nvq/svq level 4 in accounting preparing personal taxation ... · nvq/svq level 4 in accounting...

SA 6020

154 Clerkenwell Road, London EC1R 5AD, UK Tel: +44 (0)20 7837 8600 Fax: +44 (0)20 7837 6970

© AAT

PTC-SA

NVQ/SVQ Level 4 in Accounting

Preparing Personal Taxation

Computations – South Africa

(PTC-SA) (2003 standards)

Thursday 15 June 2006 (afternoon)

EXAMINATION

Time allowed — 3 hours plus 15 minutes’ reading time

Please complete the following information in BLOCK CAPITALS. You must give

your student member number below. If you do not, your paper may not be marked.

Student Member Number Desk number.........................

Approved Assessment Centre Code Date....................……...........

Approved Assessment Centre Name............................................................................................

Important:

This exam paper is in two sections. You should complete all tasks in both sections.

We recommend that you use the 15 minutes’ reading time to study the exam paper fully and

carefully so that you understand what to do for each task. However, you may begin to write

your answers within the reading time, if you wish.

We strongly recommend that you use a pen rather than a pencil.

You may not use programmable calculators or dictionaries in the exam.

Do NOT open this paper until instructed to do so by the Supervisor.

\

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You may use this page for your workings

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This page is perforated. You may remove it for easy reference.

TAXATION TABLES FOR PERSONAL TAX – 2005/06

TAX TABLES FOR THE YEARS OF ASSESSMENT ENDING 28 FEBRUARY 2006

Taxable Income Rates of Tax

Where the taxable income –

does not exceed R80,000………… 18 % of each R1 of the taxable income

R80,001 but does not exceed R130,000 R14,400 plus 25 % of the amount over R80,000




exceeds R300,001……………….. R86,000 plus 40 % of the amount over R300,000

RATING FORMULAE

++−+=

)( GLCDB

FR

REBATES 2006

Primary rebate R6,300

Secondary rebate (Over 65) R4,500

INTEREST EXEMPTION

Under 65 R15,000

Over 65 R22,000

DONATIONS RATE 20%

VAT 14%

INTEREST OFFICIAL RATE 8%

INTEREST PRESCRIBED RATE – UNDERPAYMENT 10.5%

INTEREST PRESCRIBED RATE – OVERPAYMENT 6.5%

CAPITAL GAINS TAX ANNUAL EXCLUSION R10,000

)()()(

RLLBLCDB

AY ×+

−×

+−+=

4


TRAVEL ALLOWANCE TABLE

For years of assessment commencing on or after 1 March 2000

Value of the vehicle

(including VAT but

excluding finance

charges or interest)

Fixed Cost Fuel Cost Maintenance

Cost

R R p.a. c/km c/km

0 - 30,000 16,196 23.1 17.1

30,001 - 35,000 18,984 23.5 17.3

35,001 - 40,000 21,051 23.8 17.8

40,001 - 45,000 23,116 24.3 18.5

45,001 - 50,000 25,197 24.8 19.2

50,001 - 55,000 27,670 25.3 19.9

55,001 - 60,000 29,778 25.5 20.6

60,001 - 70,000 33,873 25.9 21.3

70,001 - 80,000 38,102 26.1 22.2

80,001 - 90,000 40,538 26.3 22.7

90,001 - 100,000 44,535 26.5 23.4

100,001 - 110,000 48,533 26.8 24.1

110,001 - 120,000 51,110 27.5 24.8

120,001 - 130,000 54,990 28.1 25.5

130,001 - 140,000 58,803 28.9 26.2

140,001 - 150,000 62,677 29.4 26.9

Notes:

• The fixed cost must be reduced on a pro-rata basis if the vehicle is used for

business purposes for less than a full year.

• Where the value of the vehicle exceeds R150 000:

-

The fixed cost is the sum of R62,677 plus and amount of R3,874 for every

R10,000 or part thereof, by which the value of the vehicle exceeds R150,000

- The fuel cost is 29,4 cents per kilometre, and

- The maintenance cost is 26,9 cents per kilometre.

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SCHEDULE TO PRACTICE NOTE NO 19

WRITE-OFF PERIODS ACCEPTABLE TO INLAND REVENUE

Item Period of write-off Item Period of write-off (number of years) (number of years)

Adding machines 6 Milling machines 6 Air conditioners (window type, moving parts only) 6 Mobile caravans 5 Aircraft: Light passenger/commercial/helicopters 4 Mobile cranes 4 Arc welding equipment 6 Mobile refrigeration units 4 Balers 6 Motorcycles 4 Battery chargers 5 Motorised chain saws 4 Bicycles 4 Motorised concrete mixers 3 Bulldozers 3 Motor mowers 5 Burglar alarms (removable) 10 Musical instruments 5 Calculators 3 Neon signs and advertising boards 10 Cash registers 5 Ovens and heating devices 6 Cellular telephones (practice note 39 – 1995) 3 Ovens for heating food 6 Cheque writing machines 6 Oxygen concentrators (practice note 39 – 1995) 3 Cinema equipment 5 Paintings (valuable) 25 Cold drink dispensers 6 Pallets 4 Compressors 4 Passenger cars 5 Computers (main frame) 5 Patterns, tooling and dies 3 Computers (personal computers) 3 Perforating equipment 6 Computers software (main frames): Photocopying equipment 5

