Answers

Fundamentals Level – Skills Module, Paper F6 (BWA) Taxation (Botswana)

December 2011 Answers and Marking Scheme Marks

1

Brian Matshaba and Glen Jones (a)

Calculation of partnership chargeable income (i)

Calculation of balancing charge P 87,381 (39,218) ––––––– 48,163 64,500 ––––––– 16,337 –––––––

Cost of equipment disposed Less: capital allowances Proceeds Balancing charge (ii)

0·5 0·5 0·5 0·5

Calculation of capital allowances

Cost at 30 June 2010 Addition Disposal Cost at 30 June 2011 Allowances at 30 June 2010 Current year charge Disposal Allowances at 30 June 2011

Vehicles 25% P 486,380 210,000 0 –––––––– 696,380 ––––––––

Furniture 10% P 68,326 0 0 ––––––– 68,326 –––––––

Equipment 15% P 153,900 0 (87,381) –––––––– 66,519 ––––––––

264,402 174,095 0 –––––––– 438,497 ––––––––

17,542 6,833 0 ––––––– 24,375 –––––––

48,932 9,978 (39,218) –––––––– 19,692 ––––––––

0·5 0·5

1·5 1

(iii) Calculation of partnership chargeable income Net profit per accounts Add: depreciation Add: donations Add: balancing charge Add: partners’ drawings Add: partners’ house rents Add: purchase of office van

P 117,442

(Note 1) (Note 2)

Less: capital allowances Less: profit on sale of assets

107,564 27,380 16,337 1,600,000 180,000 210,000 –––––––––– 190,906 39,792 ––––––––––

Partnership chargeable income

2,141,281 (230,698) –––––––––– 2,028,025 ––––––––––

0·5 0·5 0·5 0·5 1 1 0·5 1 ––– 11 –––

Notes 1. Partners’ drawings are not deductible and there is no deduction for partners’ salaries.

(b)

2.

Only the cost of employee house rents are deductible. Partners’ are not employees.

3.

The cost of the partners’ vehicle costs are deductible and are a benefit to the partner.

Calculation of Brian’s taxable income P Calculation of share of profits Partnership chargeable income Less: fixed sum for Glen

Split as follows: Brian Glen

2,028,025 (300,000) –––––––––– 1,728,025 ––––––––––

60% 40%

1,036,815 691,210 –––––––––– 1,728,025 ––––––––––

17

1

1 1

Marks Share of partnership income Botswana dividends Consultancy fee Net rentals Car benefit 10,000 + 15% x 56,080 Less: farming loss

P 1,036,815 0 75,000 102,932 18,412 (162,734) –––––––––– 1,070,425 ––––––––––

(Note 1)

(Note 2)

Taxable income

0·5 0·5 0·5 0·5 1 1 ––– 7 –––

Notes 1. Dividends received do not constitute gross income. 2. (c)

The loss is less than 50% of chargeable income and is therefore deductible in full.

Calculation of Glen’s taxable income P Fixed sum from partnership Share of partnership income Car benefit 10,000 + 15% x 30,300 Capital gain Less: 25% moveable property allowance

272,816 (68,204) ––––––––

Taxable income

(d)

P 300,000 691,210 14,545 204,612 –––––––––– 1,210,367 ––––––––––

1·5 ––– 4 –––

Future deductibility of partnership losses Partnership losses are ring-fenced and cannot be offset against other income.

1

A partnership loss can only be offset against future partnership profits.

0·5

Partnership losses can only be carried forward for five years after which they are lost.

0·5

The only exception to this rule is farming losses which are carried forward indefinitely and can be offset against 50% of other income.

