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TAX AC 405 Full Notes

TAX LAW & PRACTICE AC405 (Applies to 2013 & 2014 Zim Tax Law)
Types of Taxes
“A citizen can hardly distinguish between a tax and a fine except that the fine is generally much
lighter” G K Chesterton
Learning Objectives
Define the terms tax
List and define different taxes that are levied by the Zimbabwean government
Identify the reasons affecting tax legislation
Determine tax chargeable
Determine tax rates to apply 2013 tax year
Acquaint students with tax credits in the legislation
Taxes are pervasive and dynamic
Economic and political factors usually influence changes
Changes pose challenges for businesses and individuals making tax planning important
Tax avoidance and in extreme cases tax evasion
Definition of Tax
It is not a fine because it is not a penalty to deter bad behavior
It is not a user fee entitling one to a specific good or service e.g. med aid contr/insurance
Tax is an involuntary payment to support the cost of government (central or local) by
individuals or businesses
Why do governments need tax?
Use by governments for its functions e.g. salary payments for civil servants etc.
Use for public amenities e.g. housing, road maintenance etc.
Redistribution among classes or individuals in society e.g. payment of pensions to the elderly
Influence macroeconomic performance of the economy e.g. Investment incentives attracts
investment (contr pensions/RAF; POSB, Tax Reserve certificates
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Modify patterns of consumption or behaviour within an economy e.g excise on beer, carbon
What effect will introduction of a tax on dividends be on a shareholder?
What effect will a high tax rate on salaries be on employees?
Sale of shares and investing elsewhere where returns are more attractive. Effect on Stock
Exchange Market prices = shares drop in price /speculators buy
Employees may leave work choose to be unemployed and find some other form of survival.
Choose to work less hrs.
Be indifferent because source of satisfaction motive is not in income but the work itself.
Good Tax system
Sufficient to meet government needs
Efficient to both taxpayer and government
Economists do not agree on the meaning:
One school feels its effect should be neutral on the free market and not cause people to adjust
economic behaviour as it distorts the market
Another school believes a system that influences a desired effect is efficient e.g tax cuts to
rejuvenate consumer spending and increased pvt investments
Fair = taking into account a person’s ability to pay. People with the same ability should pay
the same tax.
Easy to administer for both taxpayers and govt.
It should be easy to understand and clear
It should not be costly for government to administer/collect e.g. FDS introduced to cut down on
admin costs
Types of Taxes in Zimbabwe
Income Tax
A tax imposed on the periodic inflow of wealth resulting from a person’s economic activities
(employment, businesses etc) Income Tax Act Chapter 23:06..
Value Added Tax (VAT)
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A consumption tax. It is a tax on the estimated market value added to a product or material at each
stage of its manufacture or distribution, ultimately passed on to the consumer. Value Added Tax Act
[Chapter 23:12].
Customs Duty
tax levied on imported goods in terms of the Customs and Excise Act [Chapter 23:02]
Excise Duty (Chapter 23:02)
This is an inland tax imposed on the retail sale of specific goods produced for sale or sold
within the country eg. Fuel, cigarettes, and alcohol or on specific services such as hotel
Special Excise Duty
A Special Excise Duty is charged on change of ownership of locally registered second-hand
vehicles at a rate of 5% of the value of the second-hand motor vehicle in terms of the
Customs and Excise Act [Chapter 23:02].
Road Tolls
Road Tolls were introduced on the major highways of Zimbabwe on August 18, 2009 for the
benefit of the Road Fund for road maintenance and rehabilitation.
Capital Gains Tax (Chapter 23:01)
A tax (CGT) levied on the capital gain arising from the disposal of a specified asset. Specified
asset means immovable property (e.g. land and buildings) and any marketable security.
Other Types
These taxes may be found in taxes above:
Withholding Tax is the amount withheld by the party making a payment (payer) to another
(payee) and remitted by the payer to the Zimbabwe Revenue Authority (ZIMRA).