Purchased 3 Photographic equipment 6 Self-developed 1 Planers 6

Computers software (personal computers) 2 Pleasure craft etc. 12 Concrete transit mixers 3 Portable concrete mixers 4 Containers (practice note 39 – 1995) 5 Ploughs 6 Crop sprayers 6 Portable generators 5 Curtains 5 Portable safes 25 Debarking equipment 4 Power tools (hand operated) 5 Delivery vehicles 4 Public address systems 5 Demountable partitions 6 Race horses (practice note 39 – 1995) 4 Dental and doctors equipment 5 Radio communication equipment 5 Dictaphones 3 Refrigerated milk tankers 4 Drilling equipment (water) 5 Refrigeration equipment 6 Drills 6 Refrigerators 6 Electric saws 6 Runway lights (practice note 39 – 1995) 5 Electrostatic copiers 6 Sanders 6 Engraving equipment 5 Scales 5 Excavators 4 Security systems (practice note 39 – 1995) 5 Fax machines 3 Seed separators 6 Fertiliser spreaders 6 Sewing machines 6 Fire extinguishers (loose units) 5 Shop fittings 6 Fishing vessels 12 Solar energy units 5 Fitted carpets 6 Special patterns and tooling 2 Fork-lift trucks 4 Spin dryers 6 Front-end loaders 4 Spot welding equipment 6 Furniture and fittings 6 Staff training equipment 5 Gantry cranes 6 Stainless steel containers (transport of liquids) 5 Garden irrigation equipment (movable) 5 Surveyors: Gas cutting equipment 6 Instruments 10 Gas heaters and cookers 6 Field equipment 5 Gear shapers 6 Tape-recorders 5 Graders 4 Telephone equipment 5 Grinding machines 6 Television and advertising films 4 Guillotines 6 Television sets, video machines and decoders 6

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Gymnasium equipment 10 Textbooks 3 Hairdressers equipment 5 Tractors 4 Harvesters 6 Trailers 5 Heat dryers 6 Traxcavators 4 Heating equipment 6 Trucks (heavy duty) 3 Hot water systems (practice note 39 – 1995) 5 Trucks (other) 4 Incubators 6 Truck mounted cranes 4 Ironing and pressing equipment 6 Typewriters 6 Kitchen equipment 6 Vending machines (incl. video game machines) 6 Knitting machines 6 Video cassettes 2 Laboratory research equipment 5 Washing machines 5 Lathes 6 Water distillation and purification plant 12 Laundromat equipment 5 Water tankers 4 Law reports (legal practitioners) – p/note 39 5 Water tanks 6 Lift installations (goods) 12 Weighbridges (movable parts) 10 Lift installations (passengers) 12 Workshop equipment 5 Medical theatre equipment 6 X-ray equipment 5

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This exam paper is in TWO sections. You must show competence in BOTH sections.

You should therefore attempt and aim to complete EVERY task in EACH section.

You should spend about 90 minutes on Section 1 and about 90 minutes on Section 2.

Blank space for workings is available on pages 2, 13, 26 and 27, but all essential

calculations should be included within your answers, where appropriate.

SECTION 1

DATA

You work in the tax department of a firm of Chartered Accountants.

One of the clients, Brian Parker, has supplied the following information for the tax year of

assessment ended 28 February 2006:

1. He works as an Accounts Manager for House of Lewis, with an annual salary of

R270,000, from which PAYE had been deducted of R70,580.

2. Brian does not have the use of a company car. Instead, he uses his own for business

purposes, which originally cost R100,000 including VAT. During 2005/06, he

travelled for 20,000 kilometres for the year. Brian does not keep a record of expenses

incurred. He receives a travel allowance of R5,000 per month.

3. Brian is allowed to live rent-free in one of the company’s flats. The fringe benefit

formula value of the flat is R14,000, and it cost R1,800,000 when bought new. House

of Lewis pays all the running costs of the flat, which amount to R18,000 per year.

4. Brian has received South African dividends of R1,908 during 2005/06.

5. House of Lewis does not offer any retirement scheme, so Brian pays an amount of

R3,500 per month into retirement annuity fund. The employer accepts the RAF

contribution for the purposes of employees tax.

6. During 2005/06, Brian paid R195 to a local charity, which qualifies as a Part II of the

9th

Schedule Public Benefit Organisation.

7. Brian owns two fully furnished flats. Each flat is rented out at R4,000 per month,

payable quarterly in advance. The tenant in one of the flats left suddenly without

paying the rent for December 2005, January and February 2006. Brian does not think

he will be able to recover this debt, and did not rent out the flat again until April 2006.

Brian pays no running costs for either flat, and has claimed the wear and tear

allowance on the furnishings and fittings for the last two years. The furnishings have

an original cost of R150,000.

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Task 1.1

Calculate the net taxable rental income for 2005/06.

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Task 1.2

Calculate the cash equivalent of the fringe benefits for 2005/06.

