The Waste Fighters (Pty) Ltd (“The Waste Fighters”) is a recycling company that processes recyclable waste, including paper, glass and plastic. The company is a small business corporation as defined in the Income TaxAct and the recycling of items meets the requirements of a manufacturing process. The company has a 31 March 2020 year of assessment. The junior accountant prepared the following basic income and expenditure/payments summary relating to the 2020 year of assessment: Description Note R Income Revenue 4 873 000 Dividends received from a South African company 300 000 Total interest earned 34 000 Expenditure Bad debts and list of doubtful debts 1 102 000 Capital allowances on assets and other related costs 2 ? Donation 3 25 000 Insurance 4 240 000 Penalties and interest 5 4 560 Provisional tax payments 6 360 000 Salaries, wages and other employee costs 7 1 876 000 Notes: 1. Bad debts and list of doubtful debts The bad debts and list of doubtful debts amount relate to the following items: • Bad debts in respect of irrecoverable sales is R43 000; • Bad debts in respect of a loan provided to an employee who has absconded (disappeared) is R10 000. The loan of R10 000 included interest of R2 000 that the company charged on the loan; • The list of doubtful debts for the current year is R49 000. All of the outstanding debts are older than 60 days and none of them are older than 120 days. The company does not apply IFRS9; • The doubtful debts allowance claimed for tax purposes in the prior year was R16 000. 2. Capital allowances on assets and other related costs • A new manufacturing machine was purchased on 1 October 2019 for R400 000; • A new truck purchased on 1 May 2019 for R650 000 was involved in an accident on 30 January 2020 and was subsequently scrapped; • Moving costs of R8 900 were incurred on 1 March 2020 to move office equipment from the first to the second floor of The Waste Fighters’s office building. The office equipment is fully written off for taxation purposes. 3. Donation The Waste Fighters made a donation of R25 000 to “Save the Oceans” Fund (a public benefit organisation)and received a section 18A receipt. [TURN OVER] QUESTION 2 (continued) 4. Insurance Insurance of R240 000 was paid on 2 January 2020 for a 12-month period from 2 January 2020 to 31 December 2020. 5. Penalties and interest R4 560 relates to a penalty and interest due to the late payment of provisional taxes. 6. Provisional tax payment Provisional tax payments of R360 000 were made during the year relating to the 2020 year of assessment. 7. Salaries, wages and other employee costs The salaries, wages and other employee costs consist of: • Salaries and wages: R1 180 000; • Employer contributions on behalf of employees to a pension fund: R500 000; • Bonus provision (only paid if the employee performance criteria is met, determined after year-end): R100 000; • An annuity of R96 000 for the year was paid to a former employee who worked for the company for 20 years before emigrating to New Zealand. Other information: The Waste Fighters has elected to apply the section 11(o) scrapping allowance, where applicable. 

REQUIRED: 

MARKS Calculate the income tax liability of The Waste Fighters (Pty) Ltd for the year of assessment ending 31 March 2020. You must provide a reason if you consider any amount not deductible for tax purposes.

Answer rating: 100% (QA)

To calculate the income tax liability of The Waste Fighters Pty Ltd for the year of assessment ending on 31 March 2020 we need to consider the income ... View the full answer