Bawtree $($Pty$)$ Ltd $("$Bawtree$")$ is a landscaping company based in South Africa. The company is registered for VAT. $($Ignore the impact of VAT on the following transactions$)$ The company has a $30$ April financial year$-$end.

The following transactions occurred during the $2023$ year of assessment, and Bawtree$$s accountant seeks clarification on the tax deductibility of these expenses:

$1.$ The company paid salaries of R$879000$ to employees. Employees contribute $3\mathrm{.}5\%$ of their salaries to the Landscape Pension Fund, and Bawtree matches this contribution.

$2.$ On $1$ March $2022,$ Bawtree took a loan to purchase shares in another South African company, Lawn Pro $($Pty$)$ Ltd$.$ Bawtree received dividends of R$10780$ during the $2023$ year of assessment, and the interest on the loan for the $2023$ year of assessment amounted to R$52500.$

$3.$ Legal fees of R$9600$ were recorded in the Statement of Comprehensive Income for the year of assessment ending $30$ April $2023.$ These fees were incurred to draft employment contracts with new employees.

$4.$ Bawtree also incurred a total of R$43600$ on promotional items such as drinks, snacks, and gifts for customers.

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The accountant of Bawtree has provisionally included all the expenses mentioned above as deductions against income in the income tax calculation for the year of assessment ending $30$ April $2023.$ She now seeks to determine the tax deductibility of each expense to ensure accuracy in the final tax calculation.

Options:

i$)$ Bawtree can claim a deduction of R$879000$ for salaries paid to staff in terms of section $11($a$).$

ii$)$ Bawtree can claim a deduction of R$61530$ for the total contributions made by the employee and the company to the pension fund in terms of section $11($l$).$

iii$)$ Bawtree cannot claim the interest expense of R$52500$ on the loan taken in terms of s$11($a$)$ as it is not in the production of $$income$$ as defined.

iv$)$ Bawtree can claim a deduction in terms of s$11($a$)$ for the legal fees of R$9600$ incurred to prepare employment contracts.

v$)$ Bawtree cannot claim the expenditure for promotional items of R$43600$ in terms of section $11($a$).$

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Choose the option that is FALSE in terms of the deductibility of the above expenses for the year of assessment ending $30$ April $2023.$

Question $12$Answer

a$.$

$($i$)$ and $($v$)$

b$.$

$($i$),($ii$),$ and $($iii$)$

c$.$

$($ii$),($iv$)$ and $($v$)$

d$.$

$($ii$)$ and $($iv$)$

e$.$

$($ii$)$ and $($v$)$