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NVQ/SVQ Level 4 in Accounting Preparing Personal Taxation Computations – South Africa (PTC-SA) (2003 standards)

Friday 8 December 2006 (morning)

EXAM QUESTION PAPER

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.

PTC-SA

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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

R130,001 but does not exceed R180,000 R26 900 plus 30 % of the amount over R130,000

R180 001 but does not exceed R230,000 R41 900 plus 35 % of the amount over R180,000

R230 001 but does not exceed R300,000 R59 400 plus 38 % of the amount over R230,000

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

RATING FORMULAE

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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

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AY ×+

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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 an 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 - 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

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Grinding machines 6 Television and advertising films 4 Guillotines 6 Television sets, video machines and decoders 6 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 page is perforated. You may remove it for easy reference

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. Section 1 contains 6 tasks and Section 2 contains 6 tasks. You should spend about 85 minutes on Section 1 and about 95 minutes on Section 2. Blank space for working is available on pages 2, 14, and 23, but all essential calculations should be included within your answers, where appropriate. SECTION 1 DATA You are a trainee accountant, and one of your friends, Emily Owen, has asked you to help sort out her tax for 2005/06. She provides you with the following information: 1. She works three days a week for Steel Ltd as a Marketing Manager, with an annual

salary of R180,000, from which PAYE of R46,360 had been deducted. 2. Steel Ltd provides her with a company car. It cost R130,800 when new and Emily

was the first employee to use the car. Emily pays all the running costs, including the fuel.

3. Steel Ltd gave Emily a loan on 1 August 2005 of R70,000 to pay for home

improvements. Emily pays the company 2% interest on the loan, but has not repaid any of the loan itself.

4. On 6 December 2004, the company had provided Emily with a laptop computer

costing R20,000 for use only on company business. On 1 May 2005 she purchased this computer from the company for R1,500 (the market value at the time was R4,000) for her own use. Also on 1 May 2005 the company provided her with a mobile telephone which is used exclusively for business purposes. The company spent R7,500 in paying the mobile phone accounts.

5. On the other days of the week, Emily runs her own marketing consultant’s business,

the net (taxable) trading profits from which for 2005/06 were R250,000. 6. Emily received other income of: R Bank interest 11 000 Local dividends 3 000 Interest from SA bonds 6 000 7. On 31 January 2006 and 31 July 2006, Emily paid R60,000 in total as provisional

payments for the tax year 2005/06.

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Task 1.1 Calculate the total fringe benefits (per the 7th Schedule) for 2005/06. If a benefit is not taxable, you need to state why. ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________

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Task 1.2 Calculate Emily’s taxable income for 2005/06, clearly showing the gross income, exemptions and deductions. ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________

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Task 1.3 Calculate the final tax liability (tax owing) for 2005/06. ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Task 1.4 (a) State the date by which the tax payable in Task 1.3 is due. ________________________________________________________________ (b) State the due dates for the compulsory provisional tax payments, as well as the

date for any further payments to avoid penalties. ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________

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Task 1.5 You have received the following e-mail from Emily Owen. From: [email protected] To: [email protected] Sent: 30 November 2006 Subject: Pensions Thank you very much for calculating my tax liability, but I wondered if you could advise me on the matter of pensions. As you know, I currently don’t have a pension and I am worried about this. I have two options. My employer, Steel Ltd, has said that I can join their pension fund. This would involve me paying 5% of my basic salary, and they would pay another 7%. However, I don’t know how long I am going to continue to work for them, as my private business is really taking off. Alternatively, I am thinking of contributing to a retirement annuity fund administered by an asset management company, possibly paying about 6% of my self-employed profits. However, I have no idea about the tax implications of these schemes. Would I get tax relief, and if so, how? I hope you can help. Emily WITHOUT discussing the merits of each scheme, advise Emily on the tax implications of contributions to a pension fund or a retirement annuity fund. From: [email protected] To: [email protected] Sent: 8 December 2005 Subject: Pensions ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

