Fundamentals Level Skills Module, Paper F6 (LSO)

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2 Fundamentals Level Skills odule, Paper F6 (LSO) Taxation (Lesotho) Section B December 206 Answers and arking Scheme arks Nava (a) Nava is a resident non-resident because she has been in Lesotho for more than 82 days in a consecutive period from September 203 to 30 August 205, which includes the whole of the year of assessment ended 3 arch 205 and part of the year of assessment ended 3 arch (b) Chargeable income for the year ended 3 arch 206 Basic salary (50,000*5/2) 62,500 Housing allowance (62,500*0%) 6,250 Education allowance (7,000*5/2) 2,97 Gift 2,300 Terminal benefits: Gratuity 62,000 Severance pay (5,000,500) 3,500 Chargeable income 49,467 5 (c) (i) The value of a gift is NOT exempt and treated as part of chargeable income where: the gift itself is one of income; or is income derived from the property which is the subject of the gift; or the gift is from an employer to an employee. 2 (ii) Terminal benefits are NOT exempt if, in total, they exceed 25% of the basic annual salary earned over the period of the employment. 0 2 Basutoland Agricultural College (BAC) (a) Fringe benefits tax (FBT) payable re okena for the year ended 3 arch 206 Accommodation fringe benefit (2,300*2) 47,600 Car fringe benefit (540,000*5%) 8,000 Domestic assistance fringe benefit: Chauffer (8,500*2) 02,000 Bodyguard (exempt) 0 Loan fringe benefit (8%*2/3*80,000) 9,600 Debt waiver fringe benefit (80,000*50%) 40,000 Excessive superannuation contribution fringe benefit (working) 0,600 Total taxable value 390,800 Taxable amount (390,800/0 70) 558,286 FBT payable (558,286*30%) 67,486 Working: aximum allowable contributions (,22,000*20%) 224,400 Employer contributions (235,000) Excess contributions 0,600 8 (b) If BAC was a public international organisation (PIO), the taxable value of the fringe benefits received would constitute chargeable income for okena in addition to his basic salary

3 3 Kopano Enterprises Pty (KEP) arks (a) Value added tax (VAT) payable for November 206 Output VAT Sales (30,400*4/4) 6,04 Credit notes (2,400*4/4) (295) Bad debt recovered (5,000*4/4) 64 6,333 Input VAT Purchases (92,500*4/4),360 Rent (4,500*4/4) 553 Repairs: labour (excluded non-vendor) 0 spare parts (4,000*4/4) 49 Utilities: water (exempt) 0 electricity (3,400*5/05) 62 2,566 VAT payable (6,333 2,566) 3,767 7 (b) KEP was eligible to claim an input tax credit for the bad debt written off on the later of: the date on which the bad debt was written off in its books; and 2 months after the end of the tax period in which the VAT was paid in respect of the supply; i.e. in the tax period commencing in December

4 4 aja Chargeable gains/income arising in respect of the disposal of assets in February 206 arks Chargeable gains Unimproved land Sale proceeds 20,000 Less: Adjusted cost base (ACB) (45,000*35/80) (78,750) 4,250 Building premises Sale proceeds (,500, ,000),680,000 Less: ACB: Land (25,000*35/85) 42,568 Building premises (260,000*35/20) 390,000 Extension 60,000 Repairs (revenue expense) 0 Boundary wall (85,000*35/28) 22,82 (75,389) 964,6 Private saloon car 0,005,86 Less: estate agent commission (5,000) Total chargeable gains,000,86 Office equipment Sale proceeds 30,000 Less: ACB (22,500) Chargeable business income 7,500 0 Tutorial notes:. The negotiated price for the unimproved land is excluded because the adjusted base cost (ACB) of the land at the date of acquisition was its market value. 2. Indexation does not apply to the cost of the extension because it was constructed less than one year from the date of disposal. 3. The cost of the repairs incurred on the roof is excluded because they constitute revenue expenditure which should have been deducted against chargeable business income when incurred. 4. The private saloon car is excluded because it is a private asset, so any gain or loss is not recognised for tax purposes. 9

5 5 akume arks (a) Individual income tax payable for the year ended 3 arch 206 Income from construction business 350,000 Less: expenses Wages and salaries 96,000 Superannuation fund contributions (85,000*20%*2) 34,000 Repairs and maintenance 20,200 Insurance premium (2,500*40%) 5,000 Hire purchase interest (working ) 2,83 Depreciation (working 2) 00,30 (358,43) Trading loss (8,43) Rental income 20,000 Less: expenses (8,200),800 Chargeable income,800 Tax payable: 54,770 at 20% 0,954 57,030 at 30% 7,09 28,063 Less: Personal tax credit (6,466) Withholding tax (350,000*5%) (7,500) Net tax payable 4,097 Workings: Hire purchase interest payable Total instalments (2,250*24) 54,000 Add: Initial deposit 4,500 58,500 Less: arket value (45,000) Total interest 3,500 Interest payable for the year (3,500/24*5) 2,83 2 Depreciation Assets held on April ,380 Equipment purchased on hire purchase (45,000*20%*5/2) 3,750 00,30 2 (b) A trading loss cannot be set-off against any other income; it must be carried forward to the following year(s) of assessment and set-off against future chargeable income from the same source. 2 (c) akume must file his return of income for the year ended 3 arch 206 by 30 June

6 6 River Side anufacturers Pty (RS) arks Corporation tax payable for the year ended 3 arch 206 Business income Local sales 420,000 Export sales (479, ,500) 744,500,64,500 Less: Expenses Staff costs (working ) 347,275 Legal and professional fees (43,00,500) 4,600 Advertising and promotion (32,000,000 2,000) 29,000 Interest payable (working 2) 9,309 Sundry expenses 0,000 (547,84) 67,36 Property income Foreign source dividends 38,000 Lesotho source interest (8,900/0 90) 2,000 59,000 Chargeable income 676,36 Tax payable: anufacturing income (67,36 at 0%) 6,732 Non-manufacturing income (59,000 at 25%) 4,750 Total tax payable 76,482 Less: Local withholding tax (2,000 8,900) (2,00) Foreign tax credit (working 3) (88,423) Tax refundable (4,04) Workings: Staff costs Staff costs (as per question) 350,000 Less: Disallowed entertainment (8,300*50%) (4,50) Add: approved training expense (5,700*25%), ,275 2 Interest payable Limited to debt to equity of 3: Equity capital is 20,000, so debt should be 360,000 (20,000*3) Allowable interest limited to 9,309 (360,000/550,000*29,500) 3 Foreign tax credit Average tax rate (76,482/676,36) 3% Foreign Amount Tax paid Lesotho Foreign tax income abroad tax at 3% credit Export sales 744, ,500 84,29 84,29 Dividends 38,000 5,700 4,294 4,294 88,