Association of Accounting Technicians

Exam

AAT Accounting Qualification Diploma pathway Diploma Level Preparing Personal Taxation Computations – South Africa (PTC-SA) 2003 Standards

Friday 5 December 2008 (morning)

Time allowed - 3 hours plus 15 minutes’ reading time

Please complete the following information in BLOCK CAPITALS:

Student member number Desk number

Venue code Date

Venue name

Important:

This exam paper is in two sections. You should try to complete every task 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. This exam paper is in TWO sections.

You must show competence in BOTH sections. So, try to complete EVERY task in BOTH sections.

Section 1 contains 7 tasks and Section 2 contains 6 tasks.

You should spend about 90 minutes on each section.

There is blank space for your workings on pages 8 and 12, but you should include all essential workings and calculations in your answers.

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

Taxation tables for personal tax – 2007/08

Tax rates:

Taxable income Rate of tax R0 – R112,500 18% of each R1 R112,501 – R180,000 R20,250 plus 25% of the amount over R112,500 R180,001 – R250,000 R37,125 plus 30% of the amount over R180,000 R250,001 – R350,000 R58,125 plus 35% of the amount over R250,000 R350,001 – R450,000 R93,125 plus 38% of the amount over R350,000 R450,001 + R131,125 plus 40% of the amount over R450,000

Rebate: R Primary rebate 7,740 Secondary rebate (over 65) 4,680

Interest exemptions

Under 65 18,000 Over 65 26,000 For each, first R3,000 of the exemption is applicable to foreign dividends and foreign interest

Car allowance

Maximum deemed kms 32,000 Deemed private kms 18,000

Maximum vehicle cost for actual expenses 360,000

Deemed expenditure table (see next page)

Fringe benefit (company car)

Benefit percentage 2.5% Reduction for all private fuel paid 0.22% Reduction for all maintenance paid 0.18%

Medical tax-free monthly contributions

Single member 530 Member plus one dependent 1,060 Each additional dependent 320

SARS official rate 11%

Capital gains tax:

Annual exclusion R15,000

Primary residence exclusion R1,500,000

Inclusion rate 25%

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

Travel allowance deemed expenditure table

For years of assessment commencing on or after 1 March 2006

Value of vehicle (including VAT but Maintenance Fixed cost Fuel cost excluding finance charges or interest) Cost

R R p.a. c/km c/km 0 - 40 000 15,364 47.3 22.5 40,001 - 60 000 20,910 49.4 26.2 60,001 - 80 000 25,979 49.4 26.2 80,001 - 100 000 31,513 54.8 30.5 100,001 - 120 000 36,978 54.8 30.5 120,001 - 140 000 41,771 54.8 30.5 140,001 - 160 000 47,512 57.2 39.8 160,001 - 180 000 52,629 57.2 39.8 180,001 - 200 000 58,334 65.9 43.8 200,001 - 220 000 64,591 65.9 43.8 220,001 - 240 000 69,072 65.9 43.8 240,001 - 260 000 74,777 65.9 43.8 260,001 - 280 000 79,918 69.3 52.5 280,001 - 300 000 85,440 69.3 52.5 300,001 - 320 000 88,793 69.3 52.5 320,001 - 340 000 95,218 69.3 52.5 340,001 - 360 000 100,011 77.1 68.0 Exceeds R360,001 100,011 77.1 68.0

Reimbursement based on actual business kilometres travelled and no other compensation is paid to such employee, kilometres travelled for business does not exceed 8 000, prescribed rate is R2.46 per kilometre.

Residential fringe benefit:

B = R43,000 C = 17% or 18% or 19%

Section 10(1)(x) Exemption is R30,000

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

Section 1

Data

You work in the tax department of a small firm of chartered accountants.

You have received the following information from Mahmood, a client, for 2007/08.

1. Mahmood worked for a large company as the Marketing Manager until 1 December 2008, receiving a gross annual salary of R420,000. On 1 December 2007, he was promoted to Marketing Director, receiving a gross annual salary of R550,000.

2. During 2007/08 the total amount of PAYE deducted from Mahmood’s salary was R117,457.

3. When he was promoted to the position of Marketing Director, he was entitled to any car he wanted to use as his company car, provided it cost no more than R455,712. He chose a Nissan Pathfinder, which cost R476,000, with CO2 emissions of 264. It has a petrol engine. The difference in price was met by Mahmood. He also paid all the running costs of the car. Use of the car was supplied from 1 December 2008.

4. While Mahmood was a Marketing Manager, he paid 4% of his gross salary into the company’s pension scheme. When he became the Marketing Director, his contribution increased to 6%. Throughout the year, the company paid 8% of his salary into the same scheme.

