Fundamental Level Skills Module, Paper F6 (ZWE)

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1 Answers

2 Fundamental Level Skills Module, Paper F6 (ZWE) Taxation (Zimbabwe) Leonard Malvern December 2008 Answers and Marking Scheme (a) Transfer of the motor vehicle There is no tax implication for Leonard Malvern on the transfer of the motor vehicle because he is over 55 years of age and is therefore exempt from being taxed on the benefit accruing to him. The tax implication for Gwanda Tin Mine is as follows: The taxation of the recoupment on the motor vehicle. The recoupment is restricted to the capital allowances previously granted based on a restricted deemed cost of $ million (50% X $ ) $ / 2 Transfer of the house There is no tax implication for Leonard Malvern (as above). / 2 The tax implications for Gwanda Tin Mine on the deemed sale of the house are: 5% withholding tax calculated on the basis of the market value of the property and the actual capital gains tax calculated as 20% of the deemed capital gain. The withholding tax will however be offset against the actual capital gains tax. 2 5 (b) Calculation of taxable income for the following periods: (i) September 2007 to 3 December 2007 Salary / 2 Bonus gross / 2 Bonus exemption (75 000) Cost of living allowance / 2 School fees allowance / 2 Acting allowance / 2 Long service award / 2 Cash in lieu of leave / 2 Motor vehicle benefit ($ ) Pension (exempt) Pension contributions ($ X 4/2) (300) Subscriptions Trade union ( ) / 2 Accredited Professional Tennis Association ( ) / 2 Zimbabwe Institute of Engineers ( ) / 2 Rent (not allowed) / 2 Motor vehicle payment (not allowed) / 2 Transfer fees (not allowed capital) / 2 Taxable income Tax on sliding scale: Up to $280 million ($ ) X 47 5% Gross tax / 2 Less credits: Elderly person s credit ( X 4/2) (40) / 2 Medical aid contributions ( X 50%) ( ) / Add 3% AIDS levy / Less PAYE ( ) / 2 Tax payable

3 (ii) January 2008 to 3 March 2008 Salary / 2 Representation allowance (exempt) Grocery allowance / 2 House benefit ($ X 2) Motor vehicle benefit ($ X 2/2) Cell phone benefit ($ X 2) / 2 Fuel allocation ($ X 2) Pension (exempt) / 2 Pension contributions ($ X 2/2) ( 97) Taxable income Giant Food Processors Limited (a) Calculation of the maximum capital allowances claimable for the year ended 3 December 2007 Industrial building SIA ( X 50%) / 2 5% GP allowance ( X 5%) / 2 Showroom SIA ( X 50%) / 2 5% GP allowance ( X 5%) / 2 Plant and machinery SIA ( X 50%) / 2 5% GP allowance ( X 5%) / 2 Furniture and fittings SIA ( X 50%) / 2 5% GP allowance ( X 5%) / 2 Office partitions SIA ( X 50%) / 2 5% GP allowance ( X 5%) / 2 Office equipment SIA ( X 50%) / 2 5% GP allowance ( X 5%) / 2 Mazda T35 SIA ( X 50%) Mazda B2500 ( X 50%) HP laserjet 320 printer SIA ( X 50%) / 2 5% GP allowance ( X 5%) / 2 Diesel generator SIA ( X 50%) / 2 5% GP allowance ( X 5%) / 2 Total

4 (b) Calculation of the taxable income and corporate tax payable for the year ended 3 December 2007 Net profit per income statement / 2 Add: Total pension contributions / 2 Less allowable portion ( X 5) (3 500) ZIMRA PAYE penalty Donations political party Depreciation / 2 Operating licence penalty Computer consumables printer Electricity and water interest reconnection charges diesel generator Interest paid overdraft raising fee ZIMRA payment corporate tax penalty Less: Gross dividends ( ) / 2 Capital allowances from (a) ( ) / 2 South Africa trip export promotion (double deduction) ( ) 2 Taxable income Taxable at 0% Add 3% AIDS levy 8 30 / 2 Tax payable (c) Due dates and payments 0% due on 25 March % due on 25 June % due on 25 September % due on 20 December

