ACCA f6 taxation zimbabwe 2015 jun question

Taxation (Zimbabwe) Tuesday June 2015 Time allowed Reading and planning: Writing: 15 minutes hours This paper is divided into two sections: Section A – ALL 15 questions are compulsory and MUST be attempted Section B – ALL SIX questions are compulsory and MUST be attempted Tax rates and allowances are on pages 2–4 Do NOT open this paper until instructed by the supervisor During reading and planning time only the question paper may be annotated You must NOT write in your answer booklet until instructed by the supervisor Do NOT record any of your answers on the exam paper This question paper must not be removed from the examination hall The Association of Chartered Certified Accountants Paper F6 (ZWE) Fundamentals Level – Skills Module SUPPLEMENTARY INSTRUCTIONS Calculations and workings need only be made to the nearest US$1, unless directed otherwise All apportionments should be made to the nearest month All workings should be shown in Section B TAX RATES AND ALLOWANCES The following tax rates and allowances are to be used when answering the questions Tax rates – Individuals employment income Year ended 31 December 2014 Taxable income band US$ Up to 000 001 to 12 000 12 001 to 24 000 24 001 to 60 000 60 001 to 90 000 90 001 to 120 000 120 001 to 240 00 240 001 and over Rate of tax % 20 25 30 35 40 45 50 Amount within band US$ 000 000 12 000 36 000 30 000 30 000 120 000 Cumulative income tax liability US$ 800 800 15 600 26 100 38 100 92 100 NB The AIDS levy of 3% is chargeable on income tax payable, after deducting credits Allowable deductions year ended 31 December 2014 Pension fund contribution ceilings (a) (b) (c) (d) US$ 400 400 700 In relation to employers: in respect of each member In relation to employees: by each member of a pension fund In relation to each contributor to a retirement annuity fund or funds National Social Security contributions (on a maximum monthly gross salary of US$700) Aggregate maximum contributions to all the above per employee per year 3·5% of gross salary US$5 400 Credits year ended 31 December 2014 US$ 900* 900* 50% 50% Disabled/blind person Elderly person (55 years and over) Medical aid society contributions Medical expenses * The amount is reduced proportionately if the period of assessment is less than a full tax year Deemed benefits year ended 31 December 2014 Motor vehicles Engine capacity: Up to 1500cc 1501 to 2000cc 2001 to 3000cc 3001 and above US$ 600 800 200 600 Loans The deemed benefit per annum is calculated at a rate of LIBOR +5% of the loan amount advanced Value added tax (VAT) Standard rate 15% Capital allowances % 25 25 Special initial allowance (SIA) Accelerated wear and tear Wear and tear: Industrial buildings Farm buildings Commercial buildings 5 2·5 Motor vehicles Movable assets in general 20 10 Tax rates – Other than employment income Year ended 31 December 2014 % Companies Income tax: Basic rate AIDS levy 25 Individuals Income tax: Income from trade or investment AIDS levy 25 3 [P.T.O Capital gains tax Immovable property and unlisted marketable securities acquired after February 2009 Immovable property and unlisted marketable securities acquired prior to February 2009 Disposal of listed marketable securities On principal private residence where the seller is over 55 years Inflation allowance 20% of gain 5% of gross proceeds 1% of gross proceeds 0% 2·5% Capital gains withholding tax on sale proceeds Immovable property Marketable securities (listed) Marketable securities (unlisted) Note: Other than the withholding tax on listed marketable securities, the withholding tax is not final on the seller The actual liability is assessed in terms of the Capital Gains Tax Act % 15 Withholding taxes On dividends distributed by a Zimbabwean resident company to resident shareholders other than companies and to non-resident shareholders: By a company listed on the Zimbabwe Stock Exchange By any other company Informal traders Foreign dividends Non-executive director’s fees Contracts (ITF 263) % 10 15 10 20 20 10 Non-residents’ tax On interest On certain fees and remittances On royalties % nil 15 15 Residents’ tax on interest From building societies From other financial institutions (including discounted securities) % 15 15 Elderly taxpayers (55 years and over) Exemptions from income tax year ended 31 December 2014 Rental income Interest on deposits with a financial institution Interest on discounted instruments Income from the sale or disposal of marketable securities Pension US$ 000 000 000 800 No limit Income from the sale or disposal of a principal private residence is also exempt Benefit derived from the acquisition of a passenger motor vehicle from an employer is exempt Section A – ALL 15 questions are compulsory and MUST be attempted Please use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple