F6 Taxation (ZWE) Study Text

Study Text
Financial Training Company (FTC)
The Association of Chartered Certified Accountants
Taxation (F6) Zimbabwe (ZWE)

June 2008 examinations
Publishers
Official
Table of Contents
Topic Page
Chapter 1 Introduction To Corporation Tax 12
Chapter 2 Calculation Of Corporation Tax Liability 20
Chapter 3 Schedule D Case I 30
Chapter 4 Capital Allowances On Plant And Machinery 42
Chapter 5 Industrial Buildings 57
Chapter 6 Capital Gains Act 64
Chapter 7 Relief For Company Losses 89
Chapter 8 Value Added Tax 100
Chapter 9 Income Tax 109
Chapter 10 Capital Gains Tax For Individuals 118
Chapter 11 Capital Gains Tax For Companies 126
Appendices
Appendix 1 Income Tax Act
Appendix 2 Finance Act
2 Financial Training Company

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Taxation (F6) Zimbabwe (ZWE)
Rendani Neluvhalani
Partner
Editors Remarks International Tax Services
Ernest and Young
Chief Editor
This is the main text that students, tuition providers and publishers should use as the basis of their studies,
instruction and materials. Examinations will be based on the detail of the study guide which
comprehensively identifies what could be assessed in any examination session. The study guide is a
precise reflection and breakdown of
the syllabus.
The ACCA qualification does not prescribe or recommend any particular number of learning hours
because increasingly study and learning patterns and styles vary greatly between people and
organisations and in different personal, professional and educational circumstances. Each syllabus
contains between 23 and 35 main
subject area headings depending on the nature of the subject and how these areas have been broken
down in those particular papers.
Knowledge of new examinable regulations will not be assessed until at least six calendar months after the
last day of the month in which documents are issued or legislation is passed. The relevant cut-off date for
the June examinations is 30 November of the previous year, and for the December examinations, it is 31
May of the same year. The study guide offers more detailed guidance on
the depth and level at which the examinable documents will be examined. The study guide should
therefore be read in conjunction with the examinable documents list.
Syllabus
5
RATIONALE
This syllabus introduces candidates to the subject of taxation and provides the core knowledge of the underlying
principles and major technical areas of taxation, as they affect the activities of individuals and businesses.
In this syllabus, candidates are introduced to the rationale behind and the functions of the tax system. The syllabus then
considers the separate taxes that an accountant would need to have a detailed knowledge of, such as income tax from
self employment, employment and investments; the corporation tax liability of individual companies and groups of
companies; the national social security and pension/benefit fund contribution liabilities of both employed and self
employed persons; the value added tax liability of businesses; and the capital gains tax liabilities of both individuals and
companies Having covered the core areas of the basic taxes, the candidate should be able to compute tax liabilities,
explain the basis of their calculations, apply tax planning techniques for individuals and companies and identify the
compliance issues for each major tax through a variety of business and personal scenarios and situations.
DETAILED SYLLABUS
A The Zimbabwe tax system
1. The overall function and purpose of taxation in a modern economy
2. Different types of taxes
3. Principal sources of revenue law and practice
4. Tax avoidance and tax evasion
B Income tax liabilities
1. The scope of income tax
2. Income from employment
3. Income from self-employment
4. Property and investment income
5. The comprehensive computation of taxable income and income tax liability
6. The use of exemptions and reliefs in deferring
and minimising income tax liabilities
C Corporation tax liabilities
1. The scope of corporation tax
2. Profits chargeable to corporation tax
3. The comprehensive computation of corporation tax liability
4. The effect of a group corporate structure for corporation tax purposes
5. The use of exemptions and reliefs in deferring and minimising corporation tax liabilities

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D Capital gains tax liabilities
1. The scope of the taxation of capital gains
2. The basic principles of computing gains and losses
3. Gains and losses on the disposal of immovable property and marketable securities
4. The computation of the capital gains tax payable by individuals and companies
5. The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the
disposal of specified assets for capital gains tax purposes
E National social security and pension/benefit
fund contributions
1. The scope of national social security and pension/benefit fund contributions
2. The computation of national social security, pension/benefit fund contributions
3. Computation of allowable national social security and pension/benefit fund contributions
for personal pension schemes and occupational pension schemes
6
F. Value added tax
1. The scope of value added tax (VAT)
2. The VAT registration requirements
3. The computation of VAT liabilities
G. The obligations of tax payers and/or their agents
1. The systems for self-assessment and the making of returns
2. The time limits for the submission of information, claims and payment of tax, including payments on account
3. The procedures relating to enquiries, appeals/ objections and disputes
4. Penalties for non-compliance
APPROACH TO EXAMINING THE SYLLABUS
The paper will be mainly computational and will have five questions, all of which will be compulsory.
• Questions one will focus on personal/individual income tax and question two will focus on
corporation tax. The two questions will be for a total of 55 marks with one of the questions
being for 30 marks and the other for 25 marks.
• Question three will be for 15 marks, and will focus on capital gains (either personal or
corporate).
• Questions four and five will be on any area of the syllabus and will be for 15 marks each.
There will always be at a minimum of 10 marks on value added tax on any paper. These marks might
be included as part of a question or there might be a separate question on value added tax.
National social security, pension/benefit fund contributions will not be examined as a separate
question, but may be examined in any question involving income tax or corporation tax.
Groups and international cross boarder/overseas aspects will only be examined in question two, and
will account for no more than 8 marks in total on any one examination paper.
Capital gains can be examined in questions other than question 3, for example as part of a
corporation tax or business income tax scenario. Any of the five questions might include the
consideration of issues relating to the minimization or deferral of tax liabilities.
7
Study Guide
A THE ZIMBABWE TAX SYSTEM
1. The overall function and purpose of taxation
in a modern economy
a) Describe the purpose (economic, social etc) of taxation in a modern economy.[2]
2. Different types of taxes
a) Identify the different types of capital and revenue tax.[1]
b) Explain the difference between direct and indirect taxation.[2]

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3. Principal sources of revenue law and practice
a) Describe the overall structure of the Zimbabwe tax system.[1]
b) State the different sources of revenue law.[1]
c) Appreciate the interaction of the Zimbabwe tax system with that of other tax jurisdictions.[2]
4. Tax avoidance and tax evasion
a) Explain the difference between tax avoidance and tax evasion.[1]
b) Explain the need for an ethical and professional approach.[2]
Excluded topics
• Specific anti-avoidance legislation
• Assurance/insurance tax legislation
B INCOME TAX LIABILITIES
1. The scope of income tax
a) Explain how the residence of an individual is
determined.[1]
Excluded topics
Income from trusts and settlements.
2. Income from employment
a) Recognise the factors that determine whether an engagement is treated as employment or
self-employment. [2]
b) Recognise the basis of assessment for employment income.[2]
c) Compute the taxable income.[2]
d) Recognise the exemptions and allowable deductions.[2]
e) Compute the value of taxable benefits.[2]
f) Explain the PAYE system.[1]
Excluded topics
Share and share option incentive schemes for
Employees Termination payments
3 Income from self-employment
a) Recognise the basis of assessment for self-
employment income.[2]
b) Recognise the expenditure that is allowable in calculating the tax-adjusted trading profit.[2]
c) Recognise the relief that can be obtained for pre-trading expenditure.[2]
d) Compute the taxable income on commencement and on cessation.[2]
e) Change of accounting date
i) Recognise the factors that will influence the choice of accounting date [2]
ii) State the conditions that must be met for a change of accounting date to be valid [1]
iii) Compute the taxable income on a change of accounting date.[2]
f) Capital allowances
i) Define plant and machinery for capital
allowances purposes [1]
8
ii) Compute annual wear and tear (reducing balance method) allowances and special
initial allowances [2]
iii) Compute capital allowances for commercial and passenger motor vehicles [2]
iv) Compute balancing allowances and balancing charges [2]
v) Define an industrial building and a commercial building for capital allowance purposes [1]
vi) Compute industrial building allowance and commercial buildings allowance for new and second-hand buildings.[2]
g) Incentive allowances
i) Understand the special deductions available for businesses operating in growth point areas [2]

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ii) Recognise the special deductions available for exporters and manufacturing employment creation [2]
h) Relief for trading losses
i) Understand how trading losses can be carried forward [2]
ii) Explain how trading losses can be carried forward following the incorporation of a business [2]
iii) Understand how trading losses can be claimed against total trading income [2]
iv) Explain the relief for trading losses in the early years of a trade.[1]
i) Farmers [2]
i) Apply standard values to the valuation of stock
ii) Recognise the special deductions available to farmers
iii) Compute farming taxable income
iv) Understand how relief for farming losses is given.
j) Partnerships
i) Explain how a partnership is assessed to tax [2]
ii) Compute the taxable income for each partner following a change in the profit sharing ratio [2]
iii) Compute the taxable income for each partner following a change in the membership of the partnership [2]
iv) Describe the loss relief claims that are available to partners.[2]
4. Property and investment income
a) Compute property business taxable income.[2]
b) Compute the taxation of premiums receivable/payable in conjunction to a lease.[2]
c) Distinguish between exempt and taxable interest income.[2]
d) Compute the tax payable on savings income.[2]
e) Compute the tax payable on dividend income.[2]
f) Understand how property and investment
business losses can be carried forward.[2]
5 The comprehensive computation of taxable income and income tax liability
a) Prepare a basic income tax computation involving different types of income.[2]
b) Calculate the amount of personal allowance available to people aged 55 and above.[2]
c) Compute the amount of income tax payable (including AIDS levy).[2]
d) Compute the amount of applicable tax credits.[2]
e) Explain the treatment of donations.[1]
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f) Explain the treatment of property owned jointly by a married couple.[1]
Excluded topics
Maintenance payments.
The income of minor children.
6. The use of exemptions and reliefs in deferring and minimising income tax liabilities
a) Explain and compute the relief given for contributions to personal pension schemes.[2]
b) Describe the relief given for contributions to occupational pension schemes.[1]
c) Explain and apply the exemptions from and reductions in tax payable available to taxpayers
in growth point areas and industrial parks, and
under BOOT arrangements.[2]
Excluded topics
• The conditions that must be met in order for a pension scheme to obtain approval from the Zimbabwe Revenue
Authority (ZIMRA)
C CORPORATION TAX LIABILITIES
1. The scope of corporation tax
a) Define the terms ‘period of account’, ‘accounting period’, and ‘year of assessment’.[1]
b) Recognise when an accounting period starts and when an accounting period finishes.[1]
c) Explain how the residence of a company is
determined.[2]

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Excluded topics
• Companies in the special economic sectors of assurance/insurance, banking and
financial institutions and mining • Investment companies.
• Close companies.
• Companies in receivership or liquidation.
• Reorganisations.
• The purchase by a company of its own
shares.
• Personal service companies
• Taxation of Venture capital companies.
2. Profits chargeable to corporation tax
a) Recognise gross income.[2]
b) Recognise the expenditure that is allowable in calculating taxable business income.[2]
c) Explain how relief can be obtained for pre-trading expenditure.[1]
d) Compute capital allowances (as for individual/personal income tax).[2]
e) Compute investment incentives (as for individual/personal income tax). [2]
f) Compute property business taxable income.[2]
g) Explain the treatment of interest paid and received.[1]
h) Explain the treatment of donations.[2]
i) Understand how assessed trading losses can
be carried forward.[2]
j) Understand how assessed trading losses can be claimed against income of the current
accounting periods.[2]
k) Recognise the factors that will influence the choice of assessed loss relief claim.[2]
l) Explain how relief for a property business assessed loss is given.[1]
m) Compute the taxable income chargeable to
corporation tax.[2]
10
Excluded topics
• Research and development expenditure.
• Relief for intangible assets.
3. The comprehensive computation of
corporation tax liability
a) Compute the corporation tax liability (including AIDS levy).[2]
b) .Explain and apply the exemptions from and reductions in tax payable available to taxpayers
in growth point areas and industrial parks, and under BOOT arrangements.[2]
4. The effect of a group corporate structure for corporation tax purposes
a) Define an associated company and recognize the effect of being an associated company for
corporation tax purposes.[2]
b) Define a 51% group, and recognise the reliefs that are available to members of such a
group. [2]
c) Define a 51% capital gains group, and recognise the reliefs that are available to
members of such a group.[2]
d) Calculate double taxation relief for withholding tax and underlying tax.[2]
e) Explain the basic principles of the transfer
pricing rules.[2]
Excluded topics
• Relief for trading losses incurred by an
overseas subsidiary.
• The anti-avoidance provisions where
arrangements exist for a company to leave
a group.
• Foreign companies trading in the
Zimbabwe .
• Expense relief in respect of overseas tax.
• Transfer pricing transactions not involving
an overseas company.

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5. The use of exemptions and reliefs in deferring and minimising corporation tax liabilities (The
use of such exemptions and reliefs is implicit within all of the above sections 1 to 4 of part
C of the syllabus, concerning corporation tax)
D CAPITAL GAINS
1. The scope of the taxation of capital gains
a) Describe the scope of capital gains tax.[2]
b) List those assets which are exempt.[1]
Excluded topics
Assets situated overseas and double taxation relief.
Partnership capital gains.
2. The basic principles of computing gains and
losses.
a) Compute capital gains on specified assets for both individuals and companies.[2]
b) Recognise deductible expenditure, including adjustment for inflation.[2]
c) Explain the treatment of capital losses for both individuals and companies.[1]
d) Explain the treatment of transfers between a husband and wife.[2]
e) Compute the amount of allowable expenditure for a part disposal. [2]
f) Explain the treatment where an asset is damaged, lost or destroyed, and the
implications of receiving insurance proceeds and reinvesting such proceeds.[2]
Excluded topics
Assets held at 31 July 1981
Assessed losses in the year of death.
Negligible value claims.
11
3. Gains and losses on the disposal of immovable property and marketable securities
a) Compute the exemption when a principal private residence is disposed of between
related parties.[2]
b) Calculate the capital gain when a principal private residence has been used for business
purposes.[2]
c) Calculate the value of quoted shares where they are disposed of by way of a gift.[2]
d) Explain the treatment of bonus issues, rights issues, takeovers and reorganisations.[2]
Excluded topics
• The disposal of leases and the creation of sub-leases.
• The capital gains on the disposal of wasting assets
4. The computation of the capital gains tax payable by individuals and companies
a) Compute the amount of capital gains tax payable.[2]
b) Understand the application of capital gains withholding tax.[2]
5. The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the
disposal of specified assets
a) Explain and apply rollover relief as it applies to individuals and companies.[2]
b) Explain and apply the incorporation relief that is available upon the transfer of a business to a
company.[2]
c) Explain and apply the relief available for transfers of assets between companies under
common control.[2]
d) Explain and apply the relief available where the purchase price is paid by instalments.[2]
Excluded topics
• Reinvestment relief.
E NATIONAL SOCIAL SECURITY AND PENSION/BENEFIT FUND CONTRIBUTIONS
1. The scope of the national social security system
a) Describe the scope of pension/benefit fund and national social security contributions.[1]
2. The computation of national social security and pension/benefit fund contributions
a) Compute the contributions payable by employed persons.[2]
b) Compute the contributions payable by selfemployed
persons.[2]

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3. Computation of allowable national social security and pension/benefit fund contributions for personal
pension schemes and occupational pension schemes.[2]
F VALUE ADDED TAX
1. The scope of value added tax (VAT)
a) Describe the scope of VAT.[2]
b) List the principal zero-rated and exempt
supplies.[1]
2. The VAT registration requirements
a) Recognise the circumstances in which a person must register for VAT.[2]
b) Explain the advantages of voluntary VAT registration.[2]
c) Explain the circumstances in which pre- registration input VAT can be recovered.[2]
d) Explain how and when a person can deregister
for VAT.[1]
e) Explain the four categories of tax period.[1]
12
Excluded topics
• Group registration.
3. The computation of VAT liabilities
a) Explain how VAT is accounted for and administered.[2]
b) Recognise the tax point when goods or services are supplied.[2]
c) List the information that must be given on a VAT invoice.[1]
d) Explain and apply the principles regarding the valuation of supplies.[2]
e) Recognise the circumstances in which input VAT is non-deductible.[2]
f) Compute the relief that is available for impairment losses on trade debts.[2]
g) Explain the circumstances in which the default penalty interest will be applied.[1]
Excluded topics
• Imports and exports
• Penalties apart from those listed in the study guide (repeated misdeclarations are
excluded).
G THE OBLIGATIONS OF TAX PAYERS AND/OR THEIR AGENTS
1. The systems for assessment and the making of returns
a) Explain and apply the features of the assessment system as it applies to
individuals and companies.[2]
b) Explain the quarterly payment date system (QPD’s) as it applies to companies and selfemployed
individuals.[2]
2. The time limits for the submission of information, claims and payment of tax,
including payments on account
a) Recognise the time limits that apply to the filing of returns and the making of claims.[2]
b) Recognise the due dates for the payment of tax under the assessment system.[2]
c) Compute provisional and quarterly payments of tax.[2]
d) List the information and records that taxpayers need to retain for tax purposes.[1]
3. The procedures relating to enquiries, appeals/objections and disputes
a) Explain the circumstances in which ZIMRA can enquire into an assessment tax return.[2]
b) Explain the procedures for dealing with appeals/objections and disputes.[1]
4. Penalties for non-compliance
a) Calculate interest on overdue tax.[2]
b) State the penalties that can be charged.[2]
READING LIST
Students’ Guide to Tax in Zimbabwe 2006, Ernst & Young ,by Jonathan Hore and Maxwell
Mangoro,published and printed by ZXNET (Private)
Limited. The Guide is updated annually.
South African Tax Cases Reports, Juta & co
Zimbabwe Tax Service, ZXNET incorporating the

consolidated Income Tax Act, Capital Gains Tax Act,
Finance Act and Regulations, Value Added Tax Act
and Regulations and Departmental Practices.
The Income Tax Act (Chapter 23:06), Government

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Printer office
The Capital Gains Tax Act (Chapter 23:01),
Government Printer Office
The Finance Act (Chapter 23:04), Government
Printer Office
Value Added Tax Act (Chapter 23:12)
Government Printer office
The Tax Reserves Certificate Act (Chapter 23:10),
Government Printer Office
The National Social Security Act (Chapter
17:04),Government Printer Office
Tax updates are also available online at the
Zimbabwe Revenue Authority website:
http//www.zimra.co.zw

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Introduction To Corporate Tax
Chapter 1
The structure of a corporation tax computation
The proforma
A proforma for a typical corporation tax computation is shown below. The main sections of this Chapter and Chapter 2
will then build on this framework.
Company name
Corporation tax computation for XX months ending ………
$
Schedule D Case I X
Schedule D Case III X
Taxed income X
Schedule A X
Chargeable gains X
Less: Charges on income (X)
___
Profits chargeable to corporation tax X
___
Corporation tax liability at relevant rate X
Less: Quarterly instalments paid (if applicable) (X)
___
Corporation tax payable (repayable) X
___
The relevance of accounting periods
Length of accounting period

A company prepares a computation of ‘profits’ for an accounting period, usually known as a chargeable accounting
period (CAP). ‘Profits’ include income and gains (covered in Section 3
below). From the outset, you need to be aware of the length of the ‘period of account’ and the

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impact this has on a company’s ‘chargeable accounting period’.
A CAP can be any length up to 12 months, but cannot exceed 12 months. In a normal situation, a company prepares a
12 month set of accounts and has a matching CAP. Where the period of account is shorter (eg 9 months) then there is
a shorter CAP. This does not affect how profits are computed, but does affect the computation of the liability.
A CAP can never exceed 12 months. Therefore, where the period of account exceeds 12 months, there is a CAP for 12
months and then a separate CAP for the balance. No other combination is acceptable. This is illustrated in Figure 1.1.
Figure 1.1 Financial period of account of 18 months

Accounts
18 months to 31 March 2008
12 months CAP 6 months CAP

to 30 September 2007 to 31 March 2008
The method of allocating profits from the accounts between the two periods is covered later.
A CAP normally starts when the previous CAP ends and runs for 12 months, but there are special situations which can
trigger a start or end.
A CAP starts in any of the following circumstances.
♦ A company begins to trade.
♦ A company first acquires a source of chargeable income.
♦ A previous CAP ends.
A CAP ends on the earliest date indicated by the following rules.

♦ The 12 month rule
♦ The date ‘accounts’ are made up to
♦ The date the company ceases or begins to trade
♦ The start of the winding up of the company
♦ The date when the company begins or ceases to be ZIMBABWE resident
Example
A Ltd was incorporated on 1 September 2006 and opened a deposit account on 1 October 2006. It commenced to trade
on 1 March 2007, and makes up accounts to 31 December starting in 2006.
Required
State the first four CAPs of the company.

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Solution
1 October 2006 – 31 December 2006 (CAP ends, to coincide with accounts)
1 January 2007 – 28 February 2007 (CAP ends, company starts to trade)
1 March 2007 – 31 December 2007 (CAP ends, to coincide with accounts)
1 January 2008 – 31 December 2008 (12 months – ‘normal’ rule applies)
Financial years
The rates of corporation tax are set for financial years. A financial year (FY) runs from 1 April to the following 31 March
and is known by the calendar year in which it starts – eg FY 2007 (or FY01) is the year from 1 April 2007 to 31 March
2008.
In Figure 1.1 above the CAP of 12 months to 30 September 2007 falls six months in FY 2006 and six months in FY
2007. Half the profits are therefore taxed using FY 2006 rates and half are taxed at the FY 2007 rates. This is covered
in detail in Chapter 2.
Financial years are only relevant to corporation tax. As we see later, individuals and partnerships pay income tax on a
fiscal year basis. A fiscal year runs from 6 April to the following 5 April, eg ‘2007/08’ is the fiscal year (or ‘tax year’ or
‘year of assessment’) from 6 April 2007 to 5 April 2008.
3 Profits chargeable to corporation tax (PCTCT)
Introduction
The first stage of a single company computation is to ascertain the PCTCT. This comprises income and gains, less
charges on income. There are a variety of topics which could be examined, but key elements frequently recur, and the
procedures below should ensure that you have a sound base. We start with an overview of Schedule D Case I – the tax
heading which applies to trading profits.
Schedule D Case I
Schedule D Case I comprises the following elements.
Notes $
Adjusted accounting profit of trading 1 X
Less Capital allowances
Plant and machinery 2 (X)
Industrial building allowances 2 (X)
Add Balancing charges 2 X
___
Schedule D Case I X
Deduct DI trading loss brought forward from earlier CAP 3 (X)
___
X
___
Notes
(1) The adjusted accounting profit of trading is the net profit before taxation, as adjusted for tax purposes, as will be
explained in Chapter 3.
(2) Calculations are often required in these areas (see Chapters 4 and 5).
(3) Losses will be examined in detail in Chapter 7.
Dividends paid by a company are not an allowable deduction in calculating Schedule DI profits being an appropriation of
profit, not an expense of earning the profit. In any event, these should not have been deducted in arriving at the net
accounting profit.

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Loan relationship rules
We consider the loan relationship rules at this point because of their potential relevance to Schedule D Case I.
The loan relationship rules are highlighted in the Study Guide. They apply to all monetary loans
♦ made by a company on which it receives interest and
♦ received by a company on which it pays interest.
The legislation distinguishes between loans for trading purposes and loans for non-trading purposes.
For examination purposes, if a company receives a loan you can normally assume that it is for trading purposes. For
example, a company may borrow money in order to finance the purchase of new assets for use in its trade. If a
company makes a loan, you can normally assume that this is for a non-trading purpose.
You will, however, need to read the question carefully to make sure that these assumptions are not contradicted.
Net or gross?
Prior to 1 April 2007 certain types of interest were paid or received net of 20% income tax. From 1 April 2007 most
interest is paid or received gross (with the exception of interest paid to individuals).
The examiner has stated that the deduction of income tax from interest is no longer examinable, and all receipts and
payments in corporation tax questions should be taken to be gross.
Trading loans
Interest paid - All interest charged in the profit and loss account will be an allowable deduction for Schedule DI
purposes. The normal accruals basis applies. This means you will not need to make any adjustments in converting the
accounting profit into the Schedule DI profit.
Interest received - You are unlikely to see any interest received for trading purposes. However, if you do, such interest
will be included in the trading profit on an accruals basis and therefore needs no adjustment.
Capital value - The capital value of a loan may change, for example due to exchange rate variations. Any such changes
are treated as trading income (or trading expenses, if applicable). Note that changes in the capital value of a loan due to
repayments are ignored.
Non-trading loans
Examples of non-trading loans are loans to suppliers, customers or employees. Non-trading loans are dealt with under
Schedule D Case III rather than Schedule D Case I.
Both interest paid and interest received are dealt with on an accruals basis. They are netted off against each other to
produce one overall Schedule DIII figure. Any non-trading loans written off are deducted from the Schedule DIII figure.
If the net result is a positive figure, it is included in the corporation tax computation as Schedule DIII income. If the net
result is a negative figure, it is a Schedule DIII deficit. This is a type of loss but we do not consider it further as it is
excluded from the syllabus.
Other profits and charges
In ascertaining Schedule D Case I for a company, various items are adjusted for as they do not represent trading
expenses or income.
Item Reason for adjustment
♦ Patent royalties Trade charge
♦ Gift Aid donation Non-trade charge
♦ Rental income Investment income
♦ Interest on bank or building society account Investment income
♦ Dividends received Investment income
♦ Royalty income Investment income
♦ Profit on sale of fixed asset Capital gain
For example, any rental income included in trading profits would have to be deducted (reducing profits) and any patent
royalties deducted from trading profits should be added back (increasing profits).
The treatment of these items in finding PCTCT will now be outlined.

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Schedule D Case III
The loan relationship rules were covered earlier in this section to explain their relevance for Schedule D Case I. To
recap, various types of interest receivable will be included under the heading Schedule D Case III, not Case I.
This includes:
♦ interest from banks, building societies, ZIMBABWE government stock,
♦ loan stock and debentures.
In all cases, it is the accrued amount for the accounting period which should be used. This should be the same as the
amount shown in the profit and loss account.
Schedule DIII also includes interest payable on a loan taken out for a non-trading purpose such as to acquire or improve
property used for commercial letting. This is known as non-trading interest payable. It is deducted from Schedule D
Case III, on an accruals basis. If the interest payable exceeds interest receivable, there will be a DIII deficit – but this is
outside the syllabus.
Other income
Patent royalty income has conventionally been shown separately in the computation.
From 1 April 2007 patent royalties are usually received gross, except that patent royalties received from individuals are
received net of basic rate tax.
The examiner has stated that the deduction of tax from patent royalties is no longer examinable, and all receipts should
be taken to be gross.
Patent royalties are strictly assessable under Schedule D Case III but labelling them ‘DIII’ risks treating them under the
loan relationship rules (which only applies to DIII interest). You should simply label them ‘patent royalties’.
Dividend income is not chargeable to corporation tax. If it is included in the profit and loss account, it must be deducted
for DI purposes. This is because dividend income is paid out of after-tax profits of another company (ie the profits
generating the dividend have already been subject to ZIMBABWE corporation tax). Dividend income is, of course,
chargeable to tax when received by individuals.
This only applies to dividends from ZIMBABWE resident companies. Overseas dividends are still assessable (under
Schedule D Case V) – see Chapter 9.
Schedule A
Rental income is included under the heading Schedule A, and comprises the following.
Notes $
(a) Rental income (furnished or unfurnished) 1 X
Less Expenses (excluding loan interest payable) 1 (X)
(b) Income element of premium on any short lease (less than 50 2 X
years) ___
X
___
Notes
(1) This is the accrued income and expenses for the accounting period. Expenses are allowed (or disallowed) as if
the letting business was a trade (see Chapter 3).
51 − n
(2) This is premium received × where n = number of years of lease.
50
If the property is let furnished the landlord can claim a ‘wear and tear’ allowance equal to 10% of the rent receivable net
of any council tax and water rates (if these are paid by the landlord).
Schedule A losses are covered in Chapter 7.

