Marks. 1 Norman Thupe

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1 Answers

2 Fundamentals Level Skills Module, aper F6 (BWA) Taxation (Botswana) Norman Thupe December 009 Answers and Marking Scheme (a) Income from employment Salary 80,000 Bonus 0,000 Medical aid 0 Car benefi t (0, % x 30,000) 4,500 Income from employment 34,500 (b) Chargeable income of Thamaga shop Working. Cost of vehicles Cost brought forward 45,000 Addition second-hand bakkie 50,000 95,000 Working. Capital allowances Furniture 0% x 76,94 7,69 lant 5% x 97,64 4,590 Vehicles 5% x 50,000 37,500 Vehicles limited to,500 8,9 Net loss per accounts (33,348) Add: VAT interest 8,79 donation 0,000 school fees 5,800 purchase of investment on Stock Exchange,500 purchase of second-hand bakkie 50,000 drawings 0,000 37,09 Less: capital allowances 8,9 loan from brother 36,000 stock adjustment 3,397 condemned stock 5,83 (0,447) Chargeable income 8,97 3 5

3 (c) Taxable income from all sources Income from employment 34,500 Chargeable income from Thamaga shop 8,97 Dividends received 0 Interest received (8,957 6,000),957 artnership income 63,06 0 loss brought forward (93,88) loss carried forward (30,766) Less: pension contribution (4,000) Taxable income 405,754 7 Note. A partnership loss is ring-fenced and the loss carried forward can only be set-off against future partnership income.. Dividends are not included in taxable income. (d) Tax payable First 0,000 0,875 Next 85,754 at 5% 7,439 8,34 Less: AYE 55,68 Less: withholding tax on dividends 0 Less: withholding tax on interest,896 (58,64) Tax payable 4,50 (e) Tax return submission Norman s tax return should be submitted by the 30 September

4 Direct Retailers (a) Computation of taxable income Working calculation of balancing allowance Cost price 50,000 Less: capital allowances (60,000) 90,000 Sale price (80,000) Balancing allowance (Note ) 0,000 Net profi t per accounts,09,56 Add: depreciation 4,63 rent per IAS 7 (Note ) 364,837 provision for future expenses (Note 3) 87,784 insurance payout to be received (Note 5) 450,000,35,34 5 Less: capital allowances 36,84 profi t on sale of asset 60,000 balancing allowance (Note ) 0,000 fair value adjustment (Note 4) 300,000 5 tax refund (Note 6) 37,593 5 rentals paid (Note ) 40,000 deposit included in sales (Note 7) 50,000 (,034,407),500,083 Less: assessed loss brought forward (68,437) Taxable income,33,646 3 Notes. A balancing allowance arises on the sale of the capital asset.. IAS 7 Leases introduces the concept of rental smoothing but for tax purposes rental that has been incurred can be claimed as a deduction. 3. rovisions for future expenses are not deductible. 4. IFRS adjustments have no bearing on the tax computation. 5. The insurance recovery has accrued as at the year end and should be included in income. 6. A tax refund is not income. 7. The deposit does not accrue as income until the goods have been delivered and therefore does not get included in income. (b) Calculation of dividend withholding tax payable First dividend 500,000 5% withholding tax thereon 75,000 Less: ACT brought forward (87,664) ACT carried forward (,664) Second dividend,000,000 5% withholding tax thereon 50,000 Less: ACT brought forward (,664) Withholding tax payable 37,

5 (c) Self-assessed tax (SAT) amounts and dates (i) Tax payable 5% ordinary tax (,33,646 x 5%) 99,747 0% ACT 33,65 Less: withholding tax paid (37,336) 0 Net tax payable 99,747 (ii) Minimum SAT 3 December ,000 3 March 009 Note 9, June , September ,949 3 January 00 39,949 99,747 6 Note The fi rst SAT instalment has been overpaid and this can then go towards the minimum payment of the next instalment. (d) Tax returns (i) latest date for fi ling is 3 October 009 (ii) the late fi ling penalty is 00 per day (e) Value added tax (VAT) and exports (i) exports are zero-rated; (ii) all costs relating to the goods can be claimed as inputs; (iii) goods must be consigned to an export country which means any country other than Botswana; (iv) goods must be consigned by the company to the recipient at an address in an export country i.e. the company must have physical control over the goods at the time of export. (v) the company must retain documents evidencing export out of the country i.e. customs documents

6 3 Abel Transport (roprietary) Ltd (a) Calculation of balancing charge and allowance Working trade in of one truck Cost price 60,000 Capital allowances (96,00) 63,800 Sale proceeds (40,000) Balancing allowance (Note ) 3,800 Working sale of four trucks Cost price 70,600 Capital allowances (496,750) 3,850 Sale proceeds (500,000) Balancing charge (Note ) (76,50) Working 3 insurance proceeds plant Cost price 85,000 Capital allowances (6,800),00 Sale proceeds (0,000) Balancing allowance,00 Working 4 furniture written off Cost price 9,065 Capital allowances (5,37) 3,693 Sale proceeds 0 Balancing allowance 3,693 Notes. Rollover relief can be claimed in respect of the balancing charge provided the proceeds are applied to the replacement of the assets that have been sold.. A balancing allowance can be claimed separately i.e. it does not have to be deducted from the balancing charge. 9

