Professional Documents
Culture Documents
TOPIC
1 Introduction
2 Syllabus
3 Legislation cut off for exam
4 Recent Amendments
• Special Initial
• Wear and Tear
• Scrapping
• Growth Point Investment
• Recoupments
- Prohibited Deductions
6 Taxation of Individuals and Partnerships
- General scheme of taxation
- Accrual of partnership profit and salaries
7 Taxation of Farmers
- Special Deductions
- Valuation of Stock
- Drought Sales and Restocking
- Sales due to Land Acquisitions
8 Taxation of Miners
- Prospecting Expenditure
- Capital Redemption Allowances
- Sale of Mining Claims
9 Capital Gains Tax
- Specified Assets
- Exemptions
- Deductions
- Suspensive Sales and Roll – Overs
- Withholding Taxes & Tax on Shares
10 Deceased Estates
11 Tax Planning
12 Practice Questions
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
1. INTRODUCTION
The Advanced Taxation module has been prepared to meet the requirements of the
UNISA B Compt Honours degree. The study pack contains summaries of the
relevant tax legislation and practical tax questions.
2. SYLLABUS
The following statutes embrace the main areas of the tax law and practice syllabus in
Zimbabwe. The provisions of the statutes are augmented, expanded and explained
in detail in legal precedents embodied in the South African Tax Cases Reports.
STATUTES
Although the statutes mentioned above are the main sources of tax legislation in
Zimbabwe, legal precedents (case law) form an integral part of tax law and practice
in Zimbabwe. The case summaries contain some useful analogies, interpretations
and clarifications.
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TAXATION MODULE 2011
The changes outlined below are mainly effective from 1 January 2010 unless
otherwise indicated.
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TAXATION MODULE 2011
The Tax questions in the 2011 Examination will be based on legislation relating
to the year of assessment ended 31st December 2010. The following tax rates
apply:-
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With effect from 1 November 2009, a bonus tax free threshold of US$400 per
annum will be applicable.
The tax free threshold is further increased to US$500 per annum with effect
from 1 November 2010.
RETRENCHMENT PACKAGES
With effect from 1st January 2010, the tax-free portion of a retrenchment
package is pegged at the greater of US$5,000 or one third of the retrenchment
package provided it does not exceed US$15,000.
PENSION CONTRIBUTIONS
With effect from 1st January 2010, the monthly maximum amount allowable for
employer and employee pension fund contributions is US$450 per month.
TAX RATES
The age for eligibility for the elderly persons’ credit is reduced from 59 years
to 55 years with effect from 1 January 2010.
%
14(2)(b) Taxable income of individual from trade or investment 25
14(2)(d) Taxable income of pension fund from trade or 15
investment
14(2)(e) Taxable income of licenced investor (taxed at 0% up to
the fifth year of his operations as such) 25
…………………………...
14(2)(f) Taxable income of holder of special mining 15
lease………………..
14(2)(g) Taxable income of company or trust derived from mining
operations 25
…………………………………………………………
14(2)(h) Taxable income of person engaged in approved BOOT or
BOT arrangement: First five years of the arrangement 0
……….………..
Second five years of the arrangement 15
…………………………….
14(2)(i) Taxable income of industrial park developer (after being
taxed at 0% for the first five years of his operations as 25
such)……………
14(2)(j) Taxable income of operator of a tourist facility in approved
tourist development zone (after being taxed at 0% for the
25
first five years of his operation as such)...................................
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TAXATION MODULE 2011
The rate of income tax that generally applies to companies is 25% of taxable
income and an AIDS levy of 3% of tax payable, giving an effective rate of
25.75%.
With effect from 1st January 2010, the deemed motoring benefit is revised as
follows:-
PAYE remains payable on or before the third day of the month following that of
deduction. This due date is revised to the 10th day of the following month with
effect from 1st September 2010.
RATE OF INTEREST
With effect from 1 January 2010 the rate of interest on unpaid taxes including
customs duty and outstanding refunds has been placed at 10% per annum.
Previously the rate was based on 5% plus LIBOR rate.
With effect from 1st of January 2010, the corporate tax rate will be reduced
to 25% plus 3% Aids Levy, effectively reducing the rate from 30,9% to 25,75%. .
The tax rate for income from trade or investment is also reduced from 30% to
25% plus 3% AIDS LEVY.
CAPITAL ALLOWANCES
The rate of special initial allowance SIA is reduced from 50% to 25% with effect
from 1 January 2010 up to the year of assessment ending on 31 December
2013.
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TAXATION MODULE 2011
SIA will be limited to 50% of the cost of fiscalised electronic registers, the other
50% is allowed as VAT input. The 14th Schedule, capital allowances in growth
point areas is repealed with effect from 1 September 2010.
With effect from 1 January 2010, the provision for the deduction of doubtful
debts is repealed.
The allowance for actual bad debts incurred is still claimable.
TAX RATE
With effect from 1 January 2010 the rate of tax on mining companies is
increased from 15 % to 25%. The taxable income of a holder of a special
mining lease remains at 15%.
MINING CLAIMS
With effect from 1st January 2010 the election to spread the taxable income
derived from the sale of mining claims is repealed and such income will be
taxable in full in the year of receipt.
An election to spread the income from the sale of mining claims over four
years, made prior to 1 January 2010 shall not be subject to the new
changes.
ROYALTIES
ROYALTY RATES
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TAXATION MODULE 2011
With effect from 1 January 2010, R.S.T. is payable by the 10th day of the month
following date of distribution.
With effect from 1 January 2010, N.S.R.T. is payable by 10th day of the month
following date of distribution.
With effect from 1 January 2010, residents’ tax on Interest has been reduced
from 20% to 15%.
With effect from 1 January 2010, RTI is payable by the 10th day of the month
following date of payment.
The 10% NRTI was repealed with effect from 1st August 2009.
With effect from 1 January 2010, the rate of withholding tax on fees is reduced
from 20% to 15%.
With effect from 1 January 2010, NRTF is payable by the 10th day of the month
following date of payment.
With effect from 1 January 2010, the rate of withholding tax on royalties is
reduced from 20% to 15%.
The withholding tax is chargeable on royalties paid to non-residents for the use
of patents, trade marks, formulae, equipment, motion picture etc.
With effect from 1 January 2010, NRTROY is payable by the 10th of the month
following date of payment.
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TAXATION MODULE 2011
With effect from 1 January 2010 withholding tax on contracts shall be payable
by the tenth day of the month following that in which the payment was made.
PRESUMPTIVE TAXES
With effect from 1st January 2010 the following revised presumptive taxes will
apply on commuter omnibuses per each vehicle, per quarter: -
The 5% Banking Institution Levy has been repealed with effect from 1 January
2010.
With effect from 1 January 2010, the interest rate for late payment of capital
gains tax shall be 10% per month. No interest shall be payable for the first
thirty days after the date from which the tax becomes due.
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TAXATION MODULE 2011
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Intermediated Not later than the 15th day By the 10th of the month
money transfer tax of the month following the following month of
month in which the transaction.
transaction in respect of
which the tax is payable
was effected.
Non-Executive Within 15 days from the By the 10th of the month
Directors’ Fees end of month of payment. following month of
payment.
Property for On or before the last day By the 10th of the month
Insurance omission of the month following the following month of
Tax month on which payment payment.
was made or within such
further time as the
Commissioner General
may for good cause
allow.
Estate duty is chargeable on the net value of a deceased person’s estate. The
applicable rates vary on a sliding scale from 1.02% per $100 or part thereof,
up to a maximum of 5% where the dutiable amount is USD$50,000 or above.
EXEMPTIONS
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Where there is a surviving spouse or minor child the value of a family home as
defined is not subject to estate duty.
Donations may be exempt if they were made 5 years or more prior to death.
Payments from policies specifically taken out to pay estate duty are not
taxable only to the extent of the duty payable.
STAMP DUTY
CUSTOMS DUTY
Customs duty is levied on all goods imported. The effective rates of duty
range from 0% to 100%.Import tax is levied on most goods at the VAT
standard rate of 15%. In general, Zimbabwe imposes restrictions on the
importations of a range of goods which require import permits or licences e.g.
agricultural products and explosives.
500
Annuity, allowance or pension paid to former employee
200
Annuity, allowance of pension paid to former partner
Annuity, allowance or pension paid to a dependent of a former 200
employee or partner
2. Payments to the Public Private Partnership Fund 50 000
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TAXATION MODULE 2011
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TAXATION MODULE 2011
5.1.1 Administration
The administration of all taxation (Value Added Tax, Capital Gains Tax,
Income Tax, e.t.c) now fall under the responsibility of the National
Revenue Authority of Zimbabwe (ZIMRA), which Authority came into being
with effect from 19 January 2001. The Commissioner-General of Taxes is
vested with the power and responsibility of administering the tax statutes.
