Answers

Fundamentals Level Skills Module, Paper F6 (ZWE) June 2016 Answers

Taxation (Zimbabwe) and Marking Scheme

Section B Marks

1 Caleb

(a) Calebs gym building will be classified as a commercial building. 1

A commercial building is defined as a building which was constructed on or after 1 April 1975 of which
90% of the floor area is used for the purposes of trade or in the production of income. 1

2

(b) Additional provisional tax payable for the year ended 31 December 2015
US$
Estimated net profit 112 000
Add depreciation 15 000

127 000
Less SIA on gym equipment (25% x 80 000) (20 000) 1
Less wear and tear on gym building (25% x 150 000) (3 750)

Taxable income 103 250


Corporate tax at 2575% 26 587 1


Provisional tax payable as follows:
10% on 25 March 2015 (10% x 26 587) 2 659 1
25% on 25 June 2015 (25% x 26 587) 6 647
30% on 25 September 2015 (30% x 26 587) 7 976
35% on 20 December 2015 (35% x 26 587) 9 305 1

26 587


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(c) The assistant trainers salaries are above the annual minimum threshold of US$3 600, so Caleb is obliged:
to register for PAYE within 14 days of his becoming an employer; and 1
to deduct PAYE and remit it to ZIMRA by the tenth day of the following month. 1

2

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2 Tanya

(a) The Bulawayo residence qualifies to be classified as a principal private residence (PPR) because it is Tanyas
sole residence, which she owned for a period of more than four years before disposal. 2
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. 1

3

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 Marks
(b) Capital gains tax on the disposal of the Bulawayo property
US$ US$
Proceeds 320 000
Less recoupment (main residence and swimming pool only) (30 000) 1

290 000
Less cost:
Main residence 180 000
Swimming pool 40 000
Swimming pool equipment 0
Less capital allowances (30 000) (190 000)

Less inflation allowance on:
Main residence (25% x 180 000 x 7) 31 500
Swimming pool (25% x 40 000 x 5) 5 000 (36 500)

Less selling expenses (10% x 320 000) (32 000)

Capital gain 31 500
Less allowance on amounts not yet due (160 000 x 31 500/320 000) (15 750) 1

Adjusted capital gain 15 750


Capital gains tax at 20% 3 150 1


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3 Pat

(a) Value added tax (VAT) deregistration

A VAT operator can be deregistered under the following circumstances:
(1) If ZIMRA is satisfied that the value of the operators taxable supplies in the following one year will not
exceed the minimum threshold of US$60 000.
ZIMRA will cancel the operators VAT registration from the date the request is made or any other agreed
date.
(2) If ZIMRA is satisfied that the operator is no longer making taxable supplies.
Deregistration will be made from the last day of the operators tax period or any other date which ZIMRA
might consider.
(3) The VAT operator notifies ZIMRA in writing within 21 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. 1
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.

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(b) VAT operator obligations on deregistration

(1) Account for output tax on his inventory and all qualifying non-current assets on which input tax was
previously claimed. 1
(2) Surrender the VAT registration certificate to ZIMRA.
(3) Pay any outstanding VAT liabilities.

2

20
 Marks
(c) VAT payable on deregistration
Output VAT
US$
Inventory (15/115 x 120 000) 15 652
Commercial vehicles (15/115 x 80 000) 10 435
Passenger motor vehicles 0 1
Furniture and fittings (15/115 x 40 000) 5 217
Computer equipment (15/115 x 20 000) 2 609
Office equipment (15/115 x 10 000) 1 304 1

35 217


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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

(a) Employers are required to register with the National Social Security Authority (NSSA) within 30 days of
commencing business operations. 1

(b) CB (Private) Limited should have remitted the NSSA contributions for the months of October and November
2015 on 10 November 2015 and 10 December 2015 respectively. 1

(c) The NSSA levies a surcharge of 10% of the amount due for every month the contributions are remitted late. 1
The maximum surcharge is 50% of the amount due if the remittance is late by five months or more. 1

2

(d) (i) October 2015 remittance and surcharge

Employee Employer Total
contribution contribution remittance
US$ US$ US$
Employee 1 (3 200/12 x 35%) 9 9 18
2 (6 000/12 x 35%) 18 18 36
3 (8 400/12 x 35%) 25 25 50 1
4 (8 400/12 x 35%) 25 25 50 1

154
Add 20% surcharge (two months late) 31 1

185


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(ii) Ordinary contributions for the year ended 31 December 2015
US$
Total employees salaries 26 700
Less excess amounts for employees 3 and 4:
[(8 500 8 400) + (9 000 8 400)] (700) 1

26 000


Employees contributions (35% x 26 000) 910
Employer contribution (35% x 26 000) 910

Total ordinary contributions for the year 1 820


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21
 Marks
5 Richard Skill

(a) Deduction of PAYE from part-time earnings

The reason given by Richards part-time employer is not valid.
Richards part-time earnings are well above the minimum taxable threshold for employees remuneration of
US$3 600 per year (or the equivalent amount for any shorter period of the engagement). 1
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 employees tax certificate (form P6) detailing his earnings and deductions
during the engagement period from the private college. 1
He is further obliged to complete and submit an income tax return (form ITF1) for the year ended
31 December 2015 in line with the stipulated deadline.

4

(b) Taxable income and income tax payable for the year ended 31 December 2015
US$
Salary (12 500 + 9 600) 22 100
Cash in lieu of leave 2 400
Accommodation allowance 0
Transport allowance 0
Education benefit (6 000 (6 000/4 x 3 x 50%)) 3 750 1
Acting allowance 1 200
Cell phone allowance 400
Bonus (exempt less than US$1 000) 0 1
Clothing allowance 600
Annuity [(7 000 x 5) (20 000 15 000)/5] 6 000 1
Less:
Pension contributions (5 300)
Professional subscriptions (500)
Life insurance policy 0
Funeral insurance policy 0
Bank loan repayment 0

Taxable income 30 650


Tax on sliding scale:
Up to US$18 000 2 880
(30 650 18 000) at 25% 3 163

Gross tax 6 043
Less medical aid credit (1 500 x 50%) (750)

5 293
Add 3% AIDS levy 159

5 452
Less PAYE (4 500)

Tax payable 952


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22
 Marks
6 Sky (Private) Limited

(a) Industrial park developers tax reliefs

The income from the initial five years of business operations is not taxable and thereafter the tax rate is
25%.
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, 1 mark each, maximum 4

(b) Corporate tax computation for the year ended 31 December 2015
US$
Net profit 315 000
Add:
Donation (120 000 100 000) 20 000 1
Motor vehicle repairs and maintenance costs 0
Marketing costs local 0
Allowance for receivables 70 000
EMA dumping fines 5 000
Trade convention costs (10 000 2 500) 7 500 1
Foreign exchange losses (unrealised) 65 000
Legal fees (21 000 12 000) 9 000
Property management costs 0
Interest on overdraft facility 0
Interest on long-term loan (capital) 30 000 1
Establishment fee re long-term loan (capital) 3 000
Less:
Bank interest (60 000)
Rent received 0
Hire of equipment 0
Insurance proceeds (100 000)
Marketing costs foreign (double deduction) (60 000)

Taxable income 304 500


Corporate tax payable at 25% 76 125
AIDS levy 0

76 125


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