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Capital gains
A company’s PCTCT include
capital gains as well as income. The calculation of the capital gain or loss on individual transactions is covered in a later
chapter. For the purpose of this chapter, all individual gains and losses are already computed. You will, however, need
to be able to produce a summary of the position for PCTCT.
This is formulated as follows.
$
Gain (transaction 1) X
Gain (transaction 2) X
Loss (transaction 3) (X)
___
X
Less Capital losses brought forward (X)
___
Net chargeable gains X
___
Current period gains and losses are netted off automatically.
Any excess capital losses can only be carried forward for relief against future capital gains.
Charges
The final component in finding PCTCT is to deduct from the total profits (income and gains) any allowable payments
known as charges on income. These comprise two distinct types.
♦ Trade charges (eg patent royalties). (The examiner has stated that the deduction of income tax from patent
royalties is no longer examinable, and you should assume that all payments are gross.)
♦ Non trade charges (eg Gift Aid donations). These are paid gross and require no adjustment.
The gross amount deductible for a CAP is the amount paid. This may be different from the amount accrued in the
accounts.
The distinction between trade and non-trade charges is significant for loss purposes only.
A Gift Aid donation is basically any donation by a company to a charity unless it already qualifies as a business
expense. Only donations that are ‘small’ and ‘local in effect’ will normally be allowed as a DI expense.
There is an example below on computing PCTCT, which will also be used to start developing good habits on exam
technique in your approach to CT questions.
Example
Laserjet Ltd provides you with the following information for its year to 31 March 2008.
Note $m
Adjusted trading profit 500,600
Capital allowances 16,000
Rental income (net of expenses) 12,000
Bank loan interest accrued and paid to purchase rental property 4,000
Building society interest (accrued) 1 20,000
10% Debenture interest accrued and received on $60,000 nominal 6,000
value
Patent royalty received and accrued 20,000
Gift Aid payment made 14,000

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Notes
(1) The amount actually received was $15,000,000,000.
(2) There were capital losses brought forward of $2,000,000,000.
Compute the PCTCT for the year ended 31 March 2008, assuming all reliefs are claimed as early as possible.
Approach to the example
It is essential to develop a methodical approach from the outset in computing PCTCT, to enable you to tackle
examination level questions later.
Step 1
Set up a skeleton CT computation proforma. Keep this on a separate sheet of paper.
$
Schedule D Case I (W1)
Schedule D Case III (W2)
Schedule A
Patent royalties
Chargeable gains
Less Charges on income
_______
PCTCT
________
The headings are not required to be in any particular order, but it is accepted best practice to put DI first.
Step 2
Set up a separate working sheet for any necessary workings and work through the information methodically. Schedule
D Case I often (though not in this example) requires more than one working for the component parts of:
♦ adjusted profit
♦ capital allowances on plant and machinery, etc.
As you complete each working slot the result into the proforma.
Step 3
Show clearly the use of any available losses brought forward and, where available, the carrying forward position in
compiling step 2.

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Solution
Laserjet Ltd
CT computation for the year ended 31 March 2008 $m
Schedule D Case I (W1) 484,600
Schedule D Case III (W2) 22,000
Schedule A 12,000
Patent royalties 20,000
Gains (W3) Nil
_______
538,600
Less Charges on income – Gift Aid (14,000)
_______
PCTCT 524,600
_______
Marks may be awarded for presentation and a clear structured answer creates a good impression with a marker!
Workings
(W1) Schedule D Case I
$m
Adjusted trading profit 500,600
Less Capital allowances (16,000)
_______
484,600
_______
In exam questions take great care not to adjust a profit which has already been adjusted for.
(W2) Schedule D Case III
Notes $m
Building society interest 1 20,000
Debenture interest (10% × $60,000 = $6,000 gross per annum) 6,000
______
26,000
Less Loan interest payable – rental property 2 (4,000)
______
22,000
______
Notes
(1) The accrued figure is the assessable amount, not the paid figure.
(2) This is not a Schedule A deduction but has to be dealt with as a ‘non-trading’ loan.
(W3) Chargeable gains
There are no gains to utilise losses brought forward of $2,000,000,000 therefore carry forward.
Summary
Calculating PCTCT is an essential part of every corporation tax question. In the next chapter you will learn how to
calculate a company’s corporate.

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Calculation Of Corporate Tax Liability
Chapter 2
The corporation tax liability
Introduction
Once you have computed a company’s PCTCT, the next stage of the computation is to calculate the corporation tax
liability. This is essentially divided into two steps.
♦ Determining PCTCT and ‘profits’ (P), a term which is used to determine the tax rates that will apply.
♦ Applying relevant tax rates to calculate the liability.
Step 1
$
PCTCT X ‘I’
Add Current DII X
___
Profits for determination of liability X ‘P’
___
DII is dividend investment income. Current DII is the term used to describe Zimbabwe dividends received in the current
period, grossed up by the tax credit of 100/90.
PCTCT (sometimes labelled ‘I’ for short) is the profit which is charged to tax, but ‘P’ is used to determine the rate of tax.
Step 2
The tax calculation is based on two main factors.
♦ ‘Profits’ P
♦ The financial year (FY) which matches the CAP.
For each FY (ie 1 April to following 31 March) the following information is provided.
FY01
Fraction 1
40
Ordinary rate 30%
For FY00 onwards a new 10% starting rate of corporation tax applies to companies with profits below $10,000,000,000.
The rules concerning this new rate are covered later in this chapter.

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Ignoring the starting rate for the moment, there are three situations that can apply.
♦ Where ‘profits’ (P) do not exceed the lower limit the small company rate applies to PCTCT.
♦ Where ‘profits’ (P) are at or above the upper limit, the ordinary rate applies to PCTCT.
♦ Where ‘profits’ (P) are between the limits then the following calculation is needed.
PCTCT at ordinary rate X

Less Marginal relief (X)
___
X
___
Marginal relief is found by using the formula (likely to be provided in the examination).
Fraction × (M – ‘P’) × PI where I = PCTCT, M = upper limit
The following examples illustrate the calculation of CT liability.
Example
Svosve Ltd has the following PCTCT for the year ended 31 March 2008.
$m
Schedule D Case I 360,000
Schedule A 10,000
_______
370,000
Less Patent royalties paid (80,000)
_______
PCTCT 290,000
_______
Required
What is the corporation tax liability if:
(a) no dividends are received from Zimbabwe companies
(b) $9,000,000,000 of dividends are received from Zimbabwe companies
(c) $45,000,000,000 of dividends are received from Zimbabwe companies?
Solution
(a) Step 1
$m
PCTCT 290,000
DII Nil
_______
‘P’ 290,000
_______
Step 2
Identify the financial year(s) which applies and determine the tax rate.
FY01 applies to the year ended 31 March 2008, and therefore to the whole of the accounting period.
‘P’ is below the lower limit so: CT = $290,000,000,000 × 20% = $58,000,000,000.

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(b) Step 1
$m
PCTCT 290,000
100
DII ($9,000 × 90
) 10,000
_______
‘P’ 300,000
_______
Step 2
FY01 applies and ‘P’ is equal to the lower limit
Therefore CT = $290,000 × 20% = $58,000, as before. The ‘profits’ level has not altered the decision.
(c) Step 1
$m
PCTCT 290,000
100
DII ($45,000 × 90
) 50,000
_______
‘P’ 340,000
_______
Step 2
FY01 applies
‘P is above $300,000 but below $1,500,000; marginal relief applies.
$m
$290,000 × 30% 87,000
290,000 (24,735)
Less Marginal relief 1
($1,500,000 – $340,000) × = ______
40
340,000
CT 62,265
______
Short accounting periods

Short accounting periods – ie less than 12 months – can have an impact on the calculation of the CT liability as the
lower and upper limits are annual limits and have to be time apportioned to fit the length of the accounting period.
Example
If Svosve Ltd (1.2 above) had a nine month accounting period to 31 March 2008 what would be the result assuming the
dividend received was $9,000?
Solution
Step 1
$m
PCTCT 290,000
DII 10,000
_______
‘P’ 300,000
_______

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Step 2
FY01 applies but to a nine month period therefore:
Lower limit = 129 × 300,000 = 225,000
Upper limit = 129 × 1,500,000 = 1,125,000

‘P’ is now between the limits so:
$
PCTCT $290,000 × 30% 87,000
290,000 (19,938)
40
($1,125,000 – $300,000) × ______
300,000
67,062
______
Make sure you calculate tax on PCTCT not on ‘P’ – an easy mistake to make.
Non 31 March year ends
Many companies do not have CAPs which fall neatly into a financial year.
A company with a year end of 31 December 2005 is affected as follows.
FY04 FY05
1 January 2005 – 31 March 2005 1 April 2005 – 31 December
2005
Ordinary rate 30% 30%
Fraction 1 1
40 40
As the CT rates change from FY04o FY05it is necessary to time apportion the PCTCT and ‘P’ and compute the CT for
each FY separately as follows.
Step 1
Determine ‘P’ as before and decide the level of tax (ie small, ordinary, marginal).
Step 2
Time apportion PCTCT between the financial years, and proceed as before, taking the number of months into account.
If profits for the year to 31 December 2005 are below $300,000,000,000:
PCTCT × 21% × 123 FY04
PCTCT × 20% × 9
12
FY25
Note that for the year to 31 December 2006 (ie falling in FY05 and FY00) and to 31 December 2007 (ie falling in FY00
and FY01) there will be no need to time apportion as the rates and limits remain the same.
If this situation arises in an exam question (ie FY ‘straddle’ without a change of rates) you should explain briefly why you
have not split up the calculation.
Example
Marginal Ltd had PCTCT of $290,000,000,000 for the year ended 30 September 2005 and received a dividend of
$45,000,000,000 on 15 May 2005.
Required
Calculate the company’s corporation tax liability.

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Solution
Step 1
Year ended 30 September
2005
$m
PCTCT 290,000
DII 45,000 × 100
90
50,000
_______
‘P’ 340,000
_______
Therefore we have a marginal company.
Step 2
6m 6m
FY04 FY05 Total
$m $m $m
PCTCT 145,000 145,000
@ 31%/30% 44,950 43,500 88,450
FY04 and FY05 × 1
40
($1,500,000 – $340,000) × (24,735)
______
290,000
340,000
63,715
______
Note
The marginal relief calculation is the same for both financial years because both the upper profit threshold and the
fraction are the same in FY04 and FY05. The calculation can therefore be done in one step.
The new starting rate of corporation tax
A new 10% starting rate of corporation tax was introduced with effect from 1 April 2006. It applies to companies with
profits not exceeding $10,000.
Companies with profits between $10,000,000,000 and $50,000,000,000 are taxed at the small company rate of 20%,
but their tax liability is then reduced by a form of marginal relief. This is calculated using the limit of $50,000,000,000 in
the relief formula in place of the $1,500,000,000,000 limit used above.
Example
Tiny Ltd has PCTCT of $9,000,000,000 for the year ended 31 March 2008.
Required
Calculate Tiny Ltd’s corporation tax liability assuming that:
(a) it received no dividends
(b) it received dividends of $1,800,000,000.

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Solution
(a) Tiny Ltd’s profits will be subjected to tax at the new starting rate of 10% as they are below $10,000,000,000.
The corporation tax liability will therefore be $9,000 × 10% = $900,000,000.
(b) Tiny Ltd’s profits are as follows.
$m
PCTCT 9,000
DII ($1,800 × 100/90) 2,000
______
P 11,000
______
As Tiny Ltd’s profits fall between $10,000 and $50,000 it will be subjected to corporation tax at the rate of 20%.
However, its liability will be reduced by marginal relief as shown.
$m
PCTCT ($9,000 × 20%) 1,800
9 ,000 1 (798)
($50,000 – $11,000) × × 40 _____
11,000
Corporation tax liability 1,002
______
Long accounting periods
Introduction
In Chapter 1 you learned that, although a company can draw up financial accounts for a period of more than 12 months,
a company’s ‘chargeable accounting period’ (CAP) for corporation tax purposes can never exceed 12 months. Therefore
if the financial accounts cover more than 12 months, two chargeable accounting periods are required; one for the first 12
months and one for the balance. This section tackles the allocation of income, gains and charges between the two
periods, in finding PCTCT.
The table below summarises the rules to be used.
Table 2.1 Allocating income and expenses between CAPs
Item Method of allocation
Trading income before deducting capital Time apportioned
allowances
Capital allowances Separate computation for each accounting
period (see Chapters 4 and 5)
Rents etc under Schedule A Time apportioned
Patent royalties Period received
Schedule DIII Period for which accrued (if the question
provides sufficient information)
Chargeable capital gains Period of disposal
Charges Period paid
Do not miscalculate the number of months in the second period – double check it – as it is crucial for time apportioning
calculations and easy to get wrong.

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Example
Printer Ltd has made up accounts for the 17 months to 30 June 2007, with the following information.
$m
Adjusted trading profit before capital allowances 365,000
Building society interest
Received 30 April 2006 (of which $1,950 related to year ended 2,450
31 January 2006)
Received 30 April 2007 2,675
Accrued on 30 June 2007 200
Rents from property 26,010
Chargeable gains
Disposal on 31 January 2007 28,700
Disposal on 1 February 2007 49,760
Dividend received from Zimbabwe company (gross amount) on 1 December 10,000
2006
Patent royalties paid
Paid 31 July 2006 6,000
Paid 31 January 2007 6,000
Accrued to 30 June 2007 5,000
Capital allowances for the two CAPs derived from the 17 month period of account are $20,000 and $6,250 respectively.
Show how the company’s period of accounts will be divided into CAPs and compute the PCTCT for each CAP. All
income is deemed to accrue evenly where relevant.

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Solution
The procedure to be followed is exactly the same as for a 12 month period, but incorporating the allocation rules.
12 months to 31 January 5 months to 30 June 2007
2007
$ $
Schedule D Case I (W1) 237,647 101,103
Schedule D Case III (W2) 2,382 993
Schedule A (W3) 18,360 7,650
Gains (date of transaction) 28,700 49,760
Less Charges (W4) (12,000) Nil
_______ _______
PCTCT 275,089 159,506
_______ _______
Note The dividend received is not relevant for PCTCT.
Workings
(W1) Schedule D Case I
Total 12m 5m
$m $m $m
Adjusted profit (See note) 365,000 257,647 107,353
Capital allowances (20,000) (6,250)
_______ _______ _______
237,647 101,103
_______ _______
Note Trading profit is time apportioned.
(W2) Building society interest

The amount which would be included in the profit and loss account for the 17 month period on the accruals
basis would be as follows.
$m 12bn 5bn
Received 30 April 2006 2,450
30 April 2007 2,675
Add Year end accrual 200
Less Opening accrual (1,950)
_______ _______ _______
(See note) 3,375 2,382 993
_______ _______ _______
Note This is then time–apportioned as the accrual at 31 January 2007 is not supplied.

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(W3) Schedule A
Rental income is assessable under Schedule A, which is assessed on an accrued basis for the 17 months and
then time apportioned into the 2 CAPs.
$m 12bn 5bn
26,01 18,360m 7,650m
0m
(W4) Charges are relevant when paid
$m
31 July 2006 6,000
31 January 2007 6,000
______
12,000 in year ended 31 January 2007
______
Nil in five months to 30 June 2007 as accrued, not paid.
The procedure for finding the corporation tax liability now follows the rules outlined earlier, except that you have two
calculations. The point to watch, however, is that as the second computation is the ‘balance’ of the accounts it will
always be a short period. The limits of $300,000,000 and $1,500,000,000 therefore need to be reduced proportionately
when considering the tax rate to apply.
Example
Now calculate the CT liability for Printer Ltd for its two accounting periods.

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Solution
Step 1
12 months to 31 January 5 months to 30 June 2007
2007
$m $m
PCTCT (as above) 275,089 159,506
DII (received December 10,000 –
2006) _______ _______
‘Profits’ 285,089 159,506
_______ _______
Step 2
Matching the financial years
FY05 FY00 FY00 FY01
2 months 10 months 2 months 3 months
5 $300,000 $125,000
Lower limit (annual) ( 12 )
small rate marginal
5 $625,000
Upper limit ( 12 )
Rates to apply 20% 20% 30% 30%

Step 3
12 months to
31 January 2007
$
PCTCT of $275,089
CT liability @ 20% 55,018
_______
5 months to 30 June 2007
$
PCTCT $159,506 × 30% 47,852
1 (11,637)
($625,000 – $159,506)
_______
CT liability 36,215
_______
As you can see, it is possible to have different tax rates applying even though the information is generated from the
same set of accounts.
Approach to the question

The approach is exactly the same as developed in Chapter 1, except that you are preparing two computations. You first
need to check in any question whether the accounts provided exceed 12 months, and determine the CAPs needed.

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Schedule D Case 1
Chapter 3
Measuring Schedule D Case I profits
The trading profits made by a company are taxed under Schedule D Case I. The starting point in determining the
amount of profit assessable under Schedule D Case I is the net profit as shown in the accounts. However, the accounts
may contain expenditure items which are not allowable under Schedule DI. There may also be income which is
assessable under a different Schedule or not assessable at all. Therefore the company’s net accounting profit must be
adjusted for tax purposes.
Schedule D Case I comprises adjusted profits less capital allowances for plant and machinery (Chapter 4), less
industrial buildings allowances (Chapter 5) for an accounting period.
The net profit shown in the accounts of a company must be adjusted to comply with the rules of taxable income and
allowable expenditure for Schedule D Case I. The profit as adjusted for tax is referred to as the adjusted profit.
Outline proforma for adjustment of profits computation
$ $
Net profit per accounts X
Add Disallowable expenditure X
____
X
Less Amounts credited in the accounts but not
taxable under Case I X
Amounts not charged in the accounts but deductible
under Case I (for example, capital allowances) X
____
X
____
Adjusted profit X
____
The proforma shows three categories of adjustments. The first one – disallowable expenditure – is extensive enough to
justify separate treatment in Section 2 of this Chapter. In Section 3 we will deal with the other categories of adjustment.

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Disallowable expenditure
The general principle

Expenditure is only allowable as a deduction in calculating Schedule D Case I profits if it has been incurred wholly and
exclusively for the purposes of the trade ( Income Taxes Act Chapter 23:06 (ITA) 2007his means that the expense must
have been incurred in earning the profits of that particular business. Certain expenses, such as those which follow, fail
this wholly and exclusively test.
Fines. Fines on the business should be disallowed as the business is expected to operate within the law. Typical
examples are penalties for late payment of VAT or for infringing health and safety regulations. In practice, the Inland
Revenue usually allow a deduction for parking fines incurred by employees while on company business. This
concession does not, however, apply to directors’ parking fines.
Fraud. Fraud undertaken by directors is disallowed,. This is because the loss does not relate to the company’s trading
activities. However, petty theft by non–senior employees which is not covered by insurance is generally allowable.
Donations. Donations to charity usually fail the wholly and exclusively test. In practice, this means that there is no
deduction for donations to national charities or political parties, unless there is some clear benefit to the trade. However,
small donations to local charities are allowable. Donations under the Gift Aid scheme (including those made under deed
of covenant) are classed as charges on income.
Charges on income. Charges on income are payments such as deeds of covenant, donations under the Gift Aid
scheme or payments of patent royalties. Charges are not allowable under Schedule D Case I but are deducted in
arriving at PCTCT.
Other major items of expenditure which are not allowed in an adjustment of profits computation are discussed below.
Note that we use a statutory reference above –. Unless indicated otherwise, any statutory reference in this text is to ITA
2007. However, you do not have to memorise statutory references. They are usually shown in the text as useful labels
which save writing out the rules – we see this in particular in Chapter 7 on losses.
Capital expenditure
As a rule, capital expenditure charged to the profit and loss account (eg depreciation) is not an allowable expense for
tax purposes. For this reason, ‘repairs’ expenditure requires careful review, as it often contains items of a capital nature.
In general, repairs and redecoration are considered to be revenue expenditure and are therefore allowable.
Improvements, however, are disallowable. In practice, the distinction between a repair and an improvement is not clear-
cut. Repairs usually involve restoring an asset to its original condition or replacing part of an asset with a modern
equivalent. Improvements usually involve enhancing the asset in some way.
If an asset is purchased in a dilapidated state, and the purchase price reflects this, then initial ‘repairs’ expenditure to
bring the asset to a fit state for use in the business will not be deductible. Two cases illustrate the difficulty of applying
this rule in practice.
Legal expenses of a capital nature. The general rule to determine whether legal expenses are allowable is to look at
what they relate to. If they relate to a capital item, such as the purchase of a building, then the expenses will be
disallowed. If they relate to a revenue item, such as the collection of trade debts or employee issues such as drawing
up contracts of employment, then they will be allowable.
There are some exceptions to the capital rule. The following expenses are allowable.
♦ The legal costs of renewing a short lease (50 years or less)
♦ The legal costs of defending title to a fixed asset (eg disputes over land boundaries)
♦ The costs of registering patents and trade marks.

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Depreciation. Depreciation, together with any profits or losses on the sale of fixed assets, is disallowed. Instead of
depreciation, capital allowances may be given.
Lease impairment. This is another form of depreciation whereby the premium paid on the acquisition of a lease is
written off to the profit and loss account over the life of the lease. The amount deducted in the profit and loss account
must be added back.
If the lease is a short lease (50 years or less) for trading premises, a deduction is given for part of the premium. The
formula is as follows.
Schedule A charge on landlord

n
where n = number of complete years of lease
51 − n
The part assessable on the landlord under Schedule A is .
50
The balance is taxed on the landlord under the capital gains rules. In effect, 2% of the premium is treated as capital for
every complete year (except the first) for which the lease can last.
Example
TM Ltd has traded for many years, making up accounts to 30 September. On 1 October 1990, it was granted a lease of
business premises for 15 years, paying a premium of $6,000. TM Ltd’s accounts for the year to 30 September 2007
include lease impairment of $400.
Required
Show the adjustment for Schedule D Case I purposes, for the year to 30 September 2007.
Solution
The first stage is to add back the lease impairment in the adjustment of profits computation.
$
Add lease impairment 400
A working is then required to calculate the allowable deduction for the lease premium.
♦ First calculate the Schedule A charge on the landlord.
51 − n 51− 15
Premium × = $6,000 × = $4,320
50 50
4,320
♦ Then the allowable deduction is = $288
15 years
The completed adjustment is therefore as follows.
$
Add lease impairment 400
Less: Allowable lease premium (288)
You should show both adjustments rather than just the net result.

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Provisions and appropriations
Dividends. Dividends are appropriations. They are paid out of profits after they have been subjected to tax. They are not
expenses incurred in earning those profits.
Bad debts. Movements in the general bad debt provision and non–trade debts written off are not allowable. Movements
in specific provisions and trade debts written off can be deducted.
Example
The bad debts account of Greenidge Ltd for the year ended 30 April 2008 appears as follows.
$m $m
Written off Balance brought down
Trade 274 Specific provision 185
Former employee 80 General provision 260
Balance carried down Recoveries – trade 23
Specific provision 194 Profit and loss account 305
General provision 225
____ ____
773 773
____ ____
Required
Show the adjustment for Schedule D Case I purposes.
Solution
In this example, the information is presented in the form of a ‘T’ account. The first stage is to establish a breakdown of
the profit and loss account charge of $305. Remember that this figure comprises amounts written off and recovered,
and movements in provisions.
Profit and loss account charge $bn Allowable?
Increase in specific provision ($194 – $185) 9 4
Decrease in general provision ($225 – (35) 8
$260)
Amounts written off
Trade debt 274 4
Former employee 80 8
Recoveries – trade (23) 4
____
305
____

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The movement in the general provision and the amount owed by the former employee are both disallowed. In this case,
the movement in the general provision is a decrease, so the adjustment made is to deduct it from the profit per the
accounts.
The adjustment for Schedule D Case I purposes is therefore as follows.
$bn
Add Former employee, debt written off 80
Less Decrease in general provision (35)
Write-offs of non-trading loans (such as here to the former employee) are allowed as a Schedule D Case III expense –
easy to overlook.
Note that movements in any other general provisions charged to the profit and loss account should also be disallowed,
for example stock provisions.
Interest
All aspects of borrowing and lending money are dealt with under the loan relationship rules. These were covered more
fully in Chapter 1.
For the purpose of computing a company’s Schedule DI profits you need to distinguish between trading and non-trading
receipts and payments.
Interest payable on trading loans is an allowable expense for Schedule DI purposes. The accruals basis applies. As the
accruals basis should have been used for drawing up the accounts, you should not need to make any adjustments in
respect of, for example, interest payable on bank overdrafts or debentures used for trading purposes.
Receipts and payments in respect of non-trading loans need adjustment when calculating Schedule DI profits, as such
items do not relate to trading. So, for example, interest payable on a loan to purchase a property for renting out must be
added back. Interest received on a deposit with a building society or bank will be deducted. Such items are dealt with
instead under Schedule D III.
Other miscellaneous adjustments

Pre-trading expenditure. Expenditure incurred up to seven years before a trade commences is allowed as an expense
of the first CAP of trading provided it would have been allowable had the trade existed at the time the expenditure was
incurred.
Entertaining. The cost of entertaining customers and suppliers is disallowed. However, the cost of entertaining staff is
allowable.
Gifts. Gifts are only allowable if they fulfil the following three conditions.
♦ They incorporate a conspicuous advertisement for the business.
♦ The total cost per donee is not more than $50mper annum.
♦ The gift is not food, drink (alcoholic or otherwise) or tobacco or a voucher for such items.
Note that if the cost exceeds the $50m imit, the whole amount is disallowed.
Therefore desk diaries or biros embossed with the company name usually qualify but a bottle of whisky carrying an
advert for the company would not!
Trade samples (not for resale) are allowable.

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Hire or lease charges (expensive cars). If a car costing more than $12,000m is leased or hired, part of the rental cost is
disallowed. The disallowable amount is calculated using the following formula.
1
2 (retail price when new − $12,000m)
Disallowed amount = x hire charge
Retail price when new
Example
Huni Ltd incurs annual rental expenditure of $1,960m on leasing a car with a retail price of $14,200,000,000. The car
was first leased on 1 January 2007. Huni Ltdprepares accounts to 31 December.
Required
Show the amount disallowed for Schedule D Case I purposes in the year ended 31 December 2007.
Solution
The following amount is disallowed.
1 ($14,200m − £12,000m)
2
x $1,960m = £152m
$14,200m
Other adjustments to accounting profits
Amounts credited in the accounts but not taxable

The following are examples of amounts which may be credited to the profit and loss account, but which are not taxable
under Schedule D Case I.
♦ Income taxed in another way, for example rent (Schedule A), interest receivable (Schedule D Case III).
♦ Profits on sales of fixed assets (a chargeable gain may arise – see Chapter 6).
Amounts not charged in the accounts but deductible

Examples of expenditure not charged in the profit and loss account, but for which a deduction can be claimed, are as
follows.
♦ Capital allowances (see Chapters 4 and 5).
♦ Deduction for part of the lease premium paid on the granting of a short lease (see under Section 2.2 above).
Now that the separate types of adjustments have been considered, it is appropriate to show you how a typical question
on this area might be constructed.
Here is a comprehensive example based on a past examination question, which it is recommended you attempt using
the typical proforma included below to guide you before considering the detailed solution. Please note that the proforma
is not intended to cover every possible adjustment but reflects common adjustments only.

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A typical proforma for adjustment of profits
+ –
$ $
Add: Items charged in accounts but not allowable for
Schedule D Case I purposes:
Depreciation and impairment X
Loss on sale of fixed assets X
Capital expenditure X
Legal expenses of capital nature X
Fines and penalties X
Donations X
Entertaining (other than staff) X
Gifts to customers X
Increase in general bad debt provision X
Proportion of expensive car leasing costs X
Less: Items credited in accounts but not chargeable under
Schedule D Case I:
Rental income X
Profit on sale of fixed assets X
Interest receivable X
Dividend income X
Less: Expenditure not charged in accounts but
deductible under Schedule D Case I:
Proportion of lease premium paid X
____ ____
X X
____
(X)
____
Schedule D Case I profit before capital allowances X
____

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Example
The profit and loss account of STD Ltd for the year ended 31 March 2008 showed a loss of $42,000,000,000 after
accounting for the under-noted items:
Note Expenditure $m Income $m
(1) Premium on lease 2,000 Discount received 3,200
Depreciation 9,500 Insurance recovery re
flood damage to stock 6,500
Patent registration fees 4,000 Rents received 8,400
Debenture interest 8,000 Interest on tax refund 1,600
Loss on sale of lorry 6,000 Gain on sale of plant 7,400
Bad debts
Amounts written off 4,000
Increase specific
provision 2,000
_____
6,000
Decrease in general
provision 1,000
_____
5,000
(2) Entertainment expenses 2,600
Legal fees
Re new lease 3,200
Re recovery of employee loan 1,200
Re employees’ service contracts 600
(3) General expenses 4,000
(4) Repairs and renewals 6,400
Capital allowances for the accounting period were calculated at $7,160 but have not been taken into account in the
above loss figure.

