Advanced Taxation(CUAC 408)

Assumed knowledge-CUAC 212

 COURSE OUTLINE
• Income tax on Miners 

• Taxation of Hire Purchase transactions.

• Tax planning issues.

• Tax avoidance and transfer pricing.

• Taxation of Deceased Estates and Trusts
• Tax Administrative matters in Zimbabwe
 COURSE OUTLINE
• Withholding Taxes, Presumptive Taxes and
Double Taxation Agreements (DTAs).
 Recommended Study Material
1.The Income Tax Act [Chapter 23:06]
2.The Finance Act [Chapter 23:04]
3.The Capital Gains Tax Act [Chapter
23:01]
4.Value Added Tax [Chapter 23:12]
5.Income Tax in Zimbabwe (2001) by LW
Hill 5th Edition Durban: Butterworth
publication.
 Recommended Study Material
6.Nare, S (2021) Tax law and Practice in
Zimbabwe, Rebasotho Investments (Pvt)
Ltd, Harare.
7.Nyatanga, P (2021) A Guide To Zimbabwe
Taxation.
8.Zimbabwe Taxation by E. Tagara and W
Gono [latest edition] Ng Publishers.
9.Ernst and Young Tax Guides
[www.earnstyoung.com.
 Recommended Study Material
10. Deloitte and Touché Tax Bulletins
[www.deloitetouche.com].
11. Zimbabwe Revenue Authority website
[www.zimra.co.zw].
12. Marvelous Tapera(2021) Tax principles
in Zimbabwe.
 TAXATION OF MINERS

Chapter Objectives
By the end of the chapter you should be able to:
a) Explain the differences in tax treatment of miners from other
taxpayers.
b) Discuss the ring fencing principle and where it does not apply.
c) Discuss the various methods used in determining Capital
Redemption Allowance.
d) Calculate the correct amount of taxable income accruing to
miners.
 TAXATION OF MINERS

Introduction
The computation of taxable income for
miners is generally the same as;
Any other class of taxpayer but;
There are some important differences.
The income tax is assessed based on
taxable profit/income.
 TAXATION OF MINERS

• A miner is any person (company,

individual, trust) involved in the
extraction of minerals from the earth’s
crust and, or is involved in mining
activities e.g. refining and processing. 
 TAXATION OF MINERS
• Limestone, fire clay, chrome, gold, iron,
platinum and diamonds are recognized as
minerals.
• Minerals exclude petroleum, ordinary
clay, sand and stone.
 TAXATION OF MINERS
• A miner is assessed in a manner similar to
that applicable to a trader with certain
exceptions notably:
• 1. Capital allowances

• 2. Assessed losses i.e. s15 (3)

• 3. Recoupment, etc.
 CAPITAL EXPENDITURE(5 Schedule.)
TH

 Any mine assets purchased or constructed are

known as capital expenditure.
 Capital expenditure includes the following:

• (1) All mine buildings; furniture, fixtures and

fittings, tools and equipment; plant and
machinery.
 CAPITAL EXPENDITURE(5 Schedule.)
TH

• (2) Commercial motor vehicles e.g. bulldozers,

dump trucks, delivery vans and staff buses.

• (3) Passenger motor vehicles (maximum cost

ZWL$100 000/unit)

• (4) Shaft sinking (amount spent in drilling the

shaft)

• (5) Lease premiums

 CAPITAL EXPENDITURE(5 Schedule.)
TH

• (6) Mine hospitals, clinics, nursing homes and

schools.

 These are recognised as mine assets if more

than 50% of the users come from the mine.
 Restricted cost of each unit is ZWL$500 000.
 CAPITAL EXPENDITURE(5 Schedule.) TH

• (7) Pre-production costs on preliminary

surveys, boreholes, development costs,
general administration and management
including any interest payable on loans
utilized for mining purposes.

 NB: The cost of land (mining claim), where the

mine is situated is not capital expenditure.
 CAPITAL EXPENDITURE(5 Schedule.)TH

• (8) Staff housing

 No restriction on cost of staff house.

(i) House for teacher/nurse at mine

school/clinic/hospital.
 Restricted to a maximum of ZWL$500 000.
 CAPITAL EXPENDITURE(5 Schedule.)
TH

(ii) Shareholders houses

House for shareholder – company is owned by
less than 5 shareholders;
• ZWL$100,000.

House for shareholders – company owned by

more than 4 shareholders.
• Actual cost.
 CAPITAL EXPENDITURE(5 Schedule.)
TH

• Hospital, school, nursing home or clinic

• Restricted cost is ZWL$500 000.

No CRA on a dwelling house occupied by

the mine-owner (individual not
shareholder).

