EY s Young Tax Professional of the Year Competition. Entry form for South African Competition 2015.

Transcription

1 EY s Young Tax Professional of the Year Competition Entry form for South African Competition

2 Candidate details Name: Surname: ID/Passport Number: Cellphone number: address: 2

3 Section A: Long Questions Answer all questions. Please refer to relevant case law and legislation in your answers. QUESTION Anne de Klerk, 54 years old is a director at the Department of Foreign Affairs in Pretoria. She is married out of community of property to Carl de Klerk, 59 years old and in the employ of Giraffe (Pty) Ltd (a private game lodge and farm). They have three daughters of whom the youngest two still live at home: Cecile, 17 years old and still at school and Petra, 22 years old and a full-time student. The following information relates to the year of assessment ended 28 February 2015: Anne 1. Anne and her family (Carl and the two youngest daughters) are members of her medical aid fund. She made no contributions but spent R as qualifying medical expenses for her husband s accident (see below) which were not covered by the medical aid. Her employer contributes R4 000 monthly to her medical aid. 2. She earns a monthly salary of R and also receives a thirteenth cheque during her birthday month (December). She did not receive a salary increase during the past two years of assessment and her remuneration for the 2015 year of assessment was R Anne has belonged to a retirement annuity fund since 2000 and she contributes R2 500 monthly to the fund. In previous years she could deduct all her contributions to the fund for tax purposes but in the 2014 year of assessment R of her contributions were not deductible. 4. She and her family lives in a four-bedroom government house as from the 1st of March 2011 and her employer pays her municipal account (electricity and water) of R6 700 each month, but she furnished the house herself. The house belongs to the government (her employer). 5. She receives a vehicle allowance of R per month and she uses her own car for all her travels. The car cost her R (VAT included) in She also pays licence fees (R670); maintenance (R12 000) and fuel (R15 000) for the vehicle annually. She keeps meticulous record of her distances travelled and of the km driven during the year of assessment, km was for business purposes. 6. Anne was part of a work mission of her office that visited Germany (four days and nights) and France (seven days and nights) during April 2014 and she received R from her employer as a subsistence allowance while she was on the visit. The employer paid the hotel accommodation directly. During April 2014 the rate of exchange was R9.50 = 1 7. The Department of Foreign Affairs also provides a cell phone to Anne (costing them R500 per month) as well as a laptop computer (costing them R700 per month) both of which she uses mainly for her work. 8. She has belonged to the Government pension fund since 1 January 1988 and she contributes 8% of her basic monthly salary (not bonuses) to the pension fund. 9. She has a fixed deposit at a local bank and she earns R interest annually. 10. Petra received a study bursary from the Department of Foreign Affairs of R per annum. The Department provides the bursaries to children of their employees. Petra is currently busy with her Masters in tax at the University of Johannesburg NQF 8) 11. Anne inherited a house from her father during the year of assessment. She is renting it out since 1 June 2014 for a monthly rental of R and incurs monthly tax deductible maintenance expenditure of R2 500 since then. She also had it painted for R during September As part of their employment contract, Giraffe (Pty) Ltd (Carl s employer) allows employees and their families to visit the lodge annually. Anne stayed there for the first week in December Normally the lodge charges R1 500 per day per person. 13. She has never needed to register for provisional tax before. Carl 1. Carl earns R per month as a professional hunter and guide on the game farm of Giraffe (Pty) Ltd (a registered VAT vendor). He was seriously injured in December 2014 when an elephant attacked him and was unable to work for the rest of the year of assessment and was on medical leave until 28 February He contributes R1 800 monthly to the company s provident fund 3. His employer provided a sturdy four-wheel drive vehicle for his work on the farm and which he also use to commute to his family on weekends. The vehicle cost Giraffe (Pty) Ltd R (VAT included) on 1 March 2013 and he had the use of it since 1 March He keeps a record of his private trips and of the kilometres driven during the ten months he worked was private travel. He was responsible for the maintenance costs of the vehicle to the amount of R8 400 for the year of assessment and he kept accurate records thereof. 4. He ate all his lunches in the dining room for the employees on the farm. Al the farm workers use the dining room and it costs the employer R450 per month per employee to provide this service. 5. At the Christmas party just before his accident (16 December 2014), he received a hunting rifle to the value of R (VAT included) in recognition of 20 years service to the company. The other hunters working with him gave him a collective gift of R5 000 out of their own pockets. 6. In 2009 Giraffe (Pty) Ltd gave each of their permanent employees equity shares when the shares were valued at R5 each. The shares may only be sold after five years and the employees are entitled to all dividends and have full voting powers. Carl sold these shares on 1 December 2014 for R20 per share. 7. As one of the four hunters on the farm he also received shares in the company owning the farm on 1 June 2014 (when the shares were valued at R21.00 per share). The other employees of the company (50 labourers, cooks, etc.) did not receive a similar offer. The shares can only be sold after five years or when they retire. Carl gave the shares on 1 November 2014 to his eldest daughter, Annamarie. The market value of the shares on 1 November 2014 was R23,50 and at 28 February 2015 R27, Carl, after his accident, is considering a different approach to his work. He wants to work through his own private company He would still be working for the old employer but he is considering to bill Giraffe (Pty) Ltd for the work he does on the farm. He will still work only for them and would get his instructions from the director. Required: 1. Calculate the taxable payable of Anne and taxable income of Carl for the year of assessment ended 28 February Motivate each inclusion, exemption, or deduction. (35) 2. In a proper memo format: inform Carl of the implications of his potential approach to employment with the new company he is considering to form. (4) 3. Briefly discuss whether Dorothy should register as a provisional taxpayer. (2) 4. Calculate the taxable income of Carl for December 2014 for PAYE purposes. (4) 3