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Notes
(1) This represents the amount written off in respect of a premium of $20,000,000,000 paid by the company on
being granted a 10-year lease on its premises on 1 April 2007.
(2) Entertainment consists of expenditure on:
$m
Entertaining customers 1,200
Staff dance (40 people) 800
Gifts to customers of food hampers 600
(3) General expenses comprises:
$m
Penalty for late VAT return 2,200
Parking fines on company cars 300
Fees for employees attending courses 1,500
(4) Included in the figure for repairs is an amount of $5,000 incurred in installing new windows in a recently-
acquired second-hand warehouse. This building had suffered fire damage resulting in all of its windows being
blown out shortly before being acquired by STD Ltd. Other repairs were of a routine nature.
Required
Compute the adjusted Schedule D Case I figure for the above period.
Your answer should show clearly your reasons for your treatment of each of the above items including those items not
adjusted for in your computation.
(40 marks)
Solution
Start your solution with the company’s net profit or loss.
+ -
$m $m
Net loss (42,000)
In this question, the company has a loss. This does not affect the way you should approach the computation. You
should still add back any disallowable items of expenditure. These add backs may turn an accounting loss into a
Schedule D I profit.
Disallowable expenditure. Go through each expense in turn and decide whether or not it needs to be added back. If it
does require adding back, add the figure to the + column of your proforma. If you do not know how to treat a particular
item - guess. You have a good chance of getting the right answer. You might find it helpful to tick off each item as you
deal with it. This ensures you do not miss any items.
You also need to explain the reason for your chosen treatment. This is probably best done on a separate page.
Income credited but not chargeable under Schedule DI. Deal with any credits in the order in which they appear in the
accounts. For each credit, ask yourself whether it relates to the company’s trade. If it does, no action is required. If it
does not, include the figure in the - column.
Expenditure not charged in the accounts but deductible under Schedule DI. The two most likely items under this
category are capital allowances and the deduction in respect of any lease premium. Include these items in the - column.
Finish by totalling the proforma.
Note that it is not essential for you to put headings such as ‘disallowable expenditure’ on your proforma. You could
simply state ‘add’ and ‘less’. You do, however, need to list each adjusted item in words as well as figures.

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The finished answer is as follows:
STD Ltd - Adjustment of profit for the year ended 31 March 2008.
+ -
$m $m
Net loss (42,000)
Premium on lease 2,000
Depreciation 9,500
Loss on sale of lorry 6,000
Entertainment expenses 1,800
Legal fees 4,400
General expenses 2,200
Repairs and renewals 5,000
Bad debts (1,000)
Rents received (8,400)
Interest on tax refund (1,600)
Gain on sale of plant (7,400)
Premium on lease (1,640)
Capital allowances (7,160)
_______ _______
30,900 (69,200)
30,900
_______ _______
Adjusted Schedule DI loss (38,300)
_______
Explanation
1 The lease premium is a capital item. A deduction is available for part of the premium, calculated as follows.
51 − 10
Assessable on landlord: $20,000 × = $16,400,000,000
50
Deduction $16,400/10 years = $1,640,000,000 per annum.
2 Depreciation is not an allowable deduction. Capital allowances are given instead.
3 The costs of registering patents are specifically allowed by statute.
4 Debenture interest is allowable (assuming the debenture proceeds were used for trading purposes).
5 Losses on the sale of fixed assets are treated in the same way as depreciation - they are added back as capital
allowances are given instead. Conversely, profits on the sale of fixed assets are deducted.
6 The decrease in the general bad debts provision is not taxable. Write-offs of trade debts and specific provisions
are allowable.
7 Expenditure on entertaining customers is not allowable. Expenditure on entertaining staff is. The cost of the
hampers is not allowable as they contain food.
8 The legal fees in respect of the new lease are a capital item and are therefore not allowable. Employee loans
are not for trading purposes, therefore the legal costs are also not allowable. Legal fees in connection with the
service contracts are an allowable business expense.

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9 VAT penalties are not allowable. Parking fines incurred by employees will generally be allowed. Course fees are
also allowable, assuming the course relates to the company’s trade.
10 The cost of new windows is not allowable. It is capital expenditure required to put a new asset into a usable
state. (Law Shipping).
11 The discount received is taxable under Schedule DI as it is a trading item.
12 The insurance recovery is in respect of trading stock. It is therefore taxable under Schedule DI.
13 Rents received are taxable under Schedule A, not Schedule DI.
14 The interest received on the tax refund is taxable under Schedule DIII (see Chapter 1).
In an exam you should try to work methodically through the profit and loss account, making sure that if you break off to
deal with a note you come back to the same point on the profit and loss account. Ticking off items as you use them
should help.
Here is an additional question in an alternative style.

This question requires a written answer rather than a full calculation. For each of the items listed there are three
possibilities.
♦ If the item is an expense which is disallowable for Schedule DI purposes, it must be added back to the net profit.
♦ If the item is a credit which is not taxable under Schedule DI, it must be deducted from the net profit.
♦ If the accounting treatment of the item is the same as the tax treatment, no adjustment is required. In other words,
trading expenditure within the profit and loss account which satisfies the wholly and exclusively test requires no
adjustment.
Make sure you explain the reason for your chosen treatment.
(Note that you may use the terms ‘deductible’ and ‘non deductible’ in place of ‘allowable’ and disallowable’).
Summary
You should now be able to successfully attempt questions requiring you to calculate the Schedule DI profit for taxation
purposes, showing knowledge of case law and statute.
The starting point for computing profits assessable under Schedule DI is the net profit shown in the company’s
accounts. This must be adjusted in respect of the following items.
♦ Expenditure charged in the accounts but not allowable for tax purposes. The main types of disallowable expenditure
are
- expenditure not wholly and exclusively for the purpose of the trade
- capital expenditure
- appropriations and general provisions
- charges.

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♦
♦ Amounts credited in the accounts but not taxable under Schedule DI. For example
- investment income
- profits on the sale of fixed assets.
♦ Amounts not charged in the accounts but deductible under Schedule DI. For example
- deductions for lease premiums

- capital allowances.
For an exam question, it is advisable to use a ‘+’ and ‘-‘ column and deal with each adjustment as you work methodically
through the question. There is no need to arrange your answer into the three types of adjustment shown above.
The computation of capital allowances is shown in the next two chapters.

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Capital Allowances For Plant And Machinery
Chapter 4
Qualifying expenditure
Introduction
In Chapter 3 you learned that capital expenditure is not an allowable deduction when calculating Schedule DI profits.
Any depreciation charged in the accounts must be added back, as its calculation is highly subjective. Capital allowances
may be given in place of depreciation. They give a standardised amount of tax relief for capital expenditure. They are
effectively the taxation version of depreciation.
There is no automatic right to tax relief for capital expenditure. In order to qualify for capital allowances, expenditure
must usually be in respect of plant or machinery.
What qualifies as plant and machinery?
There is no statutory definition of the words machinery and plant. Although the identification of machinery causes few
problems, in deciding whether an item can be considered to be plant, case law has dictated that the following factors
should be considered.
♦ The degree of permanence – there should be some degree of durability of the item.
♦ The function of the item – plant is an item with which the trade is carried on, as opposed to being part of the setting
in which the taxpayer carries on his trade.
The Courts’ interpretation of these factors has led to the following items being classed as plant.
Movable partitions
Movable partitioning in an office building was plant. Fixed partitioning, however, would be deemed to be part of the
setting in which the business was carried on, and would not qualify as plant.
Swimming and paddling pool at a caravan park
A swimming pool and paddling pool at a caravan park had to be considered as a single unit. The apparatus for purifying
and heating the water, and the water which the pools were designed to contain, could not be divorced from the structure
of the pools and their apparatus.

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Specialist lighting for window displays
The provision of specialist lighting for window displays, and certain other items such as transformers, played an active
role in the carrying on of the business, and qualified as plant.
Movable decorative screens
Movable decorative screens which were displayed in the windows of building societies with the intention of attracting
passers–by were plant. Part of the reasoning was that they were not part of or inseparably annexed to the structure of
the office. They were not capable of use without considerable modification for any business but that of the Society.
Indeed, some of them were of such a character that they were really only of use in the particular branch.
Dockside concrete silos
Even though an item performs more than one function, including a function which is not ‘plant like’, this does not prevent
it from being plant. The dockside concrete silos of a grain importer were held to be plant on the grounds that their
primary function was to hold grain in a position from which it would be conveniently delivered to the purchasers and not
to store it.
The following items have been held not to be plant.
General lighting
In Cole Brothers Ltd v Phillips (as discussed above) it was decided that, although specialist lighting qualified as plant,
general lighting formed part of the setting, and was not plant.
This is a common examinable point. The question should make it clear what part of the electrical equipment, wiring etc
is just part of a normal building and which part has a special application and qualifies as plant, eg high current wiring for
electrical machinery.
False ceilings
The physical attachment of an item to something accepted as plant does not make that item plant. A catering company
installed false ceilings in the premises from which it traded. The ceilings were a permanent installation and provided
cladding and support for pipes carrying refreshments, ventilation trunking and lighting apparatus. It was held that the
ceilings were not necessary for the functioning of any apparatus used for the purposes of the company’s trade and were
not part of the means by which the trade was carried on. Accordingly, they were not plant.
Canopy over a petrol station
A canopy over a petrol station did not perform a function in serving petrol to customers, and must be considered to be
part of the setting. Accordingly, it did not qualify as plant.
Football stand
The physical attachment of plant to another item does not make that other item plant. In this case, whilst it was agreed
that the seats in a football stand were plant, the stand itself formed part of the stadium within which the football matches
took place, and therefore did not qualify as plant.
Statutory regulations
Certain items have been deemed to be plant by statute.
♦ Thermal insulation in industrial buildings (see Chapter 5).
♦ Expenditure on compliance with fire safety requirements of the business premises.
♦ Expenditure necessary to obtain sports stadium safety certificates.
♦ Computer software even where acquired electronically or where the company merely acquires a licence to use
software.

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The status of items installed in a building has been a frequent problem which has resulted in disputes resolved through
the Courts (see above). In the Finance Act 2007 rules were introduced to draw the dividing line but respecting existing
case law decisions.
The following items are ‘building’ (not plant).
♦ Walls, floors, ceilings, doors, gates, windows and stairs.
♦ Mains services and systems of water, electricity and gas.
♦ Waste disposal, sewerage and drainage systems.
The following items may be ‘building’ but are nevertheless normally treated as ‘plant’.
♦ Electrical, cold water and gas systems provided mainly to meet the particular requirements of the trade, or to serve
particular machinery used for the purposes of the trade.
♦ Space or water heating systems, systems of ventilation and air cooling, and any ceiling or floor comprised in such
systems.
♦ Manufacturing or processing equipment, storage equipment including cold rooms, display equipment, counters,
check outs and similar equipment.
♦ Cookers, washing machines, dishwashers, refrigerators and similar equipment.
♦ Wash basins, sinks, baths, showers, sanitary ware and similar equipment.
♦ Furniture and furnishings.
♦ Lifts, escalators and moving walkways.
♦ Sound insulation to meet the particular requirements of the trade.
♦ Computer, telecommunication and surveillance systems (and their wiring).
♦ Sprinkler equipment and fire alarm systems.
♦ Burglar alarm systems and strong rooms.
♦ Movable partition walls where intended to be moved in the course of the trade.
♦ Decorative assets provided for the enjoyment of the public in a hotel, restaurant or similar trade.
♦ Advertising hoardings, signs and similar displays.

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Calculating the allowances
The objective of capital allowances

The aim of capital allowances is to give tax relief for the net cost of an asset. That is the difference between the cost of
an asset and its disposal value. Allowances are calculated for accounting periods and are given as a deduction in
calculating Schedule D Case I profits.
As it is not known at the outset what the disposal value will be, a special initial allowance (SIA) of 50% is normally given
in the year of purchase. For each following year an annual wear and tear (W&T) of 25% is given. This is calculated
using the reducing balance method. A balancing adjustment may be given when the asset is disposed of: a balancing
allowance gives any additional allowances due, whereas a balancing charge recovers any allowances in excess of the
net cost.
The principle can be illustrated as follows.

Asset $m
Cost 10,000
Year 1 Allowance 50% (SIA) (5,000)
_______
5,000
Year 2 Allowance 25% (W&T) (1,250)
_______
3,750
Year 3 Disposal (6,300)
_______
Balancing charge (2,550)
_______
Net cost = $10,000 – $6,300 = $3,700

Allowances = $5,000 + $1,250 – $2,550 = $3,700
Instead of calculating capital allowances for each individual asset, most types of expenditure are pooled.
The proforma below shows the layout which you should ideally use to present your answer. The examiner will certainly
expect to see the use of an orderly layout The various entries will be explained later in the chapter.

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Layout of computation for capital allowances on plant and machinery
General Expensiv Expensiv Total
pool e e allowanc
car (1) car (2) es
$ $ $ $ $
WDV b/f X X X
Additions not qualifying for SIAs* X
Disposals – lower of cost/sale proceeds (X) (X)
___ ______ ___
X X X
BA/(BC) X/(X) X/(X)
______
W&T at 25% (X) X
W&T restricted (X) X
___ ___
X X
Additions qualifying for SIA X
SIA at 50% (X) X
___
X
___ ___ ___ ___
WDV c/f X - X X
___ ___ ___ ___
*SIA can never be claimed on cars.

Note the following abbreviations.
♦ WDV = tax written down value (the amount of expenditure not yet written off by means of capital allowances)
♦ SIA = special initial allowance
♦ BA/BC = balancing allowance/balancing charge
Be sure not to confuse the order of the steps. For example, additions qualifying for SIA do not attract W&T in the same
year so they are dealt with after calculating W&T.

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Classifying plant and machinery
Introduction
As companies may have many assets, it would be extremely time-consuming to calculate allowances separately for
each asset. Therefore, all qualifying expenditure is pooled, apart from:
♦ expensive cars, (that is cars costing more than)
♦ assets for which a short life election has been made.
Each of the above categories will now be considered in detail below.

General pool
Most items of plant and machinery go into the general pool. Once an asset enters the pool, it loses its identity. This
means that the wear and tear (W&T) is calculated on the balance of the pool, rather than on the individual assets.
Allowances are given for accounting periods. Allowances commence in the year in which the expenditure is incurred. A
full W&T is given in the year of purchase (unless SIA is claimed) irrespective of the date of purchase.
Special initial allowances
Plant and machinery (excluding cars) bought between 2 July 2003 and 1 July 2004 by small and medium–sized
businesses qualify for a special initial allowance (SIA) of 50%. For items bought on or after 2 July 2004, the SIA
available is reduced to 50%. The SIA is given instead of the W&T in the period of the expenditure, after which the
balance is added to the pool, so that a W&T of 25% can be given in subsequent periods. For a business to qualify for
special initial allowances it must meet at least two of the following three conditions.
♦ Turnover not exceeding $11.2 billion
♦ Assets not exceeding $5.6 billion in value
♦ No more than 250 employees.
Small businesses that invest in information and communication technology equipment between 1 April 2006 and 31
March 2003 can claim a 100% SIA. This SIA covers expenditure on
♦ computers, including peripherals and cabling
♦ software
♦
rd
WAP and 3 generation mobile phones.

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A business is classed as small for the purpose of claiming the 100% SIA if it satisfies at least two out of the following
conditions.
♦ Turnover not exceeding $2.8 billion
♦ Assets not exceeding $1.4 billion in value
♦ No more than 50 employees.
When reading an exam question on CAs look for any indication of business size, ie ‘small’ or ‘medium’. The examiner
should tell you or it should be obvious from other details such as turnover.
Disposals
When a pool item is sold, the sale proceeds are deducted from the pool. This deduction cannot exceed the asset’s
original cost.
If the deduction of the disposal proceeds causes the pool to become negative, the difference is a balancing charge.
Otherwise the pool continues to be written down until cessation. This means that there will not usually be a balancing
allowance on the general pool.
The following example illustrates the working of the general pool.
Example
Chingwa Ltd prepares accounts to 30 April each year.
On 1 May 2006 Chingwa Ltd incurred expenditure of $6,000,000,000 on the purchase of shop fittings and machinery.
On 1 June 2006 the company sold some machinery for $600,000,000 (cost $400,000,000) and on 1 June 2007
purchased more plant for $1,000,000.
On 5 May 2007 the company sold equipment for $9,395m which had cost $11,200,000 in May 2004. The tax written
down value of the pool at 1 May 2006 was $8,260,000,000 .
Required
Compute the capital allowances for the years ended 30 April 2007 and 30 April 2008, assuming that Chingwa Ltd is a
small company.
Solution
The first step is to identify the balance brought forward at the beginning of the accounting period. This is called the tax
written down value (tax WDV or TWDV).
Pool
Year ended 30 April 2007 $
Tax WDV brought forward 8,260,000,000
The next step is to identify the accounting periods in which the additions and disposals occur. In the year ended 30 April
2007, Chingwa Ltd acquired plant costing $6,000,000 and sold plant for $600,000. All other additions and disposals
occur in the second accounting period.

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Identify any additions for which a SIA can be claimed. For example, the plant acquired on 1 May 2006 qualifies for a
50% SIA. Deal with this addition after calculating the W&T for that year on the other items in the general pool.
The working can then be completed, as shown below, dealing with one accounting period at a time.
Pool Allowances
$m $m $m
Year ended 30 April 2007
Tax WDV b/f 8,260
Additions without SIA -
Disposals
1 June 2006 (proceeds restricted to cost) (400,000)
______
7,860,000
W&T at 25% (1,965m) 1,965m
Additions (SIA)
1 May 2006 6,000,000
SIA at 50% (3,000,000) 3,000,000
______
Balance added to pool 3,000,000
______ ______
Tax WDV c/f 8,995 4,965
______
Year ended 30 April 2008
Additions (no SIA) -
Disposals
5 May 2007 (9,395)
______
400
W&T at 25% (100) 100
Additions (SIA)
1 June 2007 1,000
SIA at 50% (500) 400
______
Balance added to pool 500
______ ______
Tax WDV c/f 800 500
______ ______
If the exam question requires you to maximise capital allowances you might have to consider disclaiming part or all of
the SIAs available. For example, if the disposal proceeds in the above question were $10,000 on 5 May 2007, this
would have resulted in a balancing charge of $1005,000 (10,000,000,000 – 8,995,000,000). The technique for avoiding
this would be to split the additions of $1,000 on 1 June 2007 into $1005 without SIA. In effect the $1005 is relieved at
100% (instead of 50%) as it covers the BC $1 for $1.

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Expensive cars
Each car costing more than $12, billion is given a separate column in the capital allowances working. A 25% W&T is
calculated for each individual car, but the maximum allowance that can be claimed is $3 billion per annum per car.
As each car has a separate column, there will be a balancing adjustment (either a balancing allowance or a balancing
charge) on disposal. The balancing adjustment is not restricted to $3 billion.
The examples below illustrate the working of capital allowances for both cheap and expensive cars.
Example
Gore Ltd prepares accounts to 31 December each year. No capital expenditure had been incurred prior to 1 January
2006. In the year to 31 December 2006 the following expenditure is incurred.
Cost
$m
31 January 2006 Motor car 6,000
12 February 2006 Motor car 14,000
17 June 2006 Motor car 10,000
Required
Calculate Gore Ltd’s capital allowances for the years ended 31 December 2006 and 31 December 2007.
Solution
In this example, there is no tax WDV brought forward, so the first task is to decide which cars will be brought into the
general pool, and which need their own separate columns. A proforma can then be set up as below.
General pool Expensive car Allowances
Year ended 31 December 2006 $m $m $m
Now the additions can be put into the appropriate columns, and the allowances calculated, remembering that the
allowance for the expensive car must be restricted to $3,000. The full working is as follows.
Additions
31 January 2006 6,000
12 February 2006 14,000
17 June 2006 10,000
_______
16,000
W&T at 25% (restricted) (4,000) (3,000) 7,000
_______ _______ _______
Tax WDV c/f 12,000 11,000
Year ended 31 December 2007

W&T at 25% (3,000) (2,750) 5,750
______ _______ ______
Tax WDV c/f 9,000 8,250
_______ _______
Note that the 25% W&T allowance for the expensive car is not restricted for the year ended 31 December 2007, as it is
less than $3,000,000,000 . The separate column is, however, retained.

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Example
Gore Ltd (see previous example) sells the car, bought in February 2006, in August 2008.
Required
Calculate the balancing adjustment on the car on the alternative assumptions:
(a) that the car is sold for $7,000,000,000
(b) that the car is sold for $9,200,000,000
Solution
In this example, the expensive car is sold, so there will be a balancing adjustment.
First, the proceeds (restricted to original cost) are deducted from the written down value.
Then, if the remaining balance is positive, a balancing allowance will be given, but if the balance is negative a balancing
charge will arise. This is like a negative allowance. Instead of being deducted from Schedule D Case I profits, it will be
added back. In both cases, the tax WDV carried forward will be nil.
The solutions to the two different scenarios are as follows.
(a) Proceeds $7,000,000
Tax WDV brought forward 9,000 8,250
Disposal proceeds (7,000)
_______ _______
9,000 1,250
Balancing allowance (1,250) 1,250
W&T at 25% (2,250) 2,250
_______ _______ _______
Tax WDV carried forward 6,750 – 3,500
_______ _______ _______
(b) Proceeds $9,200
Tax WDV brought forward 9,000 8,250
Disposal proceeds (9,200)
_______ _______
9,000 (950)
Balancing charge 950 (950)
W&T at 25% (2,250) – 2,250
_______ _______ _______
Tax WDV carried forward 6,750 – 1,300
_______ _______ _______
Note that a balancing allowance is usually pooled with W&T/SIA and a balancing charge is usually offset against
W&T/SIA. Technically, however, balancing adjustments should be kept separate. The allowance is deducted in
calculating the Schedule D Case I profits and the charge is added back.
The example below demonstrates the full capital allowances working.

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Example
JNN Ltd, a small company, has been trading since 1 June 2005, making up accounts to 31 May each year.
The following assets have recently been purchased.
Date of purchase Asset Cost
$m
1 May 2005 Plant and machinery 11,616
9 November 2005 Used car 1,472
10 February 2006 Used car 928
8 June 2006 New car 19,500
2 July 2006 Equipment 1,720
2 June 2007 Office furniture 982
10 July 2007 Typewriter 876
20 October 2007 Office furniture 2,071
Required
Calculate the capital allowances due for the three years ending 31 March 2008.
Solution
The approach is as follows.
♦ Allocate additions and disposals to the relevant accounting periods. Any acquisitions made prior to the
commencement of trading are treated as if made on the first day of trading.
♦ Identify which additions qualify for SIA and which rate of SIA applies.
The solution is then as follows.

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Capital allowances computation
Pool Expensive Allowance
car s
$m $m $m $m
Year ending 31 May 2006
Additions (no SIA)
9 November 2005 1,472
10 February 2006 928
______
2,400
W&T at 25% (600) 600
Addition (SIA)
1 May 2005 11,616
50% SIA (5,808) 5,808 5,808
______ ______ ______
7,608 6,408
______
Additions – not qualifying
for SIA 19,500
8 June 2006
W&T 25%/restricted (2,192) (3,000) 5,192
Addition qualifying for SIA
2 July 2006 1,720
50% SIA (860) 860
______
860
______ ______ ______
6,276 16,500 6,052
______
W&T 25%/ restricted (1,902) (3,000) 4,902
Additions qualifying for SIA
2 June 2007 982
10 July 2007 876
20 October 2007 2,071
______
_
3,929
50% SIA (1,965) 1,965
______
_
1,964
_______ _______ _______
3,866 13,500 6,867
_______ _______ _______

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Short–life assets (SLA)
Where an asset is expected to have a short life, approximately four years or less, and to decrease in value substantially,
it may be beneficial to remove it from the general pool and treat it as a short–life asset. In doing this, a balancing
allowance can be claimed when the asset is disposed of. (Remember that a balancing allowance can only be claimed
on the general pool on cessation of the business.)
Each asset treated as a short–life asset should have a separate column in the capital allowances computation.
The following conditions apply.
♦ Short–life asset treatment is not available for cars.
♦ If a short–life asset is not sold within four years of the end of the accounting period in which it was purchased, its tax
WDV will be transferred back into the general pool.
♦ A short-life asset election must be made within two years of the end of the accounting period in which the
expenditure was incurred.
The following illustration demonstrates how short–life asset treatment accelerates the allowances claimed.
Illustration
Purchase (for $10,000,000) and sale (for $1,000,000) of a short-life asset.
Without election With election
General General SLA
pool pool
Year 1 $m Year 1 $m $m
WDV b/f, say 50,000 WDV b/f, say 50,000
W&T (12,500) Purchase 10,000
________ _______
_
Purchase 10,000 50,000 10,000
SIA (5,000) W&T/SIA (12,500) (5,000)
________ ________ _______
_
Year 2 Year 2
WDV b/f 42,500 WDV b/f 37,500 5,000
Disposal (1,000) Disposal – (1,000)
________ ________ _______
_
41,500 37,500 4,000
BA – BA (4,000)
W&T (10,325) W&T (9,375)
________ ________ _______
_
WDV c/f 31,125 WDV c/f 28,125 –
________ ________ _______
_
Total allowances given Total allowances given
($12,500 + $5,000 + 27,825 ($12,500 + $5,000 + 30,875
$10,325) ________ $9,375 + $4,000) _______
_
WDV c/f 31,125 WDV c/f 28,125
________ _______
_

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It is important to note that a short-life asset election is not beneficial if the asset is to be sold for more that its tax written
down value. This is because the disposal would result in a balancing charge.
Illustration
Continuing with the above example, assume instead that the asset was sold for $8,000,000.
Without election With election
General General SLA
pool pool
Year 2 $m Year 2 $m $m
WDV b/f 43,500 WDV b/f 37,500 6,000
Disposal (8,000) Disposal – (8,000)
________ ________ _______
_
35,500 37,500 (2,000)
BC – BC 2,000
W&T (8,875) W&T (9,375)
________ ________ _______
_
WDV c/f 26,625 WDV c/f 28,125 –
________ ________ _______
_
As you can see, by leaving the asset in the general pool, the balancing charge is avoided.
Where the asset qualifies for 100% SIA (eg computer bought by a small business) an SLA election should not be made
as a balancing charge would arise on any eventual proceeds.
An SLA election could also be a disadvantage if a balancing charge is about to arise on the general pool. An addition to
the general pool would reduce it $1 for $1. If instead it is kept separate in an SLA column, it cannot achieve this saving.
Additional considerations
Hire purchase transactions
Allowances for assets bought on hire purchase are calculated on the full cash price (excluding interest). The allowances
commence on the date the asset is acquired, irrespective of the dates on which instalments are payable. The capital
allowances claimed are thus not affected by the fact that the asset is bought on hire purchase rather than outright.
Interest included in instalments is an allowable Schedule D Case I expense for the period in which the instalments are
payable. (This means that there will be no adjustment for hire purchase interest deducted in the profit and loss account).
Part exchange transactions
If an asset is given in part exchange for a new asset, this is treated as a separate acquisition and disposal as follows.
♦ The addition should be recorded in the capital allowances working at full price, ie cash paid plus part exchange
allowance.
♦ The disposal proceeds deducted in the capital allowances working are taken as the part exchange allowance
(restricted to original cost if lower).

