Slides 4.1

Advanced Taxation(CUAC 408)
Taxation of Miners
CAPITAL REDEMPTION ALLOWANCE
• Section 15(2)f) a.r.w 5th Schedule
• CRA is a deduction granted in respect of
capital expenditure.
• No CRA arises until the year in which the
mine first commences production.
• CRA replaces; SIA, wear and tear,
scrapping allowances, allowances in
respect of lease premiums and pre-
production expenditure (s15 (2)(t).
• CRA is granted on capital expenditure,
not on individual assets.
• There are 3 methods of calculating CRA
and a taxpayer has to choose one.
• These are:
(a) New Mine Basis.
(b) Life of Mine Basis and;
(c) Mixed Basis.
• CRA is granted on capital expenditure,
not on individual assets.
• There are 3 methods of calculating CRA
and a taxpayer has to choose one.
• These are:
(a) New Mine Basis.
(b) Life of Mine Basis and;
(c) Mixed Basis.
(a) NEW MINE BASIS (Para. 4(4) & 4(8), 5th Schedule)
• Only applicable to a New Mine.

• A new mine is;
A mine that commences production
during the year of assessment, and/or;
A mine that reopens and commences
production during the year of
assessment.
A mine that changes ownership and
substantially reorganises.
• Under this method;

• CRA=UBCE b/f + Current Capital Expenditure.
• UBCE=Unredeemed Balance of Capital
Expenditure
• This method is only granted on election.
• It offers maximum allowances because;
• Under this method CRA is 100% of total
capital expenditure.
• Example 1
• Mugomaster Mining (Pvt.) Ltd situated 40km South of
Zvishavane, incurred the following capital expenditure, year
2010 and 2011 being pre-production. Production stage was
reached in the current year i.e. year 2012.
• YEAR 2010 & 2011 $
• Plant and Machinery 400 000
• Shaft Sinking 100 000
• Mine Building 300 000
• Salaries and wages 500 000
1300
YEAR 2012 $
Salaries and wages 600 000
Passenger Motor Vehicle 160 000
Lease premiums 100 000
860 000
• Life of mine is 3 years from the end of year 2012.
Required:
Calculate;
• CRA for 2012 based on the New Mine method.
(b) Life of Mine Basis (para.2, 5th Schedule)
• Life of mine refers to the estimated life span

of the mine.
• The life of mine must not exceed;
10 years for a mine producing lead or zinc.
5 years for a mine producing iron.
20 years for any other mine.
• The life span of the mine is counted from the
beginning of the year of assessment.
• Generally, under this method CRA is found as

follows:
Total capital expenditure/Life of mine
estimate.
• However, any recoupment should be taken
into account as follows;
• CRA =(UBCE b/f -recoupment + CCE)/Life of
Mine.
• This method offers the minimum allowances.

• Granted automatically if the miner doesn’t
make any elections.
• This method applies to mine owners.
• For simplicity the above formula can be
expressed as follows:
• DETERMINATION OF CRA FOR THE YEAR

ENDED……………………..
• Unredeemed Balance of Capital Expenditure b/f xxx
• Less Recoupment (xxx)
xxx
• Add Current year Capital Expenditure xxx
• Total Capital Expenditure
xxx
• Less* CRA (xxx)
• Unredeemed Balance of Capital Expenditure c/f
Example 2
• Based on the data in Example 1, Calculate CRA
for 2012 based on the Life of Mine method.
(c) Mixed Basis (para.4(2) & para.4(3), 5 th Schedule)
• A mixture of the New Mine Basis and Life of

Mine basis.
• Grant Current Capital Expenditure in full;
• Spread (UBCE-Recoupment) over the life of
the mine.
• CRA=(UBCE-Recoupment)/Life of Mine
+ Current Capital Expenditure.
• This method is granted on election.
(c) Mixed Basis (para.4(2) & para.4(3), 5 th Schedule)
(b) Mixed Basis (para.4(2) & para.4(3), 5 th Sch.)
• DETERMINATION OF CRA FOR THE YEAR