He does this through regional offices and ports established across the
country.
Every year, three to four months after the end of a tax year the
Commissioner publishes a notice in the most commonly read press inviting
taxpayers to obtain tax returns from their nearest tax office; truthfully
complete them and return them to the respective offices for assessment.
Although Tax Offices may post some tax returns to taxpayers (on their
records), the duty to obtain a tax return rests with each individual taxpayer
who falls within the specifications outlined in The Commissioners public
notice. Tax returns for the year ended 31 December 2010 will be due by
30 April 2011.
All employers have been placed on the Final Deduction System (“FDS”).
Under the FDS, any employee who receives employment income only (i.e.
has no source of income other than remuneration), does not need to
submit a tax return. The employer is responsible for deducting the correct
amount of PAYE for the year, and no further return needs to be made to
the tax department by the employee.
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TAXATION MODULE 2011
default. These penalties are 100% of the basic tax chargeable. Section
46 outlines some grounds for penalties.
Taxpayers who are not employees, but are in receipt of other income, (e.g.
sole traders, consultants and companies), are required to be on Quarterly
Payment Dates (Section 72). Under this scheme the taxpayers pay their
estimated tax liabilities, for the current tax year in which they are trading, in
four instalments on dates allocated throughout the year, as follows:
The duties and rights of representative taxpayers are outlined in the above
quoted sections. The Commissioner of Taxes also has remedies against
defaulting representatives. Where a representative has met an obligation
of the principal out of his resources, he is empowered by the Act to seek
restitution from the principal.
The administrative sections of the Act are fairly simple to read. Students
should read them in order to have an understanding of the overall
administrative framework.
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TAXATION MODULE 2011
5.2.1 Overview
In terms of section 6 of the Income Tax Act (Cap 23:06) there shall be
charged, levied and collected income tax calculated on taxable income for
the benefit of the consolidated revenue fund.
- the appropriate rates of tax per the charging act for the year ; and
- the credits* to which taxpayer is entitled to per the charging act for
that year. (section 7)
* Only taxpayers who are natural persons are entitled to tax credits.
The basic model for calculating any taxpayer’s (individuals, trusts and
companies) taxable income is as follows :-
= Income
= Taxable Income
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TAXATION MODULE 2011
Section 2 of the Act defines various terms used in the Act. Students
should be familiar with the meanings attached to words such as “amount”
and “person”. “Amount” for tax purposes embraces all receipts or
accruals, whether deemed or actual as long as they have an ascertainable
monetary value. An example of a specific inclusion is motoring benefit
[section 8(1)(f)].
Delfos vs CIR in which the learned judge asserted that income accrues
when it becomes “due and payable”.
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TAXATION MODULE 2011
The following quotations are from celebrated tax cases on source of income :-
(a) Lord Atkin, Privy Council, UK :- in Rhodesia Metals (in liquidation) v COT :-
“…. Source means .. not a legal concept but something which the
practical man would regard as the real originating cause of the
income….”.
(b) Watermayer CJ in CIR v Lever Bros and Unilever Ltd 1946 AD 441 :-
Directors’ fees - ITC 235 (1932) 6 SATC 262 :- “It is quite clear that the
director’s fees are derived from the fact that the appellant is a director of
the company, and therefore must be assumed to have earned the fees at
the headquarters of the company. It is there only that he can make his
voice heard as a director.”
Interest - “ ….. Provision of credit is the originating cause hence the place
where exercised is the source ….” This was the majority
decision in CIR v Lever Bros and Unilever Ltd 1946, 14 SATC1.
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TAXATION MODULE 2011
The decision was that there was two activities :- curing and marketing.
Curing was the dominant activity, hence the source was deemed to be
Botswana. However, it appears from ITC 1103 (1967) 29 SATC 35, that it
is possible for the source of income to be found partly in one country and
partly in another. (See Hill textbook for details of this case.)
Gains on Stock Market - CIR v Black 1957 (3) SA 536 (A) 21 SATC 244.
Important factors identified in this case were the employment of capital and
the undertaking of business. It was ruled that the dominant factor was the
carrying on of transactions hence the source was deemed to be London,
where shares were bought and sold …., though under instruction from
South Africa.
Rental Income - COT v British United Shoe Machinery (SA) (Pty) Ltd
1964 26 SATC 163
Movable property : source is the country where lessor carries out his
business.
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Individuals
Less : PAYE $
Double taxation relief $
Any applicable tax withheld
in advance $
__
$
__
Payable/(Refund) $
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Please take care and internalise the chronology of the above steps and make sure you
follow them exactly. A lot of students have come short because they rewrote the law
relating to the above steps.
Section 8(1)(a) :
Annuities/pension receipts :-
Definition :-
Characteristics :-
Types :-
Purchased annuity
(I) = (P*N)-A
______
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TAXATION MODULE 2011
NB :- All amounts received after the expiry of the N years are taxable
in full.
This type of annuity is taxable in full, even if paid out of capital funds.
Section 8(1)(b) :
Income for services rendered - e.g. salaries, commission, cash in lieu etc.
The first $5 000 or up to a maximum of 1/3 of the first $45 000 of a lump
sum accruing by reason of the termination of employment in terms of a
Government approved scheme is exempt from taxation.
Section 8(1)(c) :
Some examples :-
motoring :-
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TAXATION MODULE 2011
up to 1 500cc 150
NB :- Benefits paid by the State to its employees are exempt (para 4(d) of
3rd schedule).
Section 8(1)(g) :
Timber or growing crops grown for sale, sold as part of land except where
these assets have been inherited or received as a donation.
Section 8(1)(h) :
closing stock
Section 8(i) :
mining recoupments
Section 8(1)(1) :
Recoupments of rent premium where this arises as a result of acquisition
of property formerly leased. Taxpayer can elect to spread taxation of
these recoupments over six years.
Section 8(1)(m) :
grants or subsidies
Section 8(2) :
Where amount accrued differs from amount actually received due to
fluctuations in exchange rates, effect must be given to tax amount actually
received.
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Lease Premiums
Definition
A premium
Or like consideration
Or consideration in the nature of a premium
Paid for
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Notes :
(b) On acquisition of ownership the lessee will cease to qualify for any
allowance in the tax year following acquisition.
(e) The characteristics of a premium were laid out in the tax case : CIR v
Butcher Bros (Pty) (1945) 13 SATC 21 as follows :-
(ii) The lessor can claim SIA or wear and tear on the full cost of
the assets purchased for leasing, under both financial and
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(iii) The lessee can claim deduction of the lease premiums (made
up of both capital and finance charges). In the case of the
leasing of a passenger motor vehicle, the deduction is
restricted to a maximum of $100 000. (Section 16(1)(k) of
IncomeTax Act).
Please note that while the vehicles are not restricted in cost for
the lessor under both financial and operating leases, the
restriction in cost (of passenger motor vehicles) do apply to
lessees as provided for in Section 16(1)(k) of the Income Tax
Act.
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Definition
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Notes :
(a) On acquisition of ownership the lessee will cease to qualify for any
allowance in year of assessment following. On cessation of use of
property for purposes of trade or production of income, allowance to
be given only up to date of cessation - i.e. apportion.
Lease improvements
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TAXATION MODULE 2011
Question:
Tourism P/L entered into a lease agreement with the Masvingo Municipality effective
from 1st July 2010. The agreement in part stated that the lease was for a piece of
land in Masvingo extending to 5 acres. The lease would commence on 1st July 2010
and would be for a period of 99 years. The lessee was obliged to erect a hotel
building to the value of not less than $2 000 000. The lessee was also obliged to pay
a premium of $50 000 up front and monthly rentals of $10 000 until the end of the
lease.
On the piece of land let there was a municipal hostel which Tourism used as a
boarding house for its benefit until the completion of construction of the hotel, when
the hostel building was to be demolished. Construction of the hotel commenced on
15th July 2010. In April 2011 when $1 500 000 had been expended on the
construction Tourism approached the Masvingo municipality with a proposal to change
the building clause from $2 000 000 to $5 000 000. The municipality concurred and
the hotel was completed in September 2011 at a total cost of $5 200 000. The hotel
opened for business with effect from 1st October 2011.
Required:
Set out the income tax deductions available to Tourism (Pvt) Ltd for the tax years
ended 31st December 2010 and 31st December 2011.