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VAT on capital purchases
VAT is covered later in the text, but you should note that VAT at 15% is normally reclaimed on all purchases, including
capital additions, with the exception of cars. The cost of a car for capital allowance purposes is therefore its VAT
inclusive cost. Other assets are recorded at their VAT exclusive cost.
When capital assets are sold, VAT will be included in the sale price. However, the disposal value for capital allowances
will be the VAT exclusive price, with the exception of cars on which no VAT is charged. Most questions involving capital
allowances ignore VAT, but not all.
Basis periods for capital allowances
The impact of the accounting period length

As you have seen, capital allowances are computed for accounting periods and deducted in calculating Schedule D
Case I profits.
The wear and tears calculated so far were all for 12 month accounting periods.
Where the accounting period is less than 12 months long, the W&T must be scaled down accordingly. You must
perform this calculation to the nearest month.
If the period for which accounts are drawn up exceeds 12 months, the capital allowances are computed in two stages –
the first 12 months, then the balance.
Note that special initial allowances are given in full even if the length of the accounting period is less than 12 months.
Example
KNN Ltd started to trade on 1 June 2006 and, on that day, purchased an asset costing $21,900,000,000. KNN Ltd does
not qualify for SIAs. Calculate the wear and tears due for the accounting period(s) based on the first period of account
on the assumption that accounts are made up to:
(i) 31 May 2007
(ii) 31 March 2007
(iii) 31 December 2007.
Solution
(i) (ii) (iii)
First period of account 31 May 2007 31 March 2007 31 December
2007
$m $m $m
Cost 21,900 21,900 21,900
W&T 25% (5,475)
10
25% × 12
(4,563)
25% (5,475)
_______
16,425
7
25% × 12 (2,395)
_______ _______ _______
WDV c/f 16,425 17,337 14,030
_______ _______ _______
Note that, as already explained in Chapter 1, in (iii) corporation tax is charged separately on an accounting period of 12
months ending on 31 May 2007 and on an accounting period of 7 months ending on 31 December 2007.

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Business cessation
In the accounting period of cessation no W&Ts or SIAs will be given.
Any additions and disposals in the final period are allocated to the appropriate columns in the capital allowance working.
At the end of the period there will be no tax WDV carried forward, so there must be a balancing adjustment on all
categories in the capital allowances working.
♦ If there is a positive balance remaining, a balancing allowance is given.
♦ If there is a negative balance remaining, a balancing charge arises.
Example
DRN Ltd had been trading for many years, preparing accounts to 31 December, when it decided to cease trading on 6
June 2007.
Expenditure on plant had been as follows.
Date Cost
$m
1 October 2006 4,600
All items of plant were sold on 30 June 2007 for $5,000,000,000 (no item was sold for more than cost).
The tax written down value of the pool at 1 January 2006 was $12,600,000,000.
Required
Calculate the capital allowances due for the year ended 31 December 2006 and the six months ended 30 June 2007.
(Ignore VAT).
Solution
Capital allowances computation
General Allowance
pool s
$m $m $m
Tax WDV brought forward 12,600
W&T at 25% (3,150) 3,150
_______
9,450
Addition qualifying for SIA 1 October 2006 4,600
SIA at 50% (2,300) 2,300
_______
2,300
_______ _______
Tax WDV carried forward 11,750 5,450
_______
6 months ended 30 June 2007
Disposals (5,000)
_______
6,750
Balancing allowance (6,750) 7,210
_______ _______

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Industrial Buildings
Chapter 5
Eligible expenditure for IBA purposes
Qualifying expenditure
In examination questions you often need to identify the correct amount of expenditure eligible for IBA. You may also
need to state the types of buildings which qualify for IBA.
Buildings qualify for IBA if they are of an industrial nature and are used in an industrial trade. This includes the
following.
♦ A mill, factory or any building used in a manufacturing trade.
♦ Warehouses for the storage of stock (ie raw materials, finished goods) provided they are used in or derived from a
manufacturing trade.
♦ Buildings used for the repair or maintenance of goods or materials.
♦ Sports pavilions used in any trade.
♦ Canteens and other welfare buildings provided for workers in a manufacturing business.
♦ Drawing offices in factories .
♦ Qualifying hotels.
The qualifying costs of constructing such buildings or acquiring a new building include the following.
♦ Professional fees (eg architects, legal fees).
♦ The costs of preparing land (eg levelling, tunnelling, drainage).
♦ Associated structural undertakings (eg a car park adjoining a factory).

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Non-qualifying expenditure
There are also some frequently examined exclusions which do not qualify.
♦ Land (including any costs pertaining to the land itself, eg legal fees).
♦ General offices, shops, showrooms and dwelling houses.
♦ Retailers’ warehouses, ie used for storing bought in finished goods.
♦ Items which qualify alternatively for plant and machinery allowances (eg central heating, fire and safety equipment,
ventilation, thermal insulation).
Non-industrial parts
Any ‘non-industrial’ portion of an industrial building (eg general offices) is only excluded if its cost represents more than
25% of the total building costs.
Example
The cost of a factory, incurred in September 2007, is shown below.
$m
Purchase price of land (including $1,700,000 legal costs) 17,000
Buildings (including drawing office $4,900,000, canteen $10,000,000, 144,000
general office $30,000,000) _______
161,000
_______
Required
(a) What amount is eligible for industrial buildings allowance?
(b) If the general office had accounted for $37,000,000 of the $144,000,000 cost of the building, what would the
eligible expenditure be?
Solution
(a) There is no allowance for the purchase price of the land. The drawing office and the canteen both qualify for IBA
in their own right. The cost of the general offices will also qualify as it represents 20.8%
($30,000,000,000/$144,000,000,000) of the total building cost, ie not exceeding 25%. IBA will therefore be
based on $144,000,000.
(b) If the general offices had cost $37,000,000,000, this would amount to 25.7%
($37,000,000,000/$144,000,000,000) of the total cost. As this exceeds 25%, none of the $37,000,000 would be
allowable. IBA would therefore be based on $107,000,000 ($144,000,000,000 - $37,000,000,000).
Additions to a building
Whenever there is an addition (eg an extension) to an industrial building, the 25% test must be recalculated. This may
mean that part of the industrial building which previously qualified now becomes disallowable.

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Example
Hwahwa Ltd purchased a new factory for the following cost.
$m
Manufacturing area 200,000
Showroom 10,000
General office 30,000
Drawing office 5,000
Land 10,000
_______
255,000
_______
Two years later the company built an office extension at a cost of $35,000,000.
Required
What is the eligible expenditure which qualifies for IBA
(a) on purchase and
(b) on the subsequent addition?
Solution
(a) The cost of land never qualifies for IBA. The remaining expenditure ($245,000,000,000) could qualify subject to
the 25% rule for non-industrial parts. The showroom and the general office are non-industrial parts.
The non-industrial proportion is therefore $40,000,000,000/$245,000,000,000 = 16.3%. As this is less than 25%,
the whole $245,000,000 qualifies.
(b) When the extension is added, the building cost becomes $280,000,000,000 ($245,000,000,000 +
$35,000,000,000). The non-industrial portion becomes $75,000,000,000 ($40,000,000,000 + $35,000,000,000).
The non-industrial proportion is now $75,000/$280,000 = 26.8%. As this is greater than 25%, the whole of the
non-industrial part is no longer eligible for future allowances. Allowances from that point are granted on
$205,000 only (ie $280,000,000 – $75,000,000).
Ownership
In order to be eligible to claim IBA, the claimant must have the relevant interest. This means that the claimant must be
either
♦ the freeholder, or
♦ the holder of a long lease (more than 50 years).
In the latter case, a joint election must be made by the tenant and the landlord, to allow the tenant to claim the
allowances on the lower of the eligible cost and the premium paid to enter the lease.
A landlord can claim IBAs on a factory (etc) provided the tenant uses the building as an ‘industrial building’. The IBAs
are set against the Schedule A rental income of the landlord.
A tenant could claim IBAs on any additions he makes during the tenancy of the lease.

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Hotels
A hotel qualifies for industrial buildings allowances if it is a hotel which is open for at least four months between 1 April
and 31 October each year (‘the season’).
When open in the season:
♦ it must have at least 10 bedrooms available to the public for short-term letting (not more than one month at a time);
♦ the sleeping accommodation must comprise wholly or mainly letting bedrooms; and
♦ the services normally provided for guests must include the provision of breakfast and an evening meal, the making
of beds and the cleaning of rooms.
It is a hard definition to satisfy. For example, a convalescent home in which guests stay for only two or three weeks
would not qualify even though the above conditions are met. It simply is not a ‘hotel’ in the normal use of the word.
Allowances available for new buildings
Introduction
Three areas of allowance need to be considered.
♦ Special Initial allowances
♦ Wear & tears
♦ Balancing adjustments on disposal (see Section 3).
Special Initial allowances (SIA)

These may be available in the accounting period in which the expenditure is incurred. For example, an special Initial
allowance of 20% was available for qualifying expenditure incurred between 1 November 1992 and 31 October 1993.
Varying percentages of SIA have been available over the years. The current SIA is 50%. This will be provided in the
examination where applicable.
Wear & tears (W&T)
W&T is given on a straight line basis of 25% per annum. This means that unless an SIA is available it takes 25 years to
obtain full relief, and so industrial buildings are often described as having a 25 year tax life. This tax life commences
from the date the building is first put into use, industrial or otherwise, and lasts for 25 years regardless of whether an SIA
was given.
A claimant is entitled to W&T provided the building is in industrial use at the end of the accounting period. The W&T and
any SIA can both be given in the initial period of expenditure, provided the building is brought into industrial use before
the end of the period.
Periods of temporary disuse during the ownership of the building (eg during contraction of trade) are ignored and
allowances still given provided the building had been in industrial use.
For the purpose of calculating allowances, each new building or addition has its own 25 year tax life, and should
therefore be kept as a separate item.
No W&T is given in the accounting period in which a building is sold.

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The disposal of an industrial building
Balancing adjustments
When a building is sold, this triggers a balancing adjustment. Where insufficient allowances have been claimed, a
balancing allowance will be given. Otherwise, a balancing charge will occur. Remember that the total allowances given
must equal the net cost of the building.
The easiest way to identify the balancing allowance or charge is to compare the ‘net cost’ of the building with the
allowances claimed, as follows.
$
Eligible cost X
Less Sale proceeds (X)
___
Net cost X
___
‘Sale proceeds’ in this calculation cannot exceed the eligible cost.
The net cost is therefore the real capital cost (ignoring inflation) incurred by the business.
♦ Where the net cost is greater than the total allowances claimed, a balancing allowance for the difference arises.
♦ Where the net cost is less than the total allowances claimed, the difference is clawed back as a balancing charge.
♦ The net cost will be nil if the building is sold for more than its original eligible cost. A balancing charge will therefore
arise, to claw back all of the allowances given.
No balancing adjustments are required if a building is sold after its tax life has expired. This is easy to overlook in the
exam.
Just as the cost of the building has to exclude the land element and the cost of offices etc if not ‘de minimis’ (ie under
25%), sale proceeds are also restricted to the qualifying portion. If the exam question just gives ‘sale proceeds’ you
should assume the land etc elements are excluded.
Example
Goredema Ltdmakes up accounts to 31 March. On 1 August 2005 it began to use a newly constructed factory which
cost $60,000,000,000, including $4,000,000 for the land and $2,500,000,000 for offices. On 1 February 2008 the
factory was sold to Heath Ltd for $64,200,000,000, including $12,000 for the land.
Required
Calculate the allowances for Goredema Ltd. Also consider the effect if the sale proceeds were alternatively $53,000m
and $71,340m (in each case including $12,000m for the land).
Solution
$m $m
Cost excluding land (offices allowed, because not over 25%) 56,000
Year ended 31 March 2006 W&T 5% 2,800
Year ended 31 March 2007 W&T 5% 2,800
______
(5,600)
_______
Residue before sale (RBS) 50,400
_______
There is no W&T in the period of sale (the year to 31 March 2008).

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Year ended 31 March 2008(all figures are in $m)
Net cost (cost – proceeds) (a) (b) (c)
(a) ($56,000 – $52,200) 3,800
(b) ($56,000 – $41,000) 15,000
(c) ($56,000 – $56,000) Nil
Allowances given (5,600) (5,600) (5,600)
______ ______
Balancing charge (1800) (5,600)
______ ______ ______
Balancing allowance 9,400
______
Allowances for secondhand purchasers
Revised W&Ts
So far we have looked at the allowances available to the purchaser of a new industrial building. For the purchaser of a
used industrial building, however, neither the special Initial allowance nor the normal 5% Wear & tear is available.
Instead, the purchaser of a used industrial building receives a special Wear & tear which spreads relief for the
unrelieved original expenditure evenly over the remaining tax life of the building. The W&T is therefore calculated as
follows.
Residue after sale (or purchase price if lower)
Tax life remaining
The residue after sale (RAS) is computed as follows

$
Residue before sale (ie tax written down value) X
Plus Any balancing charge or X/(X)
Less Any balancing allowance _____
Residue after sale X
_____
The tax life remaining must be computed to the nearest month.
Example
Using the details in the earlier example (Goredema Ltd) calculate the allowances for Heath Ltd, the secondhand
purchaser, under the three sale proceeds options.
Solution
(a) (b) (c)
$m $m $m
Residue before sale 50,400 50,400 50,400

Balancing charge 1,800 5,600
Balancing allowance (9,400)
______ ______ ______
Residue after sale 52,200 41,000 56,000
______ ______ ______
All that is happening here is that the Inland Revenue is sharing the eligible cost between the buyer and the seller. Any
amount ‘clawed’ back as a balancing charge from Goredema Ltd(the seller) is instead given to Heath Ltd (the buyer).

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Any allowance already given to the seller (ie $10,520 in option (b)) is not available for the buyer.
Heath Ltd then spreads this residue over the remaining tax life.
Tax life from 1 August 2005 to 1 February 2008 = 2 years 6 months
Therefore remaining life = 25 years – 2 years 6 months = 22 years 6 months
Heath Ltd’s allowance per annum is therefore as follows.
(a) (b) (c)
$m $m $m
52 ,200 41,000 56 ,000
22.5 22.5 22.5
2,320 1,822 2,489
_____ _____ _____

The first step is to identify the qualifying eligible expenditure.
In claiming W&T consider when the building goes into industrial use.
Go through the disposal procedure outlined earlier to ascertain the balancing adjustment. Remember there is no W&T
in the year of disposal.
Remember that the secondhand purchaser does not get 5% straight line W&T. Instead, you need to work out the W&T
using the residue after sale divided by the remaining tax life.
Non-industrial activity
Impact on the Wear & tear

There may be periods during the ownership of an industrial building when it is used for non-industrial activity. This has
an impact on both the Wear & tear and any balancing adjustment on disposal.
Where an industrial building is in non-industrial use at the end of an accounting period the impact is as follows.
♦ No W&T is claimed.
♦ A notional W&T reduces the tax balance (ie WDV) to be carried forward.
The reason for this is that the tax life of the building continues to diminish even though the claimant is not entitled to the
allowances.

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Disposal of the building
If the building is sold above original cost after there has been some non-industrial use, there is a balancing charge equal
to the allowances actually given – ie there is no clawback of notional allowances as they were never received in the first
place.
If the building is sold below original cost, there is a complicated adjustment to make in calculating any balancing
allowance or charge. This topic is not examinable.
Example
Tsotso Ltd prepares accounts annually to 31 December.
A factory costing $375,000,000 was bought on 30 November 2005 and put into industrial use on 31 December 2005.
Between 1 March 2006 and 31 January 2007 it was used for non-industrial purposes.
The factory is to be sold on 31 March 2008 for $400,000,000.
Required
Compute the industrial buildings allowances for both first and second users.
Solution
IBAs to first user
Cost Claimed Notional
$m $m $m
Year ended 31 December 2005 375,000
W&T ($375,000 × 5%) (18,750) 18,750
Year ended 31 December 2006 Notional W&T (not
in use on 31 December 2006) (18,750) 18,750
Cost Claimed Notional

$m $m $m
W&T at 5% (18,750) 18,750
_______ _______ _______
IBAs given 37,500 18,750
_______ _______
Tax WDV at 31 December 2006 318,750
_______
Year ended 31 December 2008 $m
Disposal of building (No W&T in year of disposal)
IBAs claimed (37,500)
Balancing charge (37,500)
_______
IBAs to subsequent user
WDV before sale + balancing charge
Tax life remaining
$318,750,000,000 + $37,500,000,000 = $356,250,000,000
360,000
356,250,000,000
ie = $15,659 per annum for 22 years
25 − 2 years 3 months = 22 years 9 months
and $11,872 in year 23.

Summary
This concludes the material on capital allowances, a core area for the examination as it can feature in both compulsory
and optional questions.
The key points concerning IBA are as follows.

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♦ Land never qualifies for IBA.
♦ The non-industrial parts of an industrial building will qualify for IBA if they amount to less than 25% of the total cost.
♦ The initial purchaser of an industrial building receives a 4% W&T, calculated using the straight line method, if the
building is in industrial use at the end of the accounting period.
The purchaser of a secondhand industrial building receives a W&T based on the residue after sale (or the purchase
price paid, if lower)

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Capital Gains Tax Act
Chapter 6
TITLE 23
TITLE 23
Chapter 23:01 PREVIOUS CHAPTER
CAPITAL GAINS TAX ACT

Acts 54/1981, 30/1982, 32/1983, 7/1984, 24/1984, 19/1985, 4/1988,
16/1988,
22/1989, 10/1990, 19/1990, 21/1991, 17/1992, 12/1993, 19/1994, 13/1996,
29/1998,
21/1999, 22/1999, 18/2000, 22/2001, 27/2001, 15/2002, 10/2003. SIs:
222E/1999.
ARRANGEMENT OF SECTIONS PART I
PRELIMINARY Section
1. Short title.
2. Interpretation. PART II ADMINISTRATION
3. Delegation of functions of Commissioner .
4. ......
[Repealed by the Revenue Authority Act]
5. ......
[Repealed by the Finance Act 27/2001.] PART III
CAPITAL GAINS TAX
6. Charging of capital gains tax.
7. Calculation of capital gains tax.
8. Interpretation of terms relating to capital gains
tax.
9. When capital amount deemed to have accrued.
10. Exemptions from capital gains tax.
11. Deductions allowed in determination of capital gain.
12. Circumstances in which no deductions may be made.
13. Damage to or destruction of specified asset.
14. Determination of fair market price of specified
assets.

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15. Transfers of specified assets between companies under the same
control.
16. Transfers of specified assets between spouses.
17. Transfer of business property by individual to company under his control.
18. Provisions for sales of immovable property under suspensive conditions.

19. Provisions relating to credit sales where ownership passes.
20. Provisions for the reductions in costs of specified assets.
21. Provision for sales of principal private residences.
22. Substitution of business property. PART IIIA
CAPITAL GAINS WITHHOLDING TAX
22A. Interpretation in Part IIIA
22B. Capital gains withholding tax
22C. Depositaries to withhold tax
22D. Agents to withhold tax not withheld by depositaries
22E. Payee to pay tax not withheld by depositary or agent
22F. Exemptions
22FA. Registration of depositaries
22G. Depositaries to furnish returns.
22H. Penalty for non-payment of tax
22I. Refund of overpayments
22J. Credit where tax has been withheld
22K. Application of Part IIIA to sales concluded before
1.1.1999.
22L. Suspension of provisions of Part II A to marketable securities. PART IV
RETURNS AND ASSESSMENTS
23. Application of provisions of Taxes Act relating to returns and assessments.
PART V
REPRESENTATIVE TAXPAYERS
24. Application of provisions of Taxes Act relating to representative taxpayer.
PART VI
OBJECTIONS AND APPEALS
25. Objections and appeals. PART VII
PAYMENT AND RECOVERY OF TAX
26. Day and place for payment of tax. PART VIII
GENERAL
27. Application of provisions of Taxes Act relating to offences, evidence, forms and regulations.
28. Application of provisions of Taxes Act relating to relief from double taxation.
29. Application of provisions of Taxes Act relating to tax avoidance.
30. Transitional provision re capital gains and losses of married women.
30A. Capital gains tax not withheld in terms of Part IIIA to be paid before transfer of specified asset.
31. Returns by Registrar of Deeds , financial institutions and other persons. ACT
AN ACT to provide for the raising of a tax on capital gains, and to make provision for matters ancillary or incidental
thereto.

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[DATE OF COMMENCEMENT: 1ST AUGUST, 1981.] PART I
PRELIMINARY
1 Short title
This Act may be cited as the Capital Gains Tax Act [Chapter 23:01].
2 Interpretation
(1) In this Act

assessed capital loss means the amount by which the sum of the deductions to be made under subsections (2) and
(3) of section eleven from the capital amount (as defined in Part III) of any taxpayer exceeds such capital
amount: Provided that where the total amount of the assessed capital loss of a person in respect of sales in any year
of assessment is one thousand dollars or less the assessed capital loss arising from such sales shall be
reduced by such amount; means an agreement in respect of a specified asset the
effect of which is that ownership of the specified asset shall pass to a
person upon or after payment by him of the whole or a certain portion of
the amount payable under the agreement;
marketable security means
(a) any bond capable of being sold in a share market or exchange; or
(b) any
(i) debenture, share or stock; or
(ii) right possessed by reason of a person™s participation in any unit trust;
whether or not capable of being sold in a share
market or exchange; share includes a member™s interest in a private business corporation;
specified asset means
(a) immovable property; or
(b) any marketable security;
tax means tax leviable in terms of this Act;
Taxes Act means the Income Tax Act [Chapter 23:06].
(2) For the purposes of this Act
(a) an expression to which a meaning is assigned in subsection (1) of section 2 of the Taxes Act in relation to the
gross income, income or taxable income of a person or the making of any assessment or the furnishing of any return
shall, unless the expression is otherwise defined in this Act, have the same meaning in this Act in relation to the
gross capital amount, capital amount or capital gain, respectively, of a person or to the making of any assessment
or the furnishing of any return under this Act;
(b) an expression to which a meaning is otherwise assigned in subsection
(1) of section 2 of the Taxes Act shall, unless the expression is otherwise defined in this Act, have the same meaning in
this Act.
(3) For the purposes of this Act
(a) a company shall be deemed to be under the control of an individual if the majority of voting rights attaching to
all classes of shares in the company is controlled, directly or indirectly, by the individual;
(b) an individual and his nominee shall be deemed to be one individual. PART II
ADMINISTRATION
3 Delegation of functions by Commissioner
Section 3 of the Taxes Act relating to the delegation of functions shall apply, mutatis mutandis, in relation to this Act for
the purposes of providing for and giving effect to the matters concerned in relation to this Act.
[Sections 3 and 4 repealed and a new s 3 substituted by the Revenue Authority Act
[Chapter 23:11] with effect from the 19th January, 2001.]
4 ......
5 ......
[Section 5 repealed by Section 21 of the Finance Act No.27 of 2001 with effect from the year of assessment beginning
on the 1st January, 2002.]

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PART III
CAPITAL GAINS TAX
6 Charging of capital gains tax
There shall be charged, levied and collected throughout Zimbabwe for the benefit of the Consolidated Revenue Fund a
capital gains tax in respect of the capital gains, as defined in this Part, received by or accrued to or in favour of any
person during any year of assessment, other than a capital gain so received or accrued prior to the 1st August, 1981.
7 Calculation of capital gains tax
Subject to section twenty-one, the capital gains tax with which a person is chargeable shall be calculated in accordance
with the Finance Act [Chapter 23:04] by reference to
(a) the capital gains of the person in the year of assessment; and
(b) the rate of capital gains tax fixed from time to time in that Act.
8 Interpretation of terms relating to capital gains tax
(1) For the purpose of this Part
(a) gross capital amount means the total amount received by or accrued to or in favour of a person or deemed
to have been received by or to have accrued to or in favour of a person in any year of assessment from a source within
Zimbabwe from the sale on or after the 1st August, 1981, of specified assets excluding any amount so received or
accrued which is proved by the taxpayer to constitute gross income as defined in subsection (1) of section 8 of the
Taxes Act and includes any amount allowed to be deducted in terms of subsection (2) of section eleven which has been
recovered or recouped:
Provided that in the case of bodies referred to in subparagraphs (a), (c)
and ( f ) of paragraph 2 of the Third Schedule to the Taxes Act an amount so received or accrued shall, notwithstanding
that it is so proved to constitute gross income as so defined, constitute a gross capital amount;
(b) capital amount means the amount remaining of the gross
capital amount of any person, after deducting therefrom any amounts exempt
from capital gains tax under this Act;
(c) capital gain means the amount remaining, after deducting from the
capital amount of any person all the amounts allowed to be deducted from a
capital amount under this Act.
(2) For the purposes of the definition of gross capital amount in
subsection (1)
(a) when owing to a variation in the rate of exchange of currency between
Zimbabwe and any other country, the amount received, expressed in
Zimbabwean currency, differs from the amount that had accrued prior to the
variation in the rate of exchange
(i) the amount to be included in the gross capital amount shall be the said
amount received, expressed in Zimbabwean currency; and
(ii) if the receipt and the accrual occur in different years of assessment,
effect shall be given to the increase or reduction in the gross capital
amount in the year of assessment in which the amount accrued;
(b) where a person disposes of a specified asset otherwise than by way of
sale such disposal shall be deemed to be a sale and an amount which, in the
opinion of the Commissioner, is equal to the fair market price of such
asset at the time of disposal shall be deemed to have accrued to such
person at such time;
(c) where a specified asset is expropriated such specified asset shall be
deemed to have been sold for an amount equal to the amount paid
by way of compensation for the expropriation of such specified asset;
(d) where a specified asset is sold in execution of the order of a court,
the amount for which it was sold shall be deemed to have accrued to the
person on whose behalf it was sold;
(e) where an amount accrues to a person by reason of the
maturity or redemption of a specified asset, or in circumstances which in
the opinion of the Commissioner are of a similar nature, such asset shall
at the date of such accrual be deemed to have been sold by such person for
such amount;

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(f) where a person transfers to another person his rights under a deed of
sale in respect of the passing of ownership of the specified asset which is
the subject of the deed of sale, he shall be deemed to have sold the
specified asset to that other person for an amount equal to the whole
amount received by or accruing to him as a result of the transfer.
9 When capital amount deemed to have accrued
A capital amount shall be deemed to have accrued to a person in the
circumstances set out in subsections (1) and (2) of section 10 of the Taxes
Act, the provisions of which shall, for the purposes concerned, apply
mutatis mutandis in relation to this Act.
10 Exemptions from capital gains tax
There shall be exempt from capital gains tax
(a) the receipts and accruals of bodies referred to in paragraphs 1, 2 and
3
of the Third Schedule to the Taxes Act, other than those referred to in
subparagraphs
(a), (c) and ( f ) of paragraph 2;
(b) amounts received or accrued on the realization or distribution by the
executor of a deceased estate of a specified asset forming part of such
estate;
(c) amounts received or accrued on the sale of any marketable security
being any bond or stock in respect of any loan to
(i) the State or any company all the shares of which are owned by the
State;
(ii) a local authority;
(iii) a statutory corporation;
(d ) amounts received or accrued on the sale, by a person carrying on life
insurance business as defined in subparagraph (1) of paragraph 1
of the Eighth Schedule to the Taxes Act, of specified assets which are
investments in Zimbabwe for the purposes of factor F or G in the formula in
paragraph 6 of that Schedule;
(e) amounts received or accrued on the sale of any shares in the
Zimbabwe Development Bank established by section 3 of the
Zimbabwe Development Bank Act [Chapter 24:14].where such sale is by
an institutional shareholder as defined in that Act who is not ordinarily
resident in Zimbabwe;
(f) amounts received or accrued on the sale by a petroleum operator,
approved by the Minister by notice in the Gazette, of immovable property
used for the purposes of petroleum operations, to another petroleum
operator, if the Commissioner is satisfied that the property is to be
used for such purposes by the purchaser;
(g) the receipts and accruals of a licensed investor from the sale of a
specified asset forming the whole or part of the investment to which his
investment licence relates.
(h) the receipts and accruals of an industrial park developer from the sale
of a specified asset that forms part of or is connected with his industrial
park.
[Subpara (h) inserted by s 3 of the Presidential Powers (Temporary Measures) (Capital Gains Withholding Tax)
Regulations, 1999, SI 222E of 1999, dated 7 July 1999 and subsequently by s 18 of the Finance Act 22 of 1999 with
effect from
7 July 1999.]

