QUESTION 4 30 marks
Oscar Troskie (45 years of age) is ordinarily resident in the Republic. He is married out of community of property and without the accrual system to Naomi.
Oscar has been working for Taurus (Pty) Ltd (‘Taurus’) for the past 20 years and has held the position of managing director for the past three years. Oscar became seriously ill and on 1 February 2008 he was diagnosed with a terminal disease. He retired on the same date and with immediate effect on grounds of ill health.
On his resignation the following amounts accrued to Oscar:
• From his date of retirement Oscar received a monthly pension of R20 000 from his pension fund. Upon Oscar’s death his widow would receive a pension of R10 000 per month until her death.
• Oscar is also a member of a retirement annuity fund. He did not make any contributions to this fund during the 2008 year of assessment. An annuity of R19 000 per month would be paid from a retirement annuity fund on the last day of each month following retirement. He received the first payment on 29 February 2008. This annuity would be paid to his widow upon his death.
• Taurus paid Oscar a voluntary award of R250 000 and accumulated leave pay of R150 000.
Oscar used these payouts to settle all his outstanding debt and invested the balance in a local money market account. For the period up to 29 February 2008 he earned R5 000 interest on this investment.
During the 2008 tax year Oscar also earned local interest of R22 500, local dividends of R2 400 and foreign dividends of R3 100 from his holding in a collective investment scheme. Both the local interest and the foreign dividends were exempt in the portfolio in terms of section 10(1)(iA).
During the 2008 year of assessment the following amounts and benefits accrued to Oscar by virtue of his employment contract with Taurus:
• Taurus contributed 100% of Oscar’s monthly contribution of R2 000 towards his medical aid scheme. The scheme covers Oscar, Naomi and James (their 17-year old son who is a ‘handicapped person’ as defined in section 18(3)). As Oscar is entitled to post-retirement medical scheme contribution funding in terms of his original service contract with Taurus, the company made the monthly contributions for the whole of the 2008 year of assessment. Oscar incurred qualifying medical expenses of R107 500 during the 2008 year of assessment of which R59 250 was recovered from the medical aid fund.
• Oscar had the exclusive use of an Audi A8 for the entire year. He continued using the vehicle after his retirement until 29 February 2008. The vehicle had cost Taurus R500 000 (inclusive of Value-added Tax (VAT)) on 1 March 2007.
• Taurus paid the first R1 000 per month (for the entire 2008 year of assessment) towards fuel irrespective of whether the fuel cost related to business or private travel. The total fuel costs amounted to R16 000 for the year. Oscar was responsible for all maintenance costs, which amounted to R10 000 for the year, on the vehicle. On 29 February 2008 the Audi 17
A8 was sold to Oscar for R400 000 (exclusive of VAT) and at that date the market value was R480 000.
• Oscar also received a travel allowance of R3 000 per month in respect of this vehicle. The travel allowance was paid until the end of January 2008. Oscar kept a logbook and his total mileage over the period was 20 000 km of which 5 000 km qualified as business mileage.
• Since his promotion to the position of managing director Oscar has been awarded a 10% annual salary increase on 1 February of each year. On 1 February 2008 Oscar’s basic salary would have increased to R79 200 a month.
Oscar has an assessed capital loss of R75 000 brought forward from the 2007 year of assessment.
The following is a list of Oscar and Naomi’s assets and investments as at 29 February 2008:
Date of acquisition
Market value on 10/03/08
2007 Audi A8
Four-seater aircraft (mass equals 450 kg)
1 800 000
Boat (11 metres)
Holding in collective investment scheme
Erf in Knysna
Money market account
Primary residence in Bloemfontein
2 100 000
Household furniture and personal effects
Life insurance policies
Holiday house in
* This amount represents the death benefit payable upon the death of Oscar.
1 Naomi owns the MG and all the other assets belong to Oscar.
2 Oscar purchased an aircraft to travel between his primary residence in Bloemfontein and his holiday home in Gabarone, Botswana. He did not use it for business purposes.
3 Oscar purchased the boat for his family’s recreational use and did not use it for business purposes at all.
4 The holding in the collective investment scheme was worth R750 000 when Oscar inherited it from his uncle, who was a resident of South Africa.
5 Oscar acquired the erf in Knysna for investment purposes.
6 Both of these policies are domestic policies and they were taken out on the life of Oscar.
• The beneficiary of the first policy is Naomi who would receive R500 000 in terms of a duly registered ante-nuptial agreement. The premiums paid by Oscar amounted to R150 000 whilst the interest thereon (at 6% per annum) amounted to R40 000.
• The beneficiary of the second policy is Oscar’s younger sister who would receive R400 000. She paid all the premiums, which amounted to R70 000 whilst the interest thereon (at 6% per annum) amounted to R10 000.
7 The holiday house in Gabarone in Botswana was acquired out of a cash inheritance from Oscar’s father, who was at all times a resident of Botswana. The relevant exchange rate for Botswana was P1 = R0,90.
Oscar’s last will and testament was drawn up in 2005 and contains the following stipulations:
• The boat and the holiday house are to be sold and the proceeds paid to James.
• The primary residence as well as the household furniture and personal effects are to go to Naomi.
• A discretionary trust is to be created and all the remaining assets are to be transferred to the trust. Naomi and James are to be the beneficiaries of the trust.
Oscar died on 10 March 2008 and the above was his last will and testament. Administration and other costs (including any tax owing) to wind up the estate amounted to R85 000.
Calculate the taxable income of Oscar Troskie for the 2008 year of assessment. Indicate where amounts are to be carried forward or are to be disregarded.
Calculate the estate duty payable on the estate of Oscar Troskie. You are NOT required to calculate any income tax effects.