Mr Star Fish is the marketing manager of Fish (Pty) Ltd. Mr Star Fish is 50 years

Question

old and a widower. The following information relates to Mr Star Fish’s income and
expenditure for the year of assessment ending 28 February 2021:
(1) Salary
He received a monthly basic cash salary of R50 000 a month for the period 1
March 2020 to 28 February 2021.
(2) Company car and travelling allowances
The right of use of a company car was granted to him for the period 1 March
2020 until 30 June 2020 (four months). The determined value of the car was
R450 000 and the car was subject to a maintenance plan. He had to bear the
cost of all fuel used for private purposes, and the cost of insuring the vehicle.
He travelled 20 200 kilometres in total of which 9 400 kilometre related to
business travel. The fuel cost amounted to R18 000 and the insurance
amounted to R6 000. The company provided Mr Star Fish with the option to
buy the car at its retail value less 10% discount on 1 July 2020. The retail value
of the car was R380 000 on 1 July 2020. Mr Star Fish exercised this right and
paid the company the agreed purchase price of R342 000. This is currently the
only car that he owns.
From 1 July 2020, he received a travelling allowance of R17 000 a month for
the remaining eight months (244 days) of the year of assessment. Mr Star Fish
does not keep accurate records of actual costs incurred. He kept a logbook
and travelled 16 540 business kilometres during the period. The odometer
reading of the car was 32 317 km on 1 July 2020, and 54 122 km on 28
February 2021.
(3) His employer provided him with a laptop of R16 000 to be used for business
purposes. He was also provided with an internet facility at a cost of R350 a
month to assist him in his duties as marketing manager.
You are required to:
Calculate the taxable income of Mr Star Fish for the 2021 year of assessment.

Answer 1

To calculate the taxable income of Mr. Star Fish for the 2021 year of assessment, we will need to consider each component of his income and allowable deductions.

1. Salary Income

Mr. Star Fish’s total salary for the year is calculated as follows:

• Monthly salary: R50,000
• Total number of months: 12
• Total salary received: R50,000 x 12 = R600,000

2. Company Car and Traveling Allowances

(a) Company Car

• Determined value of the car: R450,000
• Duration of use: 4 months (March to June 2020)
• Annual depreciation rate for vehicle: 20%
• Calculate fringe benefit for the car for the 4 months:
  • Annual deemed benefit = 4/12 x (R450,000 x 20%) = R30,000

(b) Fuel and Insurance Costs

• Mr. Star Fish bore the cost of fuel and insurance:
  • Fuel cost: R18,000
  • Insurance cost: R6,000
• Total personal expenditure on car: R18,000 + R6,000 = R24,000

(c) Traveling Allowance from 1 July 2020

• Monthly traveling allowance: R17,000
• Duration: 8 months
• Total traveling allowance for the year: R17,000 x 8 = R136,000

(d) Business vs. Private Kilometers

• Total kilometers traveled: 16,540
• Business kilometers: 9,400 km
• Total kilometers for travel allowance calculation: 20,200 km
• Private kilometers: 20,200 km - 9,400 km = 10,800 km

(e) Traveling Allowance Calculation

• To deduct the traveling allowance, we can use the following formula:
  • R17,000 (traveling allowance) - (Total traveling allowance calculated based on cost) = Net Allowance

However, since he does not keep accurate records of costs incurred, the deduction cannot be fully substantiated, and he would only be able to claim deductions for the business kilometers driven.

• Calculate the business kilometers ratio:
  • Business kilometers to total kilometers: 9,400 km / 20,200 km = 0.465 (approximately)

(f) Vehicle Cost Deductions for Business Mileage

• Because Mr. Star Fish does not maintain detailed records, we use a simplified calculation like the fixed rate per kilometer.
  • For instance, let’s assume a fixed rate of R3.82 per kilometer (South Africa's prescribed mileage rate).

Business travel allowable expense:

• Business kilometers: 9,400 km
  • Total deduction = 9,400 km x R3.82 = R35,908 (Note: The actual mileage rate may vary.)

3. Laptop and Internet Expenses

Provided by the employer:

• Laptop: R16,000 (not taxable, as it's a fringe benefit)
• Internet costs: R350/month x 12 months = R4,200 (not directly deductible as it's provided by the employer).

4. Calculation of Taxable Income

Now let's compile the taxable income:

• Salary Income: R600,000
• Car fringe benefit: R30,000
• Fuel and Insurance: (R24,000) (deduction)
• Traveling Allowance Income: R136,000
• Business Travel Expense Deductions: (R35,908)
• Total Allowable Expenses: (R24,000 + R35,908)

Final Taxable Income Calculation

Taxable Income = Salary + Car fringe benefit + Traveling Allowance - (Total Allowable Expenses)

= R600,000 + R30,000 + R136,000 - (R24,000 + R35,908)

= R600,000 + R30,000 + R136,000 - R59,908

= R706,000 - R59,908

= R646,092

Taxable Income of Mr. Star Fish: R646,092

Note: Be sure to adjust figures according to applicable tax laws and rates, and verify the fixed rate per kilometer applicable in South Africa for the travel allowance.