FACE TO FACE ACADEMY
TAX PRACTICE QUESTIONS 2014
QUESTION 1
Your client XYZ (Pvt) Ltd is an engineering company registered in Zimbabwe. They have recently been
investigated by the Zimbabwe Revenue Authority (ZIMRA), which covered Pay As You Earn for the year
ended 31 December 2015. The Financial Director of the company has requested that you assist in dealing
with queries raised by ZIMRA.
Certain benefits, which have been awarded to some senior staff members, have not been subject to PAYE.
These benefits are as follows:-
1.1 Loan to Accountant to obtain medical treatment for his son in South Africa 20 000
1.2 The company paid a portion of the medical expenses in respect of the Accountant’s
16 year old son. This was in addition to the loan mentioned in 1.1 above 1 000
1.3 Loan to Technical Manager to purchase a computer on 1 September 2015. No
repayments had been made on the loan by 31 December 2015 400
1.4 As a security measure, three members of staff each take a Nissan Sunny home. (There
is no overnight parking facilities at the company premises.) They have done this for the
full tax year. The engine capacities of these vehicles are 1500cc. The company contends
that there is no benefit as the vehicles are garaged at the employee’s homes for security reasons.
1.5 Certain members of staff receive a monthly housing allowances of $200, which the company
contends is not taxable in view of the fact that government employees are not taxed on similar
allowances
1.6 Monthly entertainment allowances paid to the Managing Director and Sales Manager 800
1.7 A house has been rented on behalf of the Managing Director for $1 500 per month. He
pays a nominal rental to the company of $500 per month.
1.8 The house mentioned in 1.7 above is partly furnished, the cost of which is 10 000
1.9 The Senior Engineer went to Germany to purchase a machine for the company. He
spent 10 days examining and testing the machine and 20 days on holiday. Cost of trip 15 000
1.10 School fees are paid on behalf of the Managing Director’s daughter, at an annual cost of 6 000
Required
Advise your client as to whether these benefits are taxable giving reasons and stating the value of the
benefit in each case. (10 marks)
QUESTION 2
A client who obtains income from the letting of property seeks advise regarding the treatment of the
following items:
1. Cost of replacing broken window panes in one of the tenant’s flats (1)
2. Cost of repainting a house which he intends taking out of the hands of tenants for his own
occupation (1)
3. The cost of repair of cracks caused by faulty foundations and the cost of underpinning the
foundations (1)
4. The cost of removal of trees which were a potential danger to a rent producing property (1)
5. A premium of $10 000 was received from a tenant who took occupation of a flat on 1 st December
2015 (1)
6. Replacement of driveway surface of gravel with reinforced concrete (2)
7. A house which previously utilized a septic tank drainage and sewerage system became obliged to
make use of the municipal system (2)
Required
Prepare a report advising the client on the tax implications of the above transactions (10 marks)
QUESTION 3 (15 marks)
State with reasons how you would treat the following:-
1. Cost of initial repairs effected by a landlord to a dilapidated house immediately after purchase, but
before occupation by a tenant.
2. Cost of drawing up lease agreements incurred by a landlord who lets his property.
3. Rates on a vacant house which, although advertised and available for letting, yielded no rentals
because a tenant could not be found.
4. Legal costs incurred in the recovery of unpaid interest.
5. Annual subscription to the Zimbabwe Institute of Architects paid by an individual who now lives on
his pension and investment income.
Outline the provisions of the ACT and their effect in relation to the recipient of each of the following:-
6. An ordinary annuity from a Zimbabwean source purchased from an insurance company.
7. An ordinary annuity from a foreign source purchased from an insurance company by an ordinary
resident of Zimbabwe.
8. A pension granted to a widow by a Zimbabwean pension fund in respect of the pensionable service
of her late husband, who worked 30 years in Zimbabwe and 10 years in Botswana.
9. An annuity granted to a legatee in terms of the will of a deceased Zimbabwean resident where the
annuity is financed from Zimbabwean company dividends.
QUESTION 4(25 Marks)
Mr. P. Mahati returns the following income for the year ended 31st December 2015
Note $
Salary 50 000
Pension 3 10 000
Lump sum from pension fund 1 16 000
Inheritance from mother’s estate 50 000
Rents from property in Zimbabwe 4 2 000
Rents from property in Zambia 4 5 000
Zambian company dividends (gross 600) 510
Zimbabwean company dividends (gross) 1 600
Zimbabwean POSB interest 2 000
Barclays Bank of Zimbabwe interest (gross 3000) 2 400
South Africa interest (gross 5000) 4 000
Proceeds from endowment policy 60 000
Salary earned in Zambia 5 6 000
Entertainment allowance 3 600
Use of company car 8
Low interest loan 9
Airfare 10
Medical aid premiums 11
Notes
1. Mr. Mahati joined the pension fund on 1 June 1970 from which he received a lump sum payment.
He used $5 000 to purchase an annuity on retirement. He transferred $11 000 to another pension
fund.
2. His contribution to an ordinary pension fund was $9 800 and to an approved retirement annuity
fund $7 200.
3. His pension was for services rendered to a previous employer. The services were rendered both
inside and outside Zimbabwe as follows: in Zimbabwe 16 years and outside 12 years.
4. Rents: Zimbabwean residential property – this was made up as follows:
$ $
Gross rents 50 000
Less: repainting 6 000
Legal expenses: renewal of lease 800
Collection of outstanding rent 600
Mortgage bond interest 3 000
Rates and insurance 1 600
Underpinning of foundation 4 000
Repairing cracked walls 2 090
Advertising to let property 600 18 690
31 310
Rents: Zambian property: $8 000 is after deduction of rates of $1200 and repairs of $1700.
5. The salary earned outside Zimbabwe was for the month of June 2015 when the employer required
him to do relief work in their branch in South Africa.
6. He turned 58 during the year.
7. He paid PAYE of $20 000,25.
8. He has the use of a company car which has an engine capacity of 3001cc and out of 20 000km
travelled 15 000 of them were private and the company incurred licence and insurance costs of
$4000, petrol and maintenance of $8000.
9. He was granted a loan of $30 000 at an interest rate of 1% for his personal use and by year end no
capital repayment has been made.
10. His daughter Jane was flown to South Africa for medical attention at the employer’s cost $12000.
This expense is not covered by medical aid.
11. He is a member of a medical aid fund. His portion of the premium is paid by the employer and it
amounted to $2 000 for the tax year.
Required
Calculate the tax payable by or refundable to Mr. P. Mahati.
QUESTION 5(15 Marks)
a. Gross income means “the total amount received by or accrued to … A person in any year of
assessment from a source within or deemed to be within Zimbabwe ….”.
Using case law to support your answer, explain the meaning of the following phrases:
i. “total amount”
ii. “accrued”
iii. “source” and “deemed source”
iv. “received by”
b. Explain briefly using case law, how the Commissioner determines the taxability of the following
amounts using the source concept:
i. royalties earned by the author of a book
ii. dividends of shares in a company
iii. salary paid by an employer
iv. rental income of movable property
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