Answers
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 $ 000 000) $500 000. / 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 80 000 000 / 2 Bonus gross 20 000 000 / 2 Bonus exemption (75 000) Cost of living allowance 3 000 000 / 2 School fees allowance 60 000 000 / 2 Acting allowance 45 000 000 / 2 Long service award 500 000 000 / 2 Cash in lieu of leave 20 000 000 / 2 Motor vehicle benefit ($6 700 000) 6 700 Pension (exempt) Pension contributions ($900 000 X 4/2) (300) Subscriptions Trade union ( 700 000) / 2 Accredited Professional Tennis Association (5 400 000) / 2 Zimbabwe Institute of Engineers (2 850 000) / 2 Rent (not allowed) / 2 Motor vehicle payment (not allowed) / 2 Transfer fees (not allowed capital) / 2 Taxable income 97 98 400 Tax on sliding scale: Up to $280 million 02 000 ($97 98 400 000 280 000 000) X 47 5% 435 908 65 Gross tax 436 00 65 / 2 Less credits: Elderly person s credit (20 000 X 4/2) (40) / 2 Medical aid contributions (7 650 000 000 X 50%) (3 825 000) / 2 432 85 25 Add 3% AIDS levy 2 965 554 / 2 445 50 679 Less PAYE (63 000 000) / 2 Tax payable 382 50 679 3 5
(ii) January 2008 to 3 March 2008 Salary 00 000 000 / 2 Representation allowance (exempt) Grocery allowance 7 000 000 / 2 House benefit ($5 000 000 000 X 2) 0 000 000 Motor vehicle benefit ($900 000 000 X 2/2) 50 000 Cell phone benefit ($750 000 000 X 2) 500 000 / 2 Fuel allocation ($3 600 000 000 X 2) 7 200 000 Pension (exempt) / 2 Pension contributions ($ 500 000 X 2/2) ( 97) Taxable income 35 848 083 7 25 2 Giant Food Processors Limited (a) Calculation of the maximum capital allowances claimable for the year ended 3 December 2007 Industrial building SIA (87 000 000 000 X 50%) 93 500 000 / 2 5% GP allowance (87 000 000 000 X 5%) 28 050 000 / 2 Showroom SIA (23 000 000 000 X 50%) 6 500 000 / 2 5% GP allowance (23 000 000 000 X 5%) 8 450 000 / 2 Plant and machinery SIA (243 000 000 000 X 50%) 2 500 000 / 2 5% GP allowance (243 000 000 000 X 5%) 36 450 000 / 2 Furniture and fittings SIA (28 730 000 000 X 50%) 4 365 000 / 2 5% GP allowance (28 730 000 000 X 5%) 4 309 500 / 2 Office partitions SIA (3 000 000 000 X 50%) 6 500 000 / 2 5% GP allowance (3 000 000 000 X 5%) 950 000 / 2 Office equipment SIA (50 000 000 000 X 50%) 25 000 000 / 2 5% GP allowance (50 000 000 000 X 5%) 7 500 000 / 2 Mazda T35 SIA (45 800 000 000 X 50%) 22 900 000 Mazda B2500 (0 000 000 X 50%) 5 000 HP laserjet 320 printer SIA (25 000 000 000 X 50%) 2 500 000 / 2 5% GP allowance (25 000 000 000 X 5%) 3 750 000 / 2 Diesel generator SIA (49 000 000 000 X 50%) 24 500 000 / 2 5% GP allowance (49 000 000 000 X 5%) 7 350 000 / 2 Total 490 079 500 0 6
(b) Calculation of the taxable income and corporate tax payable for the year ended 3 December 2007 Net profit per income statement 380 000 000 / 2 Add: Total pension contributions 2 000 000 / 2 Less allowable portion (900 000 X 5) (3 500) ZIMRA PAYE penalty 7 500 000 Donations political party 5 000 000 Depreciation 83 000 000 / 2 Operating licence penalty 5 000 000 Computer consumables printer 25 000 000 Electricity and water interest 7 000 000 reconnection charges 3 000 000 diesel generator 49 000 000 Interest paid overdraft raising fee 5 653 000 ZIMRA payment corporate tax penalty 20 000 000 Less: Gross dividends (29 290 000) / 2 Capital allowances from (a) (490 079 500) / 2 South Africa trip export promotion (double deduction) (80 000 000) 2 Taxable income 2 770 000 Taxable at 0% 277 000 Add 3% AIDS levy 8 30 / 2 Tax payable 285 30 6 (c) Due dates and payments 0% due on 25 March 2007 28 53 25% due on 25 June 2007 7 328 30% due on 25 September 2007 85 593 35% due on 20 December 2007 99 858 285 30 4 30 7
