Trading Stock

Which of the following shares qualifies as an equity share for Section 9C purposes?

• Shares in a foreign company not listed in the Republic.

• Shares in a South African company.

• Shares in a private company operating outside South Africa.

• Shares in a foreign company listed on the Johannesburg Stock Exchange (JSE).

In 2020, a taxpayer acquired shares in two portfolios:

• Portfolio 1: Investment portfolio (shares held for capital appreciation).

• Portfolio 2: Speculative share portfolio (shares acquired for short-term profit).

The taxpayer now sells shares from Portfolio 2 in 2024. Which of the following is correct?

• Expenses related to the acquisition of these shares are deductible even after three years.

• No Section 9C recoupment applies if the shares were held for at least three years.

• The disposal is treated as revenue in nature

• The disposal is treated as capital in nature under Section 9C.

A taxpayer uses trading stock (cost: R70,000; market value: R100,000) in their business, not for resale but as part of office decor. How should this be treated under Section 22(8)?

• No recoupment applies because the stock is still in the business.

• Recoupment is triggered at market value with a S11(a) deduction for the same amount.

• Recoupment is triggered at cost

• Recoupment is triggered at market value

The taxpayer acquired speculative shares in 2020 for R150,000. In 2024, they sell some of these shares for R65 000 (cost: R30,000).

• Calculate the recoupment amount under Section 9C(5).

• Rnil

• R30 000

• R150 000

• R35 000

ABC (Pty) Ltd imports trading stock worth R200,000 from a foreign supplier on 30 December 2024. The goods will only arrive in South Africa on 20 January 2025. How should this be treated for the 2024 year of assessment ended 31 December 2024?

• Deduct the R200,000 under Section 11(a).

• No s11(a) deduction is allowed

• Deduct the amount under Section 22(1).

• Recoupment under s22(8)

Answer explanation

s23F(1) If stock is neither held or disposed of at the end of the YOA, no deduction until sold or included in income in the following YOA

A taxpayer manufactures trading stock for their business (cost: R120,000), market value (R150 000). In the current year, they reallocate this stock as a capital asset for internal use (e.g., machinery).

• Determine the recoupment amount.

• Rnil

• R150 000

• R120 000

Answer explanation

No s22(8) recoupment on assets were Par jA) gross income definition applies

Proviso d)

A taxpayer distributes trading stock (cost: R40,000; market value: R60,000) as gifts to employees. How should this be treated under Section 22(8)?

• Recoupment @ MV

• Recoupment at cost

• Recoupment @ MV and equal s11(a) deduction

• No effect under s22(8)

Mr. D is a share dealer and holds shares at the end of the year of assessment. The cost of these shares is R500,000, but their market value has dropped to R450,000. What value will be included in closing stock under Section 22(1)?

• R500 000

• R450 000

• Rnil

• None of the above

Mr. X received trading stock for no consideration from Mr. Y.

• The cost of the stock to Mr. Y was R100,000.

• The market value of the stock at the time of transfer was R120,000.

What value should Mr. X include as the cost of the trading stock in closing stock if still held at the end of the year?

• R100,000

• R120,000

• RNil

• None of the above

XYZ Ltd imports trading stock for €20,000 from a European supplier.

• Exchange rate at transaction date: 1 EUR = R20

• Exchange rate at shipping date (FOB): 1 EUR = R20.50

Additional costs incurred:

• Customs and import duties: R50,000

• VAT paid at the border: R60,000

• Transport to warehouse: R15,000

Determine the total cost of the trading stock for s11(a) purposes?

• R4 225 000

• R4 165 000

• R4 065 000

• R4 125 000