Suggested solution:
Tourism (Pvt)Ltd
Income Tax Deductions for 2010 and 2011 tax years
US$
2010 tax year:
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____________________________________________________________________
_
____________________________________________________________________
Notes :
Section 17 and section 18 of the Income Tax Act outline the basis of taxation of
amounts accruing under hire purchase and under credit sales. Under these
agreements the full amount of sale is receivable in instalments, which may
stretch into years. For tax purposes the full sale price is deemed to accrue on
the date of signing of the sale agreement. This would mean that taxpayers are
“taxable” on amounts not yet received.
In the case of hire purchase sales (section 17) the calculation is made in
accordance with the following formula :
D * (E - F+G)
_____________
In which :
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For income tax purposes income from construction contracts is taxable on the
basis of what is due and payable in the tax year, i.e. based on percentage of
completion and progress payments due. Amounts received in advance are held
in trust and would not be taxable. Please refer to the provisions of section
15(2)(cc).
5.3 EXEMPTIONS
Section 14 as read together with the third schedule outlines receipts and
accruals which are exempt from taxation. Please refer to the schedule and the
Students’ Guide to Tax in Zimbabwe book for detailed reading.
- bank interest.
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Section 15(2)(a) outlines the general deduction formula. In terms of this section,
expenditure and losses to the extent to which they are incurred for the purposes
of trade or in the production of income will be allowed as a deduction for tax
purposes. Apportionment of expenditure is permissible, where incurred partly for
business purposes, or partly for capital purposes. It is also useful to note that
where the expense incurred is different from the amount actually paid due to the
fluctuations in exchange rates, then the amount actually paid will be allowed as a
deduction. (Section 15(1)).
One of the main tasks of a tax adviser is to analyse client circumstances in order
to take effective steps to minimise the client’s tax burden. This can be achieved
only when the tax adviser is familiar with legislative provisions, particularly
deductions available to taxpayers. The provisions in section 15 are important
and every student should make an attempt to read the provisions.
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(i) Expenditure and losses does not refer to net loss as reflected in the Profit
& Loss Account of the taxpayer. Is not limited to cash outlays but would
include losses such as pilferage (theft), breakages, destruction etc.
(ii) To the extent to which gives room for apportionment. Where expenditure
and losses are incurred partly for business and partly for private or partly
capital and partly revenue, apportionment arises. The apportionment must
be fair and reasonable.
(iii) Incurred means that there is a legal liability to pay. Such expenditure is
deductible from income even if payment occurs only at some later date.
(iv) For the purposes of trade means for the purposes of enabling a person to
carry on and earn profits in the trade. The ordinarily recurrent expenses of
business, such as trading licence fees, audit fees, rates, secretarial fees,
insurance premiums, business subscriptions and advertising costs will
usually pass the test. Expenditure for the purposes of trade may be
categorised in 2 ways:
Designed expenditure is money voluntarily and designedly spent by
the taxpayer for the purpose of this trade.
Fortuitous expenditure is money involuntarily spent because of
some mischance or misfortune, which has overtaken the taxpayer.
A deduction is not allowable where the expenditure, which though
arising out of the manner in which a taxpayer conducts his trade,
falls upon him in his capacity as a law-breaker rather than as a
businessman, e.g. traffic fines, customs fines or parking fines.
(v) Capital Nature – In the same way as accruals of a capital nature are
generally not subject to income tax, expenditure and losses to the extent
that they are of a capital nature are not deductible from income. In trying
to draw a distinction between revenue and capital expenditure Judge Innes
CJ brought up the following valuable dictum in C.I.R. v. George Forest
Timber Co. Ltd. 1 S.A.T.C. 20:
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Section 15(2) (h) arw 6th Schedule – Pension and Retirement Annuity
Fund Contributions
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AxB
C
Where
A. = the amount of the taxpayer’s contributions
B. = the amount incurred by the other person, which would have
been allowed as a deduction in terms of section 15 (2)(m)
above
C. = is the total amount of the expenditure incurred on experiment
and research.
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In the case of donated stock the deduction shall not exceed the value
available from the person from whom it was acquired. In the case of
inheritance the deduction shall not exceed the valuation as shown in Final
Liquidation and Distribution Account of the deceased.
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any allowance granted is brought back into income in the following tax
year.
Section 15(2)(hh) Tobacco Levy – The amount of any tobacco levy paid
in the year of assessment in terms of Section 36A.
This section deems all proceeds from a suspensive sale to accrue on the date of
the signing of the agreement. It dealt with special provisions relating to Hire
Purchase Agreements and other Agreements referring to property sold.
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The Act recognises, however that this may cause hardship (as not of the sale
price will have been received by the year end) and thus provides for the granting
of certain allowances.
Variation where there are bad and doubtful debts forming part of both instalment
debtors receivable and not yet receivable:
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Allow bad and doubtful debts (subject to normal tests) on both instalment
debtors receivable and not receivable under section 15 (2) (g)(i) and (ii) in the
profit and loss account; and
Then calculate the allowance as follows:
Gross HP sales
xxxxxx
Less: Cost of sales xxxxxx
Gross profit xxxxxx
Less: Section 17 allowances:
Instalments not yet receivable xxxxxx
Less: Bad debts forming part thereof xxxx
Doubtful thereof xxxx xxxxxx
xxxxxx
Xxxxxx @ GP% xxxxxx
Taxable income xxxxxx
Note:
When gross profit percentage is determined in the trading account, the cost of sales
will have been allowed. Thus by allowing for the profit relating to, instalment not
receivable by the year end, the instalments receivable is taxed.
a) The allowance granted in one year must be included in the taxpayer’s income in
the following year. Treatment is similar to that of doubtful debts.
b) If the agreement is ceded or otherwise disposed of for valuable consideration
then the allowance ceases in such year of session etc.
c) The allowance for credit sales in section 18 is calculated in a similar manner.
Example 1
Gross H/P Sales during the year
600,000
Cost of sales 450,000
Outstanding H/P debtors at end of year
400,000
Solution:
Gross H/P Sales during the year
600,000
Cost of sales 450,000
150,000
.
. . Gross profit % = Gross profit x 100 150 000 x 100
Gross Sales 600 000
= 25%
.
. . Section 17 allowance [$400,000 x 25%] 100,000
Taxable income 50,000
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Example 2
Suppose the outstanding debtors of $400,000 included doubtful debts of $20,000
which is for specific debtors what effect would this have on your taxable income.
Solution:
Gross H/P Sales during the year
600,000
Cost of sales 450,000
150,000
.
. . Gross profit % = Gross profit x 100 150,000 x 100
Gross Sales 600,000
= 25%
.
. . Section 17 allowance [($400,000 – 20,000) x 25% 95,000
Doubtful debts 20,000 115,000
Taxable income
35,000
Example 3
Gross H/P Sales Year 1
800,000
Cost of sales 500,000
Outstanding H/P debtors at year 1 450,000
Calculate taxable income after allowing section17 allowance. The allowance under
this section in the previous year was $100,000.
Solution:
Gross H/P/ Sales during the year
800,000
Cost of sales 500,000
300,000
Add: Allowable from previous year 100,000
400,000
.
. . Gross profit % = Gross profit x 100 300,000 x 100
Gross Sales 800,000
= 37½%
.
. . Section 17 allowance [$450,000 x 37½%]
168,750
Taxable income 321,250
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1. (a) The land which the owner of the township holds is considered to
constitute floating capital and thus trading stock in his hands, as it will
have been acquired for resale at a profit. Expenditure on
development, such as roads, water, light, tree planting, laying out of
parks, etc., and on administration which is incurred prior to the land
reaching the full selling state, will be capitalised and added to the cost
of the land except to the extent that it is allowable in terms of section
15 (2) (v).
(b) When the full selling stage is reached, any further development or
administration costs of the type referred to in paragraph (a) will not be
capitalised, as it is considered that all such expenditure is allowable
as a deduction from income in terms of section 15 (2)(a) of the Act, in
the year when such expenditure is incurred.
D x [E + G)] i.e.
E
i.e. Instalments not yet due and payable x (Selling price – Cost of sales)
Selling price
This section relates to the taxation of income accruing from sales made on credit
with the price being paid in instalments. It removes the doubt of the date of accrual
of such income by bringing the full selling price to account at the date of the
agreement.
Proviso (i) enables the Commissioner to make any allowance that he considers
reasonable. The allowance to be granted will be the same as that given in respect of
movables sold under hire purchase agreements.
Proviso (ii) ensures that the allowance granted is brought in as income in the
following year of assessment.
