INVESTMENT INCOME

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Investment income
IMPORTANT CONCEPT
SECTION 3 OF INCOME ACTS
investments means owing of one or more assets of similar nature that are used in integrated fashion, on similar term and subjects to similar condition including to
location
investments can be
past , presents or prospective investments.

What is not included in investments

business
employments
owing of an assets other than investments assets for personal use by the owner.

If an activities of the person constitute one or more investments , there is two tests
1. test whether the assets are of similar nature? Example a broke of share may constitute single investment
2. test whether the assets are used in integrated fashion of similar term , subject to similar condition and location .example a house that is held passively and ranted
out with associated furniture will constitute single investments. Any liabilities incurred in respects to that assets will be part of investments.
BUSINESS VS INVESTMENTS

• Different between business and investments

• Might important to know that different because of different tax rate.
• Business investment
• Major occupation of the person subsidiary occupation of the person
• Expect benefit from regular or interval transaction expects benefit from long-term transactions
• Interest received from financial institution or money lander is the business income while the interest
received from deposit of fixed account is the investment income .
COMPONENTS OF INVESTMENT INCOME

• Section 9(1) of income acts the following are the investments income
• 1. dividend
• 2.distribution of a trust
• 3.gain of insurance from life insurance
• 4.gain from interest , unapproved retirements fund
• 5.Interest
• 6. natural payments
• 7.rent
• 8. royalties, net gain from realization of net assets from investments, amounts derivered by accepting restriction.
DIFFERENT TERMS
• Royalty –payments made by the lessee under lease of intangible assets and includes payments for use of
patent or right to use or cinematology film or sound track or supply of know how including information of
certain industry.
• Natural resources payment (section 3)
• Interest means payments made by the way of money except repayment of capital, any gain realised by the
way of capital
• Gain of insured from life insurance life section 60(3) provides the meaning of the term “gains of an insured
from life insurance” as the extent to which proceeds from life insurance paid by an insurer exceed premiums
paid to the insurers with respect to the insurance
• Gains from an interest in an unapproved retirement fund’ Gains from an in interest in an unapproved
retirement fund” is defined in (section 63 )to mean the extent to which retirement payments made by an
unapproved retirement fund in respect of an interest in the fund exceed retirement contributions made to the
fund in respect of the interest.
NET GAIN FROM REALIZATION OF ASSETS.

• Total of all gain from realization of assets at the year of income

• Less – total of all net losses from realization of the assets at the year of income
• -any unrelieved net losses of any other investments of the person
• -any unrelieved net losses of previous year (section 36(3)
• What does it means
INVESTMENT ASSETS

• What is investments assets?

• Refers to the share and securities in corporation , a beneficial interest in non-resident trust and interest
in buildings and land
WHAT DOES INVESTMENT ASSETS EXCLUDES?
• Investments assets excludes the following
• Business assets
• Depreciable assets
• Trading stock
• Private residents of an individual owned for 3yrs or more lived by an individual continuously other than
the private resident that is realized for gain in excess of 15,000,000.
• Interest in land used for at least 2yrs or 3yrs for agriculture purpose and realized at market value that is
less than 10,000,000.
• Share and security listed on DSE that is owned by person or in associate controlled at less than 25%
 EXCLUSION
• What is excluded in investment?
• All exempt amount
• Final withholding payments
• Person income from business or employments
• Dividends payed by the resident or nonresident to the resident individual
• Interest by financial institution to the resident individual
• Rent paid to a resident individual
• Service fees paid to a resident subjects to withholding
• Interest paid to unit trust
TREATMENT OF GAIN
• Gain of insured from life insurance
• Gain = proceeds paid – premium paid (contribution)
• Tax treatment
• Gain payed by non-resident insurer is taxable
• Gain payed by resident insurer is exempt
• Gain from unapproved retirements funds
• Gain = retirements payments – retirements contribution
• Tax treatments
• Paid by nonresident is taxable , paid by resident is exempt
DISTRIBUTION OF TRUST

• Distribution of a non-resident trust or unit trust shall be taxable on the beneficially of trust
• Distribution of resident trust shall be exempt on the beneficially
• What is trust?
• Is the arrangements in which trustee holds an assets but excludes the partnership and corporation.
WHAT IS REALIZATION?

• A person who own investments assets is treated as realizing the assets when the following condition
exist
• 1. exchanged
• 2.transferred
• 3.distributed
• 4.cancelled
 5. redeemed, destroyed, lost, expired or surrendered
ALLOWABLE DEDUCTION AND NON-ALLOWABLE DEDUCTION

• Allowable deduction-section 11(3)-Therefore, only expenditure incurred for sole purposes of producing
investment income are allowable if they are wholly and exclusively incurred in the production of
investment income.
• Non-allowable deduction-(section 11), investors cannot claim depreciation charges on their investment
assets. Therefore, depreciation charges of investment assets calculated under taxpayers’ accounting
policies are not allowed too,
• also expenditure incurred in deriving exempt amount and final withholding payments are not deducted.
• expenses and expenditure incurred not wholly and exclusively for business purposes is not allowable
INCOMINGS OF AN ASSETS