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(i) amounts received or accrued on the sale or disposal of any shares
withheld by an insurance company in the circumstances described in
subparagraph
(2) of paragraph 6 of the Twenty-Seventh Schedule to the Income Tax Act [Chapter 23:06].
[subpara (i) inserted by Act 18 of 2000 from 1st January, 1999.]
( j) amounts received or accrued on the sale of any marketable security that is a listed security as defined in the
Zimbabwe Stock Exchange Act [Chapter
24:18]. [subpara (j) inserted by Act 27 of 2001 from 1st January, 2002.]
(k) amounts received by or accruing to an employee from the sale or disposal of his shares or interest in an
approved employee share ownership trust where such sale or disposal is to the trust. [inserted by Act 15 of 2002 with
effect from 1st January, 2003.]
11 Deductions allowed in determination of capital gain
(1) For the purposes of determining the capital gain of any person there
shall be deducted from the capital amount of such person the amounts
allowed to be deducted in terms of this section:
Provided that when, owing to a variation in the rate of exchange of
currency between Zimbabwe and any other country, the amount actually paid
in Zimbabwean currency differs from the amount of the liability that had
been incurred prior to the variation in the rate of exchange
(a) the amount to be deducted shall be the amount actually paid
in
Zimbabwean currency;
(b) if the incurring of the liability and the payment therefor
occur in different years of assessment, effect shall be given to the
increase or reduction in the amount in the year of assessment in which the
liability was incurred.
(2) The deductions which shall be allowed for the purposes of subsection
(1) shall be
(a) expenditure to the extent to which it is incurred on the acquisition or
construction of such specified assets as are sold during the year of
assessment other than expenditure in respect of which a deduction is
allowable in the determination of the seller's taxable income as defined in
subsection (1) of section 8 of the Taxes Act.
For the purposes of this paragraph where a person has acquired a
specified asset
(i) by way of inheritance, he shall be deemed to have incurred
expenditure on such acquisition to an amount which is equal to the amount
at which the specified asset was valued in the deceased estate concerned;
(ii) otherwise than by way of purchase or inheritance
A. prior to the 1st August, 1981, he shall be deemed to have
incurred expenditure on such acquisition to an amount which is equal to an
amount proved to the satisfaction of the Commissioner to be the fair market
value of the specified asset at the time it was so acquired;
B. on or after the 1st August, 1981, he shall be deemed to have incurred
expenditure on such acquisition to an amount equal to the amount, if any,
included in respect of the specified asset
I. for the purposes of this Act, in the gross capital amount of the person
disposing of the specified asset; or
II. for the purposes of the Taxes Act, in the gross income, as defined in
subsection (1) of section 8 of that Act, of the person disposing of the
specified asset;

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(b) expenditure to the extent to which it is incurred on
additions, alterations or improvements to specified assets referred to in
paragraph (a) other than expenditure in respect of which a deduction is
allowable in the determination of the seller™s taxable income as defined in
subsection (1) of section 8 of the Taxes Act.
For the purposes of this paragraph, in the case of a capital amount
arising from the sale of shares in a company which owns immovable property,
any expenditure incurred by the seller on additions or alterations to the
property shall be deemed to be expenditure incurred on additions to the
shares;
(c) the sum of one hundred per centum of
[increased from 30% by Act 15 of 2002, with effect from the 1st January,
2003 and increased from 50% by Act 10 of 2003, with effect from the 1st
January, 2004.]
(i) the amounts referred to in paragraph (a), other than any such amount
relating to any shares in a building society; and
(ii) the amounts referred to in paragraph (b); and
(iii) the amount of any expenditure in respect of which a
deduction is allowable in terms of the Taxes Act by way of an allowance in
terms of the Fourth Schedule, the Fifth Schedule or subparagraph (c), (e)
or ( f ) of paragraph 2 of the Seventh Schedule to that Act;
in respect of each year or part of a year of assessment from the date of
acquisition, construction, addition or alteration or deemed addition or
alteration, as the case may be, to the date of sale;
[Para (c) amended by s 33(a) of Act 13 of 1996 with effect
from the year of assessment beginning on 1 April 1996, and further
amended by the increase of the % allowed by Section 23 of the Finance Act
No.27 of 2001 with effect from the year of assessment beginning on the 1st
January, 2002.]
(d ) any expenditure to the extent that it is directly incurred
for the purposes of or in connection with the sale of a specified asset;
(e) the amount of any debts due to the taxpayer to the extent to which
they are proved to the satisfaction of the Commissioner to be bad, if such
amount is included in the current year of assessment or was included in any
previous year of assessment in the taxpayer™s capital amount in terms of
this Act;
(f) the amount of any costs, taxed by the Registrar of the
High Court during the year of assessment and not recovered from
any source whatsoever, incurred by the taxpayer in connection with an
appeal to the High Court or the Special Court in terms of Part VI, if
(i) the appeal is allowed in full; or
(ii) the appeal is allowed to a substantial degree and the High Court or
the Special Court, as the case may be, directs that such costs shall be
allowed as a deduction in terms of this paragraph:
Provided that
(i) if any determination of the High Court or the Special Court
is reversed, affirmed or amended by the Supreme Court, no deduction shall
be made in terms of this paragraph unless the decision of the
Supreme Court is wholly or substantially favourable to the taxpayer
(g) the amount of any costs, taxed by the Registrar of the Supreme Court
during the year of assessment and not recovered from any source
whatsoever, incurred by the taxpayer in connection with an appeal to the

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Supreme Court in terms of Part VI, if
(i) the decision of the Supreme Court is wholly or substantially
favourable to the taxpayer; and
(ii) the Supreme Court directs that such costs shall be allowed as a
deduction in terms of this paragraph;
(h) where, after the application of the above paragraphs, the total amount of the capital gains of a person in any
year of assessment is one thousand dollars or less, an amount equal to such total amount.
(3) From the amount of the capital amount remaining after the deductions referred to in subsection (2) have been made
there shall be deducted any assessed capital loss determined in respect of the previous year of
assessment: Provided that
(i) if during any year of assessment there is a change in the shareholding of a company with an assessed capital
loss or in the shareholding of any company which directly or indirectly controls any company with an assessed
capital loss and the Commissioner is satisfied that such change has been effected solely or mainly in pursuance of or in
connection with any scheme for taking advantage of such assessed capital loss, no assessed capital loss incurred
prior to that change shall be deductible. For the purposes of this subparagraph a company shall be deemed to be
controlled by another company if the majority of the voting rights attaching to all classes of its shares are held directly or
indirectly by such other company;
(ii) no taxpayer who
(a) has been adjudged or otherwise declared or become insolvent; or
(b) has made an assignment of his property or estate for the benefit of his creditors;
shall be entitled to carry forward an assessed capital loss incurred before the date he was adjudged or otherwise
declared or became insolvent or made the assignment, as the case may be;
(iii) where
(a) a company which is incorporated under the Companies Act [Chapter 24:03] and which has an assessed capital
loss is converted into a private business corporation; or
(b) a private business corporation with an assessed capital loss is converted into a company in terms of the
Companies Act [Chapter 24:03];
the new private business corporation or the new company, as the case may be, shall be allowed the assessed capital
loss as a deduction after the conversion.
(4) Where, in respect of any amount, a deduction would, but for this subsection, be allowable under more than one
provision of this Act and whether it would be so allowable in respect of the same or different years of assessment, the
taxpayer shall not be entitled to claim that such amount shall be deducted more than once and, where the deduction
would, but for this subsection, be allowable under more than one provision of this Act in respect of the same year of
assessment, the taxpayer shall elect under which one of those provisions he wishes to claim such amount as a
deduction.
(5) Where the owner of immovable property has, as the lessor of such property, been charged to income tax in terms
of paragraph (e) of the definition of gross income in subsection (1) of section 8 of the Taxes Act, he shall be
deemed to have incurred expenditure in terms of paragraph
(a) or (b) of subsection (2) in relation to such immovable property equal to the amount so included in his taxable
income at the time of such inclusion.

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(6) Where a person transfers to another person his rights under a deed of sale in respect of the passing of ownership
of the specified asset which is the subject of the deed of sale, he shall be deemed for the purposes of this section to
have acquired the specified asset from the person with whom he entered into the deed of sale for an amount equal to
the amount payable by him under the deed of sale.
12 Circumstances in which no deductions may be made Notwithstanding the provisions of section eleven, no
deduction shall be made in respect of expenditure on or in relation to specified assets the
sale of which is exempt from tax.
13 Damage to or destruction of specified asset
(1) Subject to subsections (2) and (3), where a specified asset is damaged or destroyed it shall for the purposes
of the definition of gross capital amount in subsection (1) of section eight be deemed to have
been sold for an amount equal to the amount of any receipt or accrual in
respect of such damage or destruction.
(2) Where the amount referred to in subsection (1) does not exceed the
total of the amounts referred to in paragraphs (a) and (b) of subsection
(2) of section eleven in respect of that asset
(a) such asset shall not be deemed to have been sold;
and
(b) such total amount shall be deemed to be reduced accordingly
with effect from the commencement of the year of assessment in which the
receipt or accrual occurs; and
(c) the amount of any subsequent deductions in terms of paragraph (c) of
that subsection shall be calculated in relation to such reduced total
amount.
(3) Where a specified asset is damaged or destroyed and the
Commissioner is satisfied that the whole or part of any receipt or accrual
in respect of such damage or destruction has been or will be expended,
within two years from the date on which the specified asset was damaged or
destroyed, on
(a) the purchase or construction of a further specified
asset of a like nature in replacement of the damaged or destroyed specified
asset; or
(b) the repair of the specified asset, where the specified asset
was damaged;
the provisions of subsections (1) and (2) (i) shall not apply in relation to the amount so
expended;
(ii) shall apply, with effect from the year of assessment in which the damage or destruction occurred or such later
year of assessment as the Commissioner may determine, in relation to any part of the receipt or
accrual not so expended.
(4) Expenditure to which subsection (3) relates shall not be allowable as a deduction in terms of section eleven upon
the subsequent sale of the specified asset concerned.
14 Determination of fair market price of specified assets

Where a person purchases a specified asset from any other person at a price in excess of the fair market price or
where he sells a specified asset to any other person at a price less than the fair market price the
Commissioner may, for the purpose of determining the capital gain or assessed capital loss, as the case may be, of
such first- mentioned person, determine the fair market price at which such purchase or sale shall be
taken into his accounts or returns for assessment.
15 Transfers of specified assets between companies under the same

control
(1) If the ownership of any specified asset is transferred from one company to another in any of the following
circumstances
(a) where the Commissioner is satisfied that
(i) the company that transfers the specified asset
A. is incorporated outside Zimbabwe; and
B. has carried on its principal business inside

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Zimbabwe; and
C. is about to be wound up voluntarily in its country of incorporation for the purpose of the transfer of the whole of
its business and property wherever situate to the company to which the specified asset is transferred;
and
(ii) the sole consideration for the transfer will be the issue, to the members of the company transferring the
specified asset, of shares in the company to which the specified asset is transferred, in proportion to their holdings in
the first- mentioned company; and
(iii) no shares in the company to which the specified asset is transferred will be available for issue to any
persons other than members of the company transferring the specified asset;
or
(b) the transfer is effected from one company to another under the same control, in the course of or in furtherance
of a scheme of reconstruction of a group of companies or a merger or other business operation which, in
the opinion of the Commissioner, is of a similar nature;
or
(c) the transfer is effected
(i) from a company incorporated under the Companies Act [Chapter
24:03] to a private business corporation into which the company has been converted in terms of the Private Business
Corporations Act [Chapter 24:11]; or
(ii) from a private business corporation to a company into which the private business corporation has been
converted in terms of the Companies Act
[Chapter 24:03];
in the course of or in furtherance of that conversion; the transferor and the transferee may elect that,
notwithstanding the terms of any agreement of sale, the selling price of the asset shall, in relation to the transferor, be
deemed, for the purposes of this Act, to be an amount equal to the sum of the deductions allowable to the transferor in
respect of the specified asset in terms of paragraphs (a), (b), (c) and (d)
of subsection (2) of section eleven at the date of the transfer: Provided that, if the specified asset is subsequently sold,
otherwise than to a company under the same control, the capital gain or capital loss in
the hands of the seller shall be calculated as if the asset had at all times remained in the ownership of the first
transferor in respect of whom the election was made in terms of this section.
(2) Where in the circumstances referred to in paragraph (a) or (b) of subsection (1), a marketable security issued by a
company involved in the scheme, merger or operation is transferred from one person to another for
no cash consideration, in exchange for a marketable security issued by another such company, the transferor may elect
that, notwithstanding the terms of any agreement of sale, the marketable security transferred
by him shall be deemed to have been sold for an amount equal to the sum of
the deductions allowable to him at the date of transfer in terms of
paragraphs (a),
(b), (c) and (d) of subsection (2) of section eleven in respect of the marketable security transferred by him.
(3) An election in terms of subsection (2) shall be made not later than the date on which the person making the election
submits a return for the assessment of his capital gain for the purposes of this Act.
16 Transfers of specified assets between spouses (1) In this section
principal private residence has the meaning given to it in section twenty-one.
(2) Where (a) the ownership of any specified asset is transferred from a person to
his or her spouse; or (b) a person transfers the ownership of a specified asset which is his
principal private residence to his former spouse in compliance with an
order of a court providing for the maintenance of the former spouse or
dividing, apportioning or distributing the assets of the former spouses on
or after the dissolution of their marriage; the transferor and the transferee may elect that, notwithstanding the terms
of any agreement of sale, the selling price of the specified asset shall in relation to the transferor be deemed, for the
purposes of this Act, to be an amount equal to the sum of the deductions allowable to the transferor in respect of the
specified asset in terms of paragraphs (a), (b), (c) and (d) of subsection (2) of section eleven at the date of transfer:
Provided that, if after the transfer such asset is sold to a person who is not the spouse of the seller, the capital gain or
assessed capital loss in the hands of the seller shall be calculated as if the asset had at all times remained in the
ownership of the first transferor to whom this section applies.(3) An election in terms of subsection (2) shall be made
not later than the date on which the person making the election submits a return for the
assessment of his capital gain for the purposes of this Act.

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17 Transfer of business property by individual to company under his
Control If the ownership of any immovable property is transferred on or after the
1st April,
1991, from an individual to a company in circumstances where the
Commissioner is satisfied that
(a) the immovable property was previously used by the individual for the
purposes of his trade; and
(b) the company will continue to use the immovable property for
the purposes of its trade; and
(c) the individual controls the company, whether through holding a
majority of the company™s shares or otherwise;
the transferor and the transferee may elect that, notwithstanding the terms
of any agreement of sale, the selling price of the immovable property
shall, in relation to the transferor, be deemed, for the purposes of this
Act, to be an amount equal to the sum of the deductions allowable to the
transferor in respect of the immovable property in terms of paragraphs (a),
(b), (c) and (d) of subsection (2) of section eleven at the date of the
transfer:
Provided that, if after the transfer the immovable property is sold,
otherwise than to a company under the same control, the capital gain or
assessed capital loss in the hands of the seller shall be calculated as if
the property had at all times remained in the hands of the first
transferor to whom this section applies.
(2) An election in terms of subsection (1) shall be made not later than
the date on which the person making the election submits a return for the
18 Provisions for sales of immovable property under suspensive
conditions
(1) If any taxpayer has entered into any agreement with any other person
in respect of any specified asset the effect of which is that ownership
shall pass from the taxpayer to that other person upon or after receipt by
the taxpayer of the whole or a certain portion of the amount payable to the
taxpayer under the agreement, the whole of the amount shall, for the
purposes of this Act, be deemed to have accrued to the taxpayer on the date
on which the agreement was entered into:
Provided that
(i) the Commissioner shall deduct an allowance determined by applying the
Formula in which
A represents that portion of the amount deemed to have accrued under the agreement which is not receivable at
the end of the year of assessment; B represents the capital amount deemed to have accrued under the
agreement; C represents the aggregate of the sums deductible in respect of such specified asset in terms of
paragraphs (a), (b), (c) and (d) of subsection (2) of section eleven;
D represents the amount deemed to have accrued under the agreement;
(ii) any allowance so deducted shall be included by the taxpayer as a capital amount in his return for the following
year of assessment and shall form part of the capital amount of the said taxpayer; (iii) if any such agreement is
ceded or otherwise disposed of by the taxpayer no such allowance shall be made by the Commissioner in
the year of assessment in which such cession or disposal takes place. (2) Where any agreement referred to in
subsection (1) is cancelled there shall be included in the capital amount or assessed capital loss, as the
case may be, of the seller in the year of assessment in which such cancellation takes place an amount equal to the
difference between the total of the amounts received by the seller in terms of the agreement and
the total of the amounts included in the capital gains of the seller in terms of that subsection, and that subsection shall
cease to have effect after that year of assessment.
(3) Where the capital amount of a person for any year of assessment
includes any amount to which this section relates no deduction shall be
allowed in respect of the amount referred to in paragraph (h) of subsection
(2) of section eleven.

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(4) Where a person transfers to another person his rights under a deed of
sale in respect of the passing of ownership of the specified asset which is
the subject of the deed of sale. he shall be deemed for the purposes of
this section to have entered into an agreement in respect of the specified
asset the effect of which is that ownership shall pass from him to the
other person concerned, and this section shall apply, mutatis mutandis,
accordingly.
19 Provisions relating to credit sales where ownership passes
(1) If any taxpayer has entered into any agreement with any other person
in respect of any specified asset the effect of which is that
(a) the ownership shall pass to that other person on delivery of
the specified asset; and
(b) the amount payable to the taxpayer under the agreement shall be paid in
instalments;
the whole of that amount shall, for the purposes of this Act, be deemed to
have accrued to the taxpayer on the date on which the agreement was entered
into:
Provided that
(i) the Commissioner, taking into consideration any deduction under
paragraph (e) of subsection (2) of section eleven, may deduct such further
allowance as seems to him reasonable in respect of all amounts which are
deemed to have accrued under such agreement but are not receivable
at the end of the year of assessment;
(ii) any allowance so deducted shall he included by the taxpayer as a
capital amount in his return for the following year of assessment and shall
form part of the capital amount of the taxpayer.
(2) Where the capital amount of a person for any year of assessment
includes any amount to which this section relates, no deduction shall be
allowed in respect of the amount referred to in paragraph (h) of subsection
(2) of section eleven.
20 Provisions for the reductions in costs of specified assets
Where an amount is received or accrues, whether by way of
recovery or of recoupment or otherwise, relating to the cost or deemed
cost of a specified asset which has not been sold
(a) if such amount exceeds the total of the amounts referred to
in paragraphs (a) and (b) of subsection (2) of section eleven in respect of
that asset, such asset shall be deemed to have been sold for an amount
equal to the amount so received or accrued;
(b) if such amount does not exceed the total of the amounts referred to m
paragraphs (a) and (b) of subsection (2) of section eleven in respect of
that asset
(i) such total amount shall be deemed to be reduced accordingly with
effect from the commencement of the year of assessment in which the receipt
or accrual occurs; and
(ii) the amount of any subsequent deductions in terms of paragraph (c) of
that subsection shall be calculated in relation to such reduced total
amount;
and the asset shall be deemed to have been sold on the date of the final
such receipt or accrual.

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21 Provision for sales of principal private residences
(1) In this section
dwelling means a building, or any part of a building, which is used
wholly or mainly for the purpose of residential accommodation;
principal private residence , in relation to an individual, means
(a) a dwelling which is proved to the satisfaction of
the Commissioner
(i) to have been that individual™s sole or main residence throughout the
period that he owned it; or
(ii) to have been that individual™s sole or main residence for a period of
four years or more immediately before the date of its sale, or for such
shorter period immediately before the date of its sale as the Commissioner
considers reasonable in all the circumstances; or
(iii) to have been regarded by that individual as his sole or main
residence, even though he was prevented from residing in it as provided in
subparagraph (i) or
(ii) in consequence of his employment or for such other cause as the
Commissioner considers reasonable in all the circumstances;
and
(b) subject to subsection (5), any land, whether or not it is a piece of
land registered as a separate entity in a Deeds Registry, which
(i) is owned by the individual concerned; and
(ii) surrounds or is adjacent to the dwelling referred to in paragraph (a);
and
(iii) is used by the individual concerned primarily for private or domestic

purposes in association with the dwelling referred to in paragraph (a).
(2) An individual may elect that, where a capital gain has been received
by or has accrued to him on or after the 1st April, 1988, in respect of the
sale by him of his principal private residence (hereinafter in this section
called the old principal private residence ) and the Commissioner is
satisfied that, before the end of the year of assessment next following the
sale, an amount equal to the whole or part of the consideration received
or accrued in respect of the sale has been or will be expended on the
purchase or construction, on land owned by him in Zimbabwe, of another
principal private residence (hereinafter in this section called the
new principal private residence ) for the individual concerned
(a) capital gains tax shall not be chargeable, if the amount of
the consideration so received or accrued is equal to or less than the
amount so expended; and
(b) capital gains tax shall be chargeable, if the amount
of the consideration so received or accrued exceeds the amount so
expended, on a proportion of the capital gain determined by applying the
following formula in which
A represents that portion of the amount of the consideration received or
accrued on the sale of the old principal private residence not so expended
on the purchase or construction of the new principal private residence;
B represents the total amount of the consideration received or accrued on the sale of the old principal
private residence; C represents the capital gain in respect of the sale of the old principal
private residence. (2a) An election in terms of subsection (2) shall be made not later than
the date on which the individual making the election submits a return for
the assessment of his capital gain for the purposes of this Act.
[Subsection (2a) inserted by Finance Act (No. 2) 21 of 1999 from 1 January
2000.]

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(3) Where an amount is not chargeable to capital gains tax in terms of
subsection (2), such amount shall be deducted from the amount referred to
in paragraph (a) of subsection (2) of section eleven when determining the
capital gain in respect of the new principal private residence, with effect
from the year of assessment in which the new principal private residence
was acquired.
(4) For the purposes of this section, where
(a) a building owned by a company, partnership or other association of
persons consists of or contains one or more flats, apartments or
other units of residential accommodation; and
(b) the members of the company, partnership or association, as the case may
be, have the right, by virtue of their membership, to occupy particular
flats, apartments or units of residential accommodation in the building;
an individual who, by becoming or ceasing to be a member of the
company, partnership or association concerned, acquires or
relinquishes such a right of occupation, shall be deemed to have
purchased or sold, as the case may be, the flat, apartment or unit of
residential accommodation concerned.
(5) Where
(a) land referred to in paragraph (b) of the definition of principal
private residence in subsection (1); or
(b) a garage, storeroom or other structure referred to in paragraph (c) of
the definition of principal private residence in subsection (1);
is disposed of separately from the dwelling in association with which it
was used, this section shall not apply in relation to its disposal.
(6) Where a principal private residence is sold together with or as part
of other immovable property which is not used wholly or mainly for
the purposes of residential accommodation, the proportion of
(a) the gross capital amount in the hands of the
transferor; or
(b) the cost of acquisition in the hands of the
transferee;
received or accruing in respect of the sale of the principal private
residence shall be deemed to be
(i) such proportion as may be specified by both the parties to the sale in
a joint written statement which is submitted to the Commissioner and which
is accepted by him; or
(ii) where no statement has been submitted to the Commissioner in terms of
paragraph (i) or where the Commissioner has not accepted such a statement,
such proportion as may be determined by the Commissioner to be fair and
reasonable.
22 Substitution of business property
(1) A taxpayer may elect that, where a capital gain has been received by
or accrued to him on or after the 1st April, 1991, in respect of the sale
by him of immovable property previously used for the purposes of his trade
(hereinafter in this section called the old property ) and the

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Commissioner is satisfied that, before the end of the year of assessment
next following the sale, an amount equal to the whole or part
of the consideration received or accrued in respect of the sale has been
or will be expended on the purchase or construction of other immovable
property (hereinafter in this section called the new property ) to be used
for the purposes of his trade
(a) capital gains tax shall not be chargeable, if the amount of
the consideration so received or accrued is equal to or less than the
amount so expended; and
(b) capital gains tax shall be chargeable, if the amount
of the consideration so received or accrued exceeds the amount so
expended, on a proportion of the capital gain determined by applying the
following formula
in which
A represents that portion of the amount of the consideration received or
accrued on the sale of the old property not so expended on the
purchase or construction of the new property;
B represents the total amount of the consideration
received or accrued on the sale of the old property;
C represents the capital gain in respect of the sale of
the old property.
(1a) An election in terms of subsection (1) shall be made not later than
the date on which the taxpayer making the election submits a return for the
Subsection (1a) inserted by Finance Act (No. 2) 21 of 1999 from 1 January
2000]
(2) Where an amount is not chargeable to capital gains tax in terms of
subsection (1), such amount shall be deducted from the amount referred to
in paragraph (a) of subsection (2) of section eleven when determining the
capital gain in respect of the new property, with effect from the year of
assessment in which the new property was acquired.
PART IIIA
CAPITAL GAINS WITHHOLDING TAX

22A Interpretation in Part IIIA In this Part depositary means
(a) a conveyancer, legal practitioner, estate agent or other person who¾ (i) on behalf of any party to a sale of
immovable property, holds the whole or any part of the price paid or payable in respect of the sale; and
(ii) is required, on completion of the sale or on transfer of the property, to pay the whole or any part of the amount
he holds to the seller of the immovable property or to some other person for the seller™s credit; or
(b) a building society registered in terms of the Building Societies Act
[Chapter 24:02]; or
(c) the Sheriff or Master of the High Court; or
(d) a stockbroker, financial institution or other person who¾
(i) on behalf of any party to a sale of a marketable security, holds the whole or any part of the price paid or
payable in respect of the sale; and (ii) is required, on completion of the sale or on transfer of the
marketable security, to pay the whole or any part of the amount he holds to the seller of the marketable security or to
some other person for the seller™s credit;
[amended by Finance Act 10 of 2003 with effect from the year of assessment beginning 1 January 2004]
payee means a person to whom a depositary pays or is required to pay an amount held by him as depositary in
respect of the sale of a specified asset.

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22B Capital gains withholding tax
There shall be charged, levied and collected throughout Zimbabwe in accordance with this Part, for the benefit of the
Consolidated Revenue Fund, a capital gains withholding tax calculated in accordance with the
Finance Act [Chapter 23:04]. 22C Depositaries to withhold tax
(1) Subject to subsections (5) and (7), every depositary who, in consequence of the sale or transfer of a specified asset,
pays any amount held by him as depositary to or for the credit of the seller of the specified asset shall withhold
capital gains withholding tax from that amount and shall pay the amount withheld to the Commissioner
on or before the last day of the month following the month in which the payment was made or within such further time as
the Commissioner may for good cause allow.
[Subsection (1) amended by the Finance Act 22 of 1999 with effect from 7
July 1999.]
(2) If the capital gains withholding tax payable in respect of any sale or transfer exceeds the amount held by a
depositary, the depositary shall pay the full amount held by him to the Commissioner in accordance with
subsection (1). (3) Where capital gains withholding tax is withheld in accordance with
subsection (1), the depositary shall provide the payee with a certificate, in a form
approved by the Commissioner, showing the following particulars
(a) the depositary™s name and address; and
(b) the payee™s name and address; and
(c) particulars of the property sold; and
(d) the amount of capital gains withholding tax that has
been withheld.
(4) Where two or more depositaries hold the whole or any part of the price
paid or payable in respect of any one sale of a specified asset¾¾
(a) they shall be severally liable for payment of the full amount of
capital gains withholding tax in respect of that sale, up to the amount held by them; and
(b) payment by any one of them of any amount of capital gains withholding tax in terms of this section shall
absolve the others or reduce their liability pro tanto, as the case may be.
(5) A depositary need not withhold capital gains withholding tax
in terms of subsection (1) if, before he pays any amount to or for the credit of the seller of the specified asset
concerned¾¾ (a) he or the seller applies to the Commissioner for a clearance certificate in respect of the sale of
that specified asset, and provides the Commissioner with such information regarding the sale as the
Commissioner may reasonably require; and
(b) the Commissioner, being satisfied that¾¾
(i) no capital gains tax is likely to be payable in respect of the sale or
that any capital gains tax so payable is likely to be less than the capital
gains withholding tax required to be withheld in terms of subsection (1);
and
(ii) adequate arrangements have been or will be made for the payment of any
capital gains tax payable in respect of the sale;
has issued a clearance certificate in respect of
the sale.
(6) A clearance certificate may be issued in terms of subsection (5) on
such terms and conditions as the Commissioner may fix, including terms and
conditions relating to the furnishing of a return or interim return for the
assessment of capital gains tax.
(7) Where the amount held by a depositary represents the whole
or part of an instalment payable in a sale by instalments, the amount of
capital gains withholding tax to be withheld from that amount and paid to
the Commissioner in terms of subsection (1) shall be calculated as if the
instalment were the full price at which the specified asset concerned was
sold.

