Capital gains taxDisposal of listed marketable securities acquired after 1 February 2009 1% of gross proceeds Disposal of specified assets acquired prior to 1 February 2009 5% of gross p
Trang 1Fundamentals Level – Skills Module
Time allowed
Reading and planning: 15 minutes
ALL FIVE questions are compulsory and MUST be attempted
Tax rates and allowances are on pages 3–5
Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may
be annotated You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.
Taxation
(Zimbabwe)
Tuesday 3 December 2013
The Association of Chartered Certified Accountants
Trang 2This is a blank page.
The question paper begins on page 3.
Trang 3SUPPLEMENTARY INSTRUCTIONS
1 Calculations and workings need only be made to the nearest US$1, unless directed otherwise
2 All apportionments should be made to the nearest month
3 All workings should be shown
TAX RATES AND ALLOWANCES
The following tax rates and allowances are to be used when answering the questions:
Rates – Individuals
Year ended 31 December 2012
120 001 and over 45
NB The AIDS levy of 3% of income tax payable, after deducting credits, remains in place
Allowable deductions year ended 31 December 2012
Pension fund contribution ceilings
2012 US$
(a) In relation to employers: in respect of each member 5 400
(b) In relation to employees: by each member of a pension fund 5 400
(c) In relation to each contributor to a retirement annuity fund or funds 2 700
(d) National Social Security (up to maximum of US$200) 3% of gross salary
Aggregate maximum contributions to all the above per employee per year 5 400
Credits year ended 31 December 2012
2012 US$
* The amount is reduced proportionately if the period of assessment is less than a full tax year
Deemed benefits year ended 31 December 2012
Motor vehicles
2012
Trang 4The deemed benefit per annum is calculated at a rate of LIBOR +5% of the loan amount advanced
Value added tax (VAT)
Capital allowances
%
Wear and tear:
Tax rates
Year ended 31 December 2012
% Companies
Income tax
Individuals
Income tax
Trang 5Capital gains tax
Disposal of listed marketable securities acquired after 1 February 2009 1% of gross proceeds
Disposal of specified assets acquired prior to 1 February 2009 5% of gross proceeds
On principal private residence where seller is over 55 years 0%
On other immovable property acquired on or after 1 February 2009 20% of gain
Marketable securities (Listed) acquired before 1 February 2009 5
Note: The withholding tax is not final on the seller Actual liability is assessed
in terms of the Capital Gains Tax Act
On dividends distributed by a Zimbabwean resident company to resident shareholders
other than companies and to non-resident shareholders:
By a company listed on the Zimbabwe Stock Exchange 10
From other financial institutions (including discounted securities) 15
Elderly taxpayers (55 years and over)
The exemptions from income tax are as follows:
Year ended 31 December 2012
US$
Interest on deposits with a financial institution 3 000
Income from the sale or disposal of marketable securities 1 800
Income from the sale or disposal of a principal private residence is also exempted
Trang 6ALL FIVE questions are compulsory and MUST be attempted
1 Moira Demo works for the Ministry of Health and Child Welfare as an eye surgeon and optician based at Midlands provincial hospital in Gweru She dedicates most of her free time to her private practice, as well as writing books and articles for the Zimbabwe Medical Journal Moira is also part of the medical team for the local NGO, Sight Restoration, which is involved in cataract surgery for the disadvantaged members of society in remote rural areas
Moira’s private practice is located in Gweru and has a staff complement of six employees who all work full time Moira only attends to the patients at her private practice strictly by appointment and her patient base has been steadily growing due to her experience and dedication
In terms of her service contract with Sight Restoration, Moira is required to participate in all the cataract operations scheduled for the year Her service contract is for a year, subject to renewal as and when donor support is available Sight Restoration’s field staff, of which Moira is one, are paid a predetermined monthly salary plus an attendance allowance which is paid only after each cataract operation The field staff are also entitled to a one-off representation allowance for participating in scheduled seminars
Moira Demo’s earnings and deductions for the year ended 31 December 2012 were:
From Ministry of Health and Child Welfare
Employee subscriptions to the Medical Professions Association (2 000)
Employee contributions to the Health Professions Medical Aid Society (8 000)
From her private practice
From Sight Restoration
Notes:
(1) This amount is a part repayment of the interest free personal loan of US$12 000 advanced to Moira on 30 June
2012 She used half the loan amount towards the tuition expenses for her MBA studies and the other half to sink a borehole at her house The LIBOR for the year ended 31 December 2012 was constant at 2·5% (2) This amount was fully expended towards the travelling costs for Moira and her minor son for his medical treatment in South Africa The actual medical treatment expenses were fully covered by the Health Professions Medical Aid Society (HPMAS) of which Moira is a member However, HPMAS disallowed a total of US$4 000 from Moira’s claim for prescription drugs acquired during the year ended 31 December 2012, as being above the stipulated limit
