Fundamentals Level Skills Module, Paper F6 (BWA)

Transcription

1 Answers

2 Fundamentals Level Skills Module, aper F6 (BWA) Taxation (Botswana) Vincent Evans June 009 Answers and Marking Scheme (b) (c) Computation of chargeable income from rents Rents received 40,500 Less: mortgage bond interest 53,68 council rates 4,637 repairs and maintenance 9,48 capital allowances (3,000 x 5%) 4,800 75,600 allowable 7/8 (4,50) 79,350 Less: Assessed loss brought forward (83,64) Chargeable income from rents 96, Capital allowances can be claimed on the air conditioners.. There are no capital allowances on residential buildings. 3. As Vincent s brother resides in the block rent free the deductible costs should be apportioned so that only those costs that are in the production of income are claimed. Computation of disposal gain Sale of shares in Kingbird (ty) Ltd 75,000 Less: cost of shares (35,000) Less: legal fees (,000) 8,000 Less: 5% moveable property allowance (3,000) 5 Chargeable disposal gain 96, Gains made on the sale of shares that are listed on the Botswana Stock Exchange are exempt. Computation of taxable income from all sources Working employment income Salary 480,000 Vehicle benefit 3,000 Housing benefit 56,000 Utilities 36,753 School fees 7,000 Medical aid 0 ension 0 Interest free loan (360,000 x 5%) 54,000 Chargeable income from employment 666,753 Working interest income Bank interest 56,83 Less: exempt (6,000) Chargeable income from interest 50,83 Employment income 666,753 Rental income 96,086 Interest income 50,83 Dividend income 0 Disposal gains 96,000 Taxable income 909,66 0 5

3 (d) (e) Computation of tax payable First 0,000 0,875 Next 693,66 73,46 Disposal gains first 8,50 6,50 Disposal gains next 4,750,950 93,49 Less: AYE credit 46,938 Less: withholding tax on interest credit 5,08 (5,00) Net tax payable 4,47 4 VAT on rental income The flats are residential units and residential rent is an exempt supply. Accordingly there is no need to register for VAT or to charge VAT. Equally VAT suffered on inputs cannot be claimed as an input deduction. 3 5 Shoshong Investments (b) Withholding tax paid on dividend Dividend paid 4,000,000 Withholding tax at 5% 600,000 ACT brought forward (94,66) Withholding tax paid 405,338 Chargeable gain on sale of property and shares Sale of property Cost price 3,800,000 Indexation (,043 /605 4 x 3,800,000) 3,800,000,747,374 Tax cost 6,547,374 Sale price 7,500,000 95,66 Less: rolled over (Note ) (95,66) 0 Sale of shares Sale price of shares,87,036 Cost of shares (508,739),36,97 Less: moveable property allowance at 5% (Note ) (590,574),77,73 5 Less: capital loss brought forward (70,97) Chargeable gain from disposal of property,500, The gain on a sale of immoveable property can be rolled over against the cost of a new property provided the property is used in the taxpayer's business and the new property is purchased within one year of the sale of the old property. Rollover relief is limited to the balancing charge.. A 5% flat allowance can be claimed in respect of gains arising on the sale of shares. 6

4 (c) (d) (e) Taxable income Net profit per accounts 3,798,739 Add: depreciation 478,0 Add: loss on sale of property 397,0 Add: impairment of investment (Note ) 600,000 Add: recoupment of capital allowances 63,79 Add: estate agent s commission (Note ) 50,000 Add: valuation of properties (Note ) 48,750,837,773 Less: capital allowances 3,076 Less: profit on sale of shares 78,03 Less: fair value adjustment (Note ),700,000 5 Less: dividends received 80,430 (3,79,59) 5,456,983 Chargeable gain on sale of property and shares,500,806 Taxable income 3,957,789. The fair value adjustment and impairment are accounting concepts and have no relevance for tax purposes.. Costs relating to the purchase and sale of immoveable property are considered to be of a capital nature. Tax refundable Ordinary tax at 5% 593,668 ACT at 0% 395,779 Withholding tax paid (Note ) (405,338) ,668 Less: SAT paid 750,000 Less: withholding tax paid on interest 36,9 (786,9) Tax refundable (9,63) 6. The withholding tax credit is limited to the amount of the current year ACT. VAT on sale of shares and immoveable property Shares The sale of shares is considered to fall under the definition of a supply of financial services and is therefore exempt from VAT. Immoveable property The sale of immoveable property, other than residential property, is liable to VAT. However, the seller has the choice of paying either VAT or transfer duty but not both. Where the sale of immoveable property constitutes a going concern the transaction is zero-rated

