Fundamentals Level Skills Module, Paper F6 (ZWE)

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2 Fundamentals Level Skills Module, Paper F6 (ZWE) Taxation (Zimbabwe) Section B June 06 Answers and Marking Scheme Caleb Caleb s gym building will be classified as a commercial building. A commercial building is defined as a building which was constructed on or after April 975 of which 90% of the floor area is used for the purposes of trade or in the production of income. (b) Additional provisional tax payable for the year ended 3 December 05 Estimated net profit 000 Add depreciation Less SIA on gym equipment (5% x ) (0 000) Less wear and tear on gym building ( 5% x ) (3 750) Taxable income Corporate tax at 5 75% Provisional tax payable as follows: 0% on 5 March 05 (0% x 6 587) 659 5% on 5 June 05 (5% x 6 587) % on 5 September 05 (30% x 6 587) % on 0 December 05 (35% x 6 587) (c) The assistant trainers salaries are above the annual minimum threshold of 3 600, so Caleb is obliged: to register for PAYE within 4 days of his becoming an employer; and to deduct PAYE and remit it to ZIMRA by the tenth day of the following month. 0 Tanya The Bulawayo residence qualifies to be classified as a principal private residence (PPR) because it is Tanya s sole residence, which she owned for a period of more than four years before disposal. The fact that Tanya was leasing out her residence at the time of sale does not disqualify the property from being a PPR. The situation was a direct consequence of her employment obligation. 3 9

3 (b) Capital gains tax on the disposal of the Bulawayo property Proceeds Less recoupment (main residence and swimming pool only) (30 000) Less cost: Main residence Swimming pool Swimming pool equipment 0 Less capital allowances (30 000) (90 000) Less inflation allowance on: Main residence ( 5% x x 7) Swimming pool ( 5% x x 5) (36 500) Less selling expenses (0% x ) (3 000) Capital gain Less allowance on amounts not yet due ( x 3 500/30 000) (5 750) Adjusted capital gain Capital gains tax at 0% Pat (b) Value added tax (VAT) deregistration A VAT operator can be deregistered under the following circumstances: () If ZIMRA is satisfied that the value of the operator s taxable supplies in the following one year will not exceed the minimum threshold of ZIMRA will cancel the operator s VAT registration from the date the request is made or any other agreed date. () If ZIMRA is satisfied that the operator is no longer making taxable supplies. Deregistration will be made from the last day of the operator s tax period or any other date which ZIMRA might consider. (3) The VAT operator notifies ZIMRA in writing within days of the date of cessation of trade, clearly indicating the actual date when business operations ceased and ZIMRA is satisfied that the operator has no intention to resume business operations within the following one year. The deregistration will be effected from the date of trade cessation. (4) A VAT operator who registered under voluntary registration can be compulsorily deregistered by ZIMRA on failure to comply with the conditions of voluntary registration. ZIMRA will notify the operator of this decision in writing. VAT operator obligations on deregistration () Account for output tax on his inventory and all qualifying non-current assets on which input tax was previously claimed. () Surrender the VAT registration certificate to ZIMRA. (3) Pay any outstanding VAT liabilities. 4 0

4 (c) VAT payable on deregistration Output VAT Inventory (5/5 x 0 000) 5 65 Commercial vehicles (5/5 x ) Passenger motor vehicles 0 Furniture and fittings (5/5 x ) 5 7 Computer equipment (5/5 x 0 000) 609 Office equipment (5/5 x 0 000) Tutorial note: Output tax on the non-current assets on deregistration is computed on the lesser of cost and the market value of the asset. 4 CB (Private) Limited (b) Employers are required to register with the National Social Security Authority (NSSA) within 30 days of commencing business operations. CB (Private) Limited should have remitted the NSSA contributions for the months of October and November 05 on 0 November 05 and 0 December 05 respectively. (c) The NSSA levies a surcharge of 0% of the amount due for every month the contributions are remitted late. The maximum surcharge is 50% of the amount due if the remittance is late by five months or more. (d) (i) October 05 remittance and surcharge Employee Employer Total contribution contribution remittance Employee (3 00/ x 3 5%) (6 000/ x 3 5%) (8 400/ x 3 5%) (8 400/ x 3 5%) Add 0% surcharge (two months late) (ii) Ordinary contributions for the year ended 3 December 05 Total employees salaries Less excess amounts for employees 3 and 4: [( ) + ( )] (700) Employees contributions (3 5% x 6 000) 90 Employer contribution (3 5% x 6 000) 90 Total ordinary contributions for the year 80 0

5 5 Richard Skill Deduction of PAYE from part-time earnings The reason given by Richard s part-time employer is not valid. Richard s part-time earnings are well above the minimum taxable threshold for employee s remuneration of per year (or the equivalent amount for any shorter period of the engagement). Richard should request the private college, his part-time employer: to deduct PAYE from his earnings; and if necessary, obtain a ZIMRA tax deduction directive to give to the college. Richard is also obliged to obtain an employee s tax certificate (form P6) detailing his earnings and deductions during the engagement period from the private college. He is further obliged to complete and submit an income tax return (form ITF) for the year ended 3 December 05 in line with the stipulated deadline. 4 (b) Taxable income and income tax payable for the year ended 3 December 05 Salary ( ) 00 Cash in lieu of leave 400 Accommodation allowance 0 Transport allowance 0 Education benefit (6 000 (6 000/4 x 3 x 50%)) Acting allowance 00 Cell phone allowance 400 Bonus (exempt less than 000) 0 Clothing allowance 600 Annuity [(7 000 x 5) ( )/5] Less: Pension contributions (5 300) Professional subscriptions (500) Life insurance policy 0 Funeral insurance policy 0 Bank loan repayment 0 Taxable income Tax on sliding scale: Up to ( ) at 5% 3 63 Gross tax Less medical aid credit ( 500 x 50%) (750) 5 93 Add 3% AIDS levy Less PAYE (4 500) Tax payable 95 5

6 6 Sky (Private) Limited Industrial park developer s tax reliefs The income from the initial five years of business operations is not taxable and thereafter the tax rate is 5%. Rebate of customs duty charged on the importation of business non-current assets. Exemption from withholding tax on dividends, fees and royalties. Exemption from capital gains tax. Export sales are zero rated. FOUR items only required, mark each, maximum 4 (b) Corporate tax computation for the year ended 3 December 05 Net profit Add: Donation ( ) Motor vehicle repairs and maintenance costs 0 Marketing costs local 0 Allowance for receivables EMA dumping fines Trade convention costs ( ) Foreign exchange losses (unrealised) Legal fees ( ) Property management costs 0 Interest on overdraft facility 0 Interest on long-term loan (capital) Establishment fee re long-term loan (capital) Less: Bank interest (60 000) Rent received 0 Hire of equipment 0 Insurance proceeds (00 000) Marketing costs foreign (double deduction) (60 000) Taxable income Corporate tax payable at 5% 76 5 AIDS levy