UNIVERSITY EXAMINATIONS
Examiner: Ms Simphiwe Mili
May/June 2025
TAX3701
Taxation of Business Activities
100 Marks
Duration 3 Hours
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This paper consists of nine (9) pages including Appendix A
IMPORTANT INSTRUCTIONS:
Assumptions:
1. The VAT rate changed from 14% to 15% on 1 April 2018.
2. All persons mentioned are residents of the Republic of South Africa unless stated
otherwise.
3. SARS = South African Revenue Service.
The answering of this paper:
1. This paper consists of four (4) questions.
2. All questions must be answered.
3. Each question must be commenced on a new (separate) page.
4. All workings, where applicable, must be shown. Where an amount is subject to a limita-
tion, clearly indicate the application of the limitation. Where any item has a nil effect on
any tax, this must specifically be indicated, and a short reason should be provided. All
amounts must be rounded to the nearest Rand.
5. Please complete the cover page of the answer book in full.
6. You are reminded that answers may NOT be written in pencil.
7. Proposed timetable:
(As far as possible, try not to deviate from this timetable):
Question Topic Marks Minutes
1 Taxable income and CGT 20 36
2 Value-Added Tax 25 45
3 Normal income tax liability 45 81
4 Gross income 10 18
TOTAL 100 180
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QUESTION 1 (20 marks, 36 minutes)
Jabu Engineering (Pty) Ltd (JE) is an engineering company in Meyerton, South Africa,
manufacturing solar panels for the solar retail market in South Africa. JE’s year of assessment
ends on 28 February 2025 and it is a registered VAT vendor. All amounts stated are exclusive of
VAT unless otherwise stated. JE is not a small business corporation as defined in section 12E
and its process of manufacturing has been approved by SARS. The following information is
provided to you for the 2025 year of assessment:
1. JE has a calculated taxable income of R1 259 267 for the 2025 year of assessment and an
assessed capital loss of R126 150 carried forward from the 2024 year of assessment.
The following information has not yet been taken into account in the taxable income amount
of R1 259 267 above.
2. JE purchased a manufacturing machine XK new on 15 June 2023 for an amount of R747 500
(including VAT) and brought it into use on 30 June 2023. Due to an increased demand for
solar panels, JE decided to replace Machine XK with a technologically advanced machine.
Machine XK was sold on 1 September 2024 for an amount of R685 000. A second-hand
manufacturing machine ZP was purchased on 10 September 2024 to replace Machine XK for
R950 000 and brought into use on 18 September 2024.
3. JE sold a factory building it purchased on 17 July 2021 for R7 500 260 on 30 October 2024
for an amount of R8 100 150.
4. JE purchased a new factory building on 15 November 2024 for R10 925 000 (including VAT).
REQUIRED Marks
Calculate the taxable income for Jabu Engineering (Pty) Ltd for the year of 20
assessment ended on 28 February 2025. Start your calculation with the taxable
income amount of R1 259 267.
QUESTION 2 (25 marks, 45 minutes)
KG Cricket Solutions (Pty) Ltd (KGCS) is a retail company selling cricket equipment to South
African and foreign customers. KGCS is a registered VAT vendor on an invoice basis and all
amounts stated are exclusive of VAT, unless specifically stated otherwise. KGCS only trades
with registered VAT vendors and all the required tax invoices were issued and received. The
following information is provided to you for the two-month VAT period ended on 31 March 2025:
1. Sales to South African customers amounted to R3 315 278. Included in this amount is a sale
of R25 148 made on 17 February 2025 to ABV Sports, in Cape Town. ABV Sports has not
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QUESTION 2 (continued)
2. made any payment to KGCS yet. When the cricket bats were delivered to the premises of ABV
Sports, it was discovered that all the cricket bats were damaged during the transportation
process and were returned to KGCS on 28 February 2025. KGCS issued a credit note to ABV
Sports on 1 March 2025 for an amount of R25 148.