ENDED……………………..
• Unredeemed Balance of Capital Expenditure b/f xxx
• Less Recoupment (xxx)
Subtotal
xxx
• Add Current year Capital Expenditure xxx
• Total Capital Expenditure
xxx
• Less* CRA (xxx)
• Unredeemed Balance of Capital Expenditure c/f
(b) Mixed Basis (para.4(2) & para.4(3), 5 th Sch.)
Example 3
• Based on the data in Example 1, Calculate CRA
for 2012 based on the Mixed Method.
Other Taxation Provisions in Mining
• Recoupment
• Prospecting Expenditure
• Sale of Mining Claims
• Replacement elections
• Transfer of Assets
Recoupment[S8(1)(i)]
• Miner’s recoupment is not restricted to

allowances previously granted.
• It is simply sale proceeds less ITV.
• If ITV is not given, or is equal to zero;
Recoupment=Sale proceeds.
• Thus, for a mining entity, recoupment is
usually equal to the sales proceeds.
• If the asset had a restricted cost, recoupment
is allowed to be restricted as well.
• For example, if an Isuzu Double Cab used for

mining business was initially bought for $20
000 and then sold for $15 000; Recoupment
may be restricted as follows;
• Deemed Cost/Actual Cost X Potential
Recoupment(Sales proceeds).
• Recovery by way of (insurance proceeds) in
respect of damage or destruction of an asset
may also be restricted to deductions claimed.
• Recoupment for a mining entity is not put

directly into gross income.
It is first deducted from UBCE under the Life
of Mine Basis or the Mixed Basis; or
Deducted from Total Capital Expenditure
under the New Mine Basis.
• The excess is then brought into gross income.
Prospecting Expenditure-S15 (2)(f)(ii)
• Expenditure incurred by taxpayer, either in

searching for potential claim or in searching
for minerals after the claim has been pegged.
• Such expenditure is allowable ; on election; in
the year of assessment in which it is so
incurred.
• In the absence of income such expenditure
maybe carried forward to be allowed against
future income from the mining operations.
Prospecting Expenditure-S15 (2)(f)(ii)
• Expenditure may include;

Survey costs.
Sinking of boreholes.
Digging of trenches and pits.
Any other exploratory or prospecting
expenditure.
Sale Of Mining Claims (section 9)
• Taxation of income from the sale of a mining

claim depends on the original intention of the
taxpayer when he/she acquired the claim.
• If the intention was to carry on mining
operations;
The sale is deemed to be a sale of a specified
asset and is only subjected to CGT and not
Income Tax.
Sale Of Mining Claims (section 9)
• If the original intention was to make a profit

from the resale of the claim, then;
The taxpayer is taxable in full in the year in
which the claim is sold on the profit from sale.
• Profit on sale of claim is usually the difference
between the selling price of a claim and its
cost.
• However, where the cost of claim is not
available profit is the sale proceeds.
Sale Of Mining Claims (section 9-rep)
• If the original intention was to make a profit

from the resale of the claim, then;
The taxpayer is taxable in full in the year in
which the claim is sold on the profit from sale.
• Profit on sale of claim is usually the difference
between the selling price of a claim and its
cost.
• However, where the cost of claim is not
available profit is the sale proceeds.
Replacement Election (para.6; 5th Sch.)
• If a miner replaces/renews mine buildings,

works or equipment and in the process
spends US$10 000 or less, then such
expenditure shall, on election be treated as a
normal business expense in the income
statement, rather than as capital expenditure.
Replacement Election (para.6; 5th Sch.)
• The renewal or replacement cost where mine

is owned, tribute or leased by a company with
not more than 4 shareholders; is restricted to
$1,500; if
The building replaced is used mainly to
provide housing to the shareholders.
Transfer of Assets
• Where assets are transferred between;

Companies under the same control, or
Husband and wife or;
In a scheme of localization;
• The taxpayers may elect that there shall be no
recoupment in the hands of the transferor.
Assessed Losses
• Assessed Losses are allowed as a deduction

against future income from mining
operations.
• Miners are allowed indefinite carry-over of
assessed losses to future years.
Mining Royalties
• A mining royalty is levied on the fair market

value of the mineral.
• With effect from 1 January 2015, royalties
paid during the year of assessment will no
longer be tax deductible.
• The exporter of minerals (in most cases, the
Minerals Marketing Corporation) is
responsible for collecting the royalty and
remitting to ZIMRA.
Mining Royalties
• The due date for remittance is the 10th day of

the following month.
• Royalties not remitted timeously attracts an
interest.
Depletion Fees
• A depletion fee at a rate of between 2.5% to

5% on the gross value of the proceeds of the
sale of any minerals will now be payable to
the Consolidated Revenue Fund with effect
from 1 January 2015.
• Depletion fees are not allowable deductions.
Amendments in Mining
• Interest (Thin Capitalisation (Sect. 16(1)(q)).