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 (520 000 000 000 X 75) 90 000 000 Less recoupment (500 000 000 462 500 000) (37 500) Kensington garden flat (750 000 000 000 X 75) 32 500 000 Less recoupment (60 000 000 564 250 000) (45 750) Patel Auction floor (930 000 000 000 X 75%) 627 500 000 Less recoupment (972 000 000 923 400 000) (48 600) Less: Cost Avondale property (exempt) Graniteside warehouse 500 000 / 2 Kensington garden flat 60 000 / 2 Patel Auction floor 972 000 / 2 Recoupment (37 500 + 47 750 + 48 600) (33 850) ( 948 50) / 2 Inflation allowance Graniteside warehouse 500 000 000 X (2 562 58 7 4 880 3) ( 286 570 64) 4 880 3 Kensington garden flat 60 000 000 X (2 562 58 7 4 880 3) ( 569 66 82) 4 880 3 Patel Auction floor 972 000 000 X (2 562 58 7 6 486 4) (739 688 75) 6 486 4 Selling expenses: Estate agent commission (4 54 250) / 2 Property valuation charges (2 500 000) / 2 Legal fees ( 800 000) / 2 Capital gain 243 20 76 Capital gain tax at 20% 48 640 235 Payable by Mr Patel 50% 24 320 8 / 2 Payable by Mrs Patel 50% 24 320 7 / 2 The tax should be remitted to ZIMRA within 30 days of signing the sale agreements. / 2 5 4 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 2007. 2 8
(b) Value added tax computation for the month of October 2007 Output tax: Sales Groceries (398 600 000 000 X 50% X 5%) 29 895 000 / 2 Household appliances (500 000 000 000 X 50% X 5%) 37 500 000 / 2 Hardware (96 000 000 000 X 50% X 5%) 68 700 000 / 2 Hardware returns (87 63 000 000 X 50% X 5%) (6 570 975) 29 524 025 Less Input tax: Purchases Groceries (230 000 000 000 X 5%) (34 500 000) / 2 Household appliances (242 000 000 000 X 5%) (36 300 000) / 2 Hardware (679 500 000 000 X 5%) (0 925 000) (72 725 000) / 2 Overheads Electricity and water (5/5 X 623 000 000) (2 696) / 2 Telephone and internet (5/5 X 28 000 000 000) (3 652 74) / 2 Salaries and wages / 2 Stationery (5/5 X 7 862 000 000) (2 329 826) / 2 Depreciation / 2 Transportation (5/5 X 45 000 000 000) (5 869 565) / 2 Motor vehicle expenses (5/5 X 39 950 000 000) (5 20 870) / 2 Repairs and maintenance (5/5 X 840 000 000) ( 544 348) / 2 Benefits: Motor vehicles Isuzu (5/5 X 5 000 000 X /4) (63 043) Mazda 323 (5/5 X 2 400 000 X /4) (78 26) Cell phone (5/5 X 800 000 000 X 2) (208 696) (9 268 479) Value added tax refundable 62 469 454 5 5 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) (645 000) / 2 2003 (70 000) / 2 2004 (243 000) 88 000 2005 (560 000) 93 000 2006 (845 000) 07 000 2007 (99 000) 325 000 Loss to be carried forward (2 567 000) (202 000) 5 (ii) A recorded loss can be carried forward for a maximum of six years from the year incurred. 9
(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 300 000 Passenger motor vehicles 65 000 Office equipment 248 000 Furniture and fittings 200 000 Total 93 000 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. 3 5 20