3. KGCS is renting out a portion of its warehouse to BBQ Catering. The rent received amounted
to R28 750 (including VAT).
4. KGCS received interest of R1 278 on outstanding debtor’s accounts.
5. KGCS sold cricket equipment to the value of R175 000 to the National Cricket Board of Kenya
on 15 March 2025 and the goods were received by them on 2 April 2025. Payment was
received on 5 April 2025.
6. KGCS purchased cricket equipment to the value of R1 905 271 from South African suppliers.
7. KGCS imported cricket equipment from India to the value of R350 250 on 3 March 2025 and
paid import surcharges of R75 250.
8. KGCS paid the following operational costs for the two-month VAT period:
• Salaries and wages R389 500
• Electricity R111 328
• Short-term insurance R159 765
• Entertainment R 75 250
• Maintenance (paid to a non-vendor) R120 500
9. KGCS purchased the following capital goods during the two-month VAT period:
• A new single-cab bakkie on 1 February 2025 for R391 000 (including VAT). The bakkie
was provided to the sales manager on 1 February 2025 to visit new clients and to market
the newly launched cricket equipment imported from India. The sales manager makes no
contribution to any costs related to the single-cab bakkie.
• A second-hand trailer was purchased on 12 March 2025 from a non-vendor for R135 000.
A first payment of R94 500 was made on 15 March 2025 to the non-vendor and the balance
of R40 500 was paid on 12 April 2025.
10. KGCS received a notification from TP Attorneys on 17 March 2025 that a client owing KGCS
an amount of R17 480 (including VAT) was finally liquidated on 15 March 2025. The original
sale was made on 25 February 2024 to the client.
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REQUIRED Marks
Calculate the VAT payable by/refundable to KG Cricket Solutions (Pty) Ltd for the
two-month VAT period ended on 31 March 2025. Please provide a reason should 25
any amount not be subject to output tax or not qualify for an input tax credit
deduction.
QUESTION 3 (45 marks, 81 minutes)
Thabang Steel Manufacturing (Pty) Ltd (TSM) manufactures a range of steel products for the
building industry in South Africa. TSM is a small business corporation as defined in section 12E
and its year of assessment ends on 28 February 2025. TSM is also a registered VAT vendor and
all amounts are exclusive of VAT, unless specifically stated otherwise. TSM’s manufacturing
process has been approved by SARS.
You are presented with the following information for the 2025 year of assessment:
1. Sales amounted to R17 258 391 and included in this amount is a sale of R25 650 made on
17 January 2025 to a client who was subsequently disgruntled with the quality of the product.
The client questioned the quality of some of the products and returned products with a sales
value of R15 250 to TSM on 27 February 2025. TSM issued a credit note to the client on 27
February 2025 for R15 250.
2. TSM received the following investment income:
• Interest received from investments amounting to R17 523.
• Dividends received from South African companies amounting to R35 278.
3. TSM made the following staff related payments:
• Salaries and wages amounted to R2 680 350.
• TSM’s share of the medical aid contributions for all employees amounted to R250 125.
• Legal fees of R12 500 on behalf of the sales manager for a private matter.
4. The cost of sales comprised the following:
• Opening stock on 1 March 2024 amounted to R3 020 320.
• Purchases of raw steel from various suppliers for a total amount of R9 250 176.
• Closing stock on 28 February 2025 amounted to R3 578 451 and the market value was
R3 598 351.
• The goods returned by the client on 27 February 2025 (refer to note 1) had a cost price of
R12 200 and were not taken into account in the closing stock figure of R3 578 451. The
market value of these returned goods was R12 290.
5. Bad debts and doubtful debts comprised the following:
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QUESTION 3 (continued)
• TSM received a letter from DB Attorneys on 25 February 2025 confirming that a trade
debtor owing TSM an amount of R18 975 (including VAT) was finally liquidated.