• General administration and management
fees (Sect.16 (1) (r)).
Interest (Thin Capitalisation (Sect. 16(1)(q)).
• Interest incurred by a mining entity in

servicing debt contracted in connection with
the production of income is disallowed to the
extent that the debt causes the person to
exceed a debt to equity ratio of 3:1.
• The excess is deemed to be a dividend subject
to withholding tax of 10% in terms of s26.
• Example
• Adebayo Zimbabwe Ltd is a mining company operating
from Chegutu area, with its head office located in Lagos,
Nigeria. During the current year the Zimbabwean subsidiary
received a loan of $ 300 000 at 10% interest per annum.
Adebayo Zimbabwe showed the following details in its
statement of financial position.
• 50 000 $1 ordinary shares $50 000
• Retained profit $30 000
• Calculate the interest deduction to be allowed to Adebayo
Zimbabwe.
• Solution
• Equity (50 000 + 30 000) $80 000
• Qualifying debt is thus 80 000 X 3 $240 000
• Allowable interest 10% X 240 000 $24 000
• Note # a withholding tax is levied on (10 % X (300 000 -240
000)= $ 6 000, that is interest on excess loan which is
deemed to be a dividend.
General administration and management
fees (Sect.16 (1)(r))
• To be prohibited as a deduction is general
administration and management fees paid by
a local branch or subsidiary of a foreign
company engaging in local mining operations.
• In respect of such expenditure as is paid
before commencement of production to the
extent that is exceeds 0.75% of:
• A – (B + C)
• Where,
A – Represents the total expenditure
qualifying for deduction in terms of s15.
B – Represents general administration and
management fees paid outside Zimbabwe.
C – Capital redemption allowance
• In the case of such expenditure as is paid after
commencement of production to the extent
that it exceeds 1% of the above formula.
• Example
• The following expenses were incurred by A Ltd
during the year ended 31 December 2012:
• Administration fees paid outside Zimbabwe
$120,000
Depreciation $60,000
• Other tax deductible expenses $420,000
• Total 600,000
• Capital redemption allowances = $50,000.
• Solution
• Allowable fees = 1% [A - (B+C)]
= 1% [600,000 – 60,000 +
50 000) - (120,000 + 50,000)
= $4,200
• Disallowable s 16(1) r = 120,000 – 4,200
= 115,800
Ring Fencing
• With effect from 1 January 2001 each mine is
assessed separately.
• Ring fencing means that set off of deductions
of one mine location against income of
another mine location is prohibited unless the
operations of the mining locations are
inseparable.
Cessation of Mining Operations
• If the cessation is due to the life of the mine
or concession having come to an end UBCE is
allowable as a deduction in the year of
cessation of mining operations.
• If however the taxpayer has abandoned the
mine; the UBCE is not deductible unless;
The taxpayer can show that there has been a
material change of circumstance necessitating
the revision of the life of a mine.
HIRE PURCHASE & SUSPENSIVE SALES
• A hire purchase transaction is a sale on credit.
• The buyer is only granted ownership of the
item after the full sale price is paid.
• This is the case for both movable property
and immovable property.
• In this chapter we review the Income Tax and
CGT implications of Hire Purchase
transactions.
The Income Tax Act provisions relates to;
movable items and immovable items sold by
the taxpayer in the ordinary course of his
trade.
CGT Act on the other hand, governs the sale
of immovable assets (specified assets) held by
the taxpayer as an investment.
• Full sales proceeds are gross income on the
date of agreement i.e. date of signing the
contract.
• This ignores the fact that the full sale price
will be received in installments.
• Taxpayers are thus taxable on amounts not
yet due and payable.
• However, the Act makes a provision for
section 17 and 18 allowances to help the TP.
PROCEDURE FOR COMPUTATION OF
INCOME TAX
• The following basic steps should be followed
when computing taxable income according to
the Income tax Act procedure.
INCOME TAX
• Step 1
• DETERMINATION OF TAXABLE INCOME FOR THE YEAR
ENDED 31 DECEMBER…………….
Yr1 Yr2 Yr3
• Sales xxx xxx xxx
• Less cost of sales xxx xxx xxx
• Opening stock - xxx xxx
• Purchases xxx xxx xxx
• Pre-sale develop costs xxx - -
• Less closing stock (xxx) (xxx) (xxx)
• Gross profit xxx xxx xxx
INCOME TAX
• Step 1
• DETERMINATION OF TAXABLE INCOME FOR THE YEAR
ENDED 31 DECEMBER…………….
Yr1 Yr2
Yr3
Add s 17 or 18 Allowance b/f xxx
xxx
• Less s17 or 18 Allowance (xxx) (xxx)
(xxx)
• Less other operating costs (xxx) (xxx)
(xxx)
INCOME TAX
• Steps 2-4 Computation of Allowance

