QUESTION 3 (30 marks)

Question

Mr Star Fish is the marketing manager of Fish (Pty) Ltd. Mr Star Fish is 50 years
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 year of assessment ending 28 February 2021, we need to consider all sources of income and allowable deductions based on the information provided.

1. Salary Income

Mr. Star Fish received a monthly salary of R50,000 for 12 months:

• Annual Salary = R50,000 * 12 = R600,000

2. Company Car Benefit

A brief calculation of the taxable benefit related to the company car is required.

Step 1: Determined Value of the Vehicle

The determined value of the vehicle when used by Mr. Star Fish is R450,000. Since he received the car for 4 months (1 March 2020 - 30 June 2020), the benefit will be calculated for that period.

Step 2: Calculate the car benefit

The monthly taxable benefit for the right of use of the company car is calculated as follows:

• Car benefit = (20% of the determined value) * (months used)
• Car benefit = (0.20 * R450,000) * 4 months = R90,000

Step 3: Calculate the travel allowance and deduct private travel expenses

From July 2020 onwards, Mr. Star Fish was paid a travel allowance of R17,000 per month for 8 months. Here's how to calculate the total traveling allowance and a deduction for business travel.

• Total traveling allowance (July 2020 - February 2021) = R17,000 * 8 = R136,000

To claim deductions of travel expenses, we will need to calculate the allowable travel costs based on the business trips.

Total kilometers driven = 54,122 km - 32,317 km = 21,805 km
Business kilometers = 16,540 km
Percentage of business use = (16,540 / 21,805) * 100 = 75.79%

Assuming a reasonable and average cost per kilometer (for example, R3 per km), we can calculate:

• Allowable travel claims = Business kilometers * Rate per km
• Allowable travel claims = 16,540 km * R3 = R49,620

Net taxable traveling allowance = Total traveling allowance - Allowable claims

• Net taxable traveling allowance = R136,000 - R49,620 = R86,380

Summary for Company Car and Travel Allowance

• Benefit from company car: R90,000
• Net taxable traveling allowance: R86,380

Total from travel and car benefit:

• Total = R90,000 (Company Car) + R86,380 (Travel Allowance) = R176,380

3. Laptop and Internet Facility

Mr. Star Fish received a laptop valued at R16,000 and an internet facility costing R350 per month.

• Annual cost of internet facility = R350 * 12 = R4,200

Typically, benefits or allowances received for business purposes (like the laptop) are not taxed as part of taxable income since they are business-related expenses.

4. Total Taxable Income Calculation

Now, we will compile all components to find out the total taxable income:

• Salary: R600,000
• Company Car Benefit: R90,000
• Net Taxable Traveling Allowance: R86,380
• Total = R600,000 + R90,000 + R86,380 = R776,380

Taxable Income

Mr. Star Fish's taxable income for the 2021 year of assessment is: R776,380.

This calculation does not account for any deductions or personal deductions that may apply (like contributions to retirement funds, etc.) unless specified in further details.