PAYE a form of withholding tax deducted by payer from employee remuneration
Presumptive Taxes
Presumptive Tax legislation was introduced to broaden the revenue base in view of the
increase in informal business activities. Selected sectors of the economy were targeted to
ensure the participation of informal businesses in tax payment in line with experiences of
other developing countries e.g. hair saloons (taxable income </= $6 000 p.a. )
Income Tax in Zimbabwe
Guided by:
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Income Tax Act(Chpt 23:06)
And Finance Act (Chpt23:04)
Decided Court Cases
Departmental Practices
Income Tax Act
Takes precedence over accounting treatment of transactions if they differ e.g. matching
concept in accounting may differ with tax treatment e.g Rent paid in advance will be a
receipt in tax in the year it is received even if it is for a future period outside the tax year of
An advance payment for an insurance policy will be taken into account on the tax yr of
payment even if it might refer to the following tax year.
Departmental Practices
The Commissioner gives guidelines on how they treat certain transactions These are not law
and therefore can be contested.
Decided Cases
The Act sometimes does not define terms leaving meaning unclear.
Result might be different interpretations btwn taxpayer and tax authorities.
The Act offers grievance procedures:
i) taxpayer can lodge an objection within 30 dys of assessment or written notification of the
2) If taxpayer still aggrieved should inform tax authorities of intention to appeal to the
Special Court or High Court.
3. If taxpayer is still aggrieved after determination by the HC can appeal to the highest court
(Supreme Court)
4. The CG can also appeal if aggrieved by a decision of a lower court.
Judgements arrived at in court cases set precedents that are they form a rule of law.
A decision by a higher court is binding on the lower court
Courts of the equal ranking are expected to follow their previous decisions (if facts are
Zimbabwean tax law has similar roots with UK, Australian and SA tax law and therefore
decided cases in those countries are sometimes applicable. (caution should be taken
wording of law might be different)
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Administration of Taxes
CG is the CEO for Zimra responsible:
Accounting for revenue on behalf of the State (through M. Finance)
Various regional offices and ports found around the country (check www.zimra.co.zw) for effectively
and efficiently carrying out mandate.
Means of obtaining records
1. Taxpayer files a return for assessment
Every year 3-4 after the end of the tax year the CG publishes a public notice inviting
taxpayers to obtain a return ITF 12 or ITF1A from the nearest office and submit by a
specified deadline to the taxpayers assessment office (S37). For 2013 the public notice was
no 11 – for 2012 tax returns and deadline of submission is 30th Sept 2013.
The duty to file a return is the taxpayer’s
Records are to be kept in the English language at least for six years.
2. Taxpayer files a return through self-assessment
S 37 (a) specifies taxpayers who can file self-assessments
It includes Banks, Insurance Cos and those registered under category C of the Value Added
Tax (VAT Act)
Self-assessment returns are to be furnished not later than four months from the end of tax
year (ITF 12C) i.e. not later than 30th April 2013.
A self-assessment return constitute an assessment on the due date or date of submission.
Failure to submit a return
CG can estimate taxpayer’s income and issue an assessment based on the estimate
Penalties eg interest may be charged
An amendment may be issued upon submission of a return.
Where there are no proper records the estimate has to be agreed by both CG and taxpayer
Such an assessment is not subject to objection or appeal
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Final Deduction System
PAYE (S73,S74 arw Thirteenth Sch) to be deducted from remuneration by employer and
remitted to Zimra by the 10th of the month following the month the tax is withheld.
PAYE paid by the end of the tax year should equate the tax liability on the employee’s annual
Employers can make adjustments for taxpayer’s allowable deductions and on entitled
Circumstance when remunerated taxpayer should submit a return
They have income from more than one employer
Received income which was not subject to PAYE in full or in part
Received pension
Changed employers
Started or terminated employment
Obligation of taxpayer involved in business (included a consultant)
S 72 requires taxpayer to make tax payments on estimated T.I. quarterly . APDs as follows:
25 March 2013 10%
25 June 201
25 Sept
20 Dec
In terms of S 5 of ITA Zimra officials sworn to secrecy.
Can only divulge taxpayers affairs
A) if they ordered to do so through a court order
B) to another country with a double taxation agreement Zimbabwe(only relevant
information given)
Why Secrecy?
Protect taxpayer and therefore encourages taxpayer to share information with Zimra.