• The allowance is calculated using the
following formula:
• Gross Profit/Sales x Debtors not yet due and
payable
INCOME TAX
• Step2
• Monthly or annual installment computation
• = (Selling price –deposit)/Credit period
• Step 3
• Gross profit ratio computation
• = (Selling price – Cost of sales)/Selling price x
100%
PROCEDURE FOR COMPUTATION OF INCOME TAX
• Step 4
• DEBTORS SCHEDULE FOR THE ENDED 31 DECEMBER……………………
• Opening debtors - xxx xxx
• Sales xxx xxx xxx
• Less: movement in debtors (xxx) (xxx) (xxx)
• Deposit xxx xxx xxx
• Installments xxx xxx xxx
• Provision for bad debts xxx xxx xxx
• Repossessed or Returns xxx xxx xxx
• Bad debts xxx xxx xxx
• Debtors due but not yet paid xxx xxx xxx
• Debtors not yet due & payable xxx xxx xxx
• Allowance: xxx xxx xxx
• NB Allowance is gross profit ratio multiplied

by each year’s closing debtors not yet due and
payable.
Special points to note:
• The allowance calculated in the current year is
taken as gross income in the following year of
assessment.
• Special points to note:

• No allowance is calculated on bad debts,
provision for bad debts- s15 (2) (g) items or on
debtors due, but which for some reason have
not yet been paid.
• No allowance is calculated in the event of
death, insolvent of taxpayer, cession or
disposal of item under hire purchase
agreement.

• Pre-development costs stated above are
applicable to computation of taxable income
on sale of immovable items, but post-
development costs are treated as operating
expenditure.
• Pre-sale development should be included in
valuation of closing stock.

• Development costs refers to expenditure of
lying of pipes, streetlights, planting of trees,
on roads etc. in the case of a land developer.
• Closing stock is valued thus [(Total purchase
price + pre-sale development costs)/no# of
items purchase] multiplied by items in stock.
• Alpha Electronics (Pvt.) LTD is a retail shop, selling Televisions on

credit to approved customers. Each Television cost Alpha Electronics
(Pvt.) LTD $120 000. 50 Television sets were bought on 1 February
2003.
• You are given the following information for the year ended 31
December;
• 20 sets sold in April 2003 at $250 000 each
• 16 sets sold in October 2003 at $250 000 each
• 14 sets sold in March 2004 at $250 000 each
• The terms of agreement requires the customer to pay a deposit of
25%. On date of sale and the remainder payable over 20 months in
equal installments commencing the month following that of sale.
• Compute the taxpayer’s taxable income for each year during the
credit period.
IMMOVABLE PROPERTY SOLD ON HIRE PURCHASE-s17(2)
• The land which the local authorities or land

developers hold is considered as floating
capital and thus trading stock in the hands of
the owner.
• On sale of such land the owner is taxable on it
on the basis of income tax.
• In practice a land developer selling land under
suspensive conditions would be assessed in
the following manner:
• The land is considered to be trading stock in

the hands of the developer, as it will have
been acquired for resale at a profit.
• Expenditure on development, such as roads,
water, light, tree planting, laying out of parks,
etc., and on administration which is incurred
prior to the land reaching the full selling state,
will be capitalized and added to the cost of
the land.
• This is called pre-sale development
• When the full selling stage is reached, any