5 3 Mr and Mrs Patel Calculation of the capital gain and tax payable for the year ended 3 December 2007 Proceeds from: Sale of Avondale property (exempt over 55 years) Graniteside warehouse ( X 75) Less recoupment ( ) (37 500) Kensington garden flat ( X 75) Less recoupment ( ) (45 750) Patel Auction floor ( X 75%) Less recoupment ( ) (48 600) Less: Cost Avondale property (exempt) Graniteside warehouse / 2 Kensington garden flat / 2 Patel Auction floor / 2 Recoupment ( ) (33 850) ( ) / 2 Inflation allowance Graniteside warehouse X ( ) ( ) Kensington garden flat X ( ) ( ) Patel Auction floor X ( ) ( ) Selling expenses: Estate agent commission ( ) / 2 Property valuation charges ( ) / 2 Legal fees ( ) / 2 Capital gain Capital gain tax at 20% Payable by Mr Patel 50% / 2 Payable by Mrs Patel 50% / 2 The tax should be remitted to ZIMRA within 30 days of signing the sale agreements. / Mary Ann Tsindi (a) (i) Tax implications of the NIPC order Reduced output tax without a corresponding change to the input tax results in more value added tax refund claims hence cash flow constraints to ZIMRA Reduced value added tax cash inflows to ZIMRA 2 (ii) Mary Ann is registered for value added tax under category C. The return for the month of October 2007 should be submitted by 20 November

6 (b) Value added tax computation for the month of October 2007 Output tax: Sales Groceries ( X 50% X 5%) / 2 Household appliances ( X 50% X 5%) / 2 Hardware ( X 50% X 5%) / 2 Hardware returns ( X 50% X 5%) ( ) Less Input tax: Purchases Groceries ( X 5%) ( ) / 2 Household appliances ( X 5%) ( ) / 2 Hardware ( X 5%) ( ) ( ) / 2 Overheads Electricity and water (5/5 X ) (2 696) / 2 Telephone and internet (5/5 X ) ( ) / 2 Salaries and wages / 2 Stationery (5/5 X ) ( ) / 2 Depreciation / 2 Transportation (5/5 X ) ( ) / 2 Motor vehicle expenses (5/5 X ) ( ) / 2 Repairs and maintenance (5/5 X ) ( ) / 2 Benefits: Motor vehicles Isuzu (5/5 X X /4) (63 043) Mazda 323 (5/5 X X /4) (78 26) Cell phone (5/5 X X 2) ( ) ( ) Value added tax refundable MCM Group Limited (a) (i) Calculation of the loss to be carried forward as at 3 December 2007 MCM Removals P/L MCM Property Developers P/L 2002 profit/(loss) ( ) / (70 000) / ( ) ( ) ( ) (99 000) Loss to be carried forward ( ) ( ) 5 (ii) A recorded loss can be carried forward for a maximum of six years from the year incurred. 9

7 (b) (c) Tax implications of the transfer of assets for MCM Removals P/L The transfer of assets is treated as a deemed sale and hence gives rise to the following tax implications: Capital gains tax of 20% on the capital gain on the immovable asset, i.e. the land, parking lot and office block. Capital gains withholding tax calculated as 5% of the selling price or market value applicable at the date of sale of the immovable asset Corporate tax of 30% on the recoupment of capital allowances previously granted on the movable assets as follows: Recoupment () Haulage trucks Passenger motor vehicles Office equipment Furniture and fittings Total However, the company has sufficient losses ($800 million expected for the current year, 2008 and $2 567 million carried forward) to offset this recoupment in full, thus no tax will actually be payable. 6 A newly incorporated company is required to register for the following: (i) Corporate tax to be remitted quarterly according to specified quarterly payment dates. (ii) PAYE to be remitted on the 5th of the month following the month of deduction. (iii) VAT to be remitted in accordance with the specific registration category