6. TSM incurred the following operational expenditure during the 2025 year of assessment:
• Repairs and maintenance to the factory roof amounting to R176 350.
• Advertising and marketing expenses amounting to R360 262.
• Insurance for the period 1 October 2024 to 30 September 2025 amounted to R192 000.
• A restraint of trade payment amounting to R280 000 paid to T Spade, the chief designer of
new steel products, on 31 December 2024. The full amount was taxable in the hands of
T Spade and was made to restrain T Spade from competing with TSM for a period of four
years from the date of the payment.
7. TSM purchased the following capital assets:
• TSM purchased five delivery trucks on 1 May 2023 for a total cost of R1 750 000 and
brought them into use on the same date. One of the delivery trucks engaged in an accident
on 1 October 2024 and the insurer paid TSM an amount of R258 750 (including VAT) on
1 December 2024.
• TSM purchased a new computer on 1 August 2024 for the accountant costing R23 600
and it was brought into use on 1 September 2024.
• TSM purchased a new manufacturing machine on 1 November 2024 for R750 000 and
brought it into use on 1 December 2024.
• TSM purchased part of a new commercial building on 1 December 2024 for R2 875 000
(including VAT) and brought it into use on 2 January 2025.
8. TSM incurred the following rent-related expenses:
• TSM signed a new rental agreement with PT Properties (Pty) Ltd on 1 June 2024 for a
monthly rental of R27 500 for a period of 10 years with the option to extend it for another
three years. The commencement date of the rental agreement is 1 June 2024.
• TSM paid a lease premium of R212 500 to PT Properties (Pty) Ltd on 1 June 2024.
• The new rental agreement signed on 1 June 2024 with PT Properties (Pty) Ltd stipulated
that TSM had to erect a new building costing R2 250 000 on the rental premises. TSM
started with the building process on 1 July 2024 and completed the new building on 30
November 2024 at a total cost of R2 480 000. The new manufacturing building was brought
into use on 1 December 2024.
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QUESTION 3 (continued)
9. Other information related to the 2025 year of assessment:
• TSM made provisional tax payments of R780 340.
• Binding general ruling number 7 provides for the following write-off periods:
o Delivery trucks – 4 years
o Computer equipment – 3 years
REQUIRED Marks
Calculate the normal income tax liability for Thabang Steel Manufacturing (Pty)
Ltd for the year of assessment ended on 28 February 2025. Please provide a
reason should any amount not be taxable or if any amount is not deductible for 45
normal income tax purposes.
Note: Capital gains tax should be disregarded for this question
QUESTION 4 (10 marks, 18 minutes)
Dumi Motsako (Pty) Ltd (DM) is a company that sells wind turbines to customers in South Africa.
DM’s year of assessment ends on 31 March 2025.
DM installed five of the wind turbines on 21 February 2025 for a customer on his farm, near
Dundee, in KwaZulu-Natal for an amount of R150 000. DM issued the client with a TAX invoice
on 1 March 2025 for a total amount of R150 000. DM received a payment of R82 500 on 15 March
2025 from the customer and the outstanding balance of R67 500 was paid on 5 April 2025 to DM.
REQUIRED: MARKS
Discuss, whether the amount of R67 500 received by Dumi Motsako (Pty) Ltd will
be regarded as gross income as defined in the Income Tax Act for the 2025 year 10
of assessment, supported with relevant legislation and case law principles.
Unisa
2025
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SCHEDULES
A. 2025 – TAX TABLES
(i) Tax on small business corporations
Taxable income from benefit Rate of Tax
R0 – R95 750.......................................................... 0 per cent of the taxable income
Exceeding R95 751 but not exceeding R365 000 ... 7% of taxable income exceeding R95 750
Exceeding R365 001 but not exceeding R550 000. R18 848 plus 21% of taxable income exceeding
R365 000
Exceeding R550 001............................................... R57 698 plus 27% of taxable income exceeding
R550 000
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