further development or administration costs
will not be capitalized; but
• All such expenditure is allowable as a
deduction from income in terms of section 15
(2) (a) of the Act, in the year when such
expenditure is incurred.
• Example
• Trojan Masters Limited a land developer buys and sells land. In the
current year of assessment it bought 20 hectares for $10 million,
which were subdivided into 120 stands for sell to residents of Gweru,
incurring $5million development costs.
• The terms of agreement requires that a deposit of 20% to be paid on
signing the agreement. The balance to be paid over 24 months in
equal installment, commencing the month following the month of
sale. Each stand is sold for $2 million.
• Sale took place as follows:
 50 stands on 29 march 2003
 51 stands on 3 January 2004
 19 stands on 13 November 2004
• Annual developing costs of $300,000 are expected to be incurred at
the end of each year.
• Example
• One of the buyers defaulted in payment of his
7th installment; accordingly the stand was
forfeited in November 2003.
• 30% of debtors due on 31 December 2003
were settled on 6 January 2004.
• Interest amounting to $300 000 was received
in 2004.
Required:
• Taxable Income for the 3 years-2003-2005
TAXATION OF DECEASED ESTATES AND TRUSTS
LEARNING OBJECTIVES
• To explain the legal status of deceased estates
and trusts. Section 2
• To discuss the taxation of income generated
by assets in a deceased estate. Section 11
• To discuss the implications of the Income Tax
Act in relation to deceased estates and trusts.
• Compute taxable income and tax liability of
deceased persons, deceased estates and
trusts.
• Section 2 of the ITA specifically interprets a

person to include:
A deceased estate or insolvent estate; and
A trust, for income in relation to which no
beneficiary is entitled.
SECTION 11(ITA)
• Section deals with INCOME DERIVED from
assets in a deceased estate.
• Key terms:
Ascertained beneficiaries S11(1).
Assets in a deceased estate S11(1).
Pre and Post-death income.

• On the death of a taxpayer an income tax
assessment is raised on the deceased’s
taxable income accruing to the date of death.
• A new taxpayer i.e. a deceased estate, comes
into being after the death.
• A determination has to be made as to in
whose hands post-death income is taxable.
SECTION 11:POST-DEATH INCOME

• Section 11 provides for the taxation of the
post-death income.
• There are at least three possible taxpayers
that may be liable to income tax after a
person has died.
The deceased person; where income is
determined to have been pre-death.
An ascertained beneficiary.
The deceased estate or trust.
Identifying the tax payer

• Terms of a will are very important.
Section 11(2)
• Where a specific asset is left to a specific
person : ascertained beneficiary.
• The ascertained beneficiary is taxable on the
income derived from the asset from the day
after death of the deceased.

• Terms of a will are very important.
Section 11(3)
• Residue in a will is taxable in the hands of the
estate.
• Residue refers to income from assets with no
ascertained beneficiary.
• It is taxable in the hands of the estate from
the day after death until date of distribution
by the executor.

Section 11(4)
• Income by virtue of a right forming part of the
assets in a deceased estate which become
due and payable after the death of the
deceased person shall be income if the
amount would have been income of the
deceased person had it been received in
his/her lifetime.

Section 11(4)
• Such income shall therefore be taxable in the
hands of either the deceased estate or
ascertained beneficiary.
• The income is not taxable if :
The deceased had no right the amount in his
life time;
The amount is received ex gratia.

Usufruct arrangement
• A usufruct is where a beneficiary is given a
right to income deriving from an asset but not
to inheritance of the asset itself.
• Thus for instance, a father may leave a farm to
his son but granting a life usufruct to the
widow.
• The usufructuary is generally taxable
immediately on the post-death income.