choice question Do not write out the answers to the MCQs on the lined pages of the answer booklet Each question is worth marks During the year ended 31 December 2014, Ron contributed a total of US$5 000 to a medical aid society in Zimbabwe and his employer reimbursed him US$2 000 of this amount In addition, during the year, he incurred US$6 000 of costs in respect of his son who was hospitalised US$4 800 of these costs were paid by the medical aid society Ron is not ordinarily resident in Zimbabwe What is the amount of Ron’s total tax credit for 2014 in respect of medical expenses? A B C D US$5 US$1 US$2 US$4 500 500 100 200 Mary registered for value added tax (VAT) under category A on commencement of business operations on January 2014 Mary’s VAT inclusive sales and purchases for her first quarter are as follows: Sales: Month January February March US$ 000 10 000 15 000 Purchases: Month January February March US$ 000 000 000 What is the net amount of value added tax (VAT) payable by Mary for the tax period which includes the results from March 2014? A B C D US$2 US$2 US$1 US$2 100 700 826 347 During 2014, Chipo sold the following shares: (1) Shares in A Limited, a company listed on the Zimbabwe Stock Exchange (ZSE) for total proceeds of US$ 35 000 The shares had originally cost US$17 500 when purchased on March 2009 (2) Shares acquired in Grey Limited, an unlisted company for total proceeds of US$31 500 The shares had originally cost US$18 000 when purchased in June 2010 What is Chipo’s final capital gains tax liability in connection with the disposal of these shares? A B C D US$1 US$2 US$5 US$3 925 600 225 050 [P.T.O 4 Nursery (Private) Ltd commenced business operations on July 2014 and employs five full-time employees The monthly payroll is as follows: Employee Employee Employee Employee Employee (aged 67) (aged 72) Gross US$ 000 850 750 600 500 –––––– 700 –––––– –––––– What is the total amount of National Social Security Authority (NSSA) contributions payable by Nursery (Private) Ltd for the year ended 31 December 2014? A B C D US$777 US$1 554 US$672 US$378 Which of the following statements are true in connection with a taxpayer raising an objection to an assessment by the Zimbabwe Revenue Authority (ZIMRA)? (1) (2) (3) (4) The The The The full disputed tax amount should still be paid as the objection does not suspend payment of tax objection should give the detailed grounds for the objection in writing objection should not include supporting documentation, as this will be requested by ZIMRA if necessary objection must be lodged within 90 days of receipt of the assessment A B C D and only 1, 2, and and only and only O Limited was incorporated on 20 November 2012 and commenced business operations on January 2014 The company incurred the following expenses between 20 November 2012 and January 2014: Stationery Repairs and maintenance Purchase of 10 motor cycles US$ 000 40 000 20 000 ––––––– 65 000 ––––––– ––––––– What is the maximum amount of tax deduction which O Limited can claim in respect of the above expenses for the year ended 31 December 2014? A B C D US$50 US$45 US$65 US$49 000 000 000 000 Motsi Land Developers Limited (MLD) entered into an approved build, own, operate and transfer (BOOT) arrangement with the Ministry of Transport for the construction of a highway and bridge The BOOT arrangement was signed in 2009 MLD’s taxable income for the years ended 31 December 2013 and 31 December 2014 is as follows: US$ 420 000 380 000 2013 2014 What is MLD’s total corporate tax liability for 31 December 2013 and 31 December 2014? A B C D US$123 600 Nil US$58 710 US$57 000 Which of the following are legitimate tax avoidance measures? (1) (2) (3) (4) (5) (6) (7) Understating taxable income Overstating allowable expenses Claiming the maximum deductions permitted by law Falsifying records Taking advantage of all available tax dispensations in any given year Use of debt within the limits of the thin capitalisation rules Claiming deductions where the necessary conditions are not fully met A B C D 1, 3, 2, 1, and and and 4, and XY Limited’s accountant submitted the company’s Pay As You Earn (PAYE) returns to the Zimbabwe Revenue Authority (ZIMRA) for the quarter ended 30 June 2014 on the following dates: Date 10 May 2014 25 June 2014 30 July 2014 April May June For how many days in total during the quarter ended 30 June 2014 were XY Limited late in filing their Pay As You Earn (PAYE) returns ? A B C D 15 25 65 35 days days days days [P.T.O 10 Farai received the following dividend income (net) during the year ended 31 December 2014: Source A company listed on the Zimbabwe Stock Exchange (ZSE) An unlisted company Amount (US$) 000 800 How much tax was withheld at source in total from Farai’s dividend income in 2014? A B C D US$651 US$570 US$729 US$630 11 Tino is in the process of