province, South Africa. The company is a registered provisional taxpayer and a category A vendor for Value-Added Tax purposes. Phakamile has a 31 August financial year end.
Phakamile’s tax clerk was busy preparing the provisional tax calculations for the 2023 year of assessment when she was forced to retire due to ill health. You recently got appointed as the company’s new tax clerk and have been requested to complete the remainder of the calculations.
The following is the information gathered by the previous tax clerk before leaving Phakamile’s employment:
Year of assessment | Taxable income | Capital gain accounted for in taxable income | Notice of assessment date | Notes | |
2023 | ? | - | Not yet assessed | ||
2022 | 2 300 000 | 120 400 | 23 February 2023 | ||
2021 | 2 184 000 | - | 10 February 2023 | ||
2020 | 3 004 000 | ? | 12 May 2021 | Notes 1 | |
2019 | 3 109 000 | 72 000 | 29 June 2020 |
Notes:
1. On 17 August 2020, Phakamile disposed of its old administrative building for an amount equal to its market value of R2 500 000. The market value of the building and the time-apportionment base cost was correctly determined as R1 700 000 and R1 950 000, respectively, on 1 October
2001.
This administrative building was acquired on 1 January 2000 at a total cost of R1 500 000. Additional costs amounting to R350 000 were incurred to extend the building to make space for a staff canteen. These costs were paid for in cash on 30 June 2006. The South African Revenue Service (SARS) does not grant allowances on administrative buildings acquired before 1 April 2007. The taxable capital gain arising from the disposal of the administrative building is already included in the taxable income of the 2020 year of assessment.
Additional information
The actual taxable income for the 2023 year of assessment is not yet determined.
Required
(a) Discuss Phakamile Hardware Ltd’s latest preceding year of assessment for purposes of the first provisional tax payment calculation for the 2023 year of assessment. Note: Calculations and references to the Income tax Act are not required.
(b) Assuming that the 2020 year of assessment is the latest preceding year of assessment for purposes of Phakamile Hardware Ltd’s first provisional tax payment, discuss, supported with calculations, the first provisional tax payment for the 2023 year of assessment.
VAT is 15% (South Africa based)
Management
ISBN: 9780730329534
6th Asia Pacific Edition
Authors: Schermerhorn, John, Davidson, Paul, Factor, Aharon, Woods, Peter, Simon, Alan, McBarron, Ellen