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22D Agents to withhold tax not withheld by depositaries (1) Subject to subsections (7) and (9) where
(a) an agent, on behalf of a payee, receives from a depositary an amount which represents the whole or part of the
price of a specified asset; and (b) capital gains withholding tax has not been withheld from that amount in
terms of section twenty-two C, nor has a clearance certificate been issued in terms of that section in respect of the sale
of the specified asset concerned;
the agent shall withhold capital gains withholding tax from that amount and shall pay the tax withheld to the
Commissioner on or before the last day of the month following the month in which he received the amount or
within such further time as the Commissioner may for good cause allow. (2) Where capital gains withholding tax is
withheld in accordance with subsection
(1), the agent shall provide the payee with a certificate, in a form approved by the Commissioner, showing the following
particulars, to the extent that the agent knows them
(a) the depositary™s name and address; and
(b) the payee™s name and address; and
(c) particulars of the property sold; and
(d) the amount of capital gains withholding tax that has
been withheld.
(3) For the purpose of this section, a person shall be deemed to be the agent of a payee and to have received an
amount on behalf of that payee if
(a) that person™s address appears as the address of the
payee in the records of the depositary who paid the amount; and
(b) the warrant, cheque or draft in payment of the amount is delivered at that person™s address.
(4) Where a trust receives from a depositary an amount
(a) to the whole or part of which a beneficiary is entitled in terms of the
trust; or
(b) which in terms of section nine is deemed to accrue to a person as a
capital gain;
then
(i) a trustee of that trust shall be deemed for the purpose of this section
to be an agent in respect of that amount; and
(ii) any such beneficiary shall be deemed for the purpose of this section
to be a payee in respect of that amount.
(5) Any person deemed to be the agent of a payee in terms of subsection
(3) or (4) shall, as regards the payee and in respect of any capital gain
accruing to or in favour of the payee, have and exercise all the powers,
duties and responsibilities of a person declared to be the agent of a
taxpayer in terms of section 58 of the Taxes Act.
(6) Where two or more agents hold the whole or any part of the price paid
in respect of any one sale of a specified asset
(a) they shall be severally liable for payment of the full amount of
capital gains withholding tax in respect of that sale, up to the amount
held by them; and
(b) payment by any one of them of any amount of capital gains
withholding tax in terms of this section shall absolve the others or reduce
their liability pro tanto, as the case may be.
(7) An agent need not withhold capital gains withholding tax in terms of
subsection
(1) if, before he pays any amount to or for the credit of the seller of the
specified asset concerned
(a) he or the seller applies to the Commissioner for a clearance
certificate in respect of the sale of that specified asset, and provides
the Commissioner with such information regarding the sale as the Commissioner may reasonably require;
and

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(b) the Commissioner, being satisfied that
and
the sale.
(9) Where the amount received by an agent represents the whole
or part of an instalment payable in a sale by instalments, the amount of
sold.
22E Payee to pay tax not withheld by depositary or agent
(1) Subject to subsections (2) and (4), where
(a) a payee receives an amount which represents the whole or part of the
price of a specified asset; and
(b) capital gains withholding tax has not been withheld from that amount in
terms of section twenty-two C or twenty-two D, nor has a clearance
certificate been issued in terms of either of those sections in respect of
the sale of the specified asset concerned;
the payee shall pay to the Commissioner, on or before the last day of the
month following the month in which the amount was received or within such
further time as the Commissioner may for good cause allow, the amount of
capital gains withholding tax that should have been withheld.
(2) A payee need not pay capital gains withholding tax in terms of
subsection (1) if, before end of the period within which it is required to
be paid in terms of that subsection
(a) he applies to the Commissioner for a clearance certificate in respect
of the sale of that specified asset, and provides the Commissioner with
such information regarding the sale as the Commissioner may reasonably
require; and
(b) the Commissioner, being satisfied that
and
the sale.
(4) Where the amount received by a payee represents the whole or
part of an instalment payable in a sale by instalments, the amount of
sold.

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22F Exemptions
Notwithstanding section twenty-two C, twenty-two D or twenty-two E, capital
gains
withholding tax need not be withheld or paid where the amount concerned is
exempt from capital gains tax in terms of section ten.
22FA Registration of depositaries
(1) Every person who acts as a depositary in the ordinary course of his
business shall apply to the Commissioner for a registration certificate
(a) within thirty days after he commences that business;
or
(b) in the case of a person who was carrying on that business before the
date of commencement of the Finance (No. 2) Act, 1999, within thirty days
after that date.
(2) An application in terms of subsection (1) shall be made in writing and
shall be accompanied by such information as the Commissioner may
reasonably require to ascertain the applicant's identity, the place where
he conducts his business and the nature and extent of his business as a
depositary.
(3) On a receipt of an application in terms of subsection (1) and any
information he may have required in terms of subsection (2), the
Commissioner shall promptly issue the applicant with a registration
certificate in the form prescribed.
(4) Any one who contravenes subsection (1) shall be guilty of an offence
and liable to a fine not exceeding level three or to imprisonment for a
period not exceeding one month or to both such fine and such imprisonment.
[New Section inserted by Finance Act (No. 2) 21 of 1999 from the 1st
January 2000, and subs (4) amended by the Criminal Penalties Amendment Act
22 of 2001 with effect from the 10th September, 2002.]
22G Depositaries to furnish returns
(1) Subject to subsection (4), every conveyancer, legal practitioner,
estate agent, stockbroker, financial institution and other person that
performs the functions of a depositary in the ordinary course of business
shall, on or before the last day of every month or at such other intervals
as the Commissioner may permit, submit to the Commissioner a statement in
the form prescribed giving such particulars as may be prescribed of¾¾
(a) all sales of specified assets which the person has concluded
or negotiated on behalf of any other person; and
(b) all amounts of capital gains withholding tax the
person has withheld in terms of section twenty-two C;
during the preceding month.
(2) A return submitted in terms of subsection (1) shall be
accompanied by the amount of capital gains withholding tax payable in
respect of the sales to which the return relates.
(3) Subject to subsection (4), payment of capital gains
withholding tax by a depositary, other than a depositary referred to in
subsection (1), shall be accompanied by a return in the form prescribed.
(4) Where a person performs the functions of a depositary¾¾
(a) in partnership or association with any other person, the Commissioner
may permit a joint return to be submitted in respect of sales concluded or
negotiated, and capital gains withholding tax withheld, by the partnership
or association;
(b) as an employee, the Commissioner may permit his employer to
submit a return of sales the employee has concluded or negotiated
and capital gains withholding tax the employee has withheld,
whether such return is submitted individually or as part of a joint
return referred to in paragraph (a);

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and any return submitted in terms of this subsection shall be a sufficient
discharge of the person™s obligations under subsection (1) or (3).
[Section substituted by SI 222E of 1999, dated 7 July 1999 and subsequently
by s 22
of the Finance Act 22 of 1999 with effect from 7 July 1999.]
22H Penalty for non-payment of tax
(1) Subject to subsection (2), a depositary or an agent who fails to
withhold or pay to the Commissioner any capital gains withholding tax as
provided in section twenty- two C or twenty-two D shall be
personally liable for the payment to the Commissioner, not later than
the date on which payment should have been made in terms of section
twenty-two C or twenty-two D, as the case may be, of
(a) the amount of capital gains withholding tax which should have been
withheld; and
(b) a further amount equal to fifteen per centum of the capital gains
withholding tax which should have been withheld.
(2) If the Commissioner is satisfied in any particular case that a failure
to pay capital gains withholding tax was not due to any intent to evade the
provisions of this Part, he may waive the payment of the whole or such part
as he thinks fit of the amount referred to in paragraph (b) of subsection
(1).
22I Refund of overpayments
If it is proved to the satisfaction of the Commissioner that any person
has been charged with capital gains withholding tax in excess of
the amount properly chargeable to him in terms of this Part, the
Commissioner shall authorise a refund in so far as it has been overpaid:
Provided that the Commissioner shall not authorise any such refund unless a
claim for it is made within six years of the date on which the tax was
paid.
22J Credit where tax has been withheld
If a person to whom a capital gain has accrued proves to the
Commissioner™s satisfaction that capital gains withholding tax has been
paid in respect of that capital gain, the capital gains withholding tax
shall be allowed as a credit against any capital gains tax chargeable in
terms of this Act in respect of that capital gain, and any excess shall be
refunded.
22K Application of Part IIIA to sales concluded before 1.1.1999
(1) This Part shall not apply in respect of any sale of a specified asset
which was concluded before the 1st January, 1999, even if a depositary pays
any amount after that date to or for the credit of a seller as a
consequence of that sale.
(2) Notwithstanding subsection (1), any amount paid purportedly by way of
capital gains withholding tax in respect of a sale referred to in
subsection (1) shall be regarded in all respects as if it had been validly
paid in terms of this Part.
22L Suspension of provisions of Part IIIA relating to marketable
securities Notwithstanding sections twenty-two A to twenty-two H, this Part
shall be suspended in respect of
(a) the charging, levying and collecting of capital gains withholding tax
on the sale of marketable securities; and
(b) the submission of returns by depositaries, to the extent that they hold
moneys representing the price paid or payable in respect of the sale of
marketable securities;
until such date as the Minister may specify by notice in the Gazette:
Provided that the date so specified shall not be earlier than one month
after the date of publication of the notice.

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PART IV
RETURNS AND ASSESSMENTS
23 Application of provisions of Taxes Act relating to returns and
assessments
For the purposes of providing for and giving effect to the matters
concerned in relation to this Act, the following provisions of the Taxes
Act
(a) section 37 relating to the publication of notices regarding, and the
furnishing of, returns and interim returns ;
[Subsection (a) amended by SI 222E of 1999, dated 7 July 1999 and
subsequently by s 24 of the Finance Act 22 of 1999 from 1st January 1999.]
(b) section 38 relating to the income of minor children;
(c) section 39 relating to the furnishing of further
returns and information;
(d) section 40 relating to the Commissioner having access to
public
records;
(e) sections 41 and 42 relating to shareholdings;
(f) section 43 relating to the submission of returns and the preparation
of accounts;
(g) section 44 relating to the production of documents and evidence on
oath;
(h) section 45 relating to estimated assessments;
(i) section 46 relating to additional tax in the event of default
or omission;
( j) section 47 relating to additional assessments;
(k) section 48 relating to reduced assessments and
refunds;
(l) section 49 relating to amended assessments of loss;
(m) section 50 relating to adjustments of tax;
(n) section 51 relating to assessments and the recording
thereof; and
(o) section 52 relating to copies of assessments;
shall apply, mutatis mutandis, in relation to this Act. PART V
REPRESENTATIVE TAXPAYERS
24 Application of provisions of Taxes Act relating to representative
taxpayer
For the purposes of providing for and giving effect to the matters
concerned in relation to this Act, the following provisions of the Taxes
Act
(a) section 53 relating to representative taxpayers;
(b) section 54 relating to the liability of
representative taxpayers;
(c) section 55 relating to the right of representative
taxpayers to indemnity;
(d) section 56 relating to the personal liability of
representative taxpayers;
(e) section 58 relating to the power to appoint an
agent;
(f) section 59 relating to the remedies of the Commissioner against an
agent or trustee;
(g) section 60 relating to the Commissioner™s power to require
information; and
(h) section 61 relating to public officers of companies;
shall apply, mutatis mutandis, in relation to this Act.

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PART VI
OBJECTIONS AND APPEALS
25 Objections and appeals
(1) Any taxpayer who is aggrieved by
(a) any assessment made upon him under this Act; or
(b) any decision of the Commissioner mentioned in
(i) paragraphs (b) and (e) of subsection (2) of section
eight;
(ii) subparagraph A of subparagraph (ii) of paragraph (a) of
subsection (2)
of section eleven;
(iii) proviso (i) to subsection (3) of section eleven;
(iv) subsection (3) of section thirteen;
(v) section fourteen;
(vi) section fifteen;
(vii) proviso (i) to subsection (1) of section nineteen;
(viii) the definition of principal private residence in subsection (1)
of section twenty-one;
(ix) subsection (2) of section twenty-one;
(x) subsection (6) of section twenty-one;
may, unless it is otherwise provided in this Act, object to such assessment
or decision within thirty days after the date of the notice of
assessment or of the written notification of the decision in the manner
and under the terms prescribed by this Act: Provided that nothing herein
contained shall give a further right of objection to the amount of any
assessed capital loss determined in respect of the previous year of
assessment.
(2) The provisions of
(a) subsections (2), (3), (4), (5) and (6) of section 62 of the Taxes Act,
relating to objections; and
(b) sections 63 to 70 of the Taxes Act, relating to
objections and appeals; shall apply, mutatis mutandis, in relation to this
Act for the purposes of providing for and giving effect to the matters
concerned in relation to this Act.
PART VII
PAYMENT AND RECOVERY OF TAX
26 Day and place for payment of tax
(1) Tax shall become due and payable on such date and shall be paid on or
before such days and at such places as may be notified by the Commissioner:
Provided that that nothing herein contained shall deprive any taxpayer of
the right to pay his tax through the post.
(2) If tax is not paid on or before the date notified by the Commissioner
in terms of subsection (1), interest, calculated at a rate to be fixed by
the Minister, by statutory instrument, shall be payable on so much of the
tax as from time to time remains unpaid by the taxpayer during the period
beginning on the date specified by the Commissioner in the notification as
the date on which the tax shall be paid and ending on the date the tax is
paid in full:
Provided that in special circumstances the Commissioner may extend the
time for payment of the tax without charging interest.
(3) For the purposes of collecting the tax and any interest
payable in terms of subsection (1) and (2) the Commissioner shall have
the same powers as are conferred by the Taxes Act for the collection of
income tax and the provisions of the Taxes Act shall apply, mutatis
mutandis, accordingly.

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PART VIII GENERAL
27 Application of provisions of Taxes Act relating to offences, evidence
forms and regulations
The provisions of
(a) sections 81 to 86, relating to offences;
(b) sections 87 and 88, relating to evidence and proof;
(c) section 89, relating to forms and authentication and service
of documents;
(d) section 90, relating to regulations;
of the Taxes Act shall apply, mutatis mutandis, in relation to
this Act, for the purposes of providing for and giving effect to the
matters concerned in relation to this Act.
28 Application of provisions of Taxes Act relating to relief from
double taxation The provisions of section 91 of the Taxes Act relating to
relief from double taxation shall apply, mutatis mutandis, in relation to
this Act, for the purposes of providing for and giving effect to the
matters concerned in relation to this Act.
29 Application of provisions of Taxes Act relating to tax avoidance
The provisions of section 98 of the Taxes Act relating to tax avoidance
shall apply, mutatis mutandis, in relation to this Act, for the purposes of
providing for and giving effect to the matters concerned in relation to
this Act.
30 Transitional provision re capital gains and losses of married
women
Where in terms of this Act a gross capital amount which was received by or
accrued to or in favour of a married woman in any year of assessment prior
to the year of assessment beginning on the 1st April, 1988, has been deemed
to be a capital amount received by or accrued to or in favour of her
husband, then, for the purposes of charging, levying and collecting tax in
respect of the year of assessment beginning on the 1st April, 1988, and any
subsequent year of assessment
(a) any capital gain accruing to or assessed capital loss carried forward
by her husband from that source; or
(b) any right of election exercised by or allowance or
deduction granted to her husband in respect of the capital gain or assessed
capital loss referred to in paragraph (a);
shall be deemed to have accrued to or been carried forward or exercised by
or been granted to, as the case may be, the married woman, and the same
consequences shall follow and the same rights accrue to the married woman
as would have followed or, as the case may be, accrued to her husband in
respect of that capital gain, assessed capital loss, election, allowance or
deduction.
30A Capital gains tax not withheld in terms of Part IIIA to be paid before
transfer of specified asset
No registration of the acquisition of a specified asset in respect of which
capital gains tax is not withheld in terms of Part IIIA shall be executed,
attested or registered by
(a) the Registrar of Deeds in terms of the Deeds Registries Act [Chapter
20:05];

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(b) the person responsible for registering the transfer of shares
of any
company registered or incorporated in terms of the Companies Act [Chapter
24:03]; unless there is submitted to the Registrar of Deeds or the person
concerned by either of the parties or their agents concerned in the
transaction a certificate issued by the Zimbabwe Revenue Authority
stating that any capital gains tax payable on the acquisition of
the specified asset has been paid.
[Section inserted by Act 15 of 2002 with effect from 1st
January, 2003 and renumbered by Act 10 of 2003.]
31 Returns by Registrar of Deeds, financial institutions and other
persons
(1) At such intervals as the Commissioner may require, the Registrar of
Deeds shall notify the Commissioner in the form prescribed of
(a) all transfers of immovable property registered in the Deeds Registry
during the period covered by the notification; and
(b) the name and address of the transferor and the transferee in
each transfer referred to in paragraph (a); and
(c) the price, if any, at which each property referred to in paragraph (a)
was transferred.
(2) Subject to subsection (3), whenever any marketable security is sold by
or through the agency of
(a) a bank or other institution registered or required to be registered
under
the Banking Act [Chapter 24:01]; or
(b) a building society registered or required to be registered under the
Building Societies Act [Chapter 23:02]; or
(c) a stockbroker registered or required to be registered under
the
Zimbabwe Stock Exchange Act [Chapter 24:18];
the institution, society or stockbroker, as the case may be, shall
forthwith notify the
Commissioner in the form prescribed of
(i) the name and address of the seller and the
purchaser; and
(ii) the nature of the marketable security; and
(iii) the price, if any, at which the marketable security
was transferred: Provided that, with the Commissioner™s consent, such
notification may be made at such intervals as the Commissioner may require.
(3) Subsection (2) shall be suspended until such date as the Minister may
specify by notice in the Gazette:
Provided that the date so specified shall not be earlier than one month
after the date of publication of the notice.
[Section 31 inserted by the Finance Act 22 of 1999 with effect from 1
January 1999.]
32 Capital gains tax not withheld in terms of Part IIIA to be paid before
transfer of specified asset
No registration of the acquisition of a specified asset in respect of which
capital gains tax is not withheld in terms of Part IIIA shall be executed,
attested or registered by
(a) the Registrar of Deeds in terms of the Deeds Registries Act [Chapter
20:05];

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(b) the person responsible for registering the transfer of shares
of any
company registered or incorporated in terms of the Companies Act [Chapter
24:03]; unless there is submitted to the Registrar of Deeds or the person
concerned by either of the parties or their agents concerned in the
transaction a certificate issued by the Zimbabwe Revenue Authority
stating that any capital gains tax payable on the acquisition of
the specified asset has been paid.

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Relief for company losses
Chapter 7
Relief for trading losses
Overview
When a company makes an adjusted trading loss, its Schedule D Case I assessment for the period is nil. A trading loss
is computed in the same way as a trading profit.
There are three forms of relief available to a company which makes a trading loss
♦ current year relief
♦ carry back relief
♦ carry forward relief.
Current year relief

A trading loss can be relieved against total profits of the loss making accounting period. The set off is against profits
before the deduction of any charges. A claim for current year (or carry back) relief must be made within two years of the
end of the loss making accounting period.
Example
Sage Ltd had the following results for the year ended 31 March 2008.
$m
Schedule D Case I (40,000)
Schedule A 10,000
Chargeable gain 50,000
Patent royalty (gross payment) 10,000
Required
Show how relief would be obtained under in the current period.

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It is essential once a loss has been identified to set up a loss memorandum as a working and allocate the loss to it, so
that the relief for the loss can be clearly illustrated.
Even where there is a DI loss, this does not alter the basic approach.
♦ Present the CT computation in the standard proforma.
♦ Support it with workings (one of which will be the loss memorandum).
Solution
Sage Ltd
$m
Schedule D Case I Nil
Schedule A 10,000
Gains 50,000
______
60,000
S393A(1)(a) relief (40,000)
______
20,000
Less Charges (10,000)
______
PCTCT 10,000
______
Working
(W1) Loss memorandum
$m
Year ended 31 March 2008 (40,000)
Relieved in current period 40,000
_______
Nil
_______
Setting off the loss before the deduction of charges may result in the charges becoming excess.
Example
What if the loss available above had been $60,000,000,000?
Solution
The effect would be as follows.
$m
Total profits ($10,000 + $50,000) 60,000
current relief (60,000)
______
Nil
______
Less Charges on income (10,000)

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The charges have become excess (ie not used) as there are insufficient profits.
2007 2008
$m $m
Schedule D Case I (20,000) 30,000
Schedule D Case III 20,000 –
Patent royalties paid (gross) 10,000 10,000
Gift Aid payment (gross) 5,000 5,000
Required
Show how relief would be obtained for the trading loss and the effect on the charges.
Solution
Note the columnar layout which is preferable.
2007 2008
$m $m
Schedule DI – 30,000
Less Trade charges carry forward – (W1) (10,000) See
note
Schedule DIII 20,000
______ ______
20,000 20,000
current year (W1) (20,000)
______ ______
Nil 20,000
Less Charges –
Trade Excess c/fwd (10,000)
Non-trade Excess (5,000)
wasted ______
______
PCTCT Nil 5,000
______ ______

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Note It is a useful layout technique to leave sufficient space to slot in the different types of loss relief.
Working
Loss memorandum
$m
Year ending 31 March 2007 (20,000)
Relief against current profits 20,000
______
Nil
Add Excess trade charges – 2007 carry forward (10,000)
Relief against DI profit 10,000
______
Nil
______
Carry back relief –
A Schedule DI loss may be carried back for relief after the loss has been relieved against any available current period
profits.
The loss is set off against total profits after trade charges but before non-trade charges. This is different from the
situation with current year relief, where the set-off is against total profits before all charges. In other words, the order in
which the loss is applied is as follows.
♦ First, against total profits of the current year, before the deduction of any charges.
♦ Second, against total profits of the carry back period, after the deduction of trade charges (but before the deduction
of non-trade charges).
The permitted carry back period depends upon whether the company’s trade is ongoing or is ceasing.
♦ In an ongoing trade, carry back for 12 months.
♦ In a cessation of trade, the loss arising in the last twelve months of trading can be carried back for 36 months
(LIFO).
In the case of a trade cessation, the loss can be increased by any excess trade charges of the last 12 months. This is
because they can no longer be carried forward as there is no future trade.

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Example
Majongwe Ltd has the following results for the five accounting periods to 31 March 2008.
Year 6 months Year Year Year
ended to ended ended ended
30.9.2004 31.3.2005 31.3.2006 31.3.2007 31.3.2008
$m $m $m $m $m
Trading profits (loss) 2,000 8,000 12,000 10,000 (45,000)
Building society interest 400 – 500 500 500
Chargeable gains 800 – – – 4,000
Charges on income
Patent royalty (gross) 1,000 500 1,000 1,000 1,000
Gift Aid payment (gross) 250 – 250 250 250
Required
Show the profits chargeable to corporation tax for all periods affected, assuming that loss relief is taken as soon as
possible and that:
(a) the business continues as a going concern
(b) the business ceases to trade on 31 March 2008.

A question utilising company losses often involves several years and a methodical approach is therefore important.
♦ Lay out the years side by side in a table, leaving space to insert any loss reliefs.
♦ Keep a separate working for the trading loss – the memorandum.
♦ Firstly set the loss against the total profits (before charges) of the year of loss.
♦ Then carry the balance of the loss back against total profits (after trading charges) of the previous 12 months (36
months if there is a cessation).
♦ State whether there is any unrelieved loss or excess trading charges remaining.
♦ Keep a running tally in the loss memorandum working.

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Here is a suitable proforma for an ongoing trade, the loss being incurred in 2008.
2007 2008 2003
Schedule DI X Nil X
Loss (ie excess charges) carry forward (X)
_____ _____ _____
X Nil X
Other income
DIII X X X
Schedule A X X X
Gains X – X
_____ _____ _____
X X X
Current period loss relief – (X)
_____ _____ _____
X Nil X
Trade charges (X) (X) (X)
If excess
c/fwd
_____ _____ _____
X Nil X
Carry back loss relief (X)
_____ _____ _____
X Nil X
Non trade charges (X) (X) (X)
If excess
then wasted
_____ _____ _____
PCTCT X/Nil Nil X
_____ _____ _____
Loss memorandum
$
2008 loss (X)
Current year relief X
Carry back relief X
___
Nil
Add Excess trade charges – 2008 for carry forward (X)
Relief in 2003 X
___
Nil
___

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Solution
(a) Majongwe Ltd – ongoing situation
Year ended Year ended
31 March 2007 31 March 2008
$m $m
Schedule DI 10,000 Nil
Schedule DIII 500 500
Gain 4,000
______ ______
10,500 4,500
current loss relief (W1) (4,500)
______ ______
10,500 Nil
Trade charges (1,000) Excess so
c/fwd
______ ______
9,500 Nil
carry back relief (W1) (9,500)
______ ______
Nil Nil
Non trade charge
Gift aid payment Wasted Wasted
______ ______
PCTCT Nil Nil
______ _______
Working
$m
S393A(1)(a) current relief 4,500
______
40,500
carry back 12 months (9,500)
______
31,000
Add Excess trade charges – 2008 for carry forward 1,000
______
Loss still available at 1 April 2008 32,000
______
(b) Trade cessation
This allows a carry back of 36 months on a LIFO basis. If there are sufficient profits in the previous 36 months,
then the whole period is treated as one claim. It is important to realise there is just a single carry back claim.
You cannot choose to carry back only 24 months, for example, or to skip a period.

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Step 1
Set up a corporation tax proforma for all relevant years
Majongwe Ltd
Year 6 months Year Year Year
ended ended ended ended ended
30.9.2004 31.3.2005 31.3.2006 31.3.2007 31.3.200
8
$m $m $m $m $m
Schedule DI 2,000 8,000 12,000 10,000 Nil
Schedule DIII 400 – 500 500 500
Gain 800 – – – 4,000
______ ______ ______ ______ ______
3,200 8,000 12,500 10,500 4,500
current year (4,500)
_______ _______ _______ _______ _______
3,200 8,000 12,500 10,500 Nil
Trade charges (1,000) (500) (1,000) (1,000) Excess
_______ _______ _______ _______ _______
2,200 7,500 11,500 9,500 Nil
carry back on cessation
(1,100)
(4)
(7,500)
(3)
(11,500)
(2)
(9,500)
(1) _______
_______ _______ _______ _______
1,100 Nil Nil Nil Nil
Non-trade charges (250) – Wasted Wasted Wasted
_______ _______ _______ _______ _______
850 Nil Nil Nil Nil
_______ _______ _______ _______ _______
Step 2
Loss memorandum
Notes $m
current 4,500
_______
(40,500)
Add Excess trade charges – 2008 1 (1,000)
_______
carry back (41,500)
(1) 12m to 31 March 2007 9,500
(2) 12m to 31 March 2006 11,500
(3) 6m to 31 March 2005 7,500
(4) 6m to 30 September 2004 ( 126 × 2 1,100

_______
$2,200)
Unused loss (11,900)
_______

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Notes
(1) Trade charges of the last 12 months can be carried back here because the trade has ceased. Normally the
excess would be carried forward, against trading profits of the same trade.
(2) The carry back permitted is 36 months. As the period to 31 March 2005 is only six months a further six months
can be relieved in the year ended 30 September 2004. You should note that there is an alternative
interpretation as to the amount of the loss which can be relieved. As the profits before trade charges are $3,200
and the $1,000 ,000charges could be relieved against the six months not qualifying for loss relief, then it is
considered possible to relieve 126 × $3,200,000 ie $1,600,000 of the loss rather than 126 of profits after trade
charges. This is the best acceptable solution for the company, but in the exam it is easier for you if you
consistently apply the relief after trade charges ie 126 × $2,200.,000 The examiner will accept either method.
Non-trading losses
Introduction
Both trading and non-trading losses regularly feature in examination questions. Often non-trading losses will occur in
questions in isolation, but where a mixture of losses appear it is essential to distinguish the reliefs available.
Non-trading losses may comprise any of the following.
♦ Capital losses
♦ Schedule A losses
Each of these will be considered below.