Trang 7(3) No employees tax (PAYE) or corporate income tax was paid in respect of the amounts paid to the employees of the private practice (including Moira) or the profits from the practice This was because in Moira’s opinion her operations were ‘private’ and as such not subject to tax and also because she believed that she was already contributing her fair tax share from her other two employers
Additional information
For her private practice work, Moira makes use of a fully expensed motor vehicle, with an engine capacity of 3000cc Moira is a NSSA registered member and for the year ended 31 December 2012, the Ministry of Health and Child Welfare duly deducted her monthly contributions from her earnings in terms of the mandatory requirements
Required:
(a) (i) State the ZIMRA requirements which have been breached by Moira Demo based on the information
(ii) Explain the possible consequences of breaching the ZIMRA requirements as identified in your answer to
(b) Assuming that Moira Demo’s private practice had been fully tax compliant in the year ended 31 December
2012, identify TWO tax planning techniques which Moira Demo could have applied in order to minimise or
(c) Compare and contrast the tax treatment of the two representation allowances received by Moira Demo for
(d) (i) Calculate Moira Demo’s NSSA contributions for the year ended 31 December 2012. (1 mark)
(ii) Calculate the PAYE (employees tax) which should have been deducted from the salary and benefits Moira Demo received from her private practice for the year ended 31 December 2012.
Note: Indicate any amounts which are not taxable or deductible by the use of zero (0) (6 marks)
(iii) Calculate the taxable income of and income tax payable by Moira Demo for the year ended 31 December 2012.
Note: Indicate any amounts which are not taxable or not deductible by the use of zero (0) (14 marks)
(30 marks)
Trang 82 Absolute Milling Company (Private) Limited (AMC) produces mealie-meal, flour and various soup powders At
1 January 2012, AMC owned two milling plants in Harare (Harare No 1 and Harare No 2) and several milling plants
in other major towns in Zimbabwe Each milling plant comprises the milling building, the milling plant and equipment and an adjacent warehouse, all of which were owned by AMC
AMC has been having financial difficulties and on 1 February 2012, engaged the services of a business consultant
to recommend a survival plan for the company Staff morale was very low when the business consultant was engaged because their salaries were six months in arrears
The business consultant’s recommendations were agreed and implemented in the year ended 31 December 2012 as follows:
(1) The milling buildings, plant and equipment and warehouses relating to the milling plants in all the major towns were transferred to their employees at market value, to be operated by the employees as independent business ventures The stock in the warehouses at the respective milling plants was also transferred to these new business ventures at cost
(2) The Harare No 1 milling plant was disposed of, together with all its related fixed assets, in order to fund AMC’s future business operations and to pay off part of the arrears of salary due to the employees The employees at this milling plant were all reassigned elsewhere The stock at the Harare No 1 milling plant warehouse, valued
at cost, was given to the employees as final settlement of their arrears of salary
Both the disposal of the Harare No 1 milling plant assets and the transfer of the town milling plant assets to their employees were made on 30 March 2012
Details of the fixed asset disposals and transfers are:
Town milling plant and equipment 2000 100 000 160 000
Harare No 1 milling plant and equipment 2005 180 000 230 000
–––––––––– ––––––––––
1 200 000 1 840 000 –––––––––– ––––––––––
–––––––––– ––––––––––
Details of the stock transferred are:
–––––––– ––––––––
–––––––– ––––––––
–––––––– ––––––––
AMC’s statement of profit or loss for the year ended 31 December 2012 is as follows:
––––––––––
––––––––––
––––––––––
––––––––––
Trang 91 This amount represents AMC’s ordinary sales for the year
2 Included in the cost of sales is the total value of the stock at cost transferred to the employees (in accordance with the business consultant’s recommendations) on 30 March 2012 No other adjustments were recorded regarding this stock transfer
3 Other income comprises:
US$
––––––––
370 000 ––––––––
4 Distribution costs comprise:
US$
––––––––
295 000 ––––––––
5 Administrative expenses comprise:
US$
––––––––
440 000 ––––––––
6 Other expenses comprise:
US$
Cost of asset disposals:
Management staff share scheme (as detailed below) 40 000
––––––––
180 000 ––––––––
The share scheme was introduced three years ago in order to retain critical management staff The expense relates to the cost of the company shares awarded to management staff on attaining five years of continuous service with AMC
7 Finance costs relate to:
US$
Long-term borrowings (to fund an extension to the Harare No 2 warehouse) 60 000
–––––––
95 000 –––––––
Trang 108 Income tax expense:
This amount relates to the total provisional corporate tax payments made by AMC in respect of the year ended
31 December 2012
In their 2012 budget, AMC had projected a taxable income for the year of US$480 000 before taking into account the following prior year assessed losses:
US$
–––––––
45 000 –––––––
Additional information:
As at 1 January 2012 AMC’s fixed assets were all fully depreciated, except for the following:
Date acquired Cost/valuation (US$)
AMC’s policy on fixed assets has always been to claim the maximum allowances possible in any given year
Required:
(a) Outline the tax consequences for Absolute Milling Company (Private) Ltd (AMC) as a result of the transfer of the fixed assets and stock to the employees on 30 March 2012, stating when any taxes due should be paid.