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The 4th schedule outlines allowable deductions with regard to capital expenditure
incurred for the purposes of trade in the relevant tax year. The allowances
covered by the schedule are as follows:-
• Special initial
• Wear and tear
• Scrapping
• Training Investment
Schools/clinics
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- With effect from 1 January 2010, SIA is 25% of cost followed by 25%
accelerated wear and tear allowance for the following 3 years (was
50% followed by 25% accelerated wear and tear for the following 2
years).
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Where the taxpayer has not made an election to claim S.I.A. on assets
used for business, the Commissioner will automatically grant wear and
tear allowances as follows :-
- Where S.I.A. has been granted in the first year of use, then
accelerated wear and tear (at 25% on cost) is granted in the
subsequent three years.
5.6.6 Recoupments
Recoupments arise when assets which were being used for business are
sold for proceeds in excess of the income tax value. The formulae for
calculating recoupment are as follows:-
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Recoupments are generally set off against capital allowances for all other
businesses except miners. For miners the recoupment established is first
set off against the unredeemed capital expenditure before calculation of
the year’s redemption allowances.
Section 16 of the Act outlines cases in which no deduction is allowable for tax
purposes. These prohibited deductions included :-
- entertainment expenses
Section 16 – While the “general deduction formula” contains its own restrictions
further restrictions on deductibility arise under this section, parts of which forbid
a deduction despite the expense passing the tests of purposes of trade, non-
capital nature, etc.. Other parts merely ensure a disallowance of certain items of
expenditure, the deductibility of which might be in doubt.
It is for this reason that no deduction shall be allowed in respect of the following
expenditures:-
a) The cost incurred in the maintenance of the taxpayer, his family or
establishment.
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d) Tax levied on income and interest on overdue tax. There are nevertheless
instances where tax may rank as a credit against other tax payable.
i) The rent of, or cost of repairs to, or expenses incurred on, any premises not
occupied for trade, or of any dwelling or domestic premises except in
respect of such part as may be occupied for the purposes of trade.
j) The cost of securing sole selling rights. An example is the cost as might be
incurred by a petrol company in payment to a service station which then
sells only that company’s brand of petrol.
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clearly precluded in respect of the cost of, for example, a lunch for business
associates, despite the host’s purpose being the furtherance of trade
relationships.
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- insurance premiums on joint life policies and life policies on partner’s lives
with the partnership as beneficiary, are not allowable deductions and are not
added to partners’ individual computation. (By disallowing their deduction in
partnership partners are already being taxed).
The actual taxation of an individual is simply to apply the rates of tax to the taxable
income established, after which the credits applicable to the individual are calculated
and subtracted. An AIDS levy of 3% of the remaining tax after credits is added, after
which P.A.Y.E. is applied in reduction of the tax liability established.
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EXAMPLE
David and Samuel practise as Quantity Surveyors in Harare. Samuel joined the
practice when he qualified in July 2006. David has practised here for seven years.
They submit the following profit and loss account in support of income returns for the
tax year ended 31 December 2010.
For the purposes of the question, the following amounts are stipulated at;
• Passenger motor vehicle cost for capital allowances purposes- $10 000
• Blind, disabled, elderly persons’ credits - $900 p.a.
• Maximum annual deduction for contributions to approved pension fund - $5 400
US$ US$
1. Partners drawings were Samuel US$800 000 and David US$900 000.
2. Bad debts recovered include an amount of US$6 000 on account of a loan
previously written off as bad and not allowed as a deduction for tax purposes.
3. Residents’ tax on bank interest US$11,250 withheld. The debentures were in a
farming company.
4. The gross dividend from Delta Corporation Ltd is US$12 500 from which US$1,250
resident shareholders tax has been deducted at source.
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US$
97 000
______
6. Attendance at post graduate course:
US$
Samuel 30 000
David 60 000
This represented the cost of lectures including travelling and hotel bills.
7. (a) Fixed Assets in the hands of the partnership at the beginning of the year
are as follows :
Date Original
Description of Asset Acquired Cost
$
______________________ _________ __________
(b) During the year the truck was traded in for a second-hand land cruiser. A
trade in value of US$40 000 was given on the truck and the cost of the
land cruiser was US$500 000.
(c) A sterilizer (cost $400 purchased in January 2009) was scrapped during
the year 2010, and a new one purchased for $10 000.
9. David and Samuel paid $30 000 and $55 000 respectively to approved
retirement annuity funds.
10. Samuel travels extensively for the practice and provides his own transport. He
rented a car for $9 000 a month for six (6) months from 1 January 2010 and on 1
July 2010 purchased a Mazda seda – vehicle car for US$50 000. His running
expenses for six months to 31 December 2010 were US$100 000. It has been
established that his non-business travel has at all times been 10% of the total.
11. Samuel is unmarried but has a disabled child aged 5. In addition to his income
from the partnership, he had the following income :
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US$
12. David is married with two children, and during the year his medical aid shortfalls
were $6 000.
REQUIRED :
Calculate the tax payable by David and Samuel in respect of the tax year ended
31st December 2010.
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SUGGESTED SOLUTION
$
Profit per accounts 2 997 600
3 099 800
3 099 800
_________
Capital Allowances
Cost Wear
ITV Add and (Scrap) ITV
Asset Cost 31/12/09 (Disp) tear SIA Recoup 31/12/10
US$ US$ US$ US$ US$ US$ US$
______ ____ _______ _______ _______ _____ ______ _______
Office Furniture
& Equipment
2004 additions NIL NIL - - - - NIL
Surgery
Equipment
(1) (1)
2009 additions 70 000 35 000 (400) (17 400) - (200) 17 400
2010 additions 10 000 - 2 500 - 7 500
Motor
Vehicles
(2)
2007 additions 70 000 NIL - - - NIL NIL
(3)
2009 additions 80 000 2 500 7 500
_____________________________________________________________________
TOTAL 155 000 35 000 89 600 (17 400) 5 000 (200) 32 400
_____________________________________________________________________
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Proceeds nil
ITV 34 800
Therefore accelerated
wear and tear @ 25% (17 400)
2. Truck trade-in
ITV -
Proceeds 6 000
______
Recoup -
______
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Individual Computations
David Samuel
60% 40%
Less : Credits
Disabled child (900)
Medical shortfall 50% x 6 000 (3 000)
_______ _______
_______ _______
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7. TAXATION OF FARMERS
Section 2 :
definition
Section 8(1)(I) :
Section 15(2)(u) :
2nd schedule :
7th schedule :
Special deductions for farmers, drought induced relief, and restocking allowance.
4th schedule :
Capital allowances.
Section 15(2)(y) :
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Less :
XX
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No. 20 : Chinchilla and crocodile breeders are treated as farmers and are
covered in the 7th schedule.
No. 23 : Farm roads : temporary farm roads are allowable under section 15(2)(a)
while permanent roads are farm improvements on which S.I.A or wear
and tear can be claimed.
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EXAMPLE
Longhorn Ranches (Pvt) Limited was incorporated on the 1st January 2010 to acquire
in the Belingwe district from that date the farm “Cowhaven” together with
improvements thereon, for the sum of $1 810 000. According to the agreement of
sale, the terms of which are acceptable to the Commissioner of Taxes, the purchase
price was made up as follows :
$
Land 970 000
Fencing 101 000
Farm dwelling 200 000 (erected 01/05/2004)
Staff housing 334 000 (2 units of $62 000 each and 1 unit
of $210 000 all erected on
01/06/2003)
Plant and equipment 205 000
________
1 810 000
________
During the year ended 31st December 2010 the company expanded and incurred the
following capital expenditure:
REQUIRED :
To calculate the maximum amount of deductions to which the company is entitled for
the year ended 31st December 2010.
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SUGGESTED SOLUTION
Fencing
Purchased -
Erected 60 000 60 000
Staff Housing
Farm dwelling
Staff housing
207 250
________
** NOTES
1. SIA is 25%
2. Purchased fencing does not rank for 7th schedules
3. Farm dwelling and staff housing exceed $25,000
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8. TAXATION OF MINERS
8.1 The computation of taxable income for miners is basically the same as any other
class of taxpayer. The determination of allowances on capital expenditure for
miners are outlined in the 5th schedule.
- Definitions - section 2
- Allowable deductions :-
Section 15(2)(f)(ii) provides for the deduction of expenditure incurred during the
tax year on surveys, boreholes, trenches, pits and other prospecting and
exploratory works undertaken for the purpose of acquiring rights to minerals in
Zimbabwe.
• Life of mine
• Mixed method
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Under this method this method the taxpayer can make an election to
claim a portion of unredeemed capital expenditure brought forward at
the beginning of the year, by applying the life of the mine method to
it. In addition to that portion, the whole of the capital expenditure
incurred in the current year is allowed in full.
a) With effect from the year of assessment beginning on 1 January 2001 the
computed taxable income or loss for the year from each mine location of a
particular operator must be separately calculated. Thus a loss on
operations in one mine would not be available for set off against taxable
income from another but would be carried forward.