5. During 2007/08, Mahmood also made monthly payments of R2,000 into a retirement annuity fund (RAF).

6. In October 2005, Mahmood bought two flats that he rents out. Flat A is fully furnished and he charges a monthly rent of R5,000. This flat was fully occupied during 2007/08 and Mahmood’s only expense is R1,500 for annual insurance. Flat B is unfurnished, so he charges R3,800 per month. Flat B was only occupied for 8 months of 2007/08 and Mahmood had no expenses to pay. The furniture in Flat A originally cost R54,000 in October 2005. The Commissioner allows wear and tear over 6 years for furniture and fittings.

7. Mahmood received other gross income of:

R Bank account savings interest 1,448 SA Dividends 1,980 Interest from an investment savings account 4,560

5 Note: This page is intentionally blank. You should NOT use it for your workings.

6 Task 1.1

Calculate the total fringe benefits for the year of assessment ending 29 February 2008.

Task 1.2

Calculate the taxable income from the employment trade for the year of assessment ended 29 February 2008.

7 Note: You may use this page for your workings.

8 Task 1.3

Calculate the taxable income from the property rental trade for the year of assessment ending 29 February 2008.

Task 1.4

Calculate the taxable income for the year of assessment ending 29 February 2008.

9 Task 1.5

Calculate the normal income tax payable for the year of assessment ending 29 February 2008.

Data

The following letter was included with Mahmood’s information.

1 Horse Lane Trotter Estate Constantia 7806 28 November 2008

Dear Practitioner

Please find enclosed all the information that I think you will need to complete my tax return.

However, I have never had to complete a tax return before, and as the tax year ended some months ago, I am a little concerned that I may have missed a crucial deadline. My form showed two dates, namely an issue date of 2 May 2008 and a due date of 31 October 2008. I also read in the press that individuals who use “e- filing” can submit their returns by 31 January 2009. I am very confused by these dates.

Also, as part of my promotion to Marketing Director, I will be working in the Johannesburg office for a month (I am normally based in Cape Town). While there, I will be able to use the company’s house to live in, free of charge. This is quite an expensive house and the company says that I will not need to pay for anything. Whilst this sounds nice, I am worried that SARS might charge me tax on this benefit.

Any advice on either of these areas would be much appreciated.

Regards Mahmood

10 Task 1.6

Explain the key dates in the letter above to Mahmood that relate to his annual return.

Task 1.7

Advise Mahmood on the tax implications (if any) of the provision of accommodation by his employer.

11 Note: You may use this page for your workings.

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

Section 2

Data

Another client, Barbara, had several capital assets. These were:

 shares in Wood Ltd  shares in Forest Ltd  a painting  many small, but quite valuable, antiques  her house

Barbara is 55 and wants to retire to Franschhoek next year. In preparation for her move, she has sold some of her assets, as follows.

1. Wood Ltd: she bought 1,000 shares in February 2000 for R39.50 each. Market value on 1 October 2001 was R41 per share. In November 2003, she received a rights issue of 1 for 4 shares, at R20 each. She sold all of her shares in October 2007 for R71 each. Market value was elected for capital gains tax purposes as the valuation date value.

2. Forest Ltd: she bought 3,000 shares in November 2001 for R45 each. In January 2005, she received a bonus issue of 1 for 20. She sold 2,000 shares in January 2008 for R80 each.

3. In December 2007, she sold the painting for R460,000. She had originally bought the painting in August 1985 for R50,000. In February 1990, she spent R8,000 on having the painting cleaned. In October 1999, she spent R45,000 on having it re-framed. She did not have the painting valued on 1 October 2001.

Barbara is hoping to sell her other assets next tax year, just prior to moving to Franschoek. She tells you:

1. Her house is full of small, but valuable, antiques. None would be sold for, nor cost more than, about R40,000, but they are worth over R500,000 in total.

2. Barbara bought her house in November 1990 for R2,200,000. It now has an approximate market value of R15,000,000. She owned no other houses during this time. The house was valued at R12,000,000 on 1 October 2001 and this value will be chosen as the valuation date value for capital gains tax purposes.

Other information for 2007/08:

Barbara had employment income of R522,200.

13 Note: This page is intentionally blank. You should NOT use it for your workings.

14 Task 2.1

Calculate the capital gain or loss, if any, made on the disposal of the shares in Wood Ltd, before any annual exclusion.

Task 2.2

Calculate the capital gain or loss, if any, made on the disposal of the shares in Forest Ltd, before any annual exclusion.

15 Task 2.3

Calculate the capital gain or loss, if any, made on the disposal of the painting, before any annual exclusion, but after applying any specific exclusions.

16 Task 2.4

Calculate the taxable capital gains for the year ended 29 February 2008.

Task 2.5

Calculate the normal tax payable for the year of assessment ending 29 February 2008, before any credits for any employees tax.

17 Task 2.6

Draft a letter to Barbara explaining the capital gains tax implications of the proposed sale of the assets next year.

18 This page is for the continuation of your letter. You may not need all of it.

19 Diploma pathway qualification codes

Diploma in Accounting (2003 standards) – 100/5925/8 Unit number (PTC) – T/103/6455