INVESTMENT INCOME
Nyantamba, G. (2021/2022)
What is an investment?
Investment means:
Owning of one or more assets of a similar
nature or that are used in an integrated
fashion, on similar terms and subject to
similar conditions, including as to location
includes past, present and prospective
investments.
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 2
Excludes:
Business
Employment
Owning of assets other than investment
assets for personal use by the owner
INVESTMENT INCOME:
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What is an investment asset?
Shares
Securities in a corporation
Beneficial interest in a trust
Interest in a land and building
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 4
Investments assets excludes:
Business assets
Depreciable assets
Trading stocks
Private residence of an individual that has
been owned for three years or more and lived
in by the individual continuously or
intermittently for a total of three years or
more: OTHER THAN Private residence that is
realised for a gain in INVESTMENT
excessINCOME:
of 15,000,000/=
08/22/22 Nyantamba,G. 5
Excludes
Interest in land held by an individual
that has a market value of less than
10,000,000/= at the time it is realised
and that has been used for agricultural
purpose at least for two of the three
years prior to realisation
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 6
Excludes
Shares and securities owned by a
resident person or a non resident
person who either alone or with other
associates controls less than 25% of
the controlling shares of the issuer
company and listed on the DSE
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 7
What is investment income?
Sec. 9(1)
Person’s gains or profits from conducting the
investment for the year of income
Income from holding an investment asset like
rent, interest, dividends etc.
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 8
INCLUSIONS
Any dividends
Distribution of a trust
Gains of an insured from life insurance
Gains from an interest in an
unapproved retirement funds
Interest
Natural resource payments
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 9
Inclusion cont…
Rent
Retirement payments paid by approved
retirement funds
Royalty
Net gains from realisation of an investment
asset
Amount derived for accepting a restriction not
to conduct an investment
Tax benefit or advantage quantified Acc. Sec 27
INVESTMENT INCOME:
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EXCLUSIONS
Exempt amount
Final withholding payment
Amount that are included in calculating
the person’s income from any
employment or business
INVESTMENT INCOME:
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NOTE: FWP sec. 86
Dividends paid by -A resident corp. or Non-
resident corp. to a resident individual
Interest paid by financial institution to a res.
individual where the interest is paid with respect to
a deposit held with the institution
Rent paid to a res. individual under a lease of land
or a building
service fees paid to a res. person that are subject
to withholding
INVESTMENT INCOME:
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NOTE: FWP sec. 86 cont..
payments made to non-resident persons
(other than through a DPE of the person)
that are subject to withholding tax
Interest paid to a unit trust
INVESTMENT INCOME:
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Dividend of any entity
Means distribution by the entity to the extent that
it is not payment of capital
Interest
Means a payment for the use of money and
includes a payment made or accrued under a debt
obligation that is not a repayment of capital,
Natural resource payment
Means any payment for the right to take natural
resources from land or the sea. Natural resource
means minerals, petroleum, water or any other
non - living or living resource that may be taken
from lands or the sea;INVESTMENT INCOME:
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Note:
A dividend distributed by a resident
corporation to another resident
corporation shall be taxed at the rate
provided for in the 1st Schedule where
the corporation receiving the dividend
holds 25% or more of the shares in the
corporation distributing the dividend
and controls, either directly or
indirectly, 25% or more of the voting
power in the corporation
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 15
Life insurance
Insurance where the specified event is the death
of an individual who is the insured or an associate
of the insured
Insurance where-
The specified event is sustaining personal injury or
becoming incapacitated; and
The insurance agreement is expressed to be in
effect for at least five years.
