Tax 1 by Samson
Tax 1 by Samson
Tax 1 by Samson
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
• 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.
• 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
• 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