Assignment 

Questions

1. Lindo Kunene obtained a degree in Business Management and decided to open his own business. He purchased an old factory site and moved in. Business went well and he soon found that he had to improve and repair his premises. The factory was very dilapidated and needed some work to be done.

• Lindo decided that, instead of spending money on new doors, he would install a display window where one door had been and a single glass door where the other had been. The display window would enable customers to clearly see Lindo’s products. The cost of this installation was R30 000.
• The roof was made of rusty corrugated iron and leaked badly. Lindo decided to replace it with a concrete slab at a cost of R100 000.
• There had originally been three lengths of shelving affixed to the wall. The chipboard material of the shelves had swelled in the damp and become unserviceable. Lindo had these replaced with steel shelves at a cost of R9 000.
• The main electricity cable was brittle, and Lindo replaced the cable at a cost of R12 000.
• Finally, he painted the interior and exterior walls at a cost of R25 000.

Required: Explain, with reason, how much of the expenditure will be deductible in terms of section 11(d).

2. Lloyd Shinga is a partner at a law firm. He is 40 years old and unmarried. He has incurred several expenses during the 2023 year of assessment. He would like to know if they are deductible in the determination of his taxable income. These expenses are as follows:

• He is a member of the Southern Country Club. He plays golf there nearly every Wednesday afternoon. On every occasion at least one other player in his four ball is a client. He uses this club solely to play golf and incurred R10 800 in expenses during the 2023 year of assessment.
• He is also a member of the Fit Gym where he trains under the supervision of a personal trainer for two hours each weekday (normally between five and seven in the morning). He is convinced that his fitness training program has a direct bearing on his performance at work in that he can work more efficiently and for longer hours as a result of his gym activities. (He also believes it enhances his appearance for his many female clients.) For the 2023 year of assessment, gym subscription costs were R4 320, while the services of the personal instructor cost R14 400.
• Lloyd believes that he must always look his best to win the confidence of his clients and to be successful in business. He purchased two suits during the 2023 year of assessment at a total cost of R19 200. He has all his suits dry cleaned at least once a month. His dry-cleaning costs were R3 015 for the 2023 year of assessment. He has his hair styled regularly and he even had two facials during the 2023 year of assessment. His hair styling cost him R1 305 for the 2023 year of assessment and his two facials cost him R1 170.
• Lloyd subscribes to Legal Law, a journal devoted to the latest legal developments and to the South African Law Reports. The combined annual subscription that he incurred during the 2023 year of assessment was R1 620. He has both the journal, and the law reports bound into permanent volumes. The binding of the books was done during February, and he received the bookbinder’s account for R270 on the last day of February. He settled the R270 one week later in March.
• Every now and then Lloyd is forced to see certain clients at his own home. He has furnished a consulting room in his home that he uses exclusively for this purpose. He has, on a floor-area basis, apportioned the annual costs of interest incurred on the mortgage bond, property rates and electricity. To the portion relating to the consulting room, he has added the costs of maintaining this room. The total cost of this consulting room for the 2023 year of assessment is R12 150.

Required: Discuss whether Lloyd will be entitled to a deduction, or a capital allowance, in the determination of his taxable income for the expenses incurred as detailed above.

3. David Ntuli (aged 55) is a resident of South Africa. He is employed as a plant engineer at a factory in the Western Cape. David is married out of community of property and has 2 children. He has the following receipts and accruals for the 2024 year of assessment: 

Notes: 

1. While on duty at the plant, David is required to wear a thick blue overall uniform that has the
plant factory logo on the shoulders and meets specific safety standards. He has bought 3
uniforms in the 2024 year of assessment for R3 500 each.

2. David’s son is pursuing an engineering degree (NQF level 9) at the University of Cape Town.
The factory provided a bursary for tuition fees. David’s prior year remuneration was R480 000.

3. David earns local interest from his current and fixed deposit accounts at South African banks.

4. David receives dividends from his investments in South African companies listed on the
Johannesburg Stock Exchange.

5. David rents out an apartment in Johannesburg, earning R16 000 per month. Expenses for the
2024 year of assessment include water and rates of R6 300 per month and repairs for a water
pipe (R15 750).

6. David received a birthday gift valued at R25 000 from one of his colleagues as David and him
had been friends for over 20 years. 

7. David has decided to resign and join a different factory situated in the Western Cape. He had received a restraint of trade payment in December 2023 from his current employer for an amount of R360 000 so that he would not join them for a period of 2 years. The restraint of
trade starts with effect from 1st March 2024 which is also the 2025 year of assessment.

8. David sold his personal Kia Sportage for R100 000 on 29 January 2024. The car, primarily used for private purposes, was originally bought for R195 000 on 15 June 2019.

9. David sold part of his investment share portfolio for R235 500 on 1 January 2024 (initially
purchased for R80 000 on 1 May 2018).

10. David’s primary residence, originally purchased for R800,000 on 1 June 2012, was sold
for R3 500 000 on 20 February 2024. There were improvements were made to the property for an amount of R450 000. A fence was also erected for R100 000, and the valuator charged
R50 000 to value the property when David decided to sell the property.

Required: Calculate David’s tax liability for the 2024 year of assessment. Show all workings.

Assessment brief what the student must cover

Overall scope: three separate South African tax problems requiring statutory interpretation, factual analysis and (for Q3) full computation of taxable income. For each question the student must identify the relevant tax rules, apply those rules to the facts given, justify conclusions, and (where required) show workings.

Question 1  Lindo Kunene (repairs vs capital improvements)

You must:

• Identify the legal test for s.11(d) deductions (repairs/maintenance) vs capital expenditure (improvements).
• Apply that test to each expenditure item: display window (replacing door with window), concrete roof replacement, shelving replacement (chipboard → steel), main electricity cable replacement, and painting (interior/exterior).
• Explain, item by item, whether expenditure is deductible under s.11(d) (revenue/repair) or should be treated as a capital cost (non-deductible under s.11(d)), and state the deductible amount (if any).