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This space is for the continuation of your e-mail. You may not need all the lines. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ Task 1.6 Emily and you have a mutual friend, Jonathan. Emily knows that you help Jonathan with his tax affairs, and that Jonathan is a member of a provident fund. Emily asks you to tell her about Jonathan’s personal retirement fund plans, to help her decide what to do. What reply would you give to Emily on this matter? ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

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SECTION 2

DATA You work in the tax department of a firm of Chartered Accountants. One of your clients, Donald Icer, provides you with the following tax information for the tax year 2005/06: Rental Income Donald bought two properties on 1 July 2005. Property 1 was let unfurnished from 1 September 2005 at an annual rent of R120,000 payable monthly in arrears. The rent due on 28 February 2006 was not received until 14 March 2006. The following were expenses paid by Donald on the property: R 1 July 2005 Insurance for the year ended 30 June 2006 7,000 8 Sept 2005 Accountancy fees 1,000 25 January 2006 Re-painting the exterior of the property 4,000 Property 2 was let furnished from 1 August 2005 at an annual rent of R90,000 payable annually in advance. The following were expenses paid by Donald on the property: R 1 July 2005 New furnishings (at cost) 36,000 1 July 2005 Insurance for the year ended 30 June 2006 8,000 5 July 2005 Roof repairs following a storm on 19 June 2005 3,000 28 February 2006 Decoration 9,000 Capital Transactions: 1. Shares Donald had the following transactions in his shares in Snowy Ltd: BOUGHT No of Shares Cost R December 1998 20,000 100,800 June 2003 10,000 80,700 December 2003 Rights Issue, 1 for 10 40 cents each DISPOSED No of Shares Proceeds R September 2005 15,000 160,650 At 1 October 2001, the value of the shares had grown to R5.99 per share. 2. Yacht Donald bought a 12 metre yacht in August 1996 for R1,500,000. He sold it in February 2006 for R3,700,000. The cost of advertising the sale of the yacht was R3,500. Donald has an assessed capital loss of R50,000 brought forward from 2004/05. Other relevant information Donald also received R300,000 employment income.

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Task 2.1 Calculate Donald’s taxable income from his rental trade for the tax year 2005/06. You must do separate calculations for each property. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

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Task 2.2 Calculate the capital gain or loss made on the disposal of the shares in Snowy Ltd. You must use a weighted average policy for the sale of the shares. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

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Task 2.3 Calculate the capital gain or loss made on the disposal of the yacht and indicate whether any capital gains tax exclusions (other than the annual exclusion) will apply. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ Task 2.4 Calculate the taxable capital gain for the year 2005/06. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

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Task 2.5 Calculate for 2005/06 the total income tax liability including the capital gains. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

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Task 2.6 After you submitted the tax return for Donald, you received the following e-mail: From: [email protected] To: [email protected] Sent: 30 November 2005 Subject: Information I know you have been working on my tax affairs, and I hope you haven’t yet submitted the tax return, as I have just realised that there are some things that I haven’t told you about. During 2005/06, I received bank interest of R1,052 and interest from an SA bond of R930. I also paid R5,000 to a public benefit organisation and have a receipt. They told me that it will qualify for a section 18 deduction and that they are registered in terms of Part II of the Ninth Schedule, but I don’t know what this means. I don’t know if any of this is important, but I thought I should let you know anyway. Thanks. Donald WITHOUT recalculating the tax payable from Task 2.5, reply to Donald’s e-mail informing him of: • the tax implications of each item • the consequences of submitting an incorrect tax return From: [email protected] To: [email protected] Sent: 8 December 2006 Subject: Information ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

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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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NVQ/SVQ qualification codes Technician (2003 standards) - 100/2942/4 / G794 24 Unit number (PTC) - M/101/8116

© Association of Accounting Technicians (AAT) 12.06 154 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

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