Prison Bester Prison a South African Assignment

Assignment Task

Prison Bester (Prison), a South African turned 65 years old on 30 June 2022. He is a chartered accountant who has been working in the banking industry his whole life. He retired from his job as Chief Financial Officer of a banking company, VDB Bank on 30 June 2022.

Having recently become a grandfather, Prison looked forward to spending more time with his family and enjoying a slower pace of life. Prison was used to a busy, stressful lifestyle with his previous job, and post-retirement boredom at home soon set in.

Prior to his retirement, Prison spent many weekends learning carpentering at the local TVET college. Soon after he retired, he started carpentering business where he was installing ceilings, cupboards for households and business around his area.

Owing to the ongoing changes and the complexity of tax legislation, Prison approached you to assist him with completing his 2023 income tax return. Prison has asked you to review the supporting documentation he has received.

Further details of Prison ’s tax affairs for the 2023 year of assessment are as follows:

1. Prison is married to Nandi. They’re married out of community of property and have three grown up children. Their youngest child, Magudumana, is disabled and is still a dependent on Prison’s medical aid.

2. Prison retired on 30 June 2022 and received the attached IRP5 for work performed. The details for the period from 1 March 2022 to 30 June 2022 include the following:

• A monthly salary of R80 000.
• Leave payout equivalent to R22 500.
• A performance bonus of R54 000 relating to the year of assessment ended 28 February 2023, but only paid on 1 March 2023.
• A travel allowance of R8 000.00 per month (see note 9).
• The company contributed 50% towards his monthly medical aid contributions, with the balance deducted from his salary. Total company contributions equalled R2 000 per month (see note 3).
• Prison received a new set of golf clubs, which was acquired by his employer at R20 000, as a retirement present from the company for 14 years of service.
• UIF was deducted and paid to SARS as per the Department of Labour’s statutory requirements.
• 15% of Prison’s salary was contributed to the company’s pension fund (7,5% contributed by company, 7,5?ducted from Prison’s salary).
• PAYE deducted of R82,400 for the period from 1 March 2022 to 30 June 2022.

3. After retiring, Prison stayed with his current medical aid and took over the total medical aid contributions of R4 000 per month in his personal capacity from 1 July 2022 until the end of the tax year, with his wife, Nandi, and severely disabled child, Magudumana, as dependents. Prison has an ITR-DD form for Magudumana which was issued 3 years ago from a specialist with PR number of 129142 on 1 March 2020. The birth date of his child who suffers from a disability was 1 June 2009.

The medical aid certificate is attached. He incurred an additional R44 600 of medical expenditure which is not reflected on the certificate. This was made up of R8 900 for vitamins (these were recommended by his son who had just started studying homeopathy), R31 000 for doctor visits and prescribed medicines, and R4 700 for nurse appointments for his new grandchild. None of f the prescription medicine related to the disability as this was covered by medical aid.

5. Prison also contributed to an Income Protection Policy and his contributions were R16 000 for the year of assessment ended 28 February of assessment ended 28 February 2023.

6. During the 2023 year of assessment, Prison donated R30 000 to the local church which he attends every Sunday, R10 000 to the SPCA and R8 000 to his grandson’s crèche. He received a S18A certificate for the SPCA donation only. He also made a R30 000 donation to a SARS approved NPO last year, but only R20 000 was allowed as a deduction.

7. Prison’s total local interest was R10 800 which he earned from his bank account with ABASA Bank.

8. Prison earned gross local dividend to the value of R18 000 during the during the 2023 year of assessment. Gross foreign dividends to the value of $3 000 (USD) accrued to him on 30 June 2022 from a from a minor investment in a USA company, Trump Holdings. This dividend was subject to a 10% withholding tax in the United State of America. Prison owns 0.5% of the equity shares and voting rights in this in this foreign company and no other South African residents own any shares in the company.

9. Prison bought a new car for R400 000 (including VAT), A 2021 BMW 320i with license FDD 290 L on 1 March 2021. He used it for both business and personal use and kept an accurate logbook to record his business mileage. During his employment from 1 March 2022 to 30 June 2022 he travelled a total of 11 500 km of which 7 200 km was for business. Prison didn’t keep a record of his vehicle related expenses (for example fuel, maintenance, etc) however he bears the full cost of these expenses himself. He also mentioned to you that post his retirement he did regular school lifts for his grandchildren which he thought may be deductible (total mileage was 2 000 km).

10. On 1 August 2022, Prison bought his own carpentering equipment’s R42 500 for the use at his carpentering business. During the year he generated an income 66 000 from his carpentering business. He also supplied you with a schedule of his expenses from 1 July 2022 –– 28 February 2023:

• Cellphone R13 000 (70% client related, 30% personal), 
• Advertising in the neighbourhood local newspaper R3 800,
• Additional carpentering lessons R6 500, 
• Household groceries R16 000, (he had mentioned to you that he practised his additional carpentering lesson at home therefore thought he could write off a portion of his personal groceries).

11. Prison’s brother was a generous man who was doing well financially in the USA. He donated the Rand equivalent of R120 000 to Prison as a gift on 1 September 2022.

12. Following Prison’s retirement, he and Nandi decided that they wanted to scale down in terms of the size of the house they lived in. As a result, Prison disposed of their old house on 31 January 2023 for R3 950 000. Prison, Nandi and Magudumana had been living in this house since 1 February 2013, when it was purchased by Prison for R2 880 000. For the period from 1 February 2017 to 31 January 2021, a separate living area, which makes up 10% of the floor space of the house, was let out to a friend of Magudumana’s who lived there while studying at a nearby college. Prison purchased a new house in a secure golf estate for R3 100 000 and moved into this house on 25 February 2023. SARS had not issued Prison with a Unique Identifier.

13. Prison advised that he held the following assets and liabilities at 28 February 2023:

Assets

• Furniture R150 000 (cost) cost). Morris advised this was purchased 10 years ago and he was considering selling second hand for R10 000.
• Motor vehicle R400 000 (cost)
• Carpentering equipment R42 500 (cost)
• Local interest-bearing account balance R4 000 00
• Local bank account balance R12 000
• Carpentering business invoice due R12 000
• Foreign interest-bearing account balance R1 500 000 (rand equivalent)
• Foreign equity shares R200 000 (rand equivalent cost); R180 000 (rand equivalent market value)
• Local equity shares R250 000 (cost); R480 000 (market value)
• House on golf estate R3 100 000

Liabilities:

• Credit card balance R33 500
• Overdraft at bank R50 000

14. Prison made a provisional tax payment In February 2023 of R91,000

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