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8.6 Expenditure
The income tax rate for mining companies is 25% effective from 1 January 2010
(was 15%).
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Iron 5 years
Section 9 of the Act :- Income emanating from sale of mining claims can be
spread over four years for taxation purposes if taxpayer makes the election.
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Authority for the levying and collection of capital gains tax is in terms of section 6 of
the
Capital Gains Tax Act(Chapter 23:01).
- Capital gains arising from the disposal of immovable property and marketable
securities, acquired after 1st February 2009 are taxed at a flat rate of 20%.
- Capital gains arising from the sale of marketable securities are exempt from tax
up to $1,800 if the seller is fifty-five years or over on the date of sale.
- The disposal of listed marketable securities that were acquired before 1 February
2009 is subject to capital gains tax at 5% of the gross capital proceeds.
- The disposal of marketable securities that are not listed and were acquired after 1
February 2009 is subject to capital gains tax at 20% (and capital gains
withholding tax of 10%).
- The disposal of immovable property that was acquired before 1 February 2009 is
subject to capital gains tax at 5% of the gross capital proceeds.
- The disposal of immovable property that was acquired after 1 February 2009 is
subject to capital gains tax at 20% of the gross capital proceeds (and capital
gains withholding tax of 15%).
- The main deductions which are allowed in the determination of a capital gain are
the cost of the asset together with any additions after acquisition and an inflation
allowance of 2½% per annum.
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Less
Less
== Capital Amount
Less
== CAPITAL GAIN
If the total computed aggregate gain in a year of assessment is $50 of less no tax is
payable. A computed loss may generally be carried forward against future gains.
(a) Where amount accrued and amount actually received varies due to
exchange rates, effect shall be given to the amount actually received in
Zimbabwe dollars.
(b) Disposal other than by way of sale, Commissioner deems specified asset
to have been sold at market price of such asset.
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(d) Sold in execution of court order - deemed sold for price realised.
(e) Maturity or redemption of specified asset - asset deemed sold for maturity
amount or redemption value.
- any loan to the state, or any company all the shares of which are
owned by the state,
- local authority
- a statutory corporation
(g) Receipts and accruals from sale of specified assets by licensed investor.
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(k) Amounts received by a person on the sale of his or her principal private
residence if such person was, on the date of the sale, of or over the age of
fifty-nine years.
(m) Amounts accruing from listed shares which are subject to the 10%
withholding tax.
DEDUCTIONS
Section 11(1) :
Where amount of liability incurred and amount actually paid differ due to exchange
rate variation, then effect shall be made of the amount actually paid in Zimbabwe
currency.
Section 11(2)(a) :
Costs of acquisition of specified asset which has been sold, excluding amounts
allowable as deductions for income tax purposes.
Section 11(2)(b) :
NB : In the case of capital amount arising from the sale of shares in a company which
owns immovable property, any expenditure incurred by seller on additions or
alteration to the property shall be deemed to be expenditure incurred on addition
to shares.
Section 11(2)(c) :
An amount determined by applying the Consumer Price Index at the times of sale and
purchase on;
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NOTE:
Section 39A 9(b) of the Finance Act which replaces section 11(2)(c) by an inflation
allowance of 2½% per annum with effect from 1 st February 2009.
Section 11(2)(d) :
selling expenses
Section 11(2)(e) :
Section 11(2)(f) :
Section 11(2)(g) :
Section 11(2)(h) :
After above deductions, where profit is $50 (the effective amount is nil and the
paragraph is merely academic) or less, an amount equal to such amount shall be
allowed as a deduction.
Section 11(3) :
Taxpayers shall be allowed to deduct any assessed capital loss brought forward ; but
not those declared insolvent or had their property or estate assigned for the benefit of
creditors.
A company registered under the Companies Act, which converts into a private
business corporation can carry forward its loss ; and vice versa.
Section 11(4) :
A taxpayer shall claim a deduction only under one provision of the Act.
Section 11(5) :
Section 11(6) :
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Section 12 :
Any asset damaged or destroyed shall be deemed to have been sold for the amount of
compensation receivable. Where the Commissioner is satisfied that the whole amount
of, or part of proceeds shall be expended within two years on purchase or construction
of a further specified asset, or repair of damaged asset, then such amounts shall not
be deemed proceeds of sale.
Transfer of specified assets between companies under the same control in the
course of group reconstructions, mergers and other similar business
operations.
The following elections must be made by the time the returns for assessment are
submitted.
Election available (notwithstanding the terms of the sale) to transfer specified asset at
the amount equal to the deductions established in the hands of the seller. If asset
eventually sold to someone outside the group then recoupment calculated as it the
original seller was selling.
Section16 :
Section 17 :
Transfer of specified asset by individual to company under his control - same election
as above available.
Capital gain relating to amounts not due at year end allowed as a deduction, but to be
added back the following year, when a fresh calculation is then made, if applicable.
Formulae : A*(B-C)
_______
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Where a taxpayer sells a principal private residence and uses the total proceeds to
acquire a new principal private residence, then capital gains tax shall not be
chargeable on such sale. If the amount used is less than the actual proceeds then the
capital gain which relates to the portion not used shall be subject to capital gains tax.
When the new PPR is sold, the capital gain not subjected to tax previously shall be
deducted from the amount mentioned in section 11(2)(a), i.e. from cost.
Where a business property is disposed of and the taxpayer disposing the property
satisfies the Commissioner that the entire proceeds will be utilised to construct or
purchase another business property within two tax years, capital gains tax shall not be
chargeable ; provided that such capital gain will reduce the cost of the new property
when it is eventually sold.
Sale proceeds are liable to capital gains withholding tax at the following rates :
The responsibility for withholding such amount rests primarily with the “depositary”.
Should the depositary fail to withhold the amount, responsibility passes to the agent
and lastly the seller. In certain circumstances, taxpayers may apply for capital gains
withholding tax clearance certificates in order to eliminate their liability. What this
amounts to is the submission of the Capital Gains Tax liability together with the
application form for the capital gains withholding tax clearance certificates.
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10.1 INTRODUCTION
The provisions of the Income Tax Act in relation to estates and trusts contain
important but sometimes convoluted definitions to which reference may in specific
cases be necessary. These include, in Section 2, “beneficiary with a vested right”,
and “income the subject of a trust to which no beneficiary is entitled”, and in
Section 11 (1) in relation to deceased estates only, “ ascertained beneficiary”.
For tax purposes an estate is a “person” by virtue of the definition in Section 2 (1) of
the Income Tax Act.
c) A trust on the other hand is not generally a persona though, in the present
context, it may be a “person” for tax purposes, as will be seen below. It is
commonly formed either:
i) by an existing person (not necessarily an individual) who, by a written
trust deed, names persons as trustees and hands over to them
various assets as the initial capital of the trust. The trustees then
administer this capital and deal with the income thereon in
accordance with the conditions set out in the trust deed; or
ii) by the will of a deceased individual who does not wish all or part of his
estate to be handed over immediately to his heirs. Instead of keeping
the deceased estate open for possibly a long time, the will may
nominate trustees to whom the executors are to hand over the assets
in trust, to be dealt with in accordance with the conditions set out in
the will. The estate can then be wound up and the Master’s file
closed.
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GENERAL
The terms of the will are crucial, the basic rules as to who is taxable on income
subsequently derived from assets in the estate being as follows:
i) Where a specific asset is left to a specific individual (e.g. “my
debentures to my son Sam”) the son is taxable on the income earned
by that asset from the day after the date of death of the deceased.
The son is in this respect an “ascertained beneficiary” i.e. “ a person
named or identified in the will who acquires an immediate certain right
to claim the present or future enjoyment of the income” arising from a
particular asset in the estate.
ii) Where the will provides for a “residue” in an estate the estate is
taxable, on the income from the assets in residue, from the day after
the date of death until the date of distribution by the executor.
(“Residue” arises in terms of a will through a clause such as: :...
debentures to my son Sam and the residue of my estate to my
daughter Daisy”). The estate is initially taxable on any income
produced by the assets in residue. Daisy is taxable only on income
produced by such assets there being no ascertained beneficiary.
iii) Where the will does neither of the above but provides for the whole
estate to go to a specific individual it appears to be the
Commissioner’s practice to treat the position as being the same as in
(ii), i.e. to tax the estate on the income in the period prior to
distribution and the beneficiary only thereafter e.g. ‘My assets to my
children Sam and Daisy’.
