University of Zimbabwe

Tutorial 3

Answer true or false to the following statements in relation to the general definition of gross
income. Give a brief comment to support your answer.

a) A receipt of a capital nature received or accrued during the tax year is included in the
recipient’s gross income.

b) A gain made on the sale of trading stock is what will be included in gross income.

c) Only income received by or accrued for the benefit and on behalf of the taxpayer is
included in his gross income.

d) Salary paid by a sole trader to himself, from his business, constitutes remuneration in
terms of the Thirteenth Schedule of Act..

e) Companies qualify as “person” in terms of S2 of the definition in ITA and therefore are
entitled to credits (in terms of S7 of the Charging Act).

f) For an amount to be included in gross income of a taxpayer it have only be received by

him.

g) Gross income in terms of the Act does not distinguish between a resident and a non-
resident.

h) Gross income received by a minor child is taxable in the parent’s hands if the parent
derives a benefit from it.

i) A recipient’s gross income will include all physical receipts received by a taxpayer that are
not of a capital nature.

j) Gross income is a total amount received from a source within Zimbabwe excluding an
amount of a capital nature in any tax year.

Question 2

Jongwe, a new farmer, just bought a copy of the Act from Government Printers where he
read Section 2 of the Act. Amount is defined as “money or property, corporeal or
incorporeal having an ascertainable money value.” in that section.

Required to

Explain the meaning of” amount” to Jongwe. In addition state how the value of the non-
cash amount would be determined.

Question 3

The following case studies all contain some aspect/s of the general definition of gross
income. All taxpayers are residents of Zimbabwe.

1A. Georgina is at present doing a Masters in Business Administration degree full time. Prior
to undertaking these studies George was working for a bank earning $900 a month. She is
earning $80 a month as a teaching assistant at the institution where she is studying. The
bank has agreed to pay Georgina $300 for the entire period that she will be studying
provided she works for the bank for a similar period after finishing her studies. If she breaks
the agreement by terminating employment before completing the required period, Georgina
will be required to repay to the bank an amount of $300 multiplied by the number of months
she fails to work for the bank. During the tax year Georgina received $3 600 from the bank
and $640 as teaching assistant. Georgina banks the whole $3 600 in a special bank
account so as to be able to repay it should the need arise.

Discuss whether the amounts constitute gross income in the hands of Georgina.

B)

Nyasha lets out his business premised to XYZ Ltd.The lease agreement was signed on the
17th of Dec 2017 and the lease was effective from 1 January 2018. In terms of the
agreement XYZ Ltd pays $2 800 a month in advance as rent to Nyasha.

The first payment of rent was made on the 30th Dec 2017. In his return for the 2017 tax
year Nyasha did not include the $2 800 paid on the grounds that the amount only accrued
to him in the 2018 tax year.

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You are required to comment on whether Nyasha’s actions were correct. Substantiate your
comment by reference to the relevant legislation and decided case law.

C Mrs Joe consults you as a tax expert for advice on how to treat the following
transactions:

i) She has received a salary of $8 900 after a deduction of the following amounts PAYE
$750; pension contributions $400.

ii) She is in the business of buying and selling shares. She sold 1 000@ $0.05 during the tax
year which she bought five years ago for $0.03.

iii) Her bank accounts were credited with the following amounts: interest for an investment
she made of $213; capital loan repayment of $2000.

iv) Mrs Joe was paid $600 as back pay for an increment which was being negotiated from
the previous tax period. $100 of the amount paid is for the previous tax year while the
balance is for this tax year.

v) She received $1 200 dividends from a local bank.

vi) An annuity of $1 000, which resulted from her late husband’s membership in a foreign
annuity fund with headquarters in Geneva, was paid to her.

vii) Director’s fees $900 from the company that employs her were paid. The head office of
the company is in Geneva and she travelled to Geneva for the board meetings which were
held twice. $450 was paid for each meeting.

vii) Mrs Joe runs a small venture in which she had the following transactions:

a) Receipts from sale of wares $700

b) Amounts sold during the year with amounts still owing $519

c) Two customers took two wares on a trial basis in the previous tax year. The agreement
was that the customers use the wares for one month and if they were satisfied or did
not return the wares a sale would result. Mrs Joe would not be under any obligation to
refund the amount they paid of $166.The one month was up during the first month of
this tax year.

Further information:

Mrs Joe has a daughter 12 years of age that she gave a house belonging to Mrs Joe to
which produces rental income. The rentals are banked in order to provide for the future
needs of the daughter in the event something happens to her. Mrs Joe opens a special
account for this special purpose. Rentals received for the tax year $6 000.

You are required to determine Mrs Joe’s gross income for the tax year 2013. Assume these
are the entire receipts for the whole of the tax year. Support your answer through legislation
or case law.

Question 4

Mashoko Ltd is incorporated and carries out business in Zimbabwe. In January 2018 it
posted one of its employees to Malawi to expand its customer base. The employee is in
Malawi for six months. During that period he earns $5 000 as remuneration. The co
generates $50 000 through his marketing efforts in Malawi. The CEO of the company
comes to you, a tax consultant, to find out the tax implications of both receipts. The CEO
feels that this might be a good way to reduce the employee’s and the company’s
Zimbabwean tax obligations. The CEO also tells you that the employee has been staying
and working from a hotel in Malawi.

You are required to advise the CEO whether or not he is correct on the following receipts:

a) the employee’s remuneration.

b) The company’s receipts.

c) Would the position change if the employee was to invest some of the

company’s receipts in Malawi and receive income while he is there? Would the company be
taxable on income from those investments? Explain your answer.

Question 5

An Indian company started Iron ore mining in Zimbabwe on 1 January 2017. The iron ore
was exported to India where it was further processed to obtain steel. The company was
doing this as a short term measure, while it built facilities and imported machinery for

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further processing the iron ore into steel in Zimbabwe before exporting in compliance with
the Zimbabwean benefication policy requirements. It started processing iron ore into steel
in Zimbabwe at the end of August 2017. The taxpayer submits a proposal to the
Commissioner that the processing that was based in India added 20% to the receipts (The
Commissioner is satisfied with the proposal). Total receipts up to 30 September 2017
amounted to $ 170 000. 2/3 of the receipts are applicable to the period before processing
the iron ore into steel in Zimbabwe. The company’s year end is 30 September.

You are the Commissioner General, how do you propose to deal with these receipts in your
assessment. Justify your answer.

6. David Mangwiro is a director for XYZ (Pvt) Ltd which conducts trade in Zimbabwe. The
head office is in Dubai. He receives directors fee for the year ended 2012 for $12 000. The
board of directors held their once a year meeting at a resort in London. David Mangwiro is a
resident of Zimbabwe and works for a different company in Zimbabwe. Discuss the source
of his fees in terms of the Act?

7. Mazda Japan supplies material to Willowvale Motor Co in Zimbabwe in kit form.

Willowvale employees have to go to Japan for learning how to use machinery, imported
from Japan, and assemble the kits into motor vehicles. Mazda Japan has not opened an
office in Harare. Mazda Japan sends a representative to find out their tax obligations from
you. What are their tax obligations?

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