2 HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 QUESTION 1 (40 marks) After you completed your SAICA articles and your CA qualification, you decided to specialise in taxation. You recently took up a job at a tax consulting firm and two of your clients are ACS Marketing and CDE Industries. The directors are unsure about a few VAT matters and have asked for your assistance. Matter 1 ACS Marketing is a South Africa resident company and has a February financial year end. ACS Marketing renders 80% taxable supplies. They acquired an income-producing company, called Market IT, during the 2021 year of assessment for R1 890 000, as a going concern. Market IT made 92% taxable supplies and the selling price is attributable to the respective assets as follows: Note Amount (R) Assets Manufacturing assets 1 985 000 Delivery vehicle 2 410 500 Trading stock 3 494 500 Selling price (including VAT) 1 890 000 Notes: 1. ACS Marketing is going to utilise the manufacturing assets in making 100% taxable supplies. 2. ACS Marketing's directors decided to grant the right of use of the delivery vehicle to a marketing manager from 1 January 2021. It is estimated that the delivery vehicle will therefore only be applied in making 70% taxable supplies. ACS Marketing also bears the full cost of repairs and maintenance of this delivery vehicle which amounted to R9 650 (including VAT) for the period 1 January 2021 to 28 February 2021. 3. ACS Marketing is going to apply the trading stock in making 85% taxable supplies. HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Matter 2 Dividend declared: HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Matter 2 Dividend declared: ACS Marketing declared a total cash dividend of R200 000 on 30 October 2020 to all shareholders registered on 15 November 2020. The dividend was paid to shareholders on 20 December 2020. ACS Marketing's shareholding were as follows on 15 November 2020: Person Declaration required by section 64F submitted? Share- holding 66% Chantel Prince (resident) No Ultimate Limited (resident company) Yes 15% XYZ Advertising LLC (non-resident company) No 15% Kim Adams (refer detail below) Yes 4% Kim Adams is Chantel's cousin. Kim emigrated from the RSA five years ago and is now a resident of Australia. The double tax agreement between the RSA and Australia states that the RSA may tax a dividend paid to an Australian resident at 5%. Transfer of shareholding: ACS Marketing also transferred their shareholding in Time (Pty) Ltd to XYZ Advertising LLC on 1 June 2020. ACS Marketing acquired an interest of 2 500 shares in Time (Pty) Ltd (a resident company) at a cost of R70 per share on 1 March 2018. This represents a 5% interest in the issued share capital of Time (Pty) Ltd. ACS Marketing transferred the entire shareholding to XYZ Advertising LLC on 1 June 2020 at no consideration as part of a corporate restructuring initiative. The market value of a share in Time (Pty) Ltd amounted to R50 per share on 1 June 2020. XYZ Advertising LLC is an American company and not a resident of the RSA. The double tax agreement between South Africa and the United States of America allows for a 10% withholding tax rate in respect of dividends. HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Matter 3 CDE Industries is a South African resident company with a February financial year end. On 1 April 2020, CDE Industries declared and paid a dividend of R15 per share to its HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Matter 3 CDE Industries is a South African resident company with a February financial year end. On 1 April 2020, CDE Industries declared and paid a dividend of R15 per share to its shareholders. The company has 150 000 issued shares, and its shareholders are as follow: . . CDE Constructions (Pty) Ltd a resident company that holds 35 000 shares. The Life Scheme, a pension fund which holds 55 000 shares. Prime Co, a company that is a resident in the UK and they have 30 000 shares. (The double-tax agreement between South Africa and the UK provides that 5% dividends tax may be levied in respect of this dividend.) The remaining 30 000 shares are held by natural persons who are all South African residents. Required: 1.1 With reference to Matter 1, discuss, with reasons and supporting calculations, the VAT implications for ACS Marketing for January 2021 - February 2021. (15 marks) 1.2 With reference to Matter 2, calculate the dividend tax implications in respect of all the given transactions. Indicate the person liable for such dividends tax as well as the date by which such liability will have to be paid. (10 marks) 1.3 With reference to Matter 3, calculate and discuss the amount that CDE Industries (Pty) Ltd will pay to the company's shareholders. In the case where dividend tax is not payable, provide a reason. (15 marks) HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Competency Framework Reference: VII-2.1 Calculates normal tax (This applies to natural and non-natural persons:) Identifies and determines the components of taxable income. This includes classification of income from different