QUESTION 1 (62 marks) Grace, a 64-year-old South African resident, has been a full-time employee at Stellar Enterprises ('Stellar') since 1999. Stellar is a major player in the financial services sector. The following information relates to Grace's 2024 year of assessment: 1. Employment income: Grace earned a salary of R50 000 per month. 2. Bonus: She received an annual performance bonus of R50 000. 3. Long service award: Grace received a long service award of R25 000 from Stellar in recognition of her 25 years of unbroken dedicated service. 4. Restraint of trade: Grace's employment contract with Stellar specifies that she cannot start a financial advisory business or work part-time for a competing firm. Her employer has paid her R200 000 for the restraint of trade. 5. Pension contributions: Stellar and Grace each contributed 3.5% of her salary to the pension fund monthly up until the day she retired. Grace, who decided to retire on 31 December 2023 received the following lump sum payments: o Pension fund lump sum: R750 000 o Monthly annuity (from 1 January 2024): R15 000 6. Leave pay: Grace received R15 000 for her unused leave days. 7. Medical expenses: Grace is the primary member of the HealthPlus Medical Scheme and is the sole member of her medical aid plan. During the 2024 year of assessment, Grace contributed R2 300 per month, while her employer, Stellar, contributed R2 200 per month on her behalf. Grace incurred qualifying medical expenses totalling R50 000, with R10 000 reimbursed by the medical aid. After retiring, Grace continued her contributions, paying the full amount of R4 500 per month from 1 January 2024. 8. Capital gain: Grace sold a piece of property, realising a taxable capital gain of R100 000. 9. Interest income: She earned R5 000 in interest from her savings account with a local South African bank. 10.Accommodation: Stellar provided Grace with temporary residential accommodation in Gauteng from 1 September 2023 to 30 September 2023 for the time she had to be in Rosebank, Johannesburg to attend conferences on behalf of Stellar. Stellar rented a furnished 4-bedroom apartment for Linda at a ANNEXURE I: FORMATIVE ASSESSMENT 2 95 HTAX230-1-Jul-Dec2024-FA2-AP-V3-30072024 cost of R30 000 for the month. Stellar also covered the electricity expense of R2 000. Grace's remuneration proxy for the 2024 year of assessment is R600 000. 11.Maintenance payment: During the 2023 year of assessment, Grace's husband filed for divorce, resulting in a maintenance order requiring his retirement fund to pay Grace a monthly maintenance of R6 000. 12.Donation: On 1 February 2024, Grace donated R27 000 to the Hope Foundation, a qualifying Section 18A Public Benefit Organisation. Stellar paid employees tax amounting to R200 000 during the 2024 year of assessment. REQUIRED: 1.1 Calculate Grace's taxable income for the 2024 year of assessment as per the appropriate tax framework applicable to natural persons. Include the applicable section of the Income Tax Act as part of your answer and show all calculations. Round to the nearest Rand, where applicable. If an amount is excluded, state this fact and provide a brief reason for your answer. (40 marks) 1.2 Calculate Grace's tax liability for the 2024 year of assessment. Assume that the taxable income is as follows: R750 000 for Retirement fund lump sum benefits (RFLB) - column 1 R900 484 for other Income and deductions - column 3 (22 marks) ANNEXURE I: FORMATIVE ASSESSMENT 2 96 HTAX230-1-Jul-Dec2024-FA2-AP-V3-30072024 SAICA Competency Framework Reference: E1.2 Interpretation of tax legislation b) Demonstrate the ability to apply the principles of tax interpretation to any new or unfamiliar tax legislation. E1.3 Application of tax legislation to calculate tax obligation a) Analyse the taxpayer's tax profile. b) Analyse the transaction or event, identify the profile of the interacting parties and identify and explain taxes and anti-avoidance provisions of possible application. c) Apply the relevant law to the facts, determine the tax position and compute the tax payable (VAT or normal tax) for individuals and companies. E2.1 Compliance with laws and regulations b) Identify and describe the