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b) Mr. Dumi Dhlomo is 57 years old and works at a Medical Research Company in Pretoria. The table below shows Mr. Dhlomo's annual income details. Using the income details, determine his (i) Taxable Income in the table provided. (ii) Claculate the Tax payable as per his marginal tax rate.

Accounting

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2 parts
i

R 450 000\text{R } 450\,000

ii

R 84 276\text{R } 84\,276

Step-by-step solution

8 steps

Here's the breakdown of Mr. Dumi Dhlomo's taxable income and tax payable.

Assumptions:

  • We are using the South African tax tables for individuals under 65 for the 2023/2024 tax year (1 March 2023 - 29 February 2024), as tax tables were not provided.
  • The reference to "her company car" is a typo and refers to Mr. Dumi Dhlomo's company car.

Part i· 4 steps

Determine his Taxable Income.

  1. Calculate Gross Income.

    Gross Income includes all income received or accrued.

    Salary=R 500 000Fringe benefit (company car)=R 50 000Interest from savings account=R 20 000Dividends from share portfolio=R 10 000Taxable capital gain=R 1 000Total Gross Income=R 500 000+R 50 000+R 20 000+R 10 000+R 1 000=R 581 000\begin{align*} \text{Salary} &= \text{R } 500\,000 \\ \text{Fringe benefit (company car)} &= \text{R } 50\,000 \\ \text{Interest from savings account} &= \text{R } 20\,000 \\ \text{Dividends from share portfolio} &= \text{R } 10\,000 \\ \text{Taxable capital gain} &= \text{R } 1\,000 \\ \text{Total Gross Income} &= \text{R } 500\,000 + \text{R } 50\,000 + \text{R } 20\,000 + \text{R } 10\,000 + \text{R } 1\,000 \\ &= \text{R } 581\,000 \end{align*}

  2. Apply exemptions to determine income subject to tax before deductions.

    • Interest Exemption: For individuals under 65, the first R23 800 of interest income is exempt. Mr. Dhlomo is 57, so his R20 000 interest is fully exempt.
    • Dividends Exemption: Dividends from South African companies are generally exempt from income tax for individuals. So, R10 000 dividends are fully exempt.
    • Capital Gains Exclusion: The first R40 000 of annual capital gains is excluded for individuals. Mr. Dhlomo's capital gain of R1 000 is fully excluded. Income subject to tax before deductions = Salary + Fringe benefit
    Income subject to tax before deductions=R 500 000+R 50 000=R 550 000\begin{align*} \text{Income subject to tax before deductions} &= \text{R } 500\,000 + \text{R } 50\,000 \\ &= \text{R } 550\,000 \end{align*}

  3. Calculate allowable deductions for retirement fund contributions.

    Total contributions = Pension fund contributions + Retirement annuity contributions

    Total contributions=R 50 000+R 50 000=R 100 000\begin{align*} \text{Total contributions} &= \text{R } 50\,000 + \text{R } 50\,000 \\ &= \text{R } 100\,000 \end{align*}

    The deduction limit for retirement fund contributions is the lowest of:

    1. R350 000
    2. 27.5% of the greater of remuneration (R550 000) or taxable income (before this deduction). 0.275×R 550 000=R 151 2500.275 \times \text{R } 550\,000 = \text{R } 151\,250
    3. Actual contributions: R100 000 The lowest of these three amounts is R100 000. Therefore, the full R100 000 is deductible.

  4. Calculate Taxable Income.

    Taxable Income = Income subject to tax before deductions - Allowable deductions

    Taxable Income=R 550 000−R 100 000=R 450 000\begin{align*} \text{Taxable Income} &= \text{R } 550\,000 - \text{R } 100\,000 \\ &= \boxed{\text{R } 450\,000} \end{align*}

Part ii

R 84 276\text{R } 84\,276

Calculate the Tax payable as per his marginal tax rate.

  1. Determine the applicable tax bracket for Taxable Income of R450 000 (for individuals under 65, 2023/2024 tax year).

    Mr. Dhlomo's taxable income of R450 000 falls into the bracket: R372 101 - R512 800.
    The tax formula for this bracket is R77 362 + 31% of taxable income above R372 100. His marginal tax rate is 31%.

  2. Calculate normal tax.

    Tax on R372 100=R 77 362Income above R372 100=R 450 000−R 372 100=R 77 900Tax on income above R372 100=R 77 900×0.31=R 24 149Total normal tax=R 77 362+R 24 149=R 101 511\begin{align*} \text{Tax on R372 100} &= \text{R } 77\,362 \\ \text{Income above R372 100} &= \text{R } 450\,000 - \text{R } 372\,100 \\ &= \text{R } 77\,900 \\ \text{Tax on income above R372 100} &= \text{R } 77\,900 \times 0.31 \\ &= \text{R } 24\,149 \\ \text{Total normal tax} &= \text{R } 77\,362 + \text{R } 24\,149 \\ &= \text{R } 101\,511 \end{align*}

  3. Subtract applicable rebates.

    Mr. Dhlomo is 57, so only the primary rebate applies (R17 235 for 2023/2024).

    Tax after rebates=R 101 511−R 17 235=R 84 276\begin{align*} \text{Tax after rebates} &= \text{R } 101\,511 - \text{R } 17\,235 \\ &= \text{R } 84\,276 \end{align*}

  4. Subtract medical tax credit.

    The qualifying medical tax credit is R0 (as provided in the table).

    Tax payable=R 84 276−R 0=R 84 276\begin{align*} \text{Tax payable} &= \text{R } 84\,276 - \text{R } 0 \\ &= \boxed{\text{R } 84\,276} \end{align*}
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