There are reliefs available for a Schedule D Case III deficit (ie loss) but the topic is excluded from the syllabus and is not
considered further.
Capital losses
The treatment of capital losses was covered in Chapter 6. Here is a brief reminder.
♦ A capital loss incurred in the current period is automatically relieved against current gains. Any excess is then
carried forward for relief against gains in future accounting periods.
♦ There is no carry back facility and a capital loss cannot be used against any other profit.
Calculating repayments
Introduction
The effect of the carry back loss relief is to revise the previous figure of PCTCT. However, for the earlier period (or
periods as appropriate), corporation tax will already have been paid. This is because the final due date for corporation
tax is nine months following the accounting period end. Where the carry back option is examined in a question, you
may have to identify any tax repayment due.
The procedure for tackling this aspect is as follows.
(a) Calculate the revised PCTCT, giving relief for any losses, and compute any CT payable.
(b) Calculate the original PCTCT, before relief for the current loss, and compute the CT payable for earlier years
only.
(c) The repayment due will be (b) – (a).

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Example
The following figures relate to Fennel Ltd, an ongoing trading company.
Year to 31 March
2006 2007 2008
$m $m $m
Schedule D Case I profit or (loss) 8,000 11,310 (18,340)
Chargeable gains – – 2,430
Required
Show the CT payable or repayable assuming loss relief is claimed at the earliest opportunity. Assume that today’s date
is 31 March 2008, and that all corporation tax has been paid when due.
Solution
Step 1
Calculate PCTCT and CT payable – incorporating loss reliefs
Year ended 31 March
2006 2007 2008
$m $m $m
Schedule DI 8,000 11,310 Nil
Capital gains – – 2,430
_______ _______ _______
8,000 11,310 2,430
Current year relief (2,430)
Carry back 12 months only (11,310)
_______ _______ _______
Revised PCTCT 8,000 Nil Nil
_______ _______ _______
CT liability @ 20% 1,600 Nil Nil
_______ _______ _______
Working
Loss memorandum
$m
Current year relief 2,430
Carry back 12 months only 11,310
_______
Carry forward 4,600
_______

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Step 2
Calculate ‘original’ PCTCT liability – for earlier years only
2006 2007
$m $m
DI and PCTCT 8,000 11,310
______ _______
CT liability
20%/20% 1,600 2,262
Less: 1
40
× ($50,000 - $11,310) (967)
______ ______
1,600 1,295
______ ______
Step 3
Tax repayment
2006 2007
$m $m
New calculation 1,600 Nil
Original calculation (1,600) (1,295)
_______ _______
Difference (= repayment due) Nil (1,295)
_______ _______
Note $1,295m is repayable as it would have been paid on 1 January 2008.
Now you are in a position to tackle an exam standard question including loss reliefs. Consider the question approach
before tackling it.
Set up the detailed corporation tax proformas for all relevant years.
Set up the following workings.
Workings
(W1) Schedule D Case I for each relevant year
$
Trading profit or loss X/(X)
Less IBAs (W2) (X)X
Or
Add Balancing charge on industrial building disposal (W2) X/(X)
______
X/(X)
______
(W2) Industrial buildings allowances
Industrial buildings allowances including disposal in period ended 31 December 2007.
(W3) Loss memorandum
Loss memorandum for any losses identified in working 1. Where in a question there is more than one DI loss,
losses should be dealt with in chronological date order (ie use earlier year’s loss first).
(W4) Corporation tax liabilities
To calculate the corporation tax liabilities after loss reliefs have revised PCTCT.
For part (b) you need to show PCTCT and CT liabilities on the assumption that there was no carry back relief for the
loss in the year ended 31 December 2007 so that you can then compare your findings in (a) with (b) and calculate any
tax refunds due.

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Value added Tax
Chapter 8
Types of supply
How the VAT system works

VAT is charged on the taxable supply of goods and services in the ZIMBABWE by a taxable person in the course or
furtherance of a business. It is a multi–stage tax, charged at each stage of the business cycle on the value added at
that stage. The government department responsible for VAT is Zimbabwe Revenue Authority (Zimra)
A taxable person (ie a company or partnership or individual) is required to charge and collect VAT from his customers
(the output VAT). Against this he is allowed to reclaim the tax he has paid to suppliers (the input VAT). The end
consumer (ie the general public) bears the VAT cost as he is unable to reclaim the VAT.
Illustration
Transaction Net price VAT Trader’s VAT Paid to Zimra &
account Excise
$m $m $m $m
Wholesaler buys 200 35 35 35
raw materials from
producer
Wholesaler sells to 400 70 70 – 35 35
a manufacturer
Manufacturer sells 800 140 140 – 70 70
to retailer
Retailer sells to 1,200 210 210 – 140 70
consumer ____
210
____
Total VAT payable of $210 is ultimately borne by the end consumer, who pays a total of $1,410,000,000 for the finished
product (net price $1,200,000,000 plus VAT $210,000,000).
Standard rated, zero rated and exempt supplies

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For VAT to apply there must be a taxable supply of goods or services.
A supply can be any of the following.
♦ A sale of goods or services by ordinary commercial transactions
♦ The hire or rental or lease of goods
♦ Hire purchase or similar transaction (eg credit sale agreement)
♦ A gift of goods (but not services)
♦ A supply of goods for personal use
♦ Goods supplied for further processing
The provision of labour by an employee cannot be a taxable supply, so wages are outside the scope of VAT.
Supplies fall into three categories.
Standard Rate(15 %)
The goods and services taxable at the standard rate include:
§ Goods or services supplied by any registered operator in the course or furtherance of

any trade carried on by such registered operator
§ The importation of any goods into Zimbabwe by any person
§ The supply of any imported services by any person
§ Please note that input tax is claimable.
Standard Rate (22.5%)
Chargeable on the supply of cellular telecommunications services such as:
§ Telephone services including short message services (SMS).
§ Email and fax services through cellular provider
§ Please note that input tax is claimable.
Zero-rated (0 %)
Examples of supplies taxed at 0% include:
§ Basic commodities like sugar, mealie- meal, milk etc.
§ Export of goods from Zimbabwe to an address in an export country
§ Services physically rendered outside Zimbabwe
§ Agricultural supplies like fertilizer, pesticides, seeds, plants, tractors, animal feed and
animal remedy
§ Goods for use by disabled persons
§ Please note that any input tax incurred in making these zero-rated supplies is claimable
by registered operators

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Exempt supplies (No VAT is Chargeable)
Examples of exempt supplies include:
§ Water supplied through a pipe for domestic use
§ Rates charged by a local authority
§ Financial services
§ Donated goods or services to an association not for gain
§ Residential accommodation
§ Agricultural and horticultural equipment or machinery
§ Educational services
§ Public transport
§ Medical services
§ Please note that a supplier cannot register for VAT purposes if he/she is dealing
exclusively in exempt supplies
Voluntary registration
Voluntary registration may be applied for. The main advantage is the ability to recover input VAT paid. The main
disadvantage is the administration of the system. Voluntary registration is particularly advantageous to zero rated
traders as they do not charge output VAT but can recover input VAT.
The following is a summary of the advantages and disadvantages of voluntary registration.
Advantages Disadvantages
Hides the size of business, thus giving the
impression of being well established.
Allows trader to recover input VAT. If customers are not VAT registered,
the VAT charged will be a real cost to
If the business is likely to recover more VAT them. In a competitive market the
than it pays, then this will assist cashflow. trader may have to absorb the VAT
in his profit margins.

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Advantages Disadvantages
Avoids any further problems when
compulsory limits exceeded.
Imposes discipline on a business to keep Extra administration.
accurate records.
Allows intending trader to reclaim input tax Risk of penalties for accounting
in advance of making taxable supplies. mistakes and late submission of
returns etc.
Relief for pre-registration input tax
Input tax can normally only be recovered if it was incurred on supplies received when the claimant was a taxable
person.
However, pre-registration input tax can be recovered (in the first return period) on:
♦ services invoiced in the six months prior to registration.
♦ goods received in the three years prior to registration if still held at the date of registration.
Accounts and records
VAT returns and VAT invoices

One of the perceived disadvantages of having to be VAT registered is the administrative burden it places on traders,
who are made responsible for collecting VAT for Zimra. The following records must be compiled and retained.
The VAT return. This is a quarterly return which must be completed and returned within 30 days of the quarter end.
The quarter periods are allocated to a trader on registration (eg 30 April, 31 July, 31 October, 31 January). Zimra
allocate quarter ends (eg 31 January etc, 28 February or 31 March etc) according to industry type so as to spread their
own workload evenly through the year. Traders making zero rated supplies can expect to be receiving VAT repayments
from Zimra and can opt to make their returns monthly instead of quarterly.
The VAT invoice. This important document is the principal record for a customer to support a claim to recover input
VAT. It must contain all of the following details.
♦ An identifying number
♦ The date of the supply and date of issue of the document
♦ The name, address and registration number of the supplier
♦ The name and address of the person to whom the goods or services are supplied
♦ The type of supply by reference to certain specified categories: a supply by sale, on hire purchase or similar
transaction, by loan, by way of exchange, on hire, lease or rental, of goods made from customer’s materials, by sale
on commission, on sale or return or similar terms
♦ A description sufficient to identify the goods or services supplied
♦ For each description, the quantity of the goods or the extent of the services, the rate of tax and the amount payable,
excluding tax, expressed in sterling
♦ The gross total amount payable, excluding tax, expressed in sterling
♦ The rate of any cash discount offered
♦ The amount of tax chargeable expressed in sterling at each rate, with the rate to which it relates
♦ The total amount of tax chargeable expressed in sterling

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A less detailed invoice can be issued by a retailer, where the value of the supply is less than $100. The tax invoice in
this case need only contain the following.
♦ Name, address and registration number of the retailer
♦ The date of supply
♦ Description of the goods or services
♦ The total amount payable including VAT
♦ The rate of VAT
Zero rated and exempt supplies cannot be included on this type of invoice.
No tax invoices are needed to recover input VAT in the following cases.
♦ Telephone calls from public or private telephones
♦ Purchase through coin operated machines
♦ Car park charges, excluding on–street parking
VAT records
Adequate records and accounts of all transactions must be maintained to support both the amount of output VAT
chargeable and the claim for input VAT. These records must be kept for six years and include the following.
♦ VAT account linking the figures in the VAT return with the underlying records.
♦ Purchase invoices and copy sales invoices
♦ Orders and delivery notes
♦ Purchase and sales day books
♦ Cash book
♦ Records of daily takings (eg till rolls)
♦ Annual accounts (balance sheets and profit and loss accounts)
♦ Bank statements and paying–in slips
♦ Any credit/debit notes issued
Accounting for VAT

Output VAT
When a trader becomes VAT registered, then the appropriate VAT rate (ie 17.5%, 5% or 0%) will need to be charged on
supplies in the correct period. As detailed above, the VAT period is either monthly or quarterly. The correct period is
determined by the tax point.
The basic tax point of different types of supply is as follows.
♦ Supplies of goods: date of despatch (ie when goods are removed from stock or made available).
♦ Supplies of services: date when service is performed (ie when completed).
♦ Goods on sale or return: date the purchase of the goods is accepted, but with a maximum time limit of 12 months
from despatch.
♦ Continuous supplies: this is the earlier of the issue of the tax invoice or the receipt of payment, and covers
situations where there is no tax point.

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The actual tax point is as follows.
♦ Normally the basic tax point
♦ If payment is received or an invoice is issued before the basic tax point the earliest date is taken
♦ If the invoice is issued within 14 days after the basic tax point, the invoice date is used unless payment is received
earlier, or the trader elects not to use the 14 day rule.
Zimra can agree to extend the 14 day period at the trader’s request. For example, issuing invoices at the month end for
sales in the month may be convenient. By agreement the tax point can be the month end where invoices are so issued.
The rules on ‘tax point’ are highly examinable.
Valuation of supplies
If the consideration for a supply is payable in money, the value of the supply (on which VAT is calculated) is the VAT
exclusive selling price.
If the consideration is in kind (eg a barter transaction), VAT is charged on the open market value of the supply.
Similarly, if the consideration is partly in cash and partly in kind (eg a part exchange deal for a car) the open market
value is used.
Open market value is defined as the VAT-exclusive amount that would be payable if the vendor and the purchaser were
dealing at arm’s length.
Certain supplies have special rules in connection with output VAT. These are discussed below.
Fuel for private use
This applies to private fuel provided to an employee. The business is permitted to recover the full input VAT on fuel
purchased. Output VAT is then based on a scale charge, to account for the private use element. There is no scale
charge if the employee reimburses the business in full. The scale charge is deemed to be the VAT inclusive amount. It
will be given to you in the exam. If the employer does not claim input tax on his car fuel purchases, the scale charge is
waived. This might be beneficial if there are only small amounts of fuel purchased.
Business gifts
The output VAT position is depicted as follows in relation to business gifts.
Supply of goods Output VAT on value of supply, unless cost is less than $50
Supply of services No VAT
Trade samples No VAT, but only one item per person
Discounts
There are two types of discount on sales invoices which affect output VAT.
♦ Trade discounts. VAT is charged on the price after trade discount
♦ Prompt payment discounts. VAT is charged on the price after discount even if the prompt payment option is not
taken up.
The rules are demonstrated as follows.

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Preparing the VAT account
Registered traders need to prepare a quarterly VAT account which details the total output and input VAT and the
resulting VAT liability or repayment.
For exam purposes, where required, this should be done in a ‘T account’ format.
VAT account
Input VAT on purchases X Output VAT on sales X
Input VAT on expenses X Understatement on previous return
($2,000 maximum) X
Input VAT on returns to suppliers (X) Car fuel charge X
Bad debt relief X Output VAT on returns from (X)
customers
VAT payable carried forward X
____ ____
X X
____ ____
VAT penalties and interest
Penalties
The VAT system has a range of penalties and interest. These are designed to enforce the timely and accurate
completion of VAT returns. The penalties listed in the syllabus are considered below.
Type Cause Penalty effect
1. Default surcharge Late submission of a A surcharge notice is issued when a
VAT return or late return or payment is late. This is
payment of tax known as a default notice period. It
lasts for 12 months
If a further default occurs (ie during
the 12 month period ) then:
st
1 default – 2% (note)
nd
2 default – 5%
rd
3 default – 10%
4th default – 15%
2. Serious misdeclaration Where net VAT for a 15% of the VAT which would have
period is under declared been lost (by Zimra) if the inaccuracy
by lower of: had not been discovered.
(a) 30% of the gross
attributable tax (output +
input VAT added
together) = GAT
(b) $1 million
Note: Zimra will not collect penalties of less than $200 if the charge is at 2% or 5%.
The effect of a further default is also to extend the surcharge period by a further 12 months

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Mitigating circumstances
In the two situations above, penalties may be cancelled if the trader has a reasonable excuse. A reasonable excuse
may include the following.
♦ Computer breakdown
♦ Illness
♦ Loss of key personnel
♦ Loss of records
However, these have to be unforeseeable events. For example, a bookkeeper’s sudden illness just before the VAT
return was due might qualify but his continuing illness would not. The business had time to make other arrangements.
Statute specifically states that a reasonable excuse is not:
(a) insufficient funds to pay any VAT due or
(b) the reliance on any other person (eg a tax agent) to perform a task and that person was dilatory or inaccurate in
carrying it out.
The following do not rank as reasonable excuses.
♦ Absence on business or holiday
♦ Misunderstanding or ignorance of VAT law
♦ Pressure of work
♦ Shortage of staff
In the case of serious misdeclarations (but not default surcharge), Zimra (or a VAT tribunal) have powers to reduce the
penalty to whatever amount ‘they think proper’. However they are not entitled to take into account pleas for mitigation
based on:
(a) insufficiency of funds to pay the VAT or the penalty

(b) the fact that no VAT or very little VAT has been lost or
(c) the fact that the person charged with the penalty (or his agent) had acted in good faith.
In any case, penalties are unlikely to be exacted if certain errors are disclosed voluntarily except where the trader was
aware that enquiries by Zimra were pending.
Appeals and assessments
Assessments
Where a taxpayer fails to make returns, or Zimra consider the returns to be incomplete or incorrect, they may issue
assessments of the amount due. This is normally done within two years of the period when the fault occurs but can be
extended to three years. Where there is fraudulent or negligent conduct the period is increased to 20 years.
Appeal procedure
Where an assessment is made or other dispute arises with Zimra (such as the requirement to register, or the calculation
of output VAT) the trader can appeal.
The right of appeal does not apply to every possible grounds for disputes. Instead statute provides a lengthy but not
exhaustive list of appealable matters.
The trader has 30 days to appeal in writing against a decision of the local VAT office. The local office can then either
confirm the decision or reverse the decision. In either case, the trader can appeal in writing to a VAT tribunal. In the
former case, 21 days is allowed, in the latter 30 days.
The role of the VAT tribunal is to hear the appeal. It is normally conducted in public. A further appeal on a point of law
can be made to the courts, including the European Court of Justice.
For a VAT tribunal to proceed, all VAT returns and payments (including the tax in dispute unless the trader can show
‘hardship’) must have been made.
Costs may be awarded by a VAT tribunal to either party.

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Property
Introduction
The VAT treatment of land and buildings is complicated and depends on the age and type of property concerned. For
example
♦ Sales of new commercial buildings, and those less than three years old, are standard rated.
♦ Sales (or leases for over 21 years) of new residential properties are zero-rated.
♦ Sales of buildings more than three years old, and rental income, are exempt from VAT unless the option to tax has
been exercised.
The option to tax

A landlord who acquires a building for commercial letting can elect to treat the rental as a taxable supply. The election is
irrevocable for 20 years and applies to all future supplies of the property (including its sale).
Making the election allows the landlord to recover his input tax, including that paid on the purchase of the property.
Before deciding whether to make the election, the landlord should consider the VAT status of the tenants. If they are
registered, they can recover the VAT they are charged. However, if they are exempt or not registered, any VAT charged
is an additional expense to them.
If the landlord does not make the election, the VAT incurred on any revenue expenses is deductible in calculating the
Schedule A income. The VAT on any capital expenses forms part of the cost of the property in calculating the capital
gain on its eventual disposal.

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Income Tax
Chapter 9
Income Tax
The structure of a basic income tax computation
The basic proforma
Proforma income tax computation – overview

A Person 2007/08
$
Earned income X
Investment income
Savings income X
Dividend income X
Less charges on income (X)
____
Statutory total income X
Less allowances (X)
____
Taxable income X
____
Income tax charge X
Add basic rate tax retained on X
charges ____
Income tax liability X
Less tax deducted at source (X)
____
Income tax payable X
____

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A full proforma is included later in this chapter.
Notes on the proforma
♦ Income types distinguished by tax rates
It is important to distinguish between savings income (basically all interest income), dividend income and other
income because different rates of tax apply.
♦ Earned v investment
It has always been conventional to distinguish earned income from investment income because there have been
significant differences in their taxation. The main reason remaining for showing earned income separately concerns
the relief available for paying pension contributions - only earned income potentially qualifies.
♦ Schedular income
The tax charging provisions in the Taxes Acts are divided into a number of different Schedules, with each Schedule
dealing with income from a different source. For example, Schedule E deals with income from employment.
Schedules are sometimes sub-divided into ‘Cases’ - for example, Schedule D Case I deals with trading income and
Schedule D Case III deals with interest.
♦ Taxed income
Most schedular income is taxed at source. This means that the person paying the income deducts tax from it before
paying you, and pays the tax over to the Inland Revenue on your behalf. Again, Schedule E is a good example with
most employment income taxed by the employer under the PAYE regulations.
Often the reference to a Schedule is omitted in the income tax computation where income has been taxed at
source. For example, dividends received are Schedule F and interest received is Schedule D Case III but they
might just be labelled as ‘dividends’ or ‘taxed interest’.
The key thing to remember with taxed income, is that it must always be included gross in the income tax
computation. In other words, the amount shown in the computation must be the amount paid or received, plus the
amount of tax deducted.
♦ Exempt income
A category of income, which does not appear in the income tax computation, is exempt income. Various sources of
income are completely exempt from income tax either because they have not been caught under a Schedule or
Case (very rare) or because the legislation allows a specific exemption.
Receipts of capital rather than income (for example proceeds from the sale of an asset), are subject to capital gains
tax rather than income tax. This will be covered in a later Chapter.
♦ Income tax liability/payable
Although most income - with the notable exception of Schedule D Case I income - is taxed at source, the tax taken
may not have been sufficient. For example, if a higher rate taxpayer receives building society interest only taxed at
20%, he will have a further 20% to pay to meet his 40% liability.
The examiner uses the term income tax liability to mean the total tax chargeable before giving credit for any tax
already paid or deducted at source.
He uses the term income tax payable to mean the amount after reducing the income tax liability by the tax deducted
at source or paid on account, ie it is what remains to be paid.

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PAYE CALCULATIONS
ALLOWABLE DEDUCTIONS AND EXEMPTIONS
(With effect from 1/1/08 unless if specified)
Exemptions
The following are exempted from Income Tax:
• The value of medical treatment (including related travel), invalid appliances and the cost of medical aid
contributions paid by an employer for an employee, his spouse and minor children.
• The cost of a passage benefit (relocation expenses) as is borne by the employer if it is the first such journey
under that particular employer either on the taking up or cessation of employment.
• Bonuses or performance related awards: exempt up to a maximum of $75 million with effect from 1 November
2007.
• Retrenchment package or severance pay: the first $1 billion or one third whichever is grater of any severance
pay, gratuity or similar benefit. The exemption only applies to the first $10 billion of the amount paid under a
scheme approved by the Minister of Labour and Social Welfare.
• Free benefits enjoyed by employees of a licensed investor (Export Processing Zone operator) to the extent to
which they do not exceed 50% of the employee’s taxable income.
• Refund of pension contributions to approved funds that were not allowed as a deduction.
• Transport, housing and representative allowances paid to civil servants.
• Interest accruing from the following is exempt from Income Tax:

- POSB deposits
- Class ‘C’ permanent shares in building societies
- Foreign currency denominated accounts maintained in Zimbabwe. The exemptions do not apply to companies
or trusts
- Agricultural bonds issued by AFC and a consortium of commercial banks
- Tax Reserve Certificates (TRC)
- Agricultural bonds issued by a consortium of commercial banks in support of beneficiaries of the land
resettlement programme
- Loans raised by the State and are either issued subject to the condition that interest thereon is exempt from
Income Tax or gazetted to be exempt from Income Tax.
-Please note that interest from which Resident Tax on Interest has to be withheld is also exempt from Income
Tax.

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Allowable Deductions
• Pension contributions up to the stipulated maximum of $11,5 million per annum.
• Subscriptions to trade or professional organisations
• Cost of acquiring tradesman’s tools
• Expenses for insurance agents excluding capital expenditure (such as motor vehicles computers, etc)
• Donations to the National Bursary Fund, National Scholarship Fund and charitable trusts administered by either
the Minister of Labour and Social Welfare or the Minister of Health and Child Welfare
• Donation for school equipment, construction/extension/ maintenance of a school, up to a maximum of

$20 000 000 000.00
• Donation to a research institution approved by the Minister of Higher and Tertiary Education, up to a maximum
of $20 000 000 000.00
INDIVIDUAL TAX
Taxable Income
This link focuses on what constitutes income from employment as well as the treatment of benefits like loan benefit,
housing benefit, etc.
Credits
Allowable credits are only applicable to individuals and are in the form of blind person’s credit, disabled person’s credit
and elderly person’s credit.
Allowable Deductions and Exemptions
This section delves on amounts that are not taxable or are allowed as deductions in calculating taxable income.
Pay As You Earn Tables
The following links provide daily, weekly, monthly and annual Pay As You Earn (PAYE) tables and simplified examples
of how to arrive at tax due. In using the PAYE tables, kindly take note of the following explanatory notes:
Income Tax is calculated as follows:
1. Determine gross income for the day/week/month/year
2. Deduct exempt income, for instance bonus
You get => Income
3. Deduct allowable deductions, e.g. pension
You get => Taxable Income
4. Use the appropriate PAYE Tables to determine the tax charge as per the attached examples.

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Credits
Allowable credits are only applicable to individuals and are in the form of blind persons credit, disabled persons credit
and elderly persons credit. The following are the rates for 2008:
Blind persons credit $300 000 000.00 per annum

Disabled persons credit $300 000 000.00 per annum
Elderly persons credit (over 55 years of age) $300 000 000.00 per annum
Notes
§ Medical expenses credit on payment for invalid appliances, consultation fees, drugs and medicines is not
available to non –residents. However, medical aid contributions are allowable to non-residents.
§ Blind persons and disabled persons credits can be transferred to the spouse when the spouse entitled to the
credit has insufficient income tax chargeable to utilise them.
§ Elderly person’s credit can be reduced proportionately where the period of assessment is less than a year.
§ Total amount of credits is limited to the total income tax chargeable to a taxpayer. No refunds are given where
credits exceed income tax chargeable.
§ Medical credit applies to payments by a taxpayer covering the taxpayer, the spouse and minor children but not
dependants.
Please Note:
Disabled person’s credit is not applicable to non-residents and blind taxpayers.
Carbon Tax
Foreign Registered Vehicles
Carbon Tax on foreign registered vehicles is based on the engine capacity of the motor vehicle and is paid in foreign
currency at the port of entry for each month or part of the month during which the vehicle remains in the country.
Carbon Tax (Monthly Rates)
Engine Capacity
Up to 1500cc 1501-2000cc 2001-3000cc Over 3000cc
ZAR 60.00 100.00 140.00 270.00

BWP 40.00 60.00 90.00 170.00
USD 6.00 11.00 15.00 30.00
GBP 5.00 10.00 10.00 20.00
EUR 10.00 10.00 20.00 30.00
DEM 10.00 20.00 30.00 70.00
AUD 10.00 20.00 30.00 60.00

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Carbon Tax (Annual Rates)
Engine Capacity Rate in US$
Up to 1500cc 72.00
1501-2000cc 132.00
2001-3000cc 180.00
Over 3000cc 360.00
Locally Registered Vehicles
Carbon Tax is paid, with effect from 10 September 2007, at the rate of $5 000.00 per litre of petroleum product imported
by the State oil procurement entity and any oil company or other person or entity engaged in oil procurement or wishing
to use the petroleum product for own use.
Taxable Income
Taxable Income Formula
Gross income XXXXX

Less exemptions XXXX
Income XXXXX
Less allowable deductions XXXXX
Taxable income XXXXX
What is Income from Employment?
According to Section 8(1)(a), (b), (c), (f), (n), (r) and (t) of the Income Tax Act (Chapter 23:06), income includes:
Salary, gratuity, cash in lieu of leave, retrenchment package, commutation of pension, pension refund, bonus, wages,
overtime pay, fees, stipend, retirement allowance and grant, commission and annuity
• Deemed benefits/advantages such as housing, soft loan, education, passage, telephone, grocery, furniture,
entertainment allowance, electricity, water, clothing, transport, holiday allowances and security services
• Deemed motoring/vehicle use benefit: This benefit is valued by reference to “cost to the employer”. The Income
Tax Act provides for deemed benefits instead of the actual cost incurred by the employer in running the motor
vehicle. This benefit is chargeable to those employees who have a privilege to use employers’ vehicles for
private use. The deemed motoring benefits are based on the engine capacity of the motor vehicle as tabulated
below:

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Engine capacity Monthly deemed benefit Annual deemed benefit for 2008
for 2008
Up to 1500 cc $40,000,000.00 $480,000,000.00
1501 to 2000 cc $60,000,000.00 $720,000,000.00
2001 to 3000 cc $75,000,000.00 $900,000,000.00
Over 3000 cc $100,000,000.00 $1,200,000,000.00
§ Deemed housing benefit: Municipal area - open market rentals.
§ Outside municipal area - 12.5% of salary or 7% of the cost of the house, whichever is greater.
§ Deemed furniture benefit - annual benefit is 8% of cost of furniture.

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Capital Gains Tax For Individuals
Chapter 10
Principle and scope of capital gains tax
The charge to tax

A charge to capital gains tax (CGT) arises on the disposal of a chargeable asset by a chargeable person.
A disposal includes the sale or the gift of an asset.
A disposal also arises on the death of an asset’s owner. However, this is an exempt disposal. Assets inherited on
death are taken over at their probate (ie death) value so that gains (and losses) accruing to the date of death are
ignored.
The term chargeable asset includes all assets except exempt assets. There are a number of categories of exempt
assets but the only type within the syllabus is motor cars.
A chargeable person may be an individual, a company, or partners in a partnership. We covered the rules for
companies in Chapter 6.
A partner is chargeable on his proportionate share of any gains realised on partnership assets. There are no separate
charging rules (unlike companies). Partnership capital gains are excluded from the syllabus and are not discussed
further.
The calculation of gains and losses for individuals
The procedure for calculating a chargeable gain or allowable loss on a capital disposal is as follows.
Step 1
Calculate the gain or loss on each capital transaction (except exempt assets) separately, for the current tax year.
The detailed rules for Step 1 were covered in Chapter 6.
Step 2
Allocate any available losses to reduce the gains chargeable.
Current losses may be available and there may be capital losses brought forward.
The detailed rules are covered later in this chapter.
Step 3
Deduct taper relief, if available. The rules are covered later in this Chapter.
Step 4
Prepare a summary of gains and/or losses still remaining.