implications of applicable laws and regulations on the organisation. Y3 Problem-solving a) Use a questioning mindset during problem identification and analysis. b) Weigh the relevance and accuracy of information, challenge assumptions, and probe for detail. Y5 Professional scepticism a) Obtain and understand the information in order to challenge views developed by others. b) Evaluate the integrity of the information, its source, and the appropriateness of the presentation. ANNEXURE I: FORMATIVE ASSESSMENT 2 97 HTAX230-1-Jul-Dec2024-FA2-AP-V3-30072024 QUESTION 2 (23 marks) Liam is a 26-year-old South African resident. Liam is employed by Green Solutions (Pty) Ltd and has been with the company since 1 February 2020. Green Solutions (Pty) Ltd provided you with the following information to calculate Liam's employees' tax liability for February 2024: He received a monthly salary of R40 000. He was granted a loan of R35 000 on 1 December 2023. The loan bears interest at 5% per annum and is repayable on 30 November 2024. (Assume an official interest rate of 8%.) He received a travel allowance of R12 000 per month from 1 February 2024. Liam used his own vehicle, purchased for R300 000 (excluding VAT) in December 2023. He travelled 2 500 km in total, with 1 800 km recorded for business purposes during the month of February 2024 but did not keep accurate records of costs incurred. Liam does keep an accurate logbook of private and business travel. REQUIRED: Calculate Liam's employee's tax liability for February 2024 that Green Solutions (Pty) Ltd would need to withhold from his salary. Round all answers to the nearest Rand. (23 marks) ANNEXURE I: FORMATIVE ASSESSMENT 2 98 HTAX230-1-Jul-Dec2024-FA2-AP-V3-30072024 SAICA Competency Framework Reference: C8.1 Tax implications for selected aspects of decision-making e) Advise on the tax consequences of different compensation structures and remuneration packages from the perspective of both the employer and the employee. E1.2 Interpretation of tax legislation b) Demonstrate the ability to apply the principles of tax interpretation to any new or unfamiliar tax legislation. E1.3 Application of tax legislation to calculate tax obligation a) Analyse the taxpayer's tax profile. c) Apply the relevant law to the facts, determine the tax position and compute the tax payable (VAT or normal tax) for individuals and companies. E2.1 Compliance with laws and regulations b) Identify and describe the implications of applicable laws and regulations on the organisation. Y3 Problem-solving a) Use a questioning mindset during problem identification and analysis. b) Weigh the relevance and accuracy of information, challenge assumptions, and probe for detail. Y5 Professional scepticism a) Obtain and understand the information in order to challenge views developed by others. b) Evaluate the integrity of the information, its source, and the appropriateness of the presentation. ANNEXURE I: FORMATIVE ASSESSMENT 2 99 HTAX230-1-Jul-Dec2024-FA2-AP-V3-30072024 QUESTION 3 (15 marks) You are a consultant at a tax advisory firm, assisting clients with various tax matters, including personal income tax calculations, submission of income tax returns, provisional tax calculations, and their submissions. The following information relates to one of your clients: Anna is a 58-year-old South African resident and a provisional taxpayer. Anna provided you with the following information for her 2024 year of assessment: Estimated taxable income R850 000 First provisional tax payment R120 000 Second provisional tax payment R40 000 Monthly employees' tax deduction R8 000 REQUIRED: Assume that Anna's final assessment shows a taxable income of R1 000 000 for the 2024 year of assessment. Her basic amount was R950 000. Discuss and include calculations, where applicable, if Anna will be liable to pay any penalties with regard to her second provisional tax payment. Remember to first state the relevant requirements of the Fourth Schedule to the Income Tax Act, whereafter you apply the requirements to the facts of the scenario. Support your answer with references to the Income Tax Act and show all calculations. (15 marks) ANNEXURE I: FORMATIVE ASSESSMENT 