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Task 1.3

Prepare a computation of taxable income for 2005/06, clearly showing any inclusion,

exemption or applicable deduction.

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Task 1.4

Calculate the tax payable for 2005/06.

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Task 1.4, continued

Note: You may not need all these lines for your answer.

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Task 1.5

As far as possible given the information available, complete the tax return on page 12.

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ADDITIONAL DATA

You receive the following e-mail from Brian Parker.

From: [email protected]

To: [email protected]

Sent: 13 June 2006

Subject: Company car

I have just had the great news that I am going to be promoted. My salary will increase and

my employers say they will offer me a company car. However, as you know, I currently use

my own car for business usage.

I have been told that the car would cost R150,000 (including VAT). I will need to pay all the

running costs of the car, including all the fuel.

As I currently pay the running costs on my private car, this seems all right. However, I am

concerned about the cost involved in having to pay for all the fuel, because if I take the

company car I will no longer receive the travel allowance. As you know, I do about 20,000

kilometres a year.

As I see it, I have two options. I can either accept the company car, or continue using my

own car and claim a reduction on the travel allowance. I understand how the travel

allowance works, but I don’t understand how company cars are taxed.

Please explain to me how company cars are taxed, and the amount of tax I would pay under

each option. This is particularly important, as the salary increase will mean that I will be

paying tax in the 40% bracket.

I hope you can help.

Russell

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Task 1.6

Reply to Brian Parker’s e-mail, assuming that all tax rates are the same in 2006/07 as

for 2005/06.

From: [email protected] To: [email protected]

Sent: 15 June 2006

Subject: Company car

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This space is for the continuation of your e-mail. You may not need all the lines.

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Task 1.7

Confidentiality is a crucial element of accounting and taxation affairs.

Briefly explain why client confidentiality is so important.

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SECTION 2

DATA

One of your firm’s clients, Ally Jones, has had the following capital transactions during the

2006 year of assessment ended February:

1. Shares:

Ally has had the following transactions in her shares in Granite Ltd and has yet to elect the

Weighted Average Method or the first-in-first-out (FIFO) method to account for the shares:

BOUGHT Number of Shares Cost R

May 2002 1,000 6,550

May 2003 2,000 28,400

July 2004 Rights Issue, 1 for 4 R6 each

DISPOSED Number of Shares Proceeds R

January 2003 500 4,125

November 2005 3,000 63,900

2. Painting:

In October 2001, Ally bought a painting for R19,500. It was damaged on New Year’s Eve,

so she sold it in February 2006 for R14,500.

3. Land:

In August 2002, Ally bought six acres of land for R1,200,000. She sold two acres of the land

for R600,000 in February 2006, when the remaining four acres were valued at R1,300,000.

Other relevant information:

Ally’s only income is trading profits of R250,000.

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Task 2.1

Calculate the capital gain or capital loss made on the disposal of the shares in Granite

Ltd using both the Weighted Average Method and the FIFO method, and stating which

is more beneficial to Ally. Further state whether any exclusions, roll-overs or loss

limitation apply. Provide for both methods the balance of shares base cost to be carried

forward for future disposals.

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Task 2.1, continued

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Task 2.2

Calculate the capital gain or capital loss made on the disposal of the painting and state

whether any exclusions, roll-overs or loss limitation apply. ___________________________________________________________________________

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Task 2.3

Calculate the capital gain or capital loss made on the disposal of the land. ___________________________________________________________________________

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Task 2.4

Calculate the taxable capital gain for the year 2005/06.

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Task 2.5

(a) Calculate the total income tax liability for 2005/06.

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(b) Assuming an aggregate capital gain of R50,000 and an assessed capital loss brought

forward of R80,000 from Task 2.4, show the effect that this information would have

on Ally’s taxable liability.

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ADDITIONAL DATA

You arrived at work this morning to find a message on your voicemail from Ally. She

sounded concerned. You summarise her message as:

Ally has two houses, A and B. She bought, and moved straight into, House A in March 1995

at a cost of R2,400,000. By the end of 2003, she wanted to move house, but couldn’t sell it.

Eventually, she moved into House B in October 2004. Now (June 2006) she has just had an

offer of R3,600,000 for House A and hopes to finally sell it. However, House A hasn’t been

lived in since she moved into House B. A friend of Ally has told her that you don’t pay tax

on your home, but that can only apply to one house. Ally is now worried that she will need to

pay tax on the R1,200,000 economic profit she has made on House A. The time apportioned

base cost is R3,100,000 and the market value on 1 October 2001 was R3,000,000.

Task 2.6

List the points that you will need to make to Ally before you ring her back with your

response to her message.

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NVQ/SVQ qualification codes

Technician (2003 standards) - 100/2942/4 / G794 24

Unit number (PTC) - M/101/8116

© AAT 06.06

154 Clerkenwell Road, London EC1R 5AD, UK Tel: +44 (0)20 7837 8600 Fax: +44 (0)20 7837 6970

E-mail: [email protected] Website: http:/www.aat.org.uk

nvq/svq level 4 in accounting preparing personal taxation ... · nvq/svq level 4 in accounting...

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