2

1 0·5 1

1 ––– 3 ––– 25 –––

Masunga Enterprises (a)

Balancing charge and rollover relief P 275,250 (202,379) –––––––– 72,871 248,000 –––––––– 175,129 ––––––––

Cost Less: capital allowances claimed Insurance proceeds Balancing charge New machinery Less: balancing charge rolled over

520,000 (175,129) –––––––– 344,871 ––––––––

Tax cost of new plant

(b)

0·5 0·5 0·5 0·5

1 1 ––– 4 –––

Taxable income Working 1 – capital allowances Capital allowances – given Capital allowances – new plant

P 721,548 51,731 –––––––– 773,279 ––––––––

15% x 344,871

Total capital allowances

18

0·5 1·5

Marks Working 2 – chargeable disposal gain P 200,000 (43,720) –––––––– 156,280 (39,070) –––––––– 117,210 ––––––––

Sale proceeds Less: cost Less: 25% moveable property allowance Chargeable disposal gain P Net profit per accounts Add: depreciation Add: impairment of investments Add: purchase of patent Add: loss on sale of investments Add: goodwill written off Add: balancing charge Less: Less: Less: Less: Less: Less:

656,397 173,281 600,000 163,720 193,726 0 –––––––– 773,279 27,229 453,298 297,715 87,250 50,000 ––––––––

capital allowances dividends received share of associates profit fair value adjustment profit on disposal of assets bad debt loan recovered

Chargeable disposal gain Taxable income

(c)

(d)

0·5 0·5 1

P 1,705,672

1,787,124

(1,688,771) –––––––––– 1,804,025 117,210 –––––––––– 1,921,235 ––––––––––

0·5 1 1·5 1 1·5 1 0·5 1 1·5 1·5 1 1·5 0·5 ––– 18 –––

SAT payments Tax payable 25% x 1,921,235

480,309 ––––––––

1

31 31 30 30 31

96,062 96,062 96,062 96,062 96,061 –––––––– 480,309 ––––––––

0·5 0·5 0·5 0·5 1

December 2010 March 2011 June 2011 September 2011 January 2012

––– 4 –––

VAT (i)

(ii)

There is no VAT on the sale of investments which are classified under financial services and which services are exempt from VAT. Where an insurance company makes an indemnity payment that payment is liable to VAT. However, because the amount of the indemnity payment is determined by the insurance company, it is the insurance company that adds the VAT on top of the indemnity payment. The recipient pays over the VAT received to the revenue authorities and the insurance company claims the input claim.

19

1 –––

3 ––– 30 –––

Marks 3

Fairground Investments (a)

Calculation of taxable income (i)

Working 1 – calculation of balancing charge or allowance P 250,000 (95,500) –––––––– 350,000 (145,000) ––––––––

Sale of fixed assets Less: tax value Sale of vehicles Less: tax value Balancing charge (ii)

P 154,500

1

205,000 –––––––– 359,500 ––––––––

1

Working 2 – calculation of capital gain P Goodwill – sale price Profit on sale of bonds – exempt as listed on Botswana Stock Exchange Property in Ghanzi – sale price Less: cost 30,000 Indexation (30,000 x 1,289·70 – 611·0/611·0) 33,324 ––––––– Less: rollover relief new property Palapye Disposal gain

P 450,000 0 375,000 (63,324) (80,000) –––––––– 681,676 ––––––––

1 1 0·5 0·5 0·5 1·5

(iii) Calculation of taxable income P 1,628,339 359,500 681,676 –––––––––– 2,669,515 ––––––––––

Chargeable income Add: balancing charge Add: disposal gain Taxable income (b)

0·5 0·5 ––– 8 –––

Calculation of VAT payable for the tax period ended 31 July 2010 Outputs: Given Sale of bonds Sale of going concern business Sale of saloon car Sale of truck Sale of van Sale of Ghanzi property

834,906 0 0 0 200,000 50,000 375,000 –––––––––– 1,459,906 ––––––––––

Inputs: Given Purchase of Palapye property

562,817 80,000 –––––––––– 642,817 ––––––––––

Outputs exceed inputs

817,089 ––––––––––

VAT thereon at 12%

98,051 ––––––––––

20

1 1 1 1 0·5 1

1

0·5 ––– 7 ––– 15 –––

Marks 4

Morgan Madibela (a)

Calculation of chargeable income from farming Head 561 34 238 (287) (24) –––– 522 ––––

Opening stock of cattle Natural net increase Purchases Sales Personal consumption Closing stock of cattle

Opening stock

(561 x P430)

Closing stock

(522 x P430)

P 241,230 –––––––– 224,460 –––––––– P

Sales Closing stock Sales of produce BMC bonus Opening stock Purchases Farm overheads Fencing Capital allowance machinery (15% x 35,000) Farm buildings