2 100 HTAX230-1-Jul-Dec2024-FA2-AP-V3-30072024 SAICA Competency Framework Reference: E1.4 Application of tax legislation to comply with administrative provisions a) Identify and describe the different administrative obligations and remedies of a taxpayer. I1 Personal ethics a) Act honestly and demonstrate integrity, accountability and trustworthiness whilst interacting with others. b) Carry out work in a manner that protects public interest, the client, employer, and other relevant stakeholders, and put these before one's own interest. I2 Business ethics c) Display ethical behavior whilst interacting with the organisation's stakeholders. I3 Professional ethics g) By way of general conduct, demonstrate a commitment to the ethical values upheld by the profession. E1.3 Application of tax legislation to calculate tax obligation a) Analyse the taxpayer's tax profile. c) Apply the relevant law to the facts, determine the tax position and compute the tax payable (VAT or normal tax) for individuals and companies. ANNEXURE I: FORMATIVE ASSESSMENT 2 101 HTAX230-1-Jul-Dec2024-FA2-AP-V3-30072024 ADDENDUM A: TAX INFORMATION 2024 tax year (1 March 2023 - 29 February 2024) Tax Rebates 2024 Primary R17 235 Secondary (65 and older) R9 444 Tertiary (75 and older) R3 145 Medical Aid Tax Credits 2024 Main member R364 Taxpayer and first dependent R728 Each additional dependent R246 Taxable Income (R) Rates of tax (R) 1 - 237 100 18% of taxable income 237 101 - 370 500 42 678 + 26% of taxable income above 237 100 370 501 - 512 800 77 362 + 31% of taxable income above 370 500 512 801 - 673 000 121 475 + 36% of taxable income above 512 800 673 001 - 857 900 179 147 + 39% of taxable income above 673 000 857 901 - 1 817 000 251 258 + 41% of taxable income above 857 900 1 817 001 and above 644 489 + 45% of taxable income above 1 817 000 ANNEXURE I: FORMATIVE ASSESSMENT 2 102 HTAX230-1-Jul-Dec2024-FA2-AP-V3-30072024 Fixed cost table: 1 March 2023 - 29 February 2024 Value of the vehicle (including VAT) (R) Fixed cost Fuel cost (c/km) Maintenance cost (c/km) (R p.a.) does not exceed R100 000 33 760 141.5 43.8 exceeds R100 000 but does not exceed R200 000 60 329 158.0 54.8 exceeds R200 000 but does not exceed R300 000 86 958 171.7 60.4 exceeds R300 000 but does not exceed R400 000 110 554 184.6 65.9 exceeds R400 000 but does not exceed R500 000 134 150 197.6 77.5 exceeds R500 000 but does not exceed R600 000 158 856 226.6 91.0 exceeds R600 000 but does not exceed R700 000 183 611 230.5 102.1 exceeds R700 000 but does not exceed R800 000 209 685 234.3 113.1 exceeding R800 000 209 685 234.3 113.1 Retirement Lump Sum Benefit Table Taxable Income from benefits (R) Rates of tax (R) 1 - 550 000 0% of taxable income 550 001 - 770 000 18% of taxable income above 550 000 770 001 - 1 155 000 39 600 + 27% of taxable income above 770 000 1 155 001 and above 143 550 + 36% of taxable income above 1 155 000 Reimbursive travel allowance 464 cents ANNEXURE I: FORMATIVE ASSESSMENT 2 103 HTAX230-1-Jul-Dec2024-FA2-AP-V3-30072024 Retirement Lump Sum Withdrawal Benefit Table Taxable Income from benefits (R) Rates of tax (R) 1 - 27 500 0% of taxable income 27 501 - 726 000 18% of taxable income above 27 500 726 001 - 1 089 000 125 730 + 27% of taxable income above 726 000 1 089 001 and above 223 740 + 36% of taxable income above 1 089 000 2023 2024 Primary rebate for natural persons R16 425 R17 235 Secondary rebate (65 years or older) R9 000 R9 444 Tertiary rebate (75 years or older) R2 997 R3 145 Tax threshold for individuals under 65 years of age R91 250 R95 750 Tax threshold for individuals under 65 years or older R141 250 R148 217 Tax threshold for individuals under 75 years or older R157 900 R165 689 Travel allowance subject to PAYE 80% 80% Excess of reimbursive travel allowance subject to PAYE above R4.18 above R4.64 Fringe benefit - Company car without maintenance plan 3.5% 3.5% Fringe benefit - Company car with maintenance plan 3.25% 3.25% Donations tax rate (first R30 million) 20% 20% Donations tax rate (above R30 million) 25% 25% Estate duty levied (first R30 million) 20% 20% Estate duty levied (above R30 million) 25% 25% Residential accommodation abatement R91 750 R95 750