• Not used for business but private.

 Advanced Taxation(CUAC 408)

Assumed knowledge-CUAC 212

 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).
 CAPITAL REDEMPTION ALLOWANCE
• 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.
 CAPITAL REDEMPTION ALLOWANCE
• 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.
(a) NEW MINE BASIS (Para. 4(4) & 4(8), 5th Schedule)

• 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.
(a) NEW MINE BASIS (Para. 4(4) & 4(8), 5th Schedule)

• Example 1
• Mugomaster Mining (Pvt.) Ltd situated 40km South of
Zvishavane, incurred the following capital expenditure, year
2018 and 2019 being pre-production. Production stage was
reached in the current year i.e. year 2020.
•  YEAR 2018 & 2019 $
• Plant and Machinery 400 000
• Shaft Sinking 100 000
• Mine Building 300 000
• Salaries and wages 500 000
1300 000
(a) NEW MINE BASIS (Para. 4(4) & 4(8), 5th Schedule)

 YEAR 2019 $
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 2020.
Required:
Calculate;
• CRA for 2020 based on the New Mine method.
 (a) NEW MINE BASIS

Calculation of CRA for the year ended 31 December 2020 (New Mine
 
Basis)    
$ $
Unredeemed Balance of Capital Expenditure (UBCE) b/fwd (2018/2019)
Plant & Machinery 400,000
Shaft Sinking 100,000
Mine Building 300,000
Salaries and Wages (pre-production, capital) 500,000
1,300,000
Add Current Year Capital Expenditure (2020)
Salaries and Wages (post-production, revenue) -
Passenger Motor Vehicle (restricted) 100,000
Lease premiums (capital) 100,000 200,000
Total Capital Expenditure 1,500,000

CRA=Total Capital Expenditure (100%) 1,500,000

 (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.
 (b) Life of Mine Basis (para.2, 5th Schedule)

 The estimate of life of a mine is determined by using the

following formula:

ESTIMATE OF THE MINE’S ORE RESERVES

ESTIMATED ANNUAL PRODUCTION

 These calculations must be submitted every year for the

Commissioner’s approval.
 (b) Life of Mine Basis (para.2, 5th Schedule)

• 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.
 (b) Life of Mine Basis (para.2, 5th Schedule)

• 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:
 (b) Life of Mine Basis (para.2, 5th Schedule)

• 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
xxx
• *CRA = (UBCE b/f –recoupment + CCE)/Life of mine
 (b) Life of Mine Basis (para.2, 5th Schedule)

Example 2
• Based on the data in Example 1, Calculate CRA
for 2020 based on the Life of Mine method.
 (b) Life of MINE BASIS
Calculation of CRA for the year ended 31 December 2020 (Life of Mine Basis)  
$ $
 Unredeemed Balance of Capital Expenditure (UBCE) b/fwd (2018/2019)
Plant & Machinery 400,000
Shaft Sinking 100,000
Mine Building 300,000
Salaries and Wages (pre-production, capital) 500,000
1,300,000
Less Recoupment -
Subtotal 1,300,000
Add Current Year Capital Expenditure (CCE) (2020)
Salaries and Wages (post-production, revenue) -
Passenger Motor Vehicle (restricted) 100,000

Lease premiums (capital) 100,000 200,000

Total Capital Expenditure 1,500,000
CRA=[(UBCE b/fwd-Recoupment)+CCE]/Life of Mine
(1,300,000+200,000)/4 375,000
 (c) Mixed Basis (para.4(2) & para.4(3), 5th 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.
 (b) Mixed Basis (para.4(2) & para.4(3), 5th 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
xxx
• *CRA = (UBCE b/f –recoupment)/Life of mine + CCE
 (b) Mixed Basis (para.4(2) & para.4(3), 5th Sch.)

Example 3
• Based on the data in Example 1, Calculate CRA
for 2020 based on the Mixed Method.
 (c) Mixed Basis

Calculation of CRA for the year ended 31 December 2020 (Mixed Basis)  
$ $
Unredeemed Balance of Capital Expenditure (UBCE) b/fwd (2018/2019)
Plant & Machinery 400,000
Shaft Sinking 100,000
Mine Building 300,000
Salaries and Wages (pre-production, capital) 500,000
1,300,000
Less Recoupment -
Subtotal 1,300,000
Add Current Year Capital Expenditure (CCE) (2019)
Salaries and Wages (post-production, revenue) -

Passenger Motor Vehicle (restricted) 100,000

Lease premiums (capital) 100,000 200,000
Total Capital Expenditure 1,500,000
CRA=[(UBCE b/fwd-Recoupment)/Life of Mine] +CCE
(1,500,000/4 +180,000) 555,000
 Advanced Taxation(CUAC 408)