Insurance under which an amount or series of
amount is to become payable to the insured in the
future; and
Re-insurance of the above
INVESTMENT INCOME:
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Gains of insured from life insurance
GAINS = Proceeds paid – premiums paid
Tax treatment
Gains paid by NON RESIDENT insurer
is TAXABLE
Gains paid by RESIDENT insurer is
EXEMPT
INVESTMENT INCOME:
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Gains from an unapproved ret. funds
Gains = retirement payments-
retirement Contributions
TaxTreatment
Paid by non resident is TAXABLE
Paid by resident person is EXEMPT
INVESTMENT INCOME:
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Distribution of a trust
Distribution of a non- resident trust or
unit trust shall be taxable on the
beneficiary of the trust. However
distribution of a resident trust or unit
trust shall be exempt on the
beneficiaries.
Trust means an arrangement under
which a trustee holds assets but
excludes a partnership and a
corporation;
INVESTMENT INCOME:
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Rent
Means any payment made by the lessee
under a lease of a tangible asset
including any premium and any other
payment for the granting of the lease
Royalty
Means any payment made by the lessee
under a lease of an intangible asset e.g.
copyright, patent right
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 20
DEDUCTIONS
General Principle of Deduction
In calculating a person's income for a year
of income from conducting an investment,
there shall be deducted all expenditure
incurred during the year of income, by the
person wholly and exclusively in the
production of income from the investment
INVESTMENT INCOME:
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No deductions for
Consumption expenditure
Expenditure of capital nature
Excluded expenditure
Repair and Maintenance expenditure
that is otherwise granted under section
14 of the Act
Any depreciation allowance under
section 17
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 22
JOINTLY OWNED INVESTMENT
Section 30 of ITA prescribes the method of
calculating a person’s income from an investment
that is jointly owned with another person
RULE FOR ALLOCATION
Amounts to be included and deducted in that
calculation shall be apportioned among the joint
owners in proportion to their respective interests
in the investment.
Where the interest of joint owners cannot be
ascertained, then the apportionment shall be
made equally among the owners
INVESTMENT INCOME:
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Realisation On Investment
Asset
A person who owns an investment asset
is treated as realising the asset when
the following conditions exists
INVESTMENT INCOME:
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When the person parts with the ownership
of the asset including when the asset is:
Sold
Exchanged
Transferred
Distributed
Cancelled
Redeemed
Destroyed
Lost
Expired
Surrendered
INVESTMENT INCOME:
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Bad debts on debt owned by FI
In case of debt claim owned by financial
institution (FI), when the debt claim
becomes bad debts as determined in
accordance with the relevant standards
established by BOT and the Institution
writes off the claim as bad
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 26
Bad debts other than for FI
When the person believes that the debt
claim will not be satisfied and the
person has taken all the necessary
measures in pursuing the debt claim
and the person writes the debt off as
bad
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 27
Business, investment, depreciable
assets and trading stocks
Immediately before the person begins to
to employ the asset in such a way that it
ceases to be an asset of the type it was
immediately prior to that employment
INVESTMENT INCOME:
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Calculations of gains and losses
INVESTMENT INCOME:
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Gain from realisation of investment
asset
Incomings exceeds the cost of the asset or
liability at the time of realisation
Gain = Incomings - Cost
Loss on realisation
Cost of the asset or liability exceeds the
sum of the incomings for the asset or
liability at the time of realisation
Loss = Cost - Incomings
INVESTMENT INCOME:
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Net gains from realisation
Is the sum of all gains from realisation
of investment assets during the YOI
Less:
Total losses from realisation
Unrelieved loss for the year
Unrelieved loss for the previous year
NET GAIN = TOTAL GAIN – TOTAL LOSS
INVESTMENT INCOME:
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Unrelieved losses
Means the excess of losses over gains
from realisation of investment assets of
the investment during the year reduced
by the amount of excess that have been
previously taken into account
INVESTMENT INCOME:
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Foreign source losses
Foreign source losses should be
deducted only against foreign source
income from investment
INVESTMENT INCOME:
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THE COST OF THE ASSET
INVESTMENT INCOME:
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The cost is the sum of:
Expenditure incurred in acquiring the