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In cases of intestacy (i.e. where there is no will) the treatment is the same as
that for a residue under a will.
a) Assessed losses
Any assessed loss incurred by a deceased falls away, upon his death, and
cannot be carried forward against the income of the estate or any other
taxpayer. Similarly any assessed loss incurred by the estate in operations
during the post-death falls away upon the winding up of the estate.
In the case of a marriage out of community of property the above rules apply
only to income from the assets of the deceased spouse since the assets of
the surviving spouse would not fall into the estate. The survivor would remain
taxable on his or her income.
d) Ordinary residence
e) Annuities
Where a will imposes the duty to pay an annuity in such a way that it
constitutes a bequest price; although the beneficiary is burdened by the
condition the annuity is not linked to the income resources. In these
circumstances his income is not reduced for tax purposes, despite the
annuitant also being taxable on the annuity.
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Any amount which accrues during the pre-death period is taxable in the
assessment to date of death. This includes salary earned, a bonus already
voted, and contractual commissions due at that stage.
Amounts accruing after death and which are taxable in the assessment for
the post-death period are those to which the deceased had a right, and which
would have been taxable in his hands, had they accrued during his lifetime.
These include cash in lieu of leave under a contract of employment, and
contractual commissions falling due after date of death.
Amounts accruing after death which are not taxable (in either period) are
those to which the deceased had no right, such as non-contractual cash in
lieu of leave (in the case of, for example, civil servants), a bonus voted after
death and directors’ fees as are not fixed in the company’s Articles of
Association.
ii) Additionally a new taxpayer, the insolvent estate, comes into being from
the date of insolvency to the date of rehabilitation. It is taxable on, for
example, any income earned for the continuation by the trustee, for the
benefit of creditors, of any business previously carried on by the
insolvent. (This applies also to statutory, though not voluntary,
assignments.) The estate is not entitled to any personal credits.
iv) The rules for ordinary residence of insolvent estates are the same as
those for deceased estates, referred to above. See Section 2 (3)(b).
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Tax planning is the process of organising a taxpayer’s affairs in a way that legally
minimises the impact of taxation imposed by the statutes. One should always
remember that tax planning requires an analysis of all taxes, including income tax,
capital gains tax and estate duty. A plan which minimises income tax but increases
estate duty is not the best of plans.
Planning implies arranging of one’s affairs well in advance. Taxpayers often approach
their tax advisors after things have already gone wrong, for example when a tax
investigator has knocked on the door. In such cases accountants, lawyers and tax
consultants can not do much planning but can attempt to minimise damage.
Establishment of tax liabilities is normally based on facts, referenced to legislation
existing at the time. Tax consultants cannot change facts retrospectively and the
Commissioner is bound to implement the law as it existed at the time.
“…. No man in this century is under the smallest obligation, moral or other, …. to
arrange his legal relations to his business…. or property, as to enable the Inland
Revenue to put the largest possible shovel into his stores. The Inland Revenue
is not slow – and quite rightly – to take every advantage which is open to it under
the taxing statutes for the purpose of depleting the taxpayer’s pocket. And, the
taxpayer is, in like manner, entitled to be astute to prevent, as far as he honestly
can, the depletion of his means by the Revenue ….”, so said Lord Clyde in the
English case Ayreshire Pullman Motor Services and D M Ritchie v IRC.
Lord Tomlin in Duke of Westminster v Inland Revenue Commissioners said the
following :-
“Every man is entitled if he can to order his affairs so that the tax attaching under
the appropriate Acts is less than it would otherwise be. If he succeeds in
ordering them so as to secure this result, then, however unappreciative the
Commissioners of Inland Revenues or his fellow taxpayers may be of his
ingenuity, he cannot be compelled to pay an increased tax.”
The above quotations make it clear that avoidance is the legal way of minimising one’s
tax burdens while evasion is illegal. The Acts give the Commissioner authority to undo
any transaction if he is of the opinion that the transaction is abnormal and the purpose
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was to avoid paying tax. He can for instance invoke what he deems to be the fair
market price in any transaction if he is persuaded to do so by the facts of the case.
Please refer to the avoidance provisions in section 98 of the Act. (Refer to some
questions on next page).
(1) The managing director of a large company comes to you and asks whether it is
advisable to form a consultancy company for purposes of limiting his personal tax. He
earns well in excess of $15 000 per year, and he says that a friend he met at the golf
course advised him that he should form a consultancy company to which his salary
would be paid without P.A.Y.E. being deducted.
(2) A owns the majority of shares in a company which owns the house he is residing in.
He wants to know whether he can invoke the roll over provisions with regard to capital
gains tax, if the company sold the house and constructed another one in a more
affluent suburb.
(3) An independent contractor whose income is on the rise would like to know his position
with regard to pay as you earn, or any other tax obligation.
(4) A taxpayer has in the past operated the business of a general dealer at a growth point.
He was operating from a building that he owns on which he had been claiming capital
allowances. He has now formed a company in which the shareholding is spread
equally between himself, his wife and his two children. The market value of the
building is several million although it had originally cost about $50 000 to construct, ten
years previously.
REQUIRED: What are the tax consequences of transferring the building to the
company ?
(5) Mrs D is a widow who has been operating a furniture shop on a cash basis in Harare
for many years. Due to the increases in supplier prices she has now decided to start
selling the furniture on credit terms extending over two to three years. She has now
made sales amounting to $10 000 and she estimates her profit to be more than
$5 000. She vaguely remembers that she is taxable on all profit made in any year.
She wants to know whether or not there is tax relief available since she will only
receive the bulk of her income in future tax years.
REQUIRED: Advise
(6) The managing director of the local branch of an international group of companies
advises that the local branch has been paying a large amount of management fees
(40% of profits) to the overseas head office for the past five years. On Friday last
week he had received a phone call from the Investigations unit of the ZIMRA for an
appointment to discuss the company’s tax affairs. He tells you that the contact with
the overseas head office has over the years been on a visit to the country twice a year
by the Group Finance Director. The visits are normally of a week’s duration. The
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TAXATION MODULE 2011
managing director is uneasy with the visit of the tax officials and he wants you to be
present in the meeting.
REQUIRED: Advise the possible tax implications and suggest any strategy to deal
with the situation.
(1) The major tax implications of forming a consultancy company (or operating as an
independent contractor) are as follows :
(i) Business income is subjected to tax at a flat rate of 30% (plus 3% AIDS levy) on
assessment. Tax, based on estimates if necessary, will however still need to be
paid on quarterly payment dates, during the year following the year of
assessment, as follows :
(ii) You will be required to register for Valued Added Tax should your turnover be
within the registration threshold and the services are taxable.
(iii) Business expenses are claimable provided they pass the test as laid out in
section 15(2)(a), the general deduction formula.
Although the tax situation of the consultancy company / independent contractor may
be advantageous, as opposed to that of an employee, before the choice is made
section 98, which is an anti-avoidance section, must be taken into account. This
section may be invoked by the Commissioner where it is evident that the only reason
for making the choice is solely and mainly because there is a lower tax regime
pertaining, and that, in reality, an employer/employee relationship still exists.
Penalties, and interest, may therefore arise.
(2) The roll over provisions with regard to capital gains tax can only be elected in the
following scenarios :
(i) Where an individual sells his sole or main residence i.e. his principal private
residence, and purchases or constructs a replacement residence before the end
of the next assessment year ;
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(ii) Where a taxpayer (including a company) sells immovable property used for the
purposes of his trade, and expenditure on a replacement property is incurred
within the time limit as in (i).
In this case, the taxpayer is a company, so (i) does not apply, and, as the house is not
used for the purposes of the company’s trade, (ii) will also not apply. The roll over
provisions can therefore not be invoked.
(3) An independent contractor is not an “employee”, as defined, for the purposes of the
13th schedule which deals with Employee’s tax (PAYE). He is therefore not liable for
PAYE, but is obliged to pay tax, based on his estimated annual taxable income, on the
quarterly payment dates (see 1 above).
(4) The relevant provision, in this case, is section 17 of the Capital Gains Tax Act. Where
an individual transfers any immovable property to a company controlled by him,
through holding a majority of its shares or otherwise, the parties may elect, under this
section, to transfer the property at a value, for tax purposes, the effect of which is that
no capital gains tax arises. Full liability is swept up on any resale to a purchaser other
than a company under the same control.
In this case, although the shareholding of the company will be spread equally between
the taxpayer, his wife and his 2 children i.e he will hold only 25% of the shares (not the
majority), it may still be shown that the taxpayer will have control of the company (by
way of voting powers etc). The section does state that the taxpayer may control the
company by holding the majority of the shares, or otherwise.