finalising her value added tax (VAT) return for the month of August 2014 Her VAT payable for the month is US$6 300 before taking into account the following VAT inclusive adjustments: Sales value of goods applied to own use Recovery of impaired debts Purchases returns US$ 200 000 200 What is the adjusted VAT payable by Tino for the month of August 2014? A B C D US$7 135 US$12 700 US$7 260 US$6 534 12 Peter is employed and earns a gross monthly salary of US$6 000 during the year ended 31 December 2014 He contributed 5% of his monthly salary towards a registered retirement annuity fund On June 2014, Peter became a member of a pension fund into which he contributed 7·5% of his monthly salary in addition to his payments to the registered retirement annuity fund This pension fund had not yet registered with the Commissioner of Insurance, Pension and Provident Funds as at 31 December 2014 What is the amount of Peter’s allowable deductions in respect of his contributions to the pension funds for the year ended 31 December 2014? A B C D US$5 US$3 US$2 US$6 400 600 700 750 13 S Limited’s industrial building was completely destroyed by a fire in March 2014 The industrial building was constructed at a cost of US$70 000 and brought into use on 25 April 2009 S Limited’s insurance company paid them compensation of US$60 000 in April 2014 in respect of the destruction of the building What is the amount of capital gains tax payable by S Limited for the year ended 31 December 2014? A B C D US$0 US$3 000 US$9 000 US$2 000 14 James was provided with accommodation in a newly constructed company house by his employer on June 2014 The house is in the northern suburbs of Harare The construction of the house cost James’s employer US$240 000 The market rental for the house is US$2 000 per month James paid his employer rent of US$50 per month for occupation of the house What is the amount of the fringe benefit to be included in James’s gross income for the year ended 31 December 2014? A B C D US$14 US$16 US$13 US$16 000 800 650 450 15 R Limited accurately remitted provisional tax of US$15 000 to the Zimbabwe Revenue Authority (ZIMRA) on 20 June 2014 in respect of its second Quarter Payment Date (QPD) for the year ended 31 December 2014 There have been no subsequent revisions to R Limited’s estimate of revenue for the year What is the amount of provisional tax which should have been remitted to ZIMRA in respect of R Limited’s third QPD for the year ended 31 December 2014? A B C D US$15 000 US$6 000 US$21 000 US$18 000 (30 marks) [P.T.O Section B – ALL SIX questions are compulsory and MUST be attempted Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet You should assume that today’s date is August 2014 Mark and Mary are married and jointly own the principal private residence (PPR) which they reside in Mark was born on 15 July 1960 and Mary was born on 24 December 1959 The couple are contemplating disposing of their PPR An estate agent has provided the following market values for their property as at 31 August 2014: Date acquired/constructed Main residence Outbuilding Temporary car shelter Concrete wall Lock up garage 15 10 20 18 13 February 2009 April 2009 November 2009 February 2010 March 2011 Cost (US$) 80 000 20 000 000 30 000 25 000 Market value (US$) 150 000 35 000 000 40 000 30 000 The estate agent has advised Mark and Mary that whilst there are many buyers interested in their property just now, they should consider selling as soon as possible in case the property market falls The estate agent’s commission will be 10% of the sales price Required: (a) Explain why, notwithstanding the estate agent’s advice, Mark and Mary should consider delaying the disposal of their property Advise on any tax planning which could be undertaken to allow them to sell at the earliest date possible whilst availing of the maximum tax reliefs available (4 marks) (b) Calculate the capital gains tax payable by Mark and Mary assuming that they dispose of their property on 31 August 2014 (6 marks) (10 marks) 10 Carpets Galore Limited (CGL) is a category C valued added tax (VAT) registered operator The VAT returns and remittances of CGL for the month of July 2014 are as follows: VAT return submitted 30 August 2014 July VAT payable US$ 10 000 Amount remitted US$ 10 000 Remittance date 25 October 2014 The trading activities of CGL for the month of August 2014 are detailed below All sales are stated exclusive of VAT, where appropriate, and all purchases/expenses are stated inclusive of VAT, where appropriate None of the purchases/expenses relate to the provision of exempt supplies Sales of carpets and accessories Exempt supplies Sales returns (defective carpets) Purchases Purchases Stationery Depreciation Repairs and maintenance Other expenses Purchases returns Sales US$ 40 000 000 (5 000) ––––––– 43 000 ––––––– ––––––– Purchases/other