Income subject to a trust
• Where the will provides that the estate shall
be transferred to a trust, say for the benefit of
minor children, the transfer of which will be
made on attaining majority age;
• The trust created will be liable to tax
immediately after the death of the deceased.
• Mr Masocha died on 4 March 2017, his will

specifically bequeathed to his mother a sum of $40
000 and to his son an industrial building in Msasa
industrial area. The rest of the estate was to be
shared equally between the testator’s son and
daughter. The executer of the estate distributed
these to the son and the daughter on 1 August
2017. The executor’s first and final distribution
account was confirmed by the Master on 1
December 2017.
• Show how income which accrued in the post-death
period will be assessed.
Solution
• The son is taxable on rentals from the industrial
building from 5 March 2017, being the day after the
death of Mr Masocha.
• The estate is taxable on income accruing in the
period 5 March 2017 to 31 July 2017.
• The son and daughter are taxable on any income
accruing from assets transferred to them from 1
August to 31 December 2017 (year-end).
Solution
• The estate is taxable on an income accruing from
the assets in ‘residue’ from 1 August to 31
December 2015.
• The mother incurs no tax liability on cash
bequeathed to her.
• The son and daughter are taxable on income from
any further assets transferred to them from 1
December 2015 to 31 December 2015.
Deceased estates :Employment income

• Where a deceased person who was in receipt
of employment income dies during a tax year,
his or her income may be taxed in
(a) pre-death period or
(b) post death period or;
(c) may not be taxed at all.
• The following principles are crucial:

• Any amount which accrues in the pre-death
period is taxable in the assessment to date of
death.
• This includes;
salary earned,
a bonus or executive director’s fee already
voted, and
contractual commissions due at that stage.

• Amounts accruing after death and which are
taxable in the assessment for the post-death
period are those;
to which the deceased had a right to, and;
which would have been taxable in his hands
had they accrued during his lifetime.

• These include;
leave pay under a contract of employment,
contractual commissions falling due after date
of death.

• Amounts accruing after death which are not
taxable (in either period) are those;
• to which the deceased had no right, such as;
 non-contractual leave pay,
a bonus voted after death and;
directors’ fees as are not fixed in the company
articles of association.
Gratuity.
Expenditure against post-death income

• Medical expenses of a deceased paid after
death : claim a credit in the pre-death period.
Tax rates
• Consider the identity of the income:
Employment income
Trade and investment income
TAXATION OF TRUSTS
• Section 2 includes Trusts in the definition of a

person.
Unless it has income to which a beneficiary is
entitled.
• The taxability of trust income depends on the
type of rights that the beneficiaries have.
• There are basically 4 types of rights; vested
right, contingent right and neither a vested
nor contingent right.
TAXATION OF TRUSTS
(a) (i)Clear vested right

• Income has to be paid to a beneficiary and the
trustee have no discretion on the matter.
• Such income is taxable in the hands of the
beneficiary.
(a) (ii) Again a vested right.
• A trustee, have a discretion over the amount
to be distributed, but undistributed amount is
accumulated for the beneficiary.
• The beneficiary is taxable on the income.
TAXATION OF TRUSTS
(b) Delay in the vesting of right

• This is where the beneficiary’s enjoyment of
the income is entirely at the discretion of the
trustee.
• In such circumstances, the trust is taxable on
the undistributed income and the beneficiary
is taxable only on amounts distributed to him.
TAXATION OF TRUSTS
(c) Contingent right

• Beneficiary only has right to income upon
meeting certain conditions, e.g. completion of
degree programme.
• Only the distributed income is taxed in the
hands of the beneficiary.
• The retained income is taxed in the hands of
the trust.
TAXATION OF TRUSTS
(d)Neither vested, nor contingent right

• This means that distributions are made at the
discretion of the trustees.
• All income is taxed in the hands of the trust.
FURTHER POINTS ABOUT A TRUST
(a) Identity of trust income

• The general rule is that trust income will
retain its identity in the hands of the
beneficiary.
• In other words if the trust receive a bank
interest and distribute it to the beneficiary,
the income will still be called bank interest in
the hands of a beneficiary.
• This is known as the conduit pipe principle.
(a) Identity of trust income

• An annuity however forms an exception to the
general rule.
• As long as an amount is received as an annuity
by a beneficiary it will always be taxable.
(b) Trust expenditure

• If the expenditure is allowable under the
general deduction formula it will also be
allowable against trust income.
• Prohibited expenditure is disallowed.
(c)Residence of trust
• A trust is assumed to be ordinarily resident of
Zimbabwe if;
Part of its income is from a source in
Zimbabwe, or
The executors or trustees are ordinarily
residence in Zimbabwe, or
The person who created the trust was
ordinarily residence in Zimbabwe at the time
of creating the trust.
(d)Expenditure on exempt income