In addition, this section can only be invoked where the individual used the property for
the purposes of his trade, and where the company will continue to use it for the
purposes of its trade. In this case, these conditions are fulfilled.
(5) Sections 17 and 18 of the Income Tax Act are relevant under Mrs D’s scenario. In the
case of instalment-credit sales (where transfer of ownership is immediate but payment
is by instalments), the whole of the amount payable is deemed to have accrued to the
vendor at the date on which the agreement was entered into. To prevent hardship to
the vendor, however, an allowance, in respect of payments not yet received, may be
deducted, in addition to the normal deduction for bad and doubtful debts.
(6) When dealing with investigating tax officials, always provide them with the information
and documents that they request. Do not be aggressive.
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PRACTICE QUESTIONS
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QUESTION 1
On 30th June 2010,Mr Jones who was 66 years old, retired from employment after 25 years of service
with a pharmaceutical company.
His remuneration in respect of the period 1st January 2010 to 30th June 2010 was:
US $
Bonus 1,500
Gratuity 36,000
During the period 1 January 2010 to 30th June 2010, Mr Jones was entitled to the free use of a company
vehicle a Toyota Vigo Twin cab with an engine capacity of 3 000 c.c.
In addition, Mr Jones purchased the following assets from the company as part of his retirement package:
Market
value at
th
Date 30 Disposal
Original purchased June Value
to Mr
Cost by company 2010 Jones
US $ US $ US $
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
500 200
Notes
1. Mr Briggs whose total pension entitlement amounted to $150,000 opted to commute a
portion of the pension and received a lump sum of $40,000 . His monthly pension from
1st July 2010 is $350.
680
850
37,500
REQUIRED
2. Calculate the minimum tax payable by Mr Jones from investment income in respect
of the tax years ended 31st December 2010.
29 MARKS
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QUESTION 2
The income statement of G.Tours (Pvt) Ltd, a travel agency and trading company for the year ended
31st December 2010 was:
$ $
7,198,500
Less:
Bursary 25,000
Depreciation 240,000
Donations 60,000
Rent 123,000
NOTES
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Interest received
14,500
Agents Commission
This was paid to sub-agents in South Africa who arranged package tours for tourists to Zimbabwe
The annuity of $50,000 was paid voluntarily by the company to an employee who had retired at the age
of 47 years on the grounds of ill health. The company does not contribute to any pension scheme except
the statutory social security N.S.S.A.
Bad debts
Bursary
The bursary of $25,000 is for a technical course closely related to the company's trade.
The course was undertaken by the controlling shareholder's son who is not employed by the company.
Donations
60,000
General expenses
82,000
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Interest payable
The interest related to a loan used to buy shares in OK Zimbabwe Ltd.
FIXED ASSETS
The motor vehicle sold at a profit of $2,000 was a Mazda 3 sedan which had been acquired in
December 2009 for $18 000 for a sales rep. It was sold in the current year for $20,000.
A replacement Mazda BT50 sedan was acquired for $30,000.
Other assets acquired during the year were:
Computers 12,000
Mercedes benz for director 120,000
REQUIRED
Calculate the minimum taxable income or loss of the company for the year ended
31st December 2010.
26 MARKS
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QUESTION 3
Peachy Mines (Private) Limited is a 70% subsidiary of an Australian mining conglomerate Peach
Holdings Limited Headquartered in Sidney, Australia. Peachy Mines (Private) Limited operates a
gold mine in the Shamva area of Zimbabwe.
During the year ended 31st December 2010, Peachy Mines (Private ) Ltd borrowed Usd $50 million
from the holding company to finance an expansion programme for the mine . The parent company
seconded a mining engineer from Australia to oversee the expansion programme.
The income statement for the year ended 31st December 2010 reflected a net profit before tax
figure of $500,000. The debits and credits to the income statement included the following :
Credits:
$
Debits
Depreciation 26,000
Other information:
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This amount was made up of $90,000 unrealised exchange gains and $30,000 realised exchange
gains relating to the mining operations.
3. General expenses
This amount was paid to the Bindura Mayor's Christmas Cheer Fund.
A generator which was purchased by the company for $5,000 in April 2009 was sold during the year
for $40,000
The following capital expenditure was incurred during the year ended 31st December
2010:
Nissan hardbody double cab pick up truck for mine manager 12,000
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REQUIRED
(i) Compute the capital redemption allowance the year ended 31st December 2010 using the
new mine basis.
9 MARKS
(ii) Calculate the minimum tax payable by the company for the year ended 31st
December 2010.
14 MARKS
(iii) Discuss the withholding tax implications associated with the payment of interest and
management fees to the holding company.
4 MARKS
QUESTION 4
Farmind Enterprises (Pvt) Ltd has been conducting farming operations in Karoi for the
past 10 years. The company's accounts are prepared up to 31st December. In October
2010, the Minister of Finance issued a statutory instrument declaring the farm to be an
epidemic area due to an outbreak of blackfoot disease.
LIVESTOCK
The livestock on hand on 1st January 2010 was :
4 Bulls 800
100 Cows 500
30 Oxen 450
70 Heifers 400
20 Steers 200
25 Tollies 150
80 Calves 100
Livestock movements from 1st January 2010 to 31st December 2010 were :
Births and deaths :
90 calves were born during the year
4 tollies died of diseases
12 calves died of snakebites
Sales :
1 Bull, 20 Oxen, 10 Steers were all sold for Us $15,000
50 Cows and 1 bull were sold as a result of the epidermic disease
for Us$30,000
Promotions :
35 calves to tollies
33 calves to heifers
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25 tolllies to oxen
70 heifers to cows
Purchases
1 bull for Us 900
12 cows for Us $7,000.
FIXED ASSETS
The income tax values (ITV's) of assets as at 1st January 2010 were:
YEAR
COST PURCHASED I.T.V. AT
1
JANUARY
2010
US $ US $
31st December
Toyota corolla sedan 8,000 2009 4,000
31st December
Farm trailer 5,000 2009 2,500
31st December
Farm tractor 15,000 2009 7,500
12,000
Dam
Fencing 2,000
REQUIRED:-
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b) Compute the minimum tax payable by the Company in respect of the year
ended 31st December 2010; 15 MARKS
QUESTION 5
a) 5,000 Econet Wireless Zimbabwe (Pvt) Ltd shares were sold in May 2010 at
US$$4,70 a
share. The Econet shares were acquired in July 2001 at Zim $ 0 per share.
b) 10,000 Toks Technology (Pvt) Ltd shares were sold in July 2010 at US$1,50 per
share.
The shares were acquired in April 2009 for Us$0.80 per share.
c) A house which was being let out was sold in November 2010 for
US50,000.
The house had been acquired in February 2006 for Zim $ 10,000.
US$ 1,000 was incurred in October 2009 in repainting the house.
A further US$2,000 was incurred in renovating the cottage in
February 2010.
QUESTION
Calculate Mr Joram's capital gains tax liability for the year ended 31st December
2010.
13 MARKS
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TAXATION MODULE 2011
QUESTION 6
On the 5th of March 2010, officials from the Zimbabwe Revenue Authority, (ZIMRA) visited Plastics
(Pvt) Ltd, a plastic manufacturer in the Willovale industrial area of Harare and carried out a tax
audit of the company's affairs.
On the 12th of March 2010, the ZIMRA officials presented the following findings:
1. The company had an estimated tax liability of Us $200,000 for the year ended 31st December 2010.
No tax payments have yet been made to ZIMRA in respect of this liability. 4 MARKS
2. The company's selling price is arrived at by adding a mark- up of 60% to the cost of production.
The company offers a 5% cash discount to all its customers while employees are offered
a 30% discount. It has been established that goods which cost the company Us $50,000 were
sold to employees for US $56,000 instead of the normal retail price of $80,000.
ZIMRA officials contend that the discount of US $6,000 offered to the employees is a taxable benefit
liable to employees' tax (PAYE) . 4 MARKS
3. The financial statements for the year ended 31st December 2010 reflected a dividend payable to the
following shareholders;
US $
Mr A Andrews 10,000
Mr J Jones 10,000
Andrews Investment (Pvt) Ltd 20,000
Jones Family Trust 20,000
60,000
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
No tax payments have yet been made to ZIMRA in respect of any tax payable. 5 MARKS
4. The company paid director's fees to the following non executive directors:
$
Mr Kilo (Zambian resident) 3,000
Mrs A Andrews (Zimbabwean resident) 3,000
Mrs J Jones (Zimbabwean resident) 3,000
9,000
5. During the year ended 31st December 2010, Plastics (Pvt) Ltd contracted a South African based
company to repair its blow moulder machine. The machine was sent to South Africa and
Plastics (Pvt) Ltd was charged an equivalent of US $20,000. The funds were paid through the
company's foreign currency account.
