GROUP ASSIGNMENT 3: Study Guidance: Due 12 Feb 2021

1. Study section 3 of the course outline (Capital Gains Tax):

Prescribed Reading:
"Tax Principles in Zimbabwe"; M. Tapera, 2020 edition (or 2021 edition) -
Chapter 10.

Recommended reading:
"Tax Law and Practice in Zimbabwe '', S. Nare, 11th Edition (or 12th
edition) - Chapters 8 and sections of chapter 11.

2. Attempt the Assignment on your own and write down your individual
solutions.

3. As a group, compare and contrast individual solutions, discuss and

agree the most appropriate group solution and submit by due date.

4. Most of the marks are awarded for workings, the logical application of
clearly stated Case laws and Legislative provisions.

5. I expect to see robust debates (in the App group and grp email or
google class) on aspects of the syllabus that you are not sure of.

Question 1 [100 marks]

Below are details of assets sold by Tinomudaishe, a sole trader, in February 2020
(unless another date is stated), just before he relocated to Canada:

Asset Cost Selling Price

Industrial Building Acquired 2 May 2009 200 000 -
Office block Constructed 1 March 2019 800 000 2 500 000
Delivery Vehicle Hire Purchase 1 April 2019 160 000 300 000
Trademark Registered 1 July 2019 90 000 110 000
Warehouse 1 Constructed 2 December 2010 400 000 900 000
Software Developed inhouse 31 March 2019 60 000 1 000
Warehouse 2 Constructed 28 February 2019 2 000 000 5 000 000
Debentures Bought on 1 September 2019 75 000 85 000
Delta Ltd Shares Purchased 22 February 2019 100 000 45 000
Showroom Bought 22 February 2019 700 000 1 000 000
PPR Bought 1 June 2019 500 000 850 000
TOTAL 5 085 000 10 791 000

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Notes

1. Since Tinomudaishe relocated to Canada in March 2020, for the 2020 tax year,
he was not “ordinarily resident” in Zimbabwe for tax purposes.

2. Tinomudaishe had an assessed capital loss of $50 000 from 10 years ago
(2010 tax year) and an assessed loss of $16 000 from the 2019 tax year.

3. On 1 March 2010, Tinomudaishe signed an 8 year lease with Ascot Clothing

Ltd in which the latter were required to effect improvements of $92 000. Ascot
Clothing Ltd completed the improvements on 30 June 2010 and immediately
brought them to business use. Tinomudaishe sold the industrial building for
$500 000 on 31 January 2012.

4. “Warehouse 1” was used to store goods for reselling, before Tinomudaishe had
ventured into manufacturing. It was sold on 31 January 2019, just before
“Warehouse 2” was commissioned.

5. “Warehouse 2” was used to store raw materials used in his manufacturing

process. The terms of the sale were that “a 50% deposit is payable immediately
and the balance in 2 equal annual instalments commencing on 28 February
2021”.

6. The trademark was registered in Zimbabwe.

7. The software was developed by the business’s programmers.

8. Tinomudaishe has always taken advantage of any tax planning opportunities.

REQUIRED:

a) Discuss the CGT implication of note 1 on Tinomudaishe. (3)

b) CGT implications of the above assets in the relevant tax years, which you are
to state in your solution. (95)

c) Discuss the effective meaning of note 8. (2)

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Question 2 [50 marks]
Unconquerable Pvt Ltd constructed an industrial building at a cost of $200 000 in
2010.

As a result of the constant power cuts, the industrial building was partially burnt
down in 2018 and the company sought out $600 0000 compensation from its
insurance co.

Repairs of the building were immediately effected upon receipt of the compensation
in 2018.

Required:

Calculate the CGT implication assuming the repairs were made at a cost of:

a) $550 000

b) $750 000

c) $600 000

d) $200 000

N.B. these are 4 different scenarios.

Question 3 [50 marks]

Advise on the tax implications of the following cases:
a) Clarify the provisions of s39A(10) as amended by Finance Act No 2/2019.(4)

b) Clarify the provisions of s39A(9) as amended by Finance Act No 2/2019. (2)

c) How do you treat the cost of painting done just before selling a business
property? Is it a “repair” or an “Improvement” or a “disposal cost”? Support your
answer with relevant legislative provisions under the CGTA and ITA. (8)

d) Happy acquired 2 000 shares in Victors Pvt Ltd in Feb 2010 at 40 cents per
share. On 22 February 2018, the company made a bonus issue of 1 new share
for every 2 held. Happy sold half his total shares, thereafter at $1.20 each on
20 February 2019. (8)

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e) Praise bought 100 000 shares at 40 cents each in Shoe Pvt Ltd in June 2011.
In December 2012, Shoe P/L effected a share buyback and gave Praise 20 000
shares of 25 cents each.

f) In June 2013, another share buyback was effected and Praise was paid 30
cents per share on 30 000 shares. He sold the remaining shares for 802 cents
each in June 2016.

g) Mr Takavadiyi bought a house for $95 000 in 2013. In 2016, he donated the
house to his wife, when the house had a market value of $150 000. Mrs
Takavadiyi sold the house to her friend in December 2017 for $170 000. The
couple desired the minimum tax effect on both their transactions.

h) In 2010, Kuziva Chaiko bought a house for $60 000 and sold it in January 2011
for $80 000. He used the full proceeds to buy a stand in the upmarket
Chishawasha Hills in December 2012 intending to build his retirement home at
the stand. However, due the deteriorating economic situation, he decided to go
to the diaspora and sold the stand for $250 000 in 2015. Kuziva Chaiko has
always minimised his tax liabilities.

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