• No expenditure is allowable in respect of
exempt income.
• In a case where trustees earn a commission
on all income they earn for the trust, and part
of that income is exempt;
• Then the commission is only deductible to the
extent that it does not relate to the exempt
income.
(d)Expenditure on exempt income

• Use the following formula to determine the
non-deductible portion of the expenditure:
• (A ×B)/C
A – exempt income
B – direct expenditure in production of trust
income
C – total gross income created by trustees
Example:
• Mhere trust was created on 31/07/2013 and
is administered by Tendai and Tinotenda.
During the current year of assessment the
trust earned a total income amounting to
$800,000, included in this income is dividend
from a company incorporated in Zimbabwe
amounting to $40,000. The trustees were paid
commission amounting to $120,000. How
much is allowable against trust income?
Solution
$
• Total commission paid
120,000
• Less (40x120)/800 (6,000)
----------
• Allowable commission 114,000
======
WITHHOLDING TAXES
• This is a tax collection method used by

ZIMRA where the payer (customer)
deducts the tax when remitting to the
payee (supplier) and remits this amount
to ZIMRA.
• Withholding taxes can be a final tax (e.g.
local dividends withholding taxes) or may
be allowed as a deduction against a tax
payers tax liabilities (e.g. withholding tax
on contracts).
WHT on Contract Payments : sect 80
• 10% to be withheld for all payments of
$1,000 (cumulatively)per tax year in terms of
contracts for which the payee does not
provide a valid tax clearance.
• Payments: means payments by cash, barter,
set-off, crediting a director’s loan accounts,
intercompany debits and credits or by other
settlement of obligations whatsoever and in
any form.
WHT on Contract Payments : sect 80
• Contract: means a contract in terms of which
a registered tax payer is obliged to pay
amounts totaling an aggregate amount of
$1,000 or more over the year of assessment.
Shareholders tax – section 26 & 28
• In respect of dividends to both resident
and non resident shareholders.
• Dividends (15th schedule):
Amounts distributed to shareholders but
excludes bonus shares.
Includes cash dividend, and deemed
dividend (sect 16 (1) (q)).
 Rates : Listed companies – 10%,
 Non listed : 15%
Shareholders tax – section 26 & 28
• The W/T does not apply if dividend is
payable to a company incorporated in
Zimbabwe.
Non resident tax on fees- sect 30 & 17th sch.
• Non resident person – person, company
or partnership not ordinarily resident in
Zimbabwe.
• Fees – amounts paid in respect of
technical, managerial, administrative or
consultative services.
• Rate of tax: 15%
• Payable to ZIMRA: within 10 days of date
of payment.
Non-resident tax on remittances – sect
31 & 18th schedule
• Any non resident person who effects any
remittance in respect of allocable
expenditure shall pay non resident tax on
remittances in relation to that
remittance.
• Remittance: the transfer of any amount
from Zimbabwe to another country.
Non-resident tax on remittances – sect
31 & 18th schedule
• Allocable expenditure: expenditure of a
technical, managerial, administrative or
consultative nature incurred outside
Zimbabwe by a non-resident person in
connection with their Zimbabwean
trading activities.
Non-Resident tax on royalties: sect 31
and 19th sched.
• Every payer of royalties to a non-resident
person shall withhold non-resident tax on
royalties.
• Royalties: amounts payable from a source
within Zimbabwe for the right of use or
use of intellectual property. e.g. annual
software license fees.
Resident Tax on Interest:Sect.34 & 21st
Sch.
• 15% should be withheld from interest
paid by a financial institution on loans,
deposits, treasury bills, Bankers
acceptance e.tc
• Please note that the withholding tax rate
for fixed term deposits with a tenure of
at least 90 days is 5%.
Non-executive director fees – sec 36J
• 20% should be withheld from payments to
resident and non-resident non-executive
directors who are not subject to PAYE.
Tax Avoidance & Transfer Pricing
Tax Avoidance generally: sect 98 ITA
• Where a transaction has been entered
into:
In a manner which does not normally
apply for similar transactions; or
Has created rights and obligations which
would not normally be created between
persons dealing at arms length.
Tax Avoidance & Transfer Pricing
• How then will the commissioner
determine tax payable?
May completely disregard the existence
of such transaction or;
Determine the tax payable in such a way
that there is no avoidance or reduction of
tax liabilities.
The provision apply regardless of
whether the parties to the transactions
are related.
Income splitting- section 98A
• What is income splitting?
Transfer of income or property to an
associate and the sole or main reason for
the transfer is to lower the tax payable
on the incomes of the two parties.
• What is income splitting?
An associate is a person other than an
employee who acts on directions,
suggesting or wishes of another person,
whether or not the persons are in
business relationship even though such
directions, wishes or suggestions are
communicated to the first-mentioned
person.
• What happens if a transactions results in
income splitting?
The commissioner will tax the two
parties as if the transaction which
resulted in income splitting never
occurred.
Transactions between Associates
• Transactions between associates
• Sect 98B & 35th schedule
• The taxable income for controlled
transactions between associates
shall be determined with reference
to the arm’s length principle in a
comparable uncontrolled
transaction.
• From the above key questions to
answer are:
What is a controlled transaction?;
How do we determine comparability;
What is an associate?; and
How do we determine arms length
price?
Comparability – 35th sch. par 3
• An uncontrolled transaction is
comparable to a controlled
transaction:
Where there are no material
differences between the two
transactions or;
Comparability – 35th sch. par 3
Where there are such differences
accurate comparability adjustments
can be made.
Controlled transaction – 35th sch. par 1
• Uncontrolled transactions means any
transaction between independent
persons.
Arms length principle – 35th sch. Par.4
• The arms length principle shall be used
to determine the transfer price to be
used in calculating the taxable income
for controlled transactions between
associates.
Transfer pricing methods:
1. Comparable Uncontrolled Price(CUP);
2. Resale Price Method(RPM);
3. Cost Plus Method(CPM);
4. Transactional Net Margin Method(TNMM);
5. Transactional Profit Split Method(TPSM).

