How often Tax administration is asked

Where it was asked

• May/Jun 20144 marks
• Oct/Nov 201315 marks
• May/Jun 20135 marks

The questions

1. May/Jun 2014, Q4(a)4 marks

   XYZ Trust is a resident of the Republic of South Africa for tax purposes and its year of assessment ends on 28 February 2014. The trust holds several investments that produce interest and dividends, and also runs a business selling electric chainsaws. On 2 December 2013, XYZ Trust sold seven electric chainsaws in total to a timber company (the customer) for R14 000. XYZ Trust supplied the customer with a warranty against any mechanical failure of these seven chainsaws, meaning it will replace any faulty chainsaw free of charge; the warranty applies for a period of six months from the date of sale. XYZ Trust had originally purchased the chainsaws for R1 500 each from its supplier. At year-end, the auditors raised a warranty provision of R10 500 (debiting the warranty expense and crediting the provision). The accountant calculated the following amounts for the trust's 2014 year of assessment, which may be assumed to be correct: taxable income of R1 253 000; qualifying turnover of R1 798 000; and taxable turnover of R1 120 000. Explain the distinction between direct taxes and indirect taxes, and give one example of a tax that would be classified as a direct tax and one example of a tax that would be classified as an indirect tax.

2. Oct/Nov 2013, Q1.15 marks

   Beauty (Pty) Ltd, a resort and spa company, received its income tax assessment (ITA34) for the year of assessment ended 31 March 2013. Included in the assessment was an advertising expense of R18 000 that had been claimed as a deduction, paid in twelve monthly instalments of R1 500 each to an advertising agency to promote the company's products and services. The Commissioner disallowed the deduction on the basis that the amount was capital in nature since it would create an enduring benefit. As the newly appointed accountant of Beauty (Pty) Ltd, you are of the view that the expense is in fact revenue in nature, and you wish to lodge an objection with SARS regarding the disallowed R18 000 advertising expense. Set out the administrative steps that must be followed to lodge an objection and, if necessary, an appeal to SARS regarding the disallowed R18 000 advertising expense of Beauty (Pty) Ltd.

3. Oct/Nov 2013, Q1.25 marks

   Beauty (Pty) Ltd, a resort and spa company, received its income tax assessment (ITA34) for the year of assessment ended 31 March 2013. Included in the assessment was an advertising expense of R18 000 that had been claimed as a deduction, paid in twelve monthly instalments of R1 500 each to an advertising agency to promote the company's products and services. The Commissioner disallowed the deduction on the basis that the amount was capital in nature since it would create an enduring benefit. As the newly appointed accountant of Beauty (Pty) Ltd, you are of the view that the expense is in fact revenue in nature, and you wish to lodge an objection with SARS regarding the disallowed R18 000 advertising expense. SARS is required to keep a register of all disputes that it resolves through the Alternative Dispute Resolution (ADR) process. List the five elements that must be recorded by SARS once a dispute (objection) has been settled by way of this ADR process.

4. Oct/Nov 2013, Q1.35 marks

   Beauty (Pty) Ltd, a resort and spa company, received its income tax assessment (ITA34) for the year of assessment ended 31 March 2013. Included in the assessment was an advertising expense of R18 000 that had been claimed as a deduction, paid in twelve monthly instalments of R1 500 each to an advertising agency to promote the company's products and services. The Commissioner disallowed the deduction on the basis that the amount was capital in nature since it would create an enduring benefit. As the newly appointed accountant of Beauty (Pty) Ltd, you are of the view that the expense is in fact revenue in nature, and you wish to lodge an objection with SARS regarding the disallowed R18 000 advertising expense. List five taxes or duties that are collected by SARS.

5. May/Jun 2013, Q2.25 marks

   Majuba (Pty) Ltd was issued its 2012 ITA34 tax assessment on 31 January 2013. The company's accountant reviewed this assessment and disagrees with SARS's disallowance of a capital allowance claimed of R15 500. The ITA34 shows an amount of R6 875 payable to SARS on or before 31 March 2013. The accountant lodged an objection against the issued assessment on 4 February 2013, and SARS declined this objection on 15 March 2013. Discuss what procedures, if any, Majuba (Pty) Ltd can follow to have the incorrect 2012 tax assessment rectified. Ignore the Tax Administration Act that came into effect on 1 October 2012.