Unless otherwise specified, only the following rules for taxation of corporate profits will be relevant, other taxes can be ignored

1. • Accounting rules on recognition and measurement are followed for tax purposes.
   • All expenses other than depreciation, amortization, entertaining, taxes paid to other public bodies and donations to political parties are tax-deductible.
   • Tax depreciation is deductible as follows:
   50% of additions to property, plant, and equipment in the accounting period in which they are recorded;
   25% per year of the written-down value (i.e. cost minus previous allowances) in subsequent accounting periods except that in which the asset is disposed of;
   No tax depreciation is allowed on land;
   • The corporate tax on profits is at a rate of 28%.
   • No indexation is allowable on the sale of land.
   • Tax losses can be carried forward to offset future taxable profits from the same business.
   Value Added Tax
   Country X has a VAT system which allows entities to reclaim input tax paid.
   In country X the VAT rates are:
   Zero rated 0%
   Standard rated 15%
   Exempt goods 0%
2. Lerato, is 60 years of age. After having her small business, African Crafts (Pty) Ltd 40 years, she is looking to take early retirement and emigrate to an island state. The Commissioner for the South African Revenue Services (SARS) has accepted that African Crafts ((Pty) Ltd qualifies as a small business corporation for income tax purposes. Lerato has decided, anticipation of emigrating, to realize her business assets and sell her home.
   The following transactions occurred during the 2020 year of assessment:
   i)
   On 1 September 2019, Lerato sold her 51% share of African Crafts (Pty) Ltd to her fellow shareholder, Thabo (who originally held 49% of the shares) for R4 500 000. Thabo also took over Lerato’s loan to the company of R500 000. The market value of the company assets totaled R9.75 million. Lerato and Thabo started African Crafts Ltd together. The shares had been issued to Lerato for R51 and to Thabo for R49 for a total equity share capital of R100.
   ii)
   On 1 December 2019, Lerato sold her home in Sandton for R8 000 000. She had bought it on 1 May 2009 for R 2 500 000 (including all acquisition costs). From 1 June 2016 to 31 July 2017. Lerato rented her home to another family while she travelled throughout Africa sourcing new crafts for sales in her business. On returning to South Africa on 1 August 2017, she moved back into her home and has not lived anywhere else since.
   iii) The furniture n Lerato’s home was sold for R100 000. It originally cost R400 000.
3. Lerato moved to her holiday home in Plettenberg Bay while waiting to emigrate on 30 April 2020. After emigrating, her intention is to treat this as her home when she visits South Africa for four months each year. When she is not in South Africa, she will rent the home on sort-term leases.
4. 
   
5. Required:
   1. Explain whether or Lerato will be subject to capital gains tax on her Plettenberg Bay home as a result of her emigrating from South Africa.
   2. Calculate Lerato’s net taxable capital gain for the 2020 year of assessment. 
6. Notes:
   1.Your answer should show full calculations for each disposal.
   2. You should clearly explain any exclusions which apply by reference to qualifying criteria.
   3. You should your treatment of any capital losses.

Answer rating: 100% (QA)

When a small firm with a market worth of less than R10 million is disposed of persons who are at lea... View the full answer