sources 2 HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 QUESTION 1 (40 marks) After you completed your SAICA articles and your CA qualification, you decided to specialise in taxation. You recently took up a job at a tax consulting firm and two of your clients are ACS Marketing and CDE Industries. The directors are unsure about a few VAT matters and have asked for your assistance. Matter 1 ACS Marketing is a South Africa resident company and has a February financial year end. ACS Marketing renders 80% taxable supplies. They acquired an income-producing company, called Market IT, during the 2021 year of assessment for R1 890 000, as a going concern. Market IT made 92% taxable supplies and the selling price is attributable to the respective assets as follows: Note Amount (R) Assets Manufacturing assets 1 985 000 Delivery vehicle 2 410 500 Trading stock 3 494 500 Selling price (including VAT) 1 890 000 Notes: 1. ACS Marketing is going to utilise the manufacturing assets in making 100% taxable supplies. 2. ACS Marketing's directors decided to grant the right of use of the delivery vehicle to a marketing manager from 1 January 2021. It is estimated that the delivery vehicle will therefore only be applied in making 70% taxable supplies. ACS Marketing also bears the full cost of repairs and maintenance of this delivery vehicle which amounted to R9 650 (including VAT) for the period 1 January 2021 to 28 February 2021. 3. ACS Marketing is going to apply the trading stock in making 85% taxable supplies. HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Matter 2 Dividend declared: HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Matter 2 Dividend declared: ACS Marketing declared a total cash dividend of R200 000 on 30 October 2020 to all shareholders registered on 15 November 2020. The dividend was paid to shareholders on 20 December 2020. ACS Marketing's shareholding were as follows on 15 November 2020: Person Declaration required by section 64F submitted? Share- holding 66% Chantel Prince (resident) No Ultimate Limited (resident company) Yes 15% XYZ Advertising LLC (non-resident company) No 15% Kim Adams (refer detail below) Yes 4% Kim Adams is Chantel's cousin. Kim emigrated from the RSA five years ago and is now a resident of Australia. The double tax agreement between the RSA and Australia states that the RSA may tax a dividend paid to an Australian resident at 5%. Transfer of shareholding: ACS Marketing also transferred their shareholding in Time (Pty) Ltd to XYZ Advertising LLC on 1 June 2020. ACS Marketing acquired an interest of 2 500 shares in Time (Pty) Ltd (a resident company) at a cost of R70 per share on 1 March 2018. This represents a 5% interest in the issued share capital of Time (Pty) Ltd. ACS Marketing transferred the entire shareholding to XYZ Advertising LLC on 1 June 2020 at no consideration as part of a corporate restructuring initiative. The market value of a share in Time (Pty) Ltd amounted to R50 per share on 1 June 2020. XYZ Advertising LLC is an American company and not a resident of the RSA. The double tax agreement between South Africa and the United States of America allows for a 10% withholding tax rate in respect of dividends. HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Matter 3 CDE Industries is a South African resident company with a February financial year end. On 1 April 2020, CDE Industries declared and paid a dividend of R15 per share to its HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Matter 3 CDE Industries is a South African resident company with a February financial year end. On 1 April 2020, CDE Industries declared and paid a dividend of R15 per share to its shareholders. The company has 150 000 issued shares, and its shareholders are as follow: . . CDE Constructions (Pty) Ltd a resident company that holds 35 000 shares. The Life Scheme, a pension fund which holds 55 000 shares. Prime Co, a company that is a resident in the UK and they have 30 000 shares. (The double-tax agreement between South Africa and the UK provides that 5% dividends tax may be levied in respect of this dividend.) The remaining 30 000 shares are held by natural persons who are all South African residents. Required: 1.1 With reference to Matter 1, discuss, with reasons and supporting calculations, the VAT implications for ACS Marketing for January 2021 - February 2021. (15 marks) 1.2 With reference to Matter 2, calculate the dividend tax implications in respect of all the given transactions. Indicate the person liable for such dividends tax as well as the date by which such liability will have to be paid. (10 marks) 1.3 With reference to Matter 3, calculate and discuss the amount that CDE Industries (Pty) Ltd will pay to the company's shareholders. In the case where dividend tax is not payable, provide a reason. (15 marks) HTAX331-1-Jul-Dec2021-SA1-MS-V3-26102021 Competency Framework Reference: VII-2.1 Calculates normal tax (This applies to natural and non-natural persons:) Identifies and determines the components of taxable income. This includes classification of income from different sources