Assumed knowledge-CUAC 212

 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.
 Recoupment[S8(1)(i)]

• 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[S8(1)(i)]

The amount to be recouped is arrived at as

follows:
• Proceeds = recoupment, where asset cost was
never restricted.
• Deemed Proceeds= recoupment, where asset
cost was originally restricted.
• Damaged Asset- Recoupment is limited to
original cost if compensation is more than
cost.
 Recoupment[S8(1)(i)]

• 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.
 Recoupment[S8(1)(i)]

• Re
Recoupment[S8(1)(i)]
 Prospecting Expenditure-S15 (2)(f)(ii)

• Capital 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.
 Prospecting Expenditure-S15 (2)(f)(ii)

• In the absence of income such expenditure

maybe carried forward;
• To be allowed against future income from the
mining operations.
May be set off against other income from
trade or investment.
 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 ZWL$100,000 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
ZWL$15,000; 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.
• [Repealed by Act1/2014 with effect from 1
January, 2014 ][ Allowable w.e.f 1.1.2020].
• 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)).
Extensive use of debt relative to equity in
financing a project or firm.
Relates to the funding of a business with a
disproportionate degree of debt in relation to
equity.
The interest income received by investor is
not taxed. [NRTI repealed 30/09/2009]
TP enjoys the benefit of tax advantage
relating to the deductibility of interest
payment of debt.
 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.
 Interest over the 3:1 ratio is disallowed.
Excess is taken as a dividend and subjected to
WHT.
 Section 26(2) for non-resident shareholders;
 Section 28(2) for resident shareholders.
 Interest (Thin Capitalisation (Sect. 16(1)(q)).

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

• 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)
General administration and management fees (Sect.16 (1)
(r))
• 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.
General administration and management fees (Sect.16 (1)
(r))
The disallowed portion of the
management fee is deemed to be a
dividend and;
Subject to a further withholding tax.
Section 26(2) for non-resident
shareholders;
Section 28(2) for resident shareholders.
General administration and management fees (Sect.16 (1)
(r))
• 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. 
General administration and management fees (Sect.16 (1)
(r))
• 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 & substantially interdependent.
• Also applies to mining operations and income
from other trade and investment.
 Ring Fencing
Thus, it can be introduced :
• At the sector level, so a company cannot
consolidate mining activities with general
economic activities (Section 15(1) (c ).
• At the level of individual mines
fields/locations.-S15(2)(f)(i).
 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.
 Change of Ownership of a Mine
Whenever a mine changes ownership, the
transferor and transferee;
 Are required to furnish jointly to the
Commissioner a written statement
The amount of CA so declared ranks as capital
expenditure in the hands of the transferee.
As regards the transferor, the amount
declared will be deemed to be a recoupment.
 Change of Ownership of a Mine
A Ltd is a mining company which sold its mining undertaking
to B Ltd on 31st December, 2020. The consideration paid for
the sale of its assets ranking for redemption of capital
expenditure, was $75,000 allocated in the deed of sale as
follows:
 Change of Ownership of a Mine
Both A. Ltd. and B. Ltd. submitted the signed
statement required in terms of paragraph (8)
(1) of the 5th sch. and this statement was
accepted by the Commissioner.
A. Ltd. had a balance of $31,250 for capital
expenditure ranking for redemption at 31st
December, 2019. What would the effect of
this transaction be on both A. Ltd. and B. Ltd.?
 Change of Ownership of a Mine
A Ltd
 Change of Ownership of a Mine
B Ltd
The Commissioner will allow an amount
of $75, 000 to rank as capital expenditure
for redemption in the hands of B. Ltd.
 SCHEME OF RECONSTRUCTION
 If a company transfers ownership of a mine to
another company;
 The transferor and transferee may elect that
notwithstanding the terms of any agreement of sale;
 The amount of capital expenditure ranking for
redemption in the hands of the transferor;
 At the time of transfer;
 Shall rank for redemption in the hands of the
transferee.
 The amount so ranking is deemed to be a recoupment
in the hands of the transferor.
 SCHEME OF RECONSTRUCTION
Example
 If in the previous example A. Ltd. transferred its
mine to B. Ltd. in the course of a scheme of
reconstruction of a group of companies, and both
companies made the election in terms of paragraph 8
(6), what would the position be?
A Ltd
 SCHEME OF RECONSTRUCTION
B Ltd
B. Ltd.
The Commissioner will restrict the
opening amount of capital expenditure
ranking for redemption in the hands of B.
Ltd. to $31,250
SCHEME OF RECONSTRUCTION

End of Chapter

Thank You!