asset including e.g. expenditure on of
construction, manufacture or production
Expenditure on altering, improving,
maintaining, and repairing the asset
Expenditure on realising the asset
Incidental costs on acquiring and
realising
INVESTMENT INCOME:
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Cost of assets exclude
Consumption expenditure
Excluded expenditure
Expenditure directly deducted in
calculating the persons income or that
is to be included in the cost of the asset
INVESTMENT INCOME:
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Incidental expenditure means cost
on acquiring or realising the asset such
as :-
Advertising expenditure, Taxes, Duties
Other expenditure of transfer
Expenditure of establishing, preserving,
defending ownership of the asset
Expenditure for the services of Accountants
agents, auctioneers, broker, consultants,
legal advisor, surveyor and valuer
INVESTMENT INCOME:
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INCOMINGS OF AN ASSET
INVESTMENT INCOME:
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Incomings of an asset of a
person means
Amount derived by the person in
respect of owning the asset including:
Amount derived from altering or decreasing
the value of the asset
Amount derived under the asset including
by way of covenant to repair or otherwise
Amount derived by the person in respect of
realising the asset
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 39
Incomings of an asset
excludes
Exempt amount (eg. Amount derived in
respect of the asset that is not a
business asset, depreciable asset,
investment asset or trading stocks)
Final withholding payments
Other than in the case of trading stock,
the amount to be directly included in
calculating the person’s total income
INVESTMENT INCOME:
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Special rules
INVESTMENT INCOME:
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Current expenses
May be deducted if they are wholly and
exclusively incurred in the production of
investment income
Expenditure incurred in deriving exempt
amount and final withholding payments
are not to be deducted
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 42
Carry forward losses
Losses from investment can be carried
forward year to year indefinitely but
subject to the following limitations:
If the corporation makes a loss from
any investment it can offset income
from other investment and it can not
offset income from any business
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 43
Foreign losses
Foreign investment losses can offset
only foreign investment income, losses
on the sale of an investment assets can
offset only against the sale of foreign
investment asset
INVESTMENT INCOME:
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THE END
INVESTMENT INCOME:
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QUESTION
Jane is a newly formed company carrying out
fishing business. During the first year (2019) of
operations it made the following transactions.
a) Received dividend from NANA Ltd a resident
corporation amounting to TZS 6,000,000.
b) Dividends amounting to TZS 3,5000,000 were
received from KWEMU Ltd, which is listed on the
DSE, and owned 22% by TMBU Ltd a non
resident company.
c) Dividends amounting to TZS 1,550,000 received
from CHUCHUMA Company Ltd a resident
company
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 46
d) Jane has its office along Au Hassan Mwinyi
Road, the office was underutilized. The
company decided to rent the front office to
Juma Bakari. A shop businessman, who used it
as a shop after paying TZS 800000 as rent.
e) Also the company received royalty from
Madengu Ltd amounting to TZS 400,000 out of
lease of video tapes used for promotion
f) During the year, Jane sold 6 hectares of land
which was at KUNDUCHI and received TZS 300
million. This land was purchased for 2,000 in
1970. Three years prior to its sales, this land
has been used for a agricultural land
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 47
In addition to that transaction it earned
business profit of TZS 100 million
REQUIRED:
By applying the relevant provisions of the
ITA, 2004 RE: Compute the investment
income, Total income and Tax Payable of
the company for the years ending 2019
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 48
QUESTION TWO
Mr. Mkongo is a resident individual with the
following sources of income during the year of
income ended December 31, 2017
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.
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 49
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
Received bank interest of
TZS.5,000,000 in relation to a fixed
deposit with Mwananchi Bank Ltd
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 50
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
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
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 51
Received dividend of TZS.400,000 from Musiba
Ltd. This was a resident corporation where he
own 29% of the shares
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
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
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 52
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)
INVESTMENT INCOME:
08/22/22 Nyantamba,G. 53
