What is the cash equivalent amount included in the taxpayer's gross income?
What is the formula to calculate the cash equivalent amount included in the taxpayer's gross income based on the given data?
The cash equivalent amount that will be included in the taxpayer's gross income during the year of assessment is option (e) (0.12345 x R400 000) - (R6 000 x 12). The formula to calculate the cash equivalent amount included in the taxpayer's gross income is:
Cash Equivalent = (Fund Member Category Factor x Retirement Funding Income) - (Contributions made by the taxpayer)
Given the information provided:
- Fund Member Category Factor = 0.12345
- Retirement Funding Income = R400 000
- Contributions made by the taxpayer = (R6 000 x 12) = R72 000
Substituting the values into the formula:
Cash Equivalent = (0.12345 x R400 000) - R72 000
Therefore, the correct option is (e) (0.12345 x R400 000) - (R6 000 x 12).
Calculation of Cash Equivalent Amount:
Cash Equivalent = (0.12345 x R400 000) - R72 000
Let's break down the calculation step by step:
1. Calculate the contributions made by the taxpayer: Contributions made by the taxpayer = R6,000 x 12 = R72,000
2. Multiply the Fund Member Category Factor by the Retirement Funding Income: 0.12345 x R400,000 = R49,380
3. Subtract the contributions made by the taxpayer from the result of step 2: R49,380 - R72,000 = -R22,620
Therefore, the cash equivalent amount that will be included in the taxpayer's gross income during the year of assessment is -R22,620. This negative amount indicates that the taxpayer will have a reduction in his gross income due to the contributions made to the retirement fund.