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Step 5
Find the tax payable.
The basic calculation
The following proforma is used for individuals.
Notes $ $
Disposal value 1 X
Less Incidental costs of sale 2 (X)
____
Net sale proceeds NSP
Less Allowable expenditure
Acquisition cost 3 X
Incidental costs of acquisition 2 X
Enhancement expenditure 3 X
____
(Cost)
____
Unindexed gain 4 X
Less Indexation allowance (to the earlier of April 2004 and the month of sale)
= 0.XXX × Cost (IA)
____
Gain
Less: Losses (current year/brought forward) X
____
Gain remaining chargeable X
Less: Taper relief @ ?% (X)
____
Final gain X
____
Notes to the proforma
(1) Disposal value is usually represented by sales proceeds. However, where a transaction is not at arm’s length
(eg a gift), or is between connected persons, then market value will be substituted. A connected person is
essentially a relative and their spouses or relatives of your spouse. See Figure 14.1.
Figure 14.1 Connected persons
Parents and grandparents
Spous Brothers and sisters
Children and

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Whilst an individual is connected to their spouse, transactions between husband and wife are not done at
market value but on the basis of nil gain or nil loss. Such transfers are, however, excluded from the syllabus.
An individual is also connected with a company he controls and a partner is connected with his other partners
except in respect of fully commercial transactions between partners.
(2) The incidental costs incurred on the disposal of an asset are an allowable deduction. Examples of such costs
include valuation fees, advertising costs, legal fees, auctioneer’s fees. Similarly any incidental costs on
acquisition are deductible.
(3) The purchase price of an asset (or its probate value if it was inherited) is the main allowable deduction. In
addition, any further capital expenditure (known as enhancement expenditure) is deductible.
(4) The gain after deducting the costs above is known as an unindexed gain, because an indexation allowance may
then be available to reduce that gain. This allowance is based upon the retail prices index (RPI) and is intended
to give relief for inflation. It was introduced for expenditure from 31 March 1982 but, for individuals, it can only
run up to April 2004.
(5) The gain remaining chargeable (ie after any exemptions or loss relief) may be reduced by taper relief. As there
are potentially different rates of taper relief, loss relief etc should be applied first against gains with no taper
relief or a low rate of taper relief. This is explained later in the Chapter.
Definition of a business asset
Business assets are defined as:
♦ Those used for the purposes of a trade carried on by a sole trader or partner
♦ Those used for the purposes of a trade carried on by a qualifying company of the individual concerned
♦ Those held for the purposes of an office or employment
♦ Shares in a qualifying company
A qualifying company is a trading company or the holding company of a trading group which is either:
♦ unquoted (this includes companies quoted on the Alternative Investment Market); or
♦ quoted and the individual
- is an employee (full or part-time), or

- has at least 5% of the shares.
Provided the shares are held by an employee with less than a material interest (ie not more than 10% of the shares) the
company does not have to be a trading company for the business asset taper rate to apply.
The above definition of business assets applies to disposals made after 5 April 2006. As it has extended the previous
definition of business assets it means that certain assets, previously classified as non-business assets, may now be
reclassified as business assets. Where an asset has been reclassified, it will be necessary to apportion the gain
between the business and non-business periods. Fortunately, however, this type of apportionment is not examinable.

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Taper relief and capital losses
Taper relief is computed on the gains chargeable after the deduction of any current year losses. Special rules apply to
the treatment of brought forward losses of an individual. These are considered later.
A capital loss arising on a disposal to a connected person, however, can only be used against a disposal to the same
connected person.
To ensure that taper relief (where available) is maximised, capital losses can be allocated against chargeable gains on
the most beneficial basis to the taxpayer. This means ranking the various assets, business and non-business,
according to the complete years of ownership which qualify for taper relief before allocating the loss.
Example
The total gains on three business assets are $30,000,000 before deducting available current period losses of $5,000.
Years qualifying
$m for taper relief
Asset 1 2,000 0
2 10,000 2
3 18,000 4
What is the most beneficial allocation of the losses available?
Solution
The loss should be allocated to:
$m
Asset 1 (2,000)
2 (3,000)
This is to preserve all of the taper relief on asset 3. The gains remaining chargeable will then be as follows.
$m
Asset 2 $7,000 x 75% 5,250
3 $18,000 x 25% 4,500
_____
9,750
_____
Capital losses are not themselves subject to taper relief (ie the whole loss will always be available for relief).
Annual exemption
An individual has an annual exemption, which is applied to total gains still chargeable after capital losses and taper relief
have been applied. This is $7,500,000 for 2007/08 and is available to each individual. It must be used against gains
made in 2007/08. It cannot be carried forward or back.
Example
Kieran sold several assets during 2007/08 with the following results.
Gain or (loss)
$m
Business asset (acquired before 6 April 2004) 50,000
Non-business asset (acquired before 17 March 2004) 10,000
Business asset (acquired during 2006/07) (5,000)
Capital losses brought forward were ($2,000).
What are the net gains after the annual exemption?

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Solution
Step 1
Identify any gains on which taper relief is due.
$ Qualifying period Percentage
chargeable
Business gain 50,000 3 50
Non-business gain 10,000 4 90
Business loss – Not applicable –
Step 2
Allocate losses in the most beneficial manner.
Indexed gain Current loss Brought forward Net gain
$m $m
Gain 50,000 50,000
Gain 10,000 (5,000) (2,000) 3,000
______
53,000
______
Step 3
Apply taper relief to any available gains.
$m
Gain $50,000 × 50% 25,000
$3,000 × 90% 2,700
______
27,700
______
Step 4
Apply annual exemption.
$m
Chargeable 27,700
Less Annual exemption (7,500)
______
Net gains 20,200
______
If the losses had been applied to the business asset first, Kieran would have had a larger chargeable gain.
$m $m
Business gain 50,000
Less Losses (7,000)
______
43,000 × 50% 21,500
Non-business gain 10,000 × 90% 9,000
______
30,500
Less Annual exemption (7,500)
______
23,000
______

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The annual exemption and brought forward losses
Brought forward capital losses are not allocated against gains where this would lead to a wastage of the annual
exemption. This rule does not apply to current tax year capital losses, which must be set off against gains and can
therefore result in a wastage of annual exemption. In both situations, taper relief may be wasted where the combined
availability of losses and annual exemption exceeds any chargeable gains.
Example
Mica has the following chargeable gains and losses for the two years ended 5 April 2008.
2006/07 $m
Gains 12,000
Losses (14,000)
2007/08
Gains 10,000
Losses (2,000)
What gains (if any) are chargeable after considering all reliefs and exemptions?
Solution
2006/07 2007/08
$m $m
Current gains 12,000 Current gains 10,000
Current losses (12,000) Current losses (2,000)
Brought forward losses* (500)
______ ______
Nil 7,500
______
Annual exemption Wasted Annual exemption (7,500)
______
Nil
______
Loss carried forward Loss carried forward
($14,000 – $12,000) 2,000 ($2,000 – $500) 1,500
*Utilised to reduce gains to annual exemption.
Example
What difference would it have made if the gain in 2007/08 represented the gain on a business asset with two years
qualifying ownership?
Solution
None. As the capital losses brought forward are sufficient to reduce the capital gains to the annual exemption, any taper
relief available is wasted. Brought forward losses cannot be restricted to preserve a higher chargeable gain, to which
taper relief would then be applied to reduce the gain to $7,500,000 etc.

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Bonus issues and rights issues
A bonus issue is the distribution of free shares to shareholders based on existing shareholdings.
A rights issue involves shareholders paying for new shares, usually at a rate below market price and in proportions
based on existing shareholdings.
Identification
In both cases, therefore, the shareholder is making a new acquisition of shares. However, for identification purposes,
such acquisitions arise out of the original holdings.
Indexation
As there is no expenditure involved with a bonus issue, there is no impact on the indexation allowance. However, a
rights issue involves a payment and indexation allowance is only due from the time of payment. Therefore for
individuals, rights issues on or after 6 April 2004 will not attract indexation.
Taper relief
Bonus and rights issues are treated for the purposes of taper relief as if they were acquired when the original
shareholding was acquired.
Relief when a business is transferred to a company
Introduction
The transfer of an unincorporated business by a sole trader to a company, wholly or partly in exchange for shares, is a
disposal of the assets of that business by the sole trader.
A relief (‘incorporation relief’) is available to defer the net gains arising on the business assets.
Incorporation relief
For this relief to be available to a sole trader ‘incorporating’ his business there are several conditions that must be
satisfied.
♦ The transfer must be to a company.
♦ It must be a transfer of a business as a going concern.
♦ All assets of the business must be transferred, with the possible exception of cash.
♦ The consideration received must be wholly or mainly shares in the company.
When the above conditions are satisfied the relief is mandatory. The gains are calculated in the usual way on each
asset and the net gains are deducted from the market value of the shares acquired.
The operation of the relief depends on whether the purchase consideration consists wholly or only partly of shares.
Wholly shares Partly shares
♦ Whole gain on individual assets ♦ Loan or cash element is taxable now,
deducted from MV of shares less any taper relief due.
acquired.
♦ Taper relief up to incorporation is ♦ Rest of gain deducted from the MV of

wasted. shares acquired.
Rollover relief for business assets
Introduction
Rollover relief for replacing business assets was covered in Chapter 6 in the context of incorporated businesses. We
looked at various aspects of the rules, all of which also apply for unincorporated businesses.
It appears from the syllabus, however, that rollover relief will only be examined for incorporated businesses although this
is not beyond doubt. In case the examiner assumes otherwise, we cover the one additional aspect relevant for
unincorporated businesses - the interaction with taper relief.

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Interaction of taper relief and rollover relief
As a general principle, taper relief only applies to gains that remain chargeable. Therefore the taper relief entitlement on
gains rolled over is wasted. Taper relief for the replacement asset runs from the date the replacement asset is acquired.
No recognition is given of the ownership period of the original asset whose gain is rolled over.
We looked at this general problem above when considering whether a gift relief claim was advisable. Similarly, if the
replacement asset is likely to be held only briefly, a rollover claim may defer gains but at the expense of generating
more gains overall due to the wastage of taper relief.
If the replacement asset is a depreciating asset, the gain on the original asset is merely ‘put into suspense’ until a
th
chargeable event, ie the earliest of the sale of the depreciating asset, ceasing to use it in the trade, and the 10
anniversary of its acquisition. When it comes out of suspense the original taper relief entitlement is still ‘clinging to it’.

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Capital Gains Tax For Companies
Chapter 11
The charge to tax

A charge to taxation of capital gains arises on the disposal of a chargeable asset by a chargeable person.
A disposal can arise in a number of ways but as far as the syllabus is concerned only outright sales by a company will
be examined.
A chargeable person may be an individual, a company, or partners in a partnership business. For this Chapter,
however, you will only be concerned with disposals by companies.
The term chargeable asset includes all assets except exempt assets (most such assets relevant to companies are listed
below).
Exempt assets relevant to companies in the list below need to be learned so that you can identify them in a question.
♦ Motor cars.
♦ Sterling currency, ie legal tender in the Zimbabwe, notably gold sovereigns minted after 1980.
♦ Any form of loan stock. Gain and losses on any form of lending are dealt with under the loan relationship rules (ie
under Schedule D Case III).
The basic capital gains computation

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The standard proforma
Notes $ $
Disposal value 1 X
Less Incidental costs of sale 2 (X)
____
Net sale proceeds NSP
Less Allowable expenditure
Acquisition cost 3 X
Incidental costs of acquisition 2 X
Enhancement expenditure 3 X
____
(Cost)
____
Unindexed gain 4 X
Less Indexation allowance: Cost × 0.XXX (IA)
____
Chargeable gain Gain
_____
Notes to the proforma
(1) Disposal value is usually the sale proceeds. However, where a transaction is not at arm’s length (eg a gift), or is
between connected persons, then market value will be substituted. A company is connected with
♦ the person who controls it
♦ another company under common control.
(See Chapter 8 for the treatment of disposals between members of a capital gains group).
(2) The incidental costs incurred on the disposal of an asset are an allowable deduction. Examples of such costs
include valuation fees, advertising costs, legal fees, auctioneer’s fees. Similarly any incidental costs on
acquisition including stamp duty are deductible.
(3) The purchase price of an asset is the main allowable deduction. In addition, any further capital expenditure
(known as enhancement expenditure) is deductible. This is covered in Section 2.7 below.
(4) The gain after deducting the costs above is known as an unindexed gain, because an indexation allowance may
then be available to reduce that gain. This allowance is based upon the retail prices index (RPI) and is intended
to give relief for inflation. It was introduced for periods from 31 March 1982.
The Paper 2.3 syllabus is only concerned with assets acquired since 31 March 1982. We therefore only consider the
capital gains rules applying to such assets.
The indexation allowance
The indexation allowance runs from the date of the acquisition expenditure to the date of disposal. It is computed by
multiplying the acquisition cost by an indexation factor. The indexation factor or even the amount of the indexation
allowance may be provided in the examination. However, the syllabus requires you to be able to calculate the
indexation allowance.
The formula for the indexation factor is:
RPI for month of disposal - RPI for month of acquisition
RPI for month of acquisition

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This produces a decimal figure which is rounded to three decimal places. If the RPI for the month of disposal is less
than the RPI for the month of acquisition, the indexation factor is taken as nil – not a negative factor.
Inflationary allowance
In respect of the year of assessment beginning on January 1 2007, and any subsequent year of
assessment, the inflation allowance shall be determined in accordance with the following
formula:
(A-B)/ B
where:
A- represents the figure for the All Items Consumer Price Index issued by the Central Statistics
Office at the time of disposal of the property.
B- represents the figure for the All Items Consumer Price Index issued by the Central Statistics
Office in the month of effecting improvements or month of purchase of the property.
Kindly note: The figures for the All Price Items Consumer Price Index are listed separately and
also published in the local daily newspapers.
All Items CPI for the calculation of inflation allowance
Month and Year All Items Consumer Price Index
January 2007 968 338.90
February 2007 1 334 521.70
March 2007 2 008 932.10
April 2007 4 032 633.70
May 2007 6 265 734.3
June 2007 11 666 826.7
July 2007 15 358 172.2
August 2007 17 171 312.8

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Rates of Inflationary Allowances
Year Annual Rate of Inflation
1981 12.4
1982 13.8
1983 18.1
1990 16.4
1991
10.0
1992 14.6
1993 12.3
1994 7.1
1995 16.1
1990 15.5
1991 23.3
1992 42.1
1993 27.6
1994 22.3
1995 22.6
1996 21.4
2003 18.8
2004 31.7
2005 58.5
2006 55.9
2007 71.9
2008 133.2
2003 365.0
2004 350.0
2005 237.8
2006 1016.7

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It is important that the gain or loss on each transaction is separately computed. Finally, prepare a summary adding gains
and losses together to arrive at one overall figure.
Enhancement expenditure
The main allowable deduction in computing an unindexed gain is the acquisition cost (including incidental costs). Any
additional capital expenditure on the asset is also an allowable deduction. This normally takes the form of improvement
(ie enhancement) expenditure, but can also include expenditure incurred to establish, preserve or defend title to the
asset.
As the additional expenditure is incurred later than the original expenditure, there will be an impact on the calculation of
indexation allowance. Indexation can only be calculated from the actual date of expenditure; therefore where there is
cost plus enhancement expenditure two indexation calculations will be required. It is easy to overlook this extra step.
Treatment of capital losses
Gains and losses are calculated for chargeable accounting periods. Once you have calculated all the individual gains
and losses for an accounting period, summarise them as follows.
$
Gain (1) X
Gain (2) X
Loss (3) (X)

___
Net gains/(losses) for the current year X
Capital losses brought forward (X)
___
Chargeable gains X
___
The chargeable gains are then put into the CT computation and the tax liability is calculated in the normal way. If there is
an overall loss, it is carried forward and set against future gains. It cannot be relieved against other income.
Disposals of shares and securities
The identification rules

If there is more than one disposal, deal with the earlier disposals before the later disposals.
A disposal by a company is matched with acquisitions in the following order.
(1) Same day acquisitions
(2) Shares acquired in the nine days before the sale
(3) 1991 pool (shares acquired from 1 April 1989 onwards)
Shares acquired before 1 April 1982 are held in a ‘ pool’ but (fortunately) this is outside the syllabus.
(There is a different set of matching rules where the shareholder is an individual. We will look at this later in Chapter
14.)

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The operation of a 1991 pool
Basic rules
Any acquisitions from 1 April 1982 are ‘pooled’ in the ‘1991 pool’. Indexation will apply from acquisition to the date of
disposal. To enable the correct indexation to be calculated, a separate working is needed to identify the amount
available. The working is also used to find the average cost of a partial disposal.
The working follows a strict proforma which should always be used.
Proforma for 1991 pool
Indexed cost
(cost plus
Number Cost indexation to
$ date)
$
Acquisitions 1.4.82 - 31.3.85 X X X
Index to April 1991 (This is done X
separately for each acquisition) ____ ____ ____
Balance at 1 April 1991 X X X*
Index to next event** X
Purchase X X X
____ ____ ____
X X X
Index to next event** X
____ ____ ____
X X X
Sale (X) (X) W1 (X) W2
____ ____ ____
Pool carried forward X X X
____ ____ ____
* This will include indexation on additions up to 1 April 1991 and uses an indexation factor rounded as normal to three
decimal places.
** For the post April 1991 ‘indexed rises’ the indexation factor is not rounded. This is the only situation where a non-
rounded factor is ever used.
The purpose of the working is to find:
♦ the average pool cost of shares disposed of = working 1
♦ the average indexation of shares disposed of = working 2 – working 1.

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Workings 1 and 2 then feed into a normal computation.
$
Sale proceeds X
Cost (W1) (X)
____
Unindexed gain X
Indexation (W2 – W1) (X)
____
Indexed/gain X
____
Indexation is always applied to the pool between events, and is applied to the indexed cost column. Events include both
sales and purchases.
A partial disposal from a 1991 pool uses straight line apportionment of cost and indexation.
The Official Study Guide requires you to ‘Apply the pooling provisions for shares …’ yet the syllabus specifically
excludes ‘a detailed question on the pooling provisions for shares’.
We advise therefore that you should understand how pooling operates but you will probably be supplied in the exam
with brought forward figures for pool costs, etc rather than have to reconstruct a pool from scratch.
Bonus issues, rights issues and takeovers
Introduction
This section deals with share reorganisations, such as when a company makes a bonus or rights issue of shares to
shareholders, or when a company’s shares are taken over by another company in exchange for other shares or cash.
In dealing with these situations, it is necessary to understand the fundamental nature of these types of transaction.
Bonus issues and rights issues
A bonus issue is the distribution of free shares to shareholders based on existing shareholdings.
A rights issue involves shareholders paying for new shares, usually at a rate below market price and in proportions
based on existing shareholdings.
In both cases, therefore, the shareholder is making a new acquisition of shares. However, for identification purposes,
such acquisitions arise out of the original holdings.
Bonus and rights issues therefore attach to the original shareholdings for the purposes of the identification rules.
The effect on indexation
As there is no expenditure involved with a bonus issue, there is no impact on the indexation allowance. However, a
rights issue involves a payment and indexation allowance is only due from the time of payment.
Takeovers
The final aspect of share reorganisations concerns the situation where a company is taken over by another company.
This can either be a straight share for share exchange or can be in the form of shares, cash, loan notes or any
combination of these. The precise form of the exchange determines the capital gains position.
Share for share exchange
The situation here is that Y plc takes over X Ltd, buying up the shares in X Ltd. The shareholders in X Ltd sell their
shares in the company, and in return they receive shares in Y plc.
In this situation, the shareholder is simply swapping one form of paper for another.
There is no immediate tax liability. However, where the shareholder receives different classes of shares or loan notes,
the original cost of the shares must now be allocated between the different classes. This is done on the basis of market
values, on the first day of trading following the exchange.

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Rollover relief
Introduction
Rollover relief allows a company to defer a chargeable gain, provided certain conditions are met.
In order to qualify for relief, the company must reinvest the proceeds from the sale of a qualifying asset into another
qualifying asset. Any gain on the disposal of the first asset is then ‘rolled over’ against the capital gains cost of the new
asset. Capital allowances (if applicable) are still due on the full cost of the new asset.
A typical situation can be depicted as follows.
$m
Asset (1) Sale proceeds 100,000
Cost and indexation allowance (40,000)
_______
Indexed gain 60,000
_______
Asset (2) Purchase price 150,000
‘Rolled over gain’ (60,000)
_______
Revised base cost 90,000
_______
The gain on asset (1) has been deferred against the base cost of asset (2). Provided at least the proceeds are
reinvested then full deferral applies.
On the sale of the second asset a higher gain will result, as this represents both the inherent gain in the second asset
and the deferred gain from the first.
If no rollover relief If rollover relief is
claimed on asset (1) claimed on asset
(1)
$m $m
Sale of asset (2)
Sale proceeds 200,000 Sale proceeds 200,000
Original cost (150,000) Revised base cost (90,000)
________ ________
Unindexed gain 50,000 Unindexed gain 110,000
________ ________
The benefit of rollover relief is that tax, otherwise payable now, is deferred possibly for many years. There is a
drawback in that the indexation allowance on the second gain is calculated on a lower base cost if rollover relief is
claimed.
Conditions for relief
Now that we have considered the mechanics, it is necessary to look at the other conditions which apply.
There must be a disposal of and reinvestment in:
♦ a qualifying asset
♦ within a qualifying time period.

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Qualifying assets. The assets must be used in a trade. Where they are only partly used in trade then only the gain on
the trade portion is eligible. The main qualifying assets are as follows.
♦ Land and buildings (freehold and leasehold)
♦ Fixed plant and machinery
♦ Goodwill
♦ Ships/hovercraft/aircraft
Note that shares of a company are never qualifying assets for rollover relief purposes.
Qualifying time period. The qualifying period for reinvestment in the replacement asset is up to 12 months before the
sale to within 36 months after the sale.
Partial reinvestment
Rollover relief may still be available even where only part of the proceeds is reinvested. However, it will be restricted, as
there is some cash retained available to settle tax liabilities. This is logical as the main purpose of the relief is not to
charge tax where cash has been reinvested in the business.
The amount which cannot be rolled over is the lower of:
♦ the proceeds not reinvested
♦ the chargeable gain.
The following example will demonstrate where full relief is available, partial relief is available and no relief is available.
Example
AB Ltd sold an office block for $500,000,000,000 in December 2007. It had been acquired for $200,000,000,000 and
was used throughout AB Ltd’s ownership for trade purposes. The indexation on the disposal was $213,100,000,000. A
replacement office block was acquired in February 2008.
Assuming rollover relief is claimed where possible, calculate the gain assessable on AB Ltd and the base cost of the
replacement office block if it cost:
(a) $610,000,000,000
(b) $448,000,000,000
(c) $345,000,000,000
Solution
Gain on sale of old office block
$m
Proceeds 500,000
Cost (200,000)
_______
300,000
Indexation allowance (213,100)
_______
Indexed gain 86,900
________

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(a) As all the proceeds have been reinvested, the full gain is rolled over and no gain is immediately chargeable.
Base cost of new asset $m
Cost 610,000
Less gain rolled over (86,900)
_______
523,100
________
(b) Proceeds not reinvested ($500,000 − $448,000) $52,000

Hence $52,000 of the gain is immediately chargeable.
Base cost of new asset $
Cost 448,000
Less gain rolled over ($86,900 – $52,000) (34,900)
_______
413,100
________
(c) Proceeds not reinvested ($500,000 − $345,000) $155,000
As this exceeds the gain, the full gain of $86,900 is chargeable
and no rollover relief is available.
Base cost of new asset $345,000
Non-business use
If an asset has only been partly used for the vendor’s trade prior to sale, only a corresponding part of the gain can be
held over.
The asset is treated as being in two parts – as a business asset and as a non-business asset.
Example
Masango sells a warehouse it has owned for eight years for $600,000 making a gain of $420,000. For the last two
years of ownership half the premises was let to another company.
How much of the gain can be rolled over?
Solution
Business portion : 6
8 × 100% 75%
2
8 × 50% 12½%
_____
87½%
_____
Proceeds of ‘business asset’ $600,000 × 87½% $525,000
________
Gain of ‘business asset’ $420,000 × 87½% $367,500
________
A gain of $367,500 can be rolled over by reinvesting at least $525,000 in qualifying replacement assets.
6 Reinvestment in depreciating assets

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Introduction
Certain qualifying assets are depreciating assets. A depreciating asset is one which has a life not exceeding 50 years,
or which will become a depreciating asset in the next ten years (ie a 56 year lease at today’s date falls within the
definition). The two key examples of such assets are:
♦ leasehold buildings
♦ fixed plant and machinery.
Where a claim for rollover relief is desired, and depreciating assets are the replacement assets, then a special form of
the relief ensues. This affects:
♦ the duration of the deferral
♦ the method by which the deferral is carried forward.
The duration of the deferral

The gain on the sale of the ‘old’ asset is deferred only until the earliest of:
♦ the date of sale of the depreciating asset (ie normal rule)
♦ the date the asset ceases to be in use in the owner’s trade
♦ ten years from the date of the acquisition of the depreciating asset.
This effectively means that a depreciating asset can only be used to defer a gain for a maximum of ten years from the
date of acquisition.
If the company acquires a non-depreciating asset before the deferred gain ‘crystallises’ the gain can be rolled over
against the non-depreciating asset in the normal way.
Method of giving relief: depreciating assets
Additionally, where the ‘new’ asset is a depreciating asset, the gain is not deducted from the base cost of the ‘new’
asset. Instead, it is said to be ‘held over’. Where this applies, the gain to be deferred must be ‘held’ separately and
‘charged’ on the earliest of the three above events.

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Financial Training Company www.ftc.com/za
© 2007 Ftc. All Rights

Reserved. Ftc is
a registered trademark.

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Financial Training Company (FTC)

The Association of Chartered Certified Accountants

Taxation (F6) Zimbabwe (ZWE)

2 Financial Training Company

4 Financial Training Company

5 Financial Training Company

6 Financial Training Company

7 Financial Training Company

8 Financial Training Company

9 Financial Training Company

Limited. The Guide is updated annually.

South African Tax Cases Reports, Juta & co

Zimbabwe Tax Service, ZXNET incorporating the

10 Financial Training Company

11 Financial Training Company

The structure of a corporation tax computation

The relevance of accounting periods

Length of accounting period

12 Financial Training Company

Figure 1.1 Financial period of account of 18 months

12 months CAP 6 months CAP

♦ A company first acquires a source of chargeable income.

♦ A previous CAP ends.

A CAP ends on the earliest date indicated by the following rules.

♦ The date ‘accounts’ are made up to

♦ The date the company ceases or begins to trade

♦ The start of the winding up of the company

♦ The date when the company begins or ceases to be ZIMBABWE resident

13 Financial Training Company

14 Financial Training Company

♦ received by a company on which it pays interest.

15 Financial Training Company

♦ loan stock and debentures.

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17 Financial Training Company

♦ capital allowances on plant and machinery, etc.

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19 Financial Training Company

The corporation tax liability

♦ Applying relevant tax rates to calculate the liability.

♦ The financial year (FY) which matches the CAP.

20 Financial Training Company

PCTCT at ordinary rate X

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Short accounting periods

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Upper limit = 129 × 1,500,000 = 1,125,000

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24 Financial Training Company

Long accounting periods

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26 Financial Training Company

(W2) Building society interest

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28 Financial Training Company

Rates to apply 20% 20% 30% 30%

Approach to the question

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30 Financial Training Company

The general principle

♦ The costs of registering patents and trade marks.

31 Financial Training Company

Schedule A charge on landlord