5 3 Joseph Sabone (b) Calculation of chargeable income from farming Working calculation of balancing allowance Tax value of farming equipment sold 43,750 roceeds on sale of farming equipment (0,000) Balancing allowance 3,750 Working calculation of capital allowances Tax cost of farming equipment 63,500 Less: cost of equipment sold (65,500) Cost at 30 June ,000 Capital allowances at 5% 4,700 Tax cost of motor vehicles 385,000 New truck 0,000 Cost at 30 June ,000 Capital allowances at 5% 6,50 Total capital allowances 40,950 Sales of cattle,408,639 Sales of meat 587,53 ersonal consumption 3 x 800 8,400 Closing stock,59 head x ,470 3,67,04 urchases of cattle,46,793 urchases of feed 38,736 Transport and selling costs 3,944 Expenditure on building a dam 9,886 Wages 49,73 Fencing 84,90 Administrative expenses 75,4 Balancing allowance 3,750 Capital allowances 40,950 Opening stock,867 x 430,3,80 (3,7,456) Chargeable loss from farming (50,45). The deduction of capital expenditure such as dam building and fencing is specifically allowed in the Third Schedule of the Income Tax Act. Calculation of taxable income Income from other sources 86,00 Chargeable loss from farming (Note ) (43,00) 5 Taxable income 43,00. A farming loss brought forward can only be set-off against future chargeable income from farming. A farming loss brought forward cannot be set-off against other income.. The deduction of a current year farming loss is limited to 50% of chargeable income. 8

6 (c) Calculation of carry forward loss Assessed loss brought forward 53,79 Add: current year loss 50,45 Less: loss utilised (43,00) Assessed loss to be carried forward 6, Cowans Manufacturers (b) Rollover relief 300 and 500 ton press Cost of 500 ton press 375,000 Allowances (337,500) Tax value 37,500 Sale price (0,000) Balancing charge (8,500) Application of rollover relief: Cost of 300 ton press 545,000 Rollover relief balancing charge (8,500) Tax cost 46,500 Note Rollover relief in respect of capital allowances only applies to plant and machinery (which expression includes motor vehicles). It does not apply to land and buildings. The term rollover relief when applied to land and buildings refers to relief from capital gains tax. Balancing charges and allowances Saloon car cost 00,000 allowances (50,000) 50,000 sale price (75,000) (5,000) Computers cost,000 allowances (6,500) 5,500 sale price 0 5,500 Land & buildings cost 400,000 allowances (60,000) 340,000 sale price (950,000) (60,000) Net balancing charge (79,500) Note The balancing charge in respect of land and buildings is limited to the allowances granted. 9

7 (c) (d) Capital allowances calculation COST Land & buildings Furniture Machinery Vehicles TOTAL At October ,000 78,54,59,8 387,3 3,04,64 Additions,750,000 8, ,500 65,000 3,53,000 Disposals (400,000) 0 (397,000) (00,000) (997,000) 5 At 30 September 008,750,000 96,754,34,68 35,3 5,540,64 ALLOWANCES At October ,000 36,68,364,73 4,974,604,334 Charge 68,750 9,675 35,44 88,058 57,77 Disposals (60,000) 0 (354,000) (50,000) (564,000) 5 At 30 September ,750 46,303,36,976 8,03,558,06 Net tax value at 30 September 008,68,50 50,45 979,65 7,00 3,98,553 9 VAT implications All of the above sales of capital assets are liable to 0% VAT. The two possible exceptions are the saloon car if input tax was denied on purchase then there is no requirement to charge VAT when it is sold. The sale of immoveable property can be zero-rated if the sale constitutes the sale of a going concern business. 5 5 Southern Financial Services Categorisation of output Exempt Zero-rated Standard Tax Commission non-residents (Note ) 76,44 5 Commission residents 6,68,67 Residential rent received (Note ) 5,000 Sale of furniture 5,000,500 Interest received (Note 3) 96,88 Fees residents 84,80 8,48 Credit notes received (Note 4) 4, Settlement discount (Note 4),80 8 Sale of saloon car Office rent,500,50 Insurance recovery 4,80 4,8 0,88 76,44 396,088 39,609. Revenue earned from non-residents is zero-rated.. Residential rent is an exempt supply. 3. Interest received is a financial service and is therefore exempt. 4. Credit notes and settlement discounts are output adjustments. 0

8 (b) Calculation of tax payable Output tax as above 39,609 Less: input tax office expenses (8,45/),675 Less: tax on capital expenses (0,000/) (Note ) 0,000 Less: input tax on interest paid (Note ) 0 Less: input tax on salaries (Note 3) 0 (,675) 7,934 4 Vat payable. VAT on capital expenditure is deductible.. Interest is an exempt supply and VAT is not charged thereon. 3. There is no VAT on salaries. 5