expenses US$ 15 000 10 000 000 500 000 000 (3 000) ––––––– 48 500 ––––––– ––––––– Supplier VAT registration number WA45000 N/A ZA33000 N/A N/A MZ64000 N/A Required: (a) State the due date for Carpets Galore Limited’s value added tax (VAT) return for August 2014 (1 mark) (b) Calculate Carpets Galore Limited’s maximum interest and penalties in respect of its VAT return for the month of July 2014 (3 marks) (c) Calculate the VAT payable by Carpets Galore Limited for the month of August 2014 Note: You should indicate by the use of zero (0) any items referred to in the question where there is no VAT impact (6 marks) (10 marks) 11 [P.T.O 3 Z Limited owns a plot of undeveloped commercial land in Harare on which it intends to construct an industrial building Due to cash flow constraints, Z Limited entered into a 20-year lease agreement with Evergreen Panel Beaters (Private) Limited (EPB) for the development of the commercial land The terms of the lease agreement are as follows: (1) EPB to construct an industrial building and a security wall on the commercial land at a cost of not less than US$150 000 for the building and US$50 000 for the wall (2) EPB to make use of the property for the duration of the lease agreement subject to payment of a monthly rent of US$8 000 and a one-off premium of US$60 000 (3) The lease agreement was signed on January 2014, on which date the rent and premium were also duly paid The construction of the building and the security wall commenced soon after the signing of the lease agreement The agreed construction period was three months (4) The industrial building and the security wall were constructed within the agreed cost and timeframe and brought into use by EPB on May 2014 EPB obtained a loan of US$100 000 on February 2014 from a bank in order to be able to complete the construction of the industrial building and the security wall The interest rate on the loan is 20% per annum EPB paid a total of US$28 000 in provisional tax for the year ended 31 December 2014 The accountant had calculated the taxable income for the year ended 31 December 2014 at US$280 000 without taking into account the lease agreement provisions and the bank loan Required: (a) Calculate the adjusted taxable income and tax payable by Evergreen Panel Beaters (Private) Limited for the year ended 31 December 2014 Note: You should indicate by the use of zero (0) any amounts for which no adjustment is required (8 marks) (b) Calculate the amounts to be included in the gross income of Z Limited in connection with the lease agreement for the year ended 31 December 2014 (2 marks) (10 marks) 12 Maria is in the business of interior designs and is still working on the tax computation for her income tax self-assessment return for the year ended 31 December 2013 Her net profit before tax for the year is US$15 800 after taking into account the following: US$ (7 000) (8 000) 500 14 300 12 000 800 000 Proceeds on disposal of non-current assets – Note Company dividends received Depreciation for the year Salaries and wages Office rent Restraint of trade payment – Note Traffic fine Note An extract from Maria’s non-current asset register as at 31 December 2013 is as follows: Furniture and fittings Computer equipment Office equipment Cost (US$) 15 000 000 20 000 Tax value (US$) 500 250 nil Included in the office equipment is the cost of the equipment which was disposed of during the year The equipment’s original cost is US$10 000 and it was disposed of for US$7 000 Note The restraint of trade payment was made to an ex-employee of Maria’s in return for which the employee agreed not to work for any competitor of Maria for a period of two years Maria paid a total of US$13 000 in provisional tax for the year ended 31 December 2013 A total of US$5 000 in withholding tax on contracts (ITF 263) was also deducted from invoices raised by Maria for the year ended 31 December 2013, although the income has been included gross of the withholding tax deducted in her profits for the year Required: (a) (i) State by when Maria’s income tax self-assessment return should have been submitted to the Zimbabwe Revenue Authority (ZIMRA) (1 mark) (ii) Advise Maria on ZIMRA’s remedies for late submission of an income tax return (2 marks) (b) Calculate the income tax shortfall or the income tax overpaid by Maria in respect of the year ended 31 December 2013 Note: Your calculation should start with the net profit for the year of US$15 800 and should indicate by the use of zero (0) any amounts referred to in the question for which no adjustment is required (7 marks) (10 marks) 13 [P.T.O 5 Josh Oak is a veterinary surgeon in the government department of animal husbandry and veterinary services For the past five years he was based at the head office in Harare but was transferred to the Mash East office on 15 June 2014 The following are the