(6 marks)
(b) Calculate the provisional corporate tax underpaid by AMC for the year ended 31 December 2012, based on
(c) Calculate the capital gains tax payable by AMC for the year ended 31 December 2012. (3 marks)
(d) Calculate the taxable income of and corporate tax payable by AMC for the year ended 31 December 2012.
Note: Your computation should list all of the items referred to in notes 1 to 7, indicating by the use of zero (0) any items which do not require adjustment (14 marks)
(25 marks)
Trang 113 Billy Wells works as a marketing manager in Harare Over the past seven years, Billy has tried to save enough money
to develop his half acre residential plot in Rolf Valley, Harare without much success All he has managed to do is to erect a concrete wall around the property and to have the plans for both the main house and the outbuilding approved Convinced that he will not be able to build his dream house in Rolf Valley, Billy decided to dispose of his residential plot and buy a house in Parklands He also decided to dispose of his entire investment in shares to help fund the acquisition of the Parklands house Billy has never owned any other residential property apart from the Rolf Valley plot and he has always lived in rented accommodation
Billy sold both the Rolf Valley property and his share investments on 5 May 2012 On 1 July 2012, he signed the agreement of sale for the acquisition of the Parklands house for US$130 000
Details of the Rolf Valley property and the share investments are as follows:
Date acquired/constructed Original cost/valuation(US$)
The Rolf Valley property was sold at a total price of US$100 000 while the quoted and unquoted shares were sold for US$15 000 and US$30 000 respectively Billy incurred disposal expenses of 5% on both the immovable property and the marketable securities
Billy applied for a rollover relief on the disposal of the Rolf Valley property on the basis that it was the only residential property which he owned and hence his principal private residence, but ZIMRA disallowed the rollover relief
Required:
(a) Define a principal private residence for capital gains tax purposes, clearly identifying the conditions
(b) Briefly comment on the probable reasons for ZIMRA’s disallowance of the rollover relief claim by Billy Wells.
(3 marks)
(c) Calculate the withholding tax which will be deducted on Billy Wells’ disposal of the Rolf Valley plot and the marketable securities, and state whether or not this will be the final tax. (3 marks)
(d) Calculate the capital gains tax payable by or refundable to Billy Wells in respect of his sale of the unquoted
(15 marks)
Trang 124 Tom Veld acquired a farm in Mash East province on 4 October 2010 for the purposes of venturing into dairy farming Tom is a qualified farmer with a masters degree in animal husbandry and had practised farming in Australia for ten years before relocating to Zimbabwe
Tom spent the first year putting up infrastructure at his farm and preparing the pastures He incurred the following costs during the years ended 31 December 2010 and 31 December 2011:
––––––– ––––––––
––––––– ––––––––
––––––– ––––––––
Tom acquired the following cattle on 15 September 2011:
US$
–––––––
69 000 –––––––
During the year ended 31 December 2012, a total of 20 calves were born on the farm and 15 steers were sold The approved fixed standard value is US$380 Calves are valued at US$200 each, while the dairy cows and the bulls are valued at the purchase price
Commercial production of milk and sales commenced on 1 February 2012 Tom recorded a total farm revenue of US$460 000 for the year ended 31 December 2012 The related farm expenses were:
US$
Other farm running expenses 80 000
––––––––
156 000 ––––––––
Additional information
Tom’s workforce is mostly comprised of casual workers who are paid US$6 per day in line with the industry rates His permanent workers are paid monthly wages ranging between US$200 and US$250