Question

$1$

$($

$2$

$5$

$$Marks

$)$

INFORMATION:

As per the last testament of the Late Mr Liam Jackson, a testamentary trust was established and on the date of his death, all assets were transferred to this trust.

His will stipulates that the income derived from the assets should be divided as follows:

$$

$4$

$5$

$\%$

$$of the gross rentals to my daughter Ava

$$

$$The remainder to my son, James

$$

$$The trustee shall apply

$3$

$3$

$1$

$/$

$3$

$\%$

$$of the gross interest on the investment towards the maintenance and welfare of James and Ava in such proportions as they deem fit

$$

$$Subject to the above, all other income shall be set aside and accumulated for the benefit of my grandchildren.

The following information was provided for the

$2$

$0$

$2$

$2$

$$year of assessment:

INCOME

$$

$$Rent

$7$

$2$

$5$

$0$

$0$

$0$

$$

$$Interest on investment

$3$

$5$

$0$

$0$

$0$

$0$

BEQUEST OF RENT

$$

$$Ava

$4$

$5$

$\%$

$$of rental

$$

$$James remainder of rental

TRUSTEE REMUNERATION

$$

$$On rent

$3$

$2$

$5$

$0$

$0$

$$

$$On interest

$2$

$2$

$5$

$0$

$0$

DISCRETIONARY PAYMENTS

$$

$$Ava

$7$

$0$

$0$

$0$

$0$

$$

$$James

$9$

$0$

$0$

$0$

$0$

Neither Ava nor James have received any other income. Both are South African residents and under the age of

$6$

$5$

$.$

REQUIRED:

Calculate the taxable income of all the relevant parties for the

$2$

$0$

$2$

$2$

$$year of assessment.

Question

$2$

$($

$5$

$$Marks

$)$

INFORMATION

Ben, a farmer, had farming income amounting to R

$1$

$5$

$0$

$0$

$0$

$0$

$$for the

$2$

$0$

$2$

$2$

$$year of assessment, before taking any livestock on hand into account. The value of the livestock on hand was as follows:

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Step $1$

Question $1$: Calculation of Taxable Income

Information Given:

Gross Rentals: R$725,000$

Gross Interest: R$350,000$

Trustee Remuneration on Rent: R$32,500$

Trustee Remuneration on Interest: R$22,500$

Discretionary Payments to Ava: R$70,000$

Discretionary Payments to James: R$90,000$

Step$-$by$-$Step Calculation:

Rental Income Distribution:

Gross Interest Allocation:

Trustee Remuneration:

Net Rentals after Trustee Remuneration:

Ava: $326,250($no trustee remuneration deduction for Ava$)$

Net Interest after Trustee Remuneration:

Discretionary Payments:

Ava: R$70,000($from maintenance and welfare allocation$)$

James: R$90,000($from maintenance and welfare allocation$)$

Taxable Income Calculation:

Ava's Taxable Income:

From Rental: R$326,250$

From Discretionary Payments: R$70,000$

James' Taxable Income:

From Rental: R$366,250$

From Discretionary Payments: R$90,000$

Trust's Taxable Income:

From Accumulated Interest: R$210,833$

Explanation:

The calculation of taxable income involves determining the amounts allocated to each beneficiary and the testamentary trust based on the stipulations in the will of the Late Mr$.$ Liam Jackson. The trust receives rental income and interest on investments, both of which are divided among the beneficiaries and the trust according to specified percentages.

Supporting Statements:

Rental Income Distribution: The will stipulates that $45\%$ of the gross rental income is allocated to the daughter, Ava, while the remaining amount goes to the son, James.

Gross Interest Allocation: According to the will, $331/3\%$ of the gross interest from investments is used for the maintenance and welfare of Ava and James, in proportions determined by the trustee. The remainder of the interest is accumulated for the benefit of the grandchildren.

Trustee Remuneration: The trustee charges a remuneration fee on both rental income and interest income. This fee is deducted from the respective gross amounts before calculating the net income available for distribution.

Discretionary Payments: Discretionary payments made to Ava and James from the allocated interest for their maintenance and welfare are included in their taxable income.

Taxable Income Calculation: Ava's taxable income includes her share of the rental income and the discretionary payment received. James' taxable income includes his share of the rental income and the discretionary payment received. The trust's taxable income comprises the net interest income after deductions for trustee remuneration and the allocated maintenance amount.

Step $2$

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