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6 Question 2 [40 MARKS] You are a tax consultant working for global tax consulting firm. Your firm has been approached by one of your long-standing clients for advice on a restructuring transaction that they are embarking on. The client, DiversiCo (Pty) Ltd, is a South African tax resident company that holds investments in various (directly and indirectly held) South African tax resident subsidiaries. DiversiCo has a wholly owned subsidiary, Eternity (Pty) Ltd, which in turn has a wholly owned subsidiary, Ephemeral (Pty) Ltd. Ephemeral has been in a loss-making position for a number of years. In an attempt to reduce the costs being incurred as a result of continuing to operate Ephemeral and the increasing losses being suffered by the group, DiversiCo is considering transferring the business of Ephemeral to Eternity and subsequently liquidating Ephemeral. Eternity will then undertake a new business project in order to revive the business of Ephemeral under its own name. DiversiCo has informed you of the following (figures are as at 28 February 2015 and, although the year end is 30 April 2015, no significant movements are expected up until year end): Ephemeral has an accumulated assessed loss balance of R7 million, of which R6.5 million arose in previous years of assessments. The current year s assessed loss balance arose on the excess of deductible expenditure over revenue (income as defined) earned. Ephemeral has an interest-free (subordinated) loan owing to DiversiCo of R10 million. These were cash loans extended to Ephemeral for funding its daily operations. Ephemeral has accounts receivable balances of R3 million. It is expected that 10% of these balances will not be collected and will have to be written off in future. Ephemeral has sufficient cash resources to settle all its third party liabilities. Ephemeral has earned revenue from sales contracts during the 2015 financial year, however no further sales are expected. Ephemeral has intellectual property worth R2 million. This asset has been fully written off for tax purposes (total allowances of R0.5million have previously been claimed). Ephemeral will be disposing of consumable stores and small assets. These assets are of minimal value and the disposal can be postponed to after the financial year end. Ephemeral has cleared its books of most assets and liabilities, only the ones mentioned above are of significance. All staff have either been retrenched or transferred to Eternity. DiversiCo would like you to advise them on the tax implications of transferring the business and liquidating Ephemeral. The main asset that needs to be transferred out of Ephemeral is the intellectual property, however, they are indifferent as to whether this asset is transferred to Eternity or DiversiCo. They would also like to know whether they have time constraints with respect to carrying out this restructuring transaction or whether it can be carried out after year end. Question 2: Answer 6

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