QUESTION
Mr Jack Rose worked for 35 years in total for Titanic Plc, a non-resident company employer. For the last seven years of his employment, until December 2000, he was based at its branch in South Africa. This was the only period that he worked in South Africa. He was a member of the company's pension fund throughout his employment.
On his retirement in December 2000, he returned to England, his native country. However, in February 2002 he decided to emigrate to South Africa, and has been ordinarily resident in Cape Town since 1 March 2002. On 31 August 2003 he attained the age of 63 years.
Information pertaining to Mr Rose's income, expenditure, gains and losses for the year of assessment ended 29 February 2004 is as follows:
1 He received a monthly pension equivalent to R20 000 per month from the Titanic Pension Fund (a pension fund operated by his former employer).
2 Details of the aggregate dividends which accrued to him from foreign (i.e. non-South African resident) listed companies during the year are as follows:
R
Profits before tax of underlying companies out of which Mr Rose's share of the dividends were declared
Less: Foreign corporate income taxes
125 000
25 000
Profits after foreign corporate income taxes 100 000
Gross dividends accruing to Mr Rose
Less: Foreign withholding taxes on dividends
100 000
10 000
Net dividends accruing to Mr Rose 90 000
The shareholding of Mr Rose in each of these foreign listed companies from which he received dividends amounted to less than 1% during the year of assessment. Gross dividends equal to R6 000 (net portion R5 400) of the total gross foreign dividends of R100 000 are specifically exempt from tax in terms of section 9E(7). The pre-tax profits out of which these exempt foreign dividends had been declared, were the equivalent of R7 500. Mr Rose has not made the election to be taxed on the "net" basis in terms of section 9E(6).
3 A net dividend of R4 500 accrued to him from a private company resident in France. The gross dividend was the equivalent of R5 000 and French withholding tax equivalent to R500 was deducted. The pre-tax profit out of which this foreign dividend was declared, was the equivalent of R6 250. Mr Rose has a 27% shareholding in this company - all the other shares in the company are held by French residents. This foreign dividend is not exempt from tax in terms of section 9E(7).
4 Dividends of R18 000 accrued to him from South African resident JSE Securities Exchange South Africa listed companies. In addition, he received a dividend of R1 200 from ABC Engineering (Pty) Ltd, a private South African resident company.
5 Interest of R32 500 from deposits in a South African bank and interest equivalent to R6 530 accrued to him from a bank account held in London with a UK bank.
6 A distribution of R19 000 accrued to him from a South African "property unit trust" (a collective investment scheme in property). This distribution consisted of interest of R1 800, and dividends of R17 200 distributed via the trust from the underlying property owning companies, the shares of 12
which are held by the trust. (These dividends qualified for the section 11(s) deduction in the hands of the property owning companies.)
7 Distributions of R18 000 from a South African unit trust (an equity unit trust) accrued to him. These distributions consisted of R16 200 in dividends from South African resident companies and R1 800 in dividends (not exempt) from non-South African resident companies.
8 Mnr Rose realised a net capital gain of R16 130 from the disposal of certain unit trusts and other financial instruments. These unit trusts and other financial instruments were both acquired and disposed of in SA rand, and Mr Rose did not hold any of them on 1 October 2001.
The details relating to these disposals are as follows:
Disposal of unit trusts and other financial investments
Investment
Units
disposed
of
Cost of units
disposed of
Gross
proceeds
Gain or
loss
R R R
C International 1 200 30 000 38 400 8 400
I Global 9 600 19 200 22 560 3 360
Balanced Funds 29 700 37 125 41 580 4 455
G Opportunity 1 700 1 615 1 530 (85)
Total 42 200 87 940 104 070 16 130
9 Other capital gains or losses realised by Mr Rose during the year were as follows:
(a) A gain of R1 100 realised on the sale of golf clubs, which he had used himself.
(b) A gain of R870 realised on the sale of a Krugerrand coin. He had meant it to form part of a necklace for a friend. However, their relationship came to an end before he had carried out his intention; and
(c) A loss of R52 000 on the disposal of his motor vehicle.