7 (b) Calculation of capital allowances and written down value carried forward Cost Buildings Furniture lant Vehicles At July 008,000,000 7,89 60,47,309,67 Additions 50,000 8,950 6, ,000 Rollover relief (Note) (76,50) Disposal trade in (60,000) Disposal sale (70,600) Disposal insurance 0 0 (85,000) 0 Disposal write-off 0 (9,065) 0 0 At 30 June 009,50,000 8,776 30,77 897,9 Allowances At July 008 5,000 36,79 04,89 68,05 Current year charge 56,50 8,78 45,37 4,48 Disposal trade in (96,00) Disposal sale (496,750) Disposal insurance 0 0 (6,800) 0 Disposal write-off 0 (5,37) 0 0 At 30 June 009 8,50 9,698 87,356 59,546 Written down value 30 June 009,068,750 53,078 4,8 638,376 Note The balancing charge can be claimed as rollover relief which is then applied to reduce the cost of the replacement assets. 9 (c) Calculation of taxable income Net profi t per accounts,86,958 Add: depreciation 35,094 balancing charge (Note) 0 35,094 Less: capital allowances (56,50 + 8, ,37 + 4,48) 334,336 profi t on disposal of assets 78,56 balancing allowances (3,800 +,00 + 3,693) 9,693 (44,545) Taxable income,709,507 4 Note The balancing charge is rolled-over it does not come into charge as it has been applied to reduce the cost of the replacement assets. 5 0

8 4 Sewane Manufacturers (ty) Limited (a) Commentary on value added tax (VAT) status (i) Inputs can only be claimed within four months of the date of the invoice. The VAT return is for the period ended 3 August 009 which could also include July 009 and so the latest invoice that can be claimed in this tax period is March 009. Anything prior to that date is out of time and will be disallowed. 5 (ii) Exports should be reported as this is required in the VAT return. However, they are zero-rated and so their omission does not have any VAT effect. (iii) A credit note issued by the company should be an input adjustment and not an output adjustment. It should increase inputs rather than increasing outputs. (iv) Although a saloon car is a denied input, the repairs, insurance etc relating to that car are valid inputs. (v) The liability to report an output is triggered by the earlier of raising an invoice or the receipt of cash. The receipt should therefore be included in outputs. 5 (vi) Entertainment is a prohibited input and that includes any recreational expenses. The gym equipment is therefore a denied input. 5 (vii) Residential rent is an exempt supply and should be reported as such but it does not attract VAT. (viii) All hotel bills, whether incurred for business purposes or not, fall within the denied input of entertainment. 0 (b) Restatement of VAT return Excess of outputs originally reported 7,356 Add: inputs disallowed (out of date purchase invoices) 7,90 advance receipt 30,000 denied input claim: gym equipment 8,450 denied input claim: hotel bills, ,088 Less: credit note included in outputs 48,97 credit note should be in inputs 48,97 residential rents 7,500 (05,444) Restated excess of outputs over inputs 456,

9 5 Johnson Masego (a) Disposal gain Working (i) Crossroads Transport (ty) Ltd Sale price 65,000 Cost (35,000/,000 x 500) (8,750) 56,50 (ii) hoza Industries (ty) Ltd Sale price,000 Cost (0,000) (8,000) (iii) FH Wholesalers (ty) Ltd Sale price (400,000 30,000) (Note ) 370,000 Cost (80, ,000) (0,000) 50,000 Boxer Stores Ltd (Note ) 0 Gross disposal gain 398,50 Less: 5% moveable property allowance (99,56) Net disposal gain from shares 98,688 Notes. The sale of shares in FH Wholesalers is cum div and so the dividend must be excluded in order to establish the sale price of the shares.. The gain on the sale of shares in Boxer Stores Ltd is exempt from tax as the shares are listed on the Botswana Stock exchange. Working The sale of Johnson s principal private residence is exempt from tax. The sale of the house in which his parents live is liable to capital gains tax: Cost August ,000 Indexation February 009 (, )/ ,59 46,59 Improvements January ,000 Indexation February 009 (, )/ ,458 95,458 Tax cost 44,977 Sales price 460,000 Net disposal gain from immoveable property 8,03 Total net disposal gains 36,7 9 (b) Taxable income Employment income 350,000 Commission 3,000 Dividend income 0 Total net disposal gains 36,7 Taxable income 689,7

10 (c) Tax payable Normal tax: First 0,000 0,875 Next 53,000 at 5% 63,50 74,5 Capital gains: First 00,000 0,000 Next 6,7 at 5% 54,78 64,78 0 Less: tax withheld (68,375) Net tax payable 69,98 (d) No taxable event is created by Johnson allowing his parents to live rent free in his house. Some might argue that this constitutes tax avoidance in that rental income should have been charged. However, if there is no income then there cannot be any tax avoidance and it is entirely up to the owner as to whether he wishes to derive income or not from his asset but he cannot be penalised if he does not derive any income. 5 3