ZIMRA officials contend that a withholding tax should have been deducted.
1 MARK
6. During the year ended December 2010, the company's factory manager was sent to Germany
on a course on plastic manufacturing.
The fees for the course were again paid from the company's foreign currency account.
No tax was deducted on the payments. 1 MARK
REQUIRED
Prepare a report to the directors of Plastics (Pvt) Ltd advising them on the tax implications of the
ZIMRA tax audit findings. (21 MARKS)
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TAX 7
The remaining 50 stands were sold on 30th September 2011 at $15,000 each.
Again, a 75% deposit was payable immediately with 15% payable on 1st January 2012 and
and a further 10% payable on 1st January 2013. Interest at the rate of 10% per annum was payable on
amounts outstanding.
REQUIRED
Compute the company's tax payable in respect of the tax years ended 31st December 2010 to
31st December 2013 assuming that all the terms of the agreement are met by the purchasers.
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
(26 MARKS)
ZCTA 2011
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
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TAXATION MODULE 2011
SUGGESTED SOLUTIONS
TAX 1
MR JONES
Tax computation
Tax year ended 31st December 2010
US$ MARKS
Bonus 1,500 1
Gratuity 36,000 1
*Mazda
B2500 Twin cab benefit - 1
69,100
Less:
(1,480)
(Cont.)
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TAXATION MODULE 2011
MR JONES
Taxable income from trade/investment:
31 December 2010
Less: 22,211
21,611
Add:
3% aids levy 648 1/2
22,259
Less:
P.A.Y.E. paid (22,500) 1/2
NOTE
1. No benefit accrues as the taxpayer is aged above 55 years (section 8 (1) f para x
rd
2. Taxpayer is aged above 55 years; pension not taxable para 6 (h) of 3 Schedule
18
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
US$
MARK
Company dividends received from Botswana 800 1
3,000
Add: 3% drought
levy 90
3,090
3,250
Less: Double tax relief
Zimbabwe Foreign
tax tax Relief
(270)
10
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TAXATION MODULE 2011
TAX COMPUTATION
+ -
$ $ MARKS
: capital 25,000 1
General expenses: -
Rent premium : S. 15(2)(d) proviso iii ' :3/120 x 12,000 12,000 300 1
4,537,111 165,300
(165,300)
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TAXATION MODULE 2011
Computers:
Cost 12,000
Mercedes benz
Actual cost 120,000
Deemed cost 10,000
I.T.V.31.12.2010 7,500
8,000
Recoupment
Nissan sunny (cost $12 million) 18,000
Deemed cost December 2009 10,000
Actual selling price 20,000
Deemed selling price 11,111
Actual cost
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Computation of tax
(746,000)
Taxable income 105,710
14
Capital redemption allowance
615,000
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Notes
Maximum allowances allowed are pegged at the 5th Schedule allowances for schools, clinics,
staff housing and passenger motor vehicles.
106
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TAXATION MODULE 2011
SUGGESTED SOLUTION
TAX 3 MARKS
B= 200,000 1
1% of $2,029,000
= 20,290
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TAXATION MODULE 2011
The management fee payable to the parent company is subject to a 15% non residents tax on
fees payable in terms the 17th Schedule to the Income Tax Act. 1
108
SUGGESTED SOLUTION TAX 4
Births 90 90 1
Purchases 1 12 13 1
Promotions in 70 25 33 35 163 1
ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
Fixed standard values 800 500 450 400 200 150 100 1/2
Opening stock 1 Jan 2010 3,200 50,000 13,500 28,000 4,000 3,750 8,000 110,450 1/2
Closing stock as at 31st Dec 2010 2,400 66,000 15,750 13,200 2,000 4,650 9,000 113,000
Farm tractor
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
Toyota corolla
Cost 10,000
7,500
Dam
111
ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
Fencing
23,500 7
112
SUGGESTED SOLUTION
TAX 4
TAX COMPUTATION
45,000
Less:
118,350
(5,350)
34,650
Capital allowances
ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
(23,500)
11,150
4,200
Less:
Applicable livestock expenses:
Livestock expenses x
forced sales
1/2 ( opening stock + closing stock)
5,000 x 51
1/2 (329 +334)
255,000 (769) 2
331.5
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SUGGESTED SOLUTION
TAX 5
Mr Joram
US$ MARKS
a) Econet shares
Capital gains withholding tax is due for submission to ZIMRA not later than three working
days 1
from the date when payment was made .
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
years
(400)
The capital gains withholding tax is due to Zimra within 3 working days from date of
payment.
The final CGT liability is due within 30 days from date of payment.
The disposal of immovable property that was acquired before 1 February 2009
is subject to capital gains tax at 5% of the gross proceeds. 1
The rate of capital gains withholding tax is also accordingly reduced from the normal
15% to 5%. 1
13
116
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TAXATION MODULE 2011
SUGGESTED SOLUTION 6
We refer to your request for an opinion on the above matter and respond as follows:
1. Tax payments
The tax for the year ended 31st December 2010 is payable as
follows:
200,000
Interest at the prevailing ZIMRA rate of 10% per annum is payable on the tax instalments not
paid on due date.
1
Penalties are however not payable for the late payments.
1
It is therefore recommended that you immediately make arrangements to pay the tax and
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
interest outstanding.
2. Deemed benefit
Section 8(1) (f) of the Income Tax Act (Chapter 23:06) brings into tax an amount equal to
the value of an advantage or benefit in respect of employment. 1
The value of the grant of an advantage or benefit other than a payment by way of an
allowance, shall be determined :
(ii) in the case of any other advantage or benefit by reference to the cost to
the employer.
1
In this particular case, the products cost the employer $50,000 and the employee is
required to pay $56,000.
Since the employees pay an amount which is greater than cost to the employer, it is
submitted that there is no taxable benefit that accrues in terms of section 8(1) f. 1
SUGGESTED SOLUTION TAX 6 (cont)
PLASTICS (Pvt) Ltd
The 15th Schedule to the Income Tax Act deals with residents shareholders' tax (RST)
which shall be deducted on dividends payable to shareholders who are ordinarily resident
in Zimbabwe.
(i) In terms of paragraph 1(2) of the 15th Schedule, a dividend shall be deemed
to be distributed when it is paid to the shareholder ,credited to his account or
so dealt with that he becomes entitled to it whichever occurs first.
(iii) The dividend payable to the Jones Family Trust is subject to the 15% wht
of $3,000.
1
Interest at 10% per annum as well as a penalty of up to 100% is payable for
the late payment. 1
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4 Directors' fees
The fees payable to Mr Kilo are subject to a 20% withholding tax in terms of the 17th Schedule. 1
Tax on the fees should be payable within 10 days of the date of payment.
1
Interest at 10% per annum as well as penalties of up to 100% are payable for any late payment. 1
The fees payable to the Zimbabwean directors are subject to a 20% non-executive directors fees 1
tax in terms of the 33rd Schedule to the Income Tax Act. The tax is payable to ZIMRA within
ten date of payment.
1
Interest at 10% per annum as well as penalties of up to 100% are payable for any late payment. 1
5 Technical fees
In terms of paragraph 1 (1)(d) of the definition of fees in the 17th Schedule, any amount payable
in respect of the repair of goods outside Zimbabwe is not subject to the withholding
tax. 1
7 Technical fees
In terms of paragraph 1 (1)(c) of the definition of fees in the 17th Schedule, any amount payable 1
in respect of education or technical training not subject to the withholding tax.
Please do not hesitate to contact me should you require any further clarification.
Yours faithfully,
TAX CONSULTANT
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
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120
ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
US$
(159,000)
Taxable income 272,588
16
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ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
MARKS
Year ended 31st December 2012
122
ICAZ ZCTA ADVANCED ZIMBABWE TAX
TAXATION MODULE 2011
30,000
Less:
Administration expenses (25,000) 1
10
123
SUGGESTED SOLUTION : TAX 7
31st Dec 2010 31st Dec 2011 31st Dec 2012 31st Dec 2013
150 stands
Amount due 1,800,000 450,000 180,000
Amount paid (1,350,000) (270,000) (180,000) (1,800,000)
Amount outstanding 450,000 180,000 -
50 stands
Amount due 750,000 187,500 75,000
Amount paid (565,500) (112,500) (75,000) (750,000)
Amount outstanding - 187,500 75,000 -
INTEREST OUTSTANDING
125