Mr Rose does not have an assessed capital loss to bring forward from the February 2003 year of assessment. He did not realise any foreign exchange gains or losses during the year in respect of his foreign currency holdings.
10 He was employed temporarily by Titanic Plc (his former employer) for a two-month period during the year.
(a) During July 2003 he worked at its London, UK, head office and earned a salary equivalent to R25 000 for the month. Titanic Plc paid all his traveling and accommodation expenses in London during this month.
(b) During August 2003 he worked for Titanic Plc in South Africa. He worked at its Cape Town branch for three weeks while the remaining week was spent at the Johannesburg branch. Mr Rose flew to Johannesburg on the Monday morning and back home to Cape Town on the
Friday evening. He spent the four nights that he was away from his usual residence at a hotel in Johannesburg. He was paid a salary of R20 000 for the work performed during August 2003 and Titanic Plc also paid his airfare and hotel accommodation in Johannesburg. However, he spent R720 on meals and incidentals and has proof that he paid for it himself. Titanic Plc gave him an allowance of R1 000 (R200 a day for five days) for the period he worked "out of town" for meals and incidentals. (The Minister of Finance has approved, by way of a Gazette notice, an amount of R196 a day for meals and incidentals incurred by an employee when "out of town" on business.)
11 In addition to the salary Mr Rose earned from Titanic Plc during July and August, he received a cell phone allowance of R600 per month as he needed to make "business" calls for the company during this period. He also received an entertainment allowance of R1 000 per month for entertaining Titanic Plc customers. Mr Rose did not keep details of either the cost of his "business" calls or the entertainment expenses he had incurred, but estimated that the "business" calls cost him R900 and his entertainment cost him R2 200.
12 Mr Rose is a beneficiary of his late father's testamentary trust. In terms of the trust deed the trustees are required to award him a fixed amount of R100 000 each year. This award is a pro rata distribution of the net receipts and accruals of the trust. For the 2004 year of assessment the award of R100 000 was distributed from the following income earned by the trust:
(a) R40 000 in net rentals;
(b) Equivalent of R30 000 in interest earned on foreign bank deposits;
(c) Equivalent of R20 000 in dividends from non-South African resident companies - none of the dividends being exempt from tax; and
(d) Dividends from South African resident companies of R10 000.
13 Mr Rose incurred the following expenses during the 2004 year of assessment:
(a) Interest of R15 000 on a loan of R100 000 which he had taken out on 1 March 2003 for the following purposes:
(i) R60 000 to acquire shares in a South African resident company - dividends of R4 500 accrued to him during the year on these shares. These dividends are included in the total of R18 000 referred to in point 4 above; and
(ii) R40 000 to purchase shares in a non-South African resident company - dividends of R2 400 accrued to him during the year on these shares. These dividends are included in the total gross dividends of R100 000 referred to in point 2 above.
Mr Rose did not repay any part of the loan during the year.
(b) Qualifying medical and dental expenses incurred and paid by Mr Rose amounted to R33 920. Mr Rose is not a member of a medical aid fund.
14 He donated all his suits to a registered organisation for the care of disadvantaged persons. The activities of this organisation are listed in Part I of the Ninth Schedule to the Income Tax Act as qualifying public benefit activities. Its activities are not, however, recognised under Part II of the Ninth Schedule to the Income Tax Act. The donated suits had cost Mr Rose R45 000 in total, and on the date of their donation had a total market value of R3 000.
15 Mr Rose's lady friend had been living with him up to the time that their relationship ended. She moved out of his home on 30 November 2003. As she did not have a home of her own, Mr Rose leased a furnished apartment for her at an annual rental of R42 000, payable in advance, and paid the rental for the 12-month period from 1 December 2003 to 30 November 2004.
REQUIRED
Calculate the taxable income of Mr Jack Rose for the year of assessment ended 29 February 2004.