details of his earnings during the year ended 31 December 2014: Employment income Salary and benefits (i) Salary of US$28 000 In addition, Josh received a bonus of 10% of his salary on 30 November 2014 (ii) Fringe benefits of US$10 000 being accommodation allowance of US$4 000, representation allowance of US$3 000, fuel allowance of US$1 000 and school fees allowance of US$2 000 for his minor children (iii) The standard relocation allowance of US$5 000 when he transferred to the Mash East office The actual expenses incurred by Josh in the transfer amounted to US$3 500 (iv) An interest free loan of US$15 000 received from his employer on August 2014 Josh applied US$10 000 towards his post graduate studies and US$5 000 towards the purchase of a vehicle for his wife The LIBOR for the year ended 31 December 2014 averaged 1·5% per annum (v) Use of an employer allocated vehicle with an engine capacity of 200cc (vi) A total of US$12 000 from a matured retirement annuity fund (RAF) His contributions to the fund over the years were allowed as a deduction Payments by Josh (vii) Pension contributions amounting to 7·5% of his salary Josh also contributed US$4,000 towards his RAF (viii) Professional subscription fees of US$1 500 (ix) Medical aid contributions of US$6 000 The PAYE deducted by Josh’s employer for the year amounted to US$9 400 Other income (x) Net rental income of US$23 000 from a holiday cottage in Botswana (xi) Net non-executive director’s fees (after deduction of withholding tax at source) of US$8 000 (xii) A share of rental income from the estate of his late father The commercial property was transferred in equal shares to Josh and his three siblings at a value of US$200 000 on March 2013 from which date the property was let out to tenants The following are the details of the income and expenditure of the commercial property for the year: Gross rent Management fees General repairs and maintenance Permanent repairs to the security wall US$ 120 000 (18 000) (15 000) (10 000) ––––––– 77 000 ––––––– ––––––– Required: Calculate the taxable income and income tax payable by Josh Oak for the year ended 31 December 2014 Note: You should indicate by the use of zero (0) any amounts for which no adjustment is required (15 marks) 14 AB Limited (AB) is engaged in the retail business of computer consumables and accessories The year ended 31 December 2014 is AB’s third year of trading AB recorded assessed trading losses of US$35 000 and US$22 000 respectively in its first and second years of trading AB’s statement of profit or loss for the year ended 31 December 2014 is as follows: Note Gross profit Bank interest received Company dividends received Prior year suspense sales allowance Motor vehicle expenses Insurance and licensing Marketing expenses Depreciation Salaries and wages Staff pension contributions (five employees) Staff medical aid contributions Entertainment Repairs and maintenance Legal fees Donations to a local church Renewal of operating licences Other administration expenses Interest paid Net profit before tax US$ 450 000 000 20 000 35 000 (14 000) (7 000) (25 000) (37 000) (115 000) (35 000) (40 000) (10 000) (30 000) (3 000) (8 000) (9 000) (45 000) (12 000) –––––––– 117 000 –––––––– –––––––– Notes (1) The repair and maintenance cost all relates to the purchase of permanent fixtures and fittings (2) The legal fees were in respect of employee contracts (3) The interest paid was in respect of a loan to purchase shares in another company Additional information AB’s non-current asset registers shows the following assets which had been in use since the commencement of trade: Cost (US$) 40 000 100 000 30 000 50 000 –––––––– 220 000 –––––––– –––––––– Furniture and fittings Commercial vehicles Office equipment Three passenger vehicles Required: (a) Briefly set out the general rule regarding how a company, like AB Limited, with brought-forward assessed trading losses may use these against its future taxable profits (1 mark) (b) Calculate the taxable income of and corporate tax payable by AB Limited for the year ended 31 December 2014, making use of any available reliefs Note: You should indicate by the use of a zero (0) any amounts referred to in the question for which no adjustment is required (14 marks) (15 marks) End of Question Paper 15 ... (PAYE) returns to the Zimbabwe Revenue Authority (ZIMRA) for the quarter ended 30 June 2014 on the following dates: Date 10 May 2014 25 June 2014 30 July 2014 April May June For how many days... Section A – ALL 15 questions are compulsory and MUST be attempted Please use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple choice question Do... pages of the answer booklet Each question is worth marks During the year ended 31 December 2014, Ron contributed a total of US$5 000 to a medical aid society in Zimbabwe and his employer reimbursed