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linda_us, Master's Degree
Category: Multiple Problems
Satisfied Customers: 1402
Experience:  A tutor for Business, Finance, Accounts and other related topics.
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Mr Risk erected a block of shops on his erf situated in Port

Customer Question

Mr Risk erected a block of shops on his erf situated in Port Elizabeth and financed it with
R6 million borrowed from Spaarbank. He came under severe financial pressure as interest
rates increased and he had difficulty in obtaining tenants, with the result that the only solution
was to sell the building. He concluded a deed of sale with Newco (Pty) Ltd in terms which he
sold the building for the sum of R7 500 000 on 14 October 2014. Possession and occupation of
the building was, in terms of the contract, given to the company on 1 November 2014.
The purchase price was to be settled as follows: R2 500 000 payable in cash on signing the
agreement and R5 000 000 in cash upon registration of transfer of the property into the name of
Newco (Pty) Limited. The outstanding amount of R5 000 000 carried interest at a rate equal to
the rate charged by Spaarbank. Mr Risk continued to pay the interest to Spaarbank after 1
November 2014.
Mr Risk used the cash of R2 500 000 received on 14 October 2014 to subscribe for 2,5 million
shares in E-Sales Limited. He does not have a previous record of share transactions.
Newco (Pty) Ltd did not pay the R5 000 000 upon registration of transfer and it then became
evident that it was unable to carry out its obligations towards Mr Risk because it was on the
verge of being liquidated. This led to an agreement between Mr Risk and Newco (Pty) Limited
which had the effect of cancelling the deed of sale of 14 October 2014. This new agreement
was signed on 1 January 2016. The agreement also authorised Mr Risk to resell the property to
a third party on condition that the R2 500 000 would be refunded as soon as the new purchaser
settled the purchase consideration. The interest of R1 160 000 payable by Newco (Pty) Ltd
remained payable, but Mr Risk accepted one million shares in Forrest Limited (shares owned by
Newco (Pty) Ltd) valued at R1 each, in full and final settlement of the interest payable.
Subsequently (during February 2016) both E-Sales Limited and Forrest Limited were liquidated,
and no distribution was made to shareholders.
Discuss whether Mr Risk will be able to deduct in terms of section 11(a) read with section 23(g)
of the Income Tax Act 58 of 1962, the interest paid to Spaarbank during the 2011 year of
Discuss whether Mr Risk would be able to deduct the loss suffered in respect of the full and final
settlement of the interest due to him in return for the one million shares in Forrest Limited (loss
equals R160 000) during 2016 year of assessment; and discuss whether Mr Risk will be able to
deduct the loss suffered by him in respect of the shares on the liquidation of Forrest Limited and
E-Sales Limited during the 2016 year of assessment.(25)
Discuss the deductibility of expenditure on education and training.
126Hi I am doing an advanced course in taxation
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: I need the format in which to answer
Submitted: 2 months ago.
Category: Multiple Problems
Expert:  Donna Kakonge replied 2 months ago.

Dear Customer,

I can have this completed for you no later than Monday. Would that be OK? As well, I would like to make a slightly higher offer to receive more credit for this question please.

Kindest regards,

Donna Kakonge, BJ, MA, TESOL, LLB, ABD

Customer: replied 2 months ago.
No Thank You i need it by Thursday 29/09/2016
Expert:  Donna Kakonge replied 2 months ago.

Dear Customer,

I can have it completed for you by today. You would need to accept the offer or we could negotiate.

Kindest regards,


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