• Means the amount delivered by the person in respects of ownings of an assets including the following
• 1.amount derived from altering an assets or decrease the value of an assets
• 2. amount derived under the assets by the way of covenant to repair or otherwise
• 3.amount derived in respects of realizing an assets .
• Therefore NET GAIN=TOTAL GAIN-TOTAL LOSS
• But GAIN=INCOMING-COST
• LOSS = COST – INCOMING
• Cost of assets –is an expenditure incurred by the person in acquiring the assets, altering, improving,
maintaining ,and repairing an assets
CAPITAL GAIN

• CAPITAL GAIN AND LOSSES

• Are calculated on realization of assets or sale
• Capital gain= market value at the time of realization –total cost
CARRYING FORWARD LOSSES

• Losses from investment can be carried forward year to year indefinitely but subject to the following
condition
• 1. losses on corporation
• If the corporation makes a loss from any investment it can offset income from other other investment
and it can not offset income from any business.
• 2. limit on capital gain
• When the corporation makes a loss when selling investment assets , it can offset only from the gain on
selling investments assets
• 3 foreign losses
• Foreign investments losses can offset only foreign investments incomes , losses on sales of investments
assets can offsets only against the sales of foreign investments assets.
CHARGEABLE INVESTMENT INCOME

• This section deals with how to establish chargeable income from investment activities.
• By now we have learnt that not all income from investment are taxable, some are final withholding
payments, some are exempt income and some are simply not related to investment. Also we saw how
to identify allowable deductions and non-deductible expenses when computing investment income.
• Chargeable investment income’ of resident person, includes all his or her income for the year of income
irrespective of the source of the income,
• while
• chargeable income of non-resident persons income only to the extent that the income has a source
in the United Republic.
 SOLVING
• Question

• Mr. Mkongo is a resident individual with the following sources of income during the year of ncome ended December 31, 2017:

• 1. Sold shares of Atmos Supplies Ltd, a resident company listed in the Dar es Stock Exchange, whereby he owns 17% of controlling shares. These shares were bought at
TZS.5,200,000 and sold for TZS.10,400,000.

• 2.Received TZS.28,000,000 from Mashaka Assurance Ltd a resident company, as proceeds from his life insurance that has matured in 2017 after 10 years of contributions.
Mkongo has been contributing of TZS.100,000 monthly.

• 3. Received bank interest of TZS.5,000,000 in relation to a fixed deposit with Mwananchi Bank Ltd.

• 4. Mkongo is a member of ZSSF, a Zambian retirement fund, where he has been making monthly retirement contributions of equivalent to TZS.120,000 for 5 years until last year
when he retired. This year he received a lumpsum retirement payment of equivalent to TZS.30,000,000.

• 5. Received TZS.200,000,000 for sale of a land situated at Kariakoo, Dar es Salaam. This land was acquired in 1986 for TZS.8,000,000. Legal fees for the sale amounted to
TZS.12,000,000.

• 6. Received dividend of TZS.400,000 from Musiba Ltd. This was a resident corporation where he own 29% of the shares

• 7.He was paid TZS.280,000 by Fjardings Trust, a Swedish registered trust as a compensation for cancellation of his membership due to old age. Mkongo has made cumulative
contributions of TZS.200,000,000 for the whole period of membership.

• 8. Sold a residential house of which he had been occupying occasionally for more than three years for TZS.700,000,000. The house was bought for TZS.400,000,000.

• 9. Dividends amounting to TZS.12,400,000 were received from Gatan Ltd, a non-resident corporation, which is listed in DSE. 24% of Gatan Ltd shares are owned by Kamaka Ltd, a
resident company

• Required:

• Determine investment chargeable income of Mr. Mkongo for the year of income 2017 use all 1 to 9 notes mentioned above; (where the amount is not taxable write nil).
 SAMSON

• Name of taxpayer MR MKONGO

• Year of income INVESTMENT INCOME
• Residential status RESIDENT
• 1.sales of share NIL
• 2.life assurance NIL
• 3.Interest NIL
• 4.ZSSF retirement 22,800,000
• 5.sales of land 180,000,000
• 6.dividend NIL
• 7.paid by trust 280,000
• 8.private resident 300,000,000
• 9.dividend NIL
• TOTAL CHARGABLE INVESTMENT INCOME 503,080,000.
WORKING
• REFER TO QUESTION OF MR MKONGO
• 1. any control of share less than 25% is excluded
• #if life assurance, dividend, interest is given to –resident is exempt while if non resident is taxable
• 4.ZSSF retirement contribution
• GAIN=RETIREMENT PAYMENT –RETIREMENT CONTRIBUTION
• 30,000,000-(120,000 X 12 X5) = 22,800,000 reason met all condition
• 5.Sales of land to be inclusion market value at the time of realization should exceeds 10,000,000
• GAIN = AMOUNT RECEIVED – (COST OF ACQUSITION + LEGAL FEES)
• 200,000,000 – (8,000,000 + 12,000,000)= 180,000,000.
• 7.AMOUNT PAID BY TRUST =280,000 only this is included
• 8 sale of private resident
• Computation
• Is only included when the gain from realization exceed 15,000,000 first test whether it exceed or not
• Gain = 700,000,000-4,00,000,000
• = 300,000,000
THANK YOU

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