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Advanced Taxation(CUAC 408)

• Only applicable to a New Mine.

• Under this method;

• Life of mine refers to the estimated life span

• Generally, under this method CRA is found as

• This method offers the minimum allowances.

• DETERMINATION OF CRA FOR THE YEAR

• A mixture of the New Mine Basis and Life of

• DETERMINATION OF CRA FOR THE YEAR

• Miner’s recoupment is not restricted to

• For example, if an Isuzu Double Cab used for

• Recoupment for a mining entity is not put

• Expenditure incurred by taxpayer, either in

• Expenditure may include;

• Taxation of income from the sale of a mining

• If the original intention was to make a profit

• If the original intention was to make a profit

• If a miner replaces/renews mine buildings,

• The renewal or replacement cost where mine

• Where assets are transferred between;

• Assessed Losses are allowed as a deduction

• A mining royalty is levied on the fair market

• The due date for remittance is the 10th day of

• A depletion fee at a rate of between 2.5% to

• Interest (Thin Capitalisation (Sect. 16(1)(q)).

• Interest incurred by a mining entity in

• Steps 2-4 Computation of Allowance

• NB Allowance is gross profit ratio multiplied

• Special points to note:

• Special points to note:

• Special points to note:

• Alpha Electronics (Pvt.) LTD is a retail shop, selling Televisions on

• The land which the local authorities or land

• The land is considered to be trading stock in

• When the full selling stage is reached, any

• Section 2 of the ITA specifically interprets a

Pre and Post-death income.

SECTION 11:POST-DEATH INCOME

Identifying the tax payer

Identifying the tax payer

Identifying the tax payer

Identifying the tax payer

Identifying the tax payer

Identifying the tax payer

• Mr Masocha died on 4 March 2017, his will

Deceased estates :Employment income

Deceased estates :Employment income

Deceased estates :Employment income

Deceased estates :Employment income

Deceased estates :Employment income

Expenditure against post-death income

• Section 2 includes Trusts in the definition of a

(a) (i)Clear vested right

(b) Delay in the vesting of right

(c) Contingent right

(d)Neither vested, nor contingent right

(a) Identity of trust income

(a) Identity of trust income

(b) Trust expenditure