241,230 430,400 62,457 53,891 5,250 125,368 ––––––––

Loss from farming

(b)

P 544,500 224,460 46,782 65,000 –––––––– 880,742

1

0·5 0·5

0·5 0·5 0·5

(918,596) –––––––– (37,854) ––––––––

0·5 0·5 0·5 ––– 5 –––

Calculation of chargeable income from other sources Shop Sales Closing stock

P

Purchases Opening stock Damaged stock Business overheads Capital allowance shelving (10% x 57,850) Capital allowance truck (25% x 85,000)

510,674 72,903 37,832 83,524 5,785 21,250 ––––––––

Capital gain Sale price shares Cost price

280,000 (65,000) –––––––– 215,000 (53,750) ––––––––

25% moveable property allowance Chargeable income from other sources

21

P 839,251 48,629 –––––––– 887,880

(731,968) –––––––– 155,912

0·5

0·5 0·5 0·5 0·5 0·5

0·5 0·5 161,250 –––––––– 317,162 ––––––––

1 ––– 5 –––

Marks (c)

Calculation of taxable income P 317,162 10,320 (37,854) –––––––– 289,628 ––––––––

Chargeable income from other sources Benefit – personal consumption 24 head x P430 Less: loss from farming (part (a)) Taxable income

0·5 1 0·5 ––– 2 –––

Note: 1. The loss is less than 50% of the chargeable income and therefore can be deducted in full. (d)

Calculation of the farming loss to be carried forward P Loss brought forward Current year loss Less: loss set-off

P 126,728

37,854 (37,854) –––––––

Loss carried forward

(e)

0 –––––––– 126,728 ––––––––

––– 1 –––

Losses in company The foregoing demonstrates that in respect of an individual any current farming losses can be offset up to 50% of total chargeable income from other sources. If the farming and shop operations are transferred to a company there can be no offset. In a company there will be two tax computations – one for farming and another for the shop and a loss in one cannot be offset against a profit in the other.

5

0·5 0·5

2 ––– 15 –––

Timothy Lebekwe (a)

Taxable income Salary Pathfinder Sales commission Retirement bonus Company car benefit (P10,000 + 15% x 70,000/2) Pension – company contribution Medical aid – company contribution Loan benefit (P200,000 x 9·5% – 3·0%/2) Car purchase benefit (P70,000 – P25,000) Pension Fund – lump sum Pension Fund – monthly pension (P18,500 x 6) Salary Tefo (P15,000 x 3) Housing benefit Tefo (100 sqm x P250 x 8%/4) Interest (P31,622 – 6,000) Dividends Radio presenter fees

(Note (Note (Note (Note (Note

1) 1) 2) 3) 4)

Chargeable income Pension fund contribution Taxable income

P 120,000 217,630 50,000 15,250 0 0 6,500 45,000 0 111,000 45,000 500 25,622 0 20,000 –––––––– 656,502 (5,800) –––––––– 650,702 ––––––––

Notes: 1. Company pension fund and medical aid contributions are not taxable in the hands of the employee. 2.

The difference in any preferential and market rate of interest is a deemed benefit – s.31(1)(d).

3.

Purchasing an asset at less than market value is a deemed benefit – s.31(1)(d).

4.

Commutation of up to one third of a pension entitlement is specifically exempt – Second schedule, Part ii, Para xxvii.

22

0·5 0·5 0·5 0·5 0·5 1 1 1 0·5 0·5 1 1 0·5 0·5 0·5 ––– 10 –––

Marks (b)

Tax payable P First P120,000 Next P530,702 Less: tax deducted Pathfinder Pension Fund Tefo Prints Bank Engen Marketing Botswana

77,280 21,250 6,437 3,162 0 ––––––––

Net tax payable

(c)

P 10,875 132,676 –––––––– 143,551

(108,129) –––––––– 35,422 ––––––––

0·5 0·5

0·5 0·5 0·5 0·5 1 ––– 4 –––

Payment of withholding tax Any tax withheld – be it PAYE, in respect of interest or dividends – must be paid over to BURS by the 15th of the following month.

23

1 ––– 15 –––