Question 2 Lloyd Shinga (partner: deductible vs private expenses)

You must:

• Analyse each listed expense against the deduction rules (general deduction provisions) and s.23 disallowances: country club subscription, gym subscription and personal trainer, suits, dry-cleaning, grooming/facials, legal journals & law reports (and binding), timing of payment for binding, home consulting room costs (mortgage interest, rates, electricity and maintenance apportioned).
• Decide whether each item is deductible (revenue expense), allowable as a capital allowance (if appropriate), or disallowed as private/personal.
• Explain the basis for each conclusion (e.g., connection to income-earning activity, private/domestic nature, exclusive use test for home office).

Question 3  David Ntuli (2024 tax computation)

You must:

• Classify all receipts/accruals and figure out which items form part of taxable income, which are exempt, and which generate capital gains/losses:
  • Salary and employment income; required uniform costs;
  • Employer bursary to son (apply exemption rules and any threshold tests);
  • Interest (apply interest exemptions/allowances where relevant);
  • Dividends (treatment under SA tax law — usually exempt from normal tax);
  • Rental income and allowable rental expenses;
  • Gift from colleague (tax implications);
  • Restraint of trade payment timing and taxability;
  • Disposal of personal motor vehicle (private asset) and shares (capital gain calculation);
  • Sale of primary residence (capital gain and primary residence exclusion, allowable costs such as improvements and valuation fee).
• Prepare clear working schedules: gross income, exemptions, taxable income, capital gains schedule, and final tax liability (showing all workings).

How the Academic Mentor guided the student step-by-step

The mentor followed a consistent 6-step method that the student can replicate in exam or assignment contexts.

Step 1  Clarify the task & map the law

• Created a one-page “rule map” listing the principal provisions and tests likely to apply (e.g., s.11(d) repair test, s.11(a) general deduction, s.23 disallowances, timing rules for accrual/incurred expenses, CGT/Eighth Schedule basics, and special exemptions such as bursaries/dividends).
• Emphasised reading the facts carefully to identify what is in issue for each item.

Step 2  Build a facts-to-law matrix

• For each expense/receipt the mentor had the student capture: (i) precise factual description, (ii) legal issue (repair vs improvement, private vs income-related, capital vs revenue), (iii) statutory provision or test, and (iv) possible conclusion(s).
• This made it easy to justify conclusions item-by-item in the written answer.

Step 3  Apply the legal tests, with examples

• Q1 (repair vs improvement): Mentor explained the practical “restore vs improve” approach: repairs restore to original state (typically deductible); improvements add enduring benefit or change nature (capital). Student applied this reasoning to roof, display window, shelves, cable and painting and wrote short reasons.

• Q2 (partner’s deductions): Mentor walked through the “incurred in production of income” principle and the “private/domestic” disallowance. They discussed precedents/authority style reasoning for items that are borderline (e.g., home consulting room apportionment; binding journals).

• Q3 (computations): Mentor instructed on systematic classification — separate schedules for gross income, exempt items (e.g., local dividends), assessed rental income (income less allowable rental expenses), capital gains schedules (proceeds less base cost less primary residence exclusion and costs), and timing rules (when restraint of trade is taxable).

Step 4  Show working and structure answers

• For Q1 and Q2 mentor recommended concise paragraphs per item (fact → legal test → application → conclusion).
• For Q3 mentor insisted on neat numerical schedules and stepwise calculations (labelled lines, totals, taxable income, then apply tax rates). This improves transparency and grading.

Step 5  Check edge issues and policies

• Mentor had student consider borderline or practical factors (e.g., whether the shelving replacement was “like-for-like” or an upgrade; evidence for exclusive use of home consulting room; whether the binding cost is revenue or capital; timing of payment for binding invoice and accruals).
• For Q3 discussed capital gains timing rules, primary residence relief, and how improvements and selling costs reduce capital gain.

Step 6  Review, justify and reference

• The mentor reviewed draft answers for logical coherence, statutory citation where needed, and clear numeric workings. Emphasised stating assumptions where facts ambiguous (e.g., assume display window replaced door = improvement) and doing sensitivity remarks if alternative views exist.

Final outcome and learning objectives achieved

Outcome (what the student produced):

• Q1: Clear itemised reasoning and conclusion showing which parts (if any) of the R30k, R100k, R9k, R12k and R25k are deductible under s.11(d), with short legal justifications.
• Q2: A disciplined analysis of each expense showing whether each is deductible, disallowed, or capital — including correct treatment of journal subscriptions and binding, and a justified apportionment approach for the home consulting room costs.
• Q3: Complete tax computation framework: classification of receipts, computation of assessable income, capital gain schedules (share disposal and primary residence treatment), rental income calculation, and a final calculation of tax liability with clear workings.

Key learning objectives covered:

1. Statutory application: Practically applying South African income tax provisions (repairs/test under s.11(d), general deduction principles, s.23 exclusions).
2. Fact-sensitive reasoning: Turning facts into precise legal questions and selecting the correct statutory test.
3. Distinguishing capital vs revenue: Understanding when expenditure is a repair (revenue) or an improvement (capital) and consequences for deductibility.
4. Tax computation skills: Preparing schedules, handling exemptions and capital gains treatment, and showing complete arithmetic workings.
5. Professional presentation: Developing concise legal/technical answers that state assumptions, justify positions, and present numerical work clearly and transparently.
6. Academic rigor: Documenting authority and following a structured problem-solving process; when facts are ambiguous, identifying alternative outcomes and explaining rationale.

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