Why protection for taxpayer may?
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Involved in illegal activities
Not want competitor /colleague/spouse to know for various reasons
Government departments also cannot get information from Zimra e.g Zimra cannot report
illegal activities to police.
Example1 (Individual)
Mr Samuel is an employee for Magaba Pvt Ltd. For the tax year 2013 he received a total of $40 000
in salaries for the period 1 January to 31st August when he retires at the age of 65yrs. He requires
you to tell him how much tax he should pay. Additional information for the tax year: annual pension
contributions $2 500; PAYE $9 760 ; interest from Zimra tax reserve certificates $300 (Assume these
are the total receipts and payments for the tax year).
40 000
Gross income
40 300
Less exemptions (int)
( 300)
40 000
Less Deduction
(2 500)
Taxable Income
37 500
Tax on 37 500 (progressive rates)
Up to 24000
4 800
13 500@30% =
4 050
8 850
Less credits:
Tax chargeable
7 950
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Add 3% Aids levy
Tax payable
8 188.50
(9 760.00)
Tax payable / (refundable)
(1 571.50)
Illustration 2(Company)
Magaba Pvt Ltd submits the following information for 2013 tax year
Receipts from trading
95 915
Allowable expenditure
17 234
Receipts from local dividends
7 800
Required to:
Calculate tax payable by Magaba Pvt. Ltd. for the tax year ended 2013.
Receipts from trading
Local dividends
95 915
7 800
103 715
Less exemptions
(7 800)
Taxable amount
95 915
Less allowable deductions
(17 234)
78 681
Tax chargeable
19 670.25
Add 3% aids levy
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Tax payable
20 260.36
Determination of tax
S 6 gives the mandate to levy, charge and collect tax from income tax of a particular year.
S7 spells out how income tax is calculated. 3 steps are spelt.
1. Take the taxable income
2. Apply a rate (could be a progressive or flat rate)
3. Deduct any credits the taxpayer maybe entitled to.
4. The resultant figure is tax chargeable.
Determination of taxable income
This is done in 3 stages:
1. Determine the gross income in terms of the Act (mainly S8 and 10,12)
2. Deduct all exemptions (S14 arw Third Sch) in terms of the Act income from gross income =
3. Deduct from income all allowable deductions as provided for in the Act (mainly S15)
Apply the rate
The tax year runs from 1 January to the 31st Dec of the same year.
rates of tax are fixed for ‘each year of assessment” the Charging/ Finance Act (Chp 23:04).
Some years more than one Finance Act may be passed
Finance Act is the principal means the Income Tax Act is amended.
Policy matters relating to changes in the legislation rest with the Minister who consults with
the Governor of the RBZ. Parliament promulgates the bill for it to become law.
A dis nc on should be drawn between ―Taxable income from employment‖ and ―Taxable
income from trade or investments‖
Taxable income from employment – means any part of the taxable income of a person
other than a company, trust or a pension fund, which consists of remuneration as defined in
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the 13th Schedule of the Taxes Act. 3% Aids levy is chargeable except in cases specified
under section 14(5) of the Finance Act.
Taxable income from trade or investments – means any part of the taxable income of a
person other than a company, trust or pension fund, which is received by or accrues to him
from any trade, investment or other activity, but does not include taxable income from
employment. It is taxed at 25% plus 3% Aids levy (25.75%)
Rates of tax on employment income
Band ($)
rate(%) cumulative tax($)
0 – 3 000
3 001-12 000
1 800
12001-24 000
4 800
24001-60 000
15 600
60001-90 000
26 100
38 100
>120 000
38 100 +?
Rates of tax trade/investment
Company, trust, deceased estate, income from trade and investment 25% flat rate.
Only the ones specified in the Charging Act apply.
In terms of S5 of the FA a credit shall not exceed the total income tax chargeable to
“person” in the tax year.
No credit to company or trust on income tax chargeable for the tax year
Types of credits
1. S 10 FA
Elderly credit = 900
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Person attained 55yrs at the beginning of the tax year
Credit can be apportioned if period assessment proportionate to period ( assessment less
than a tax year e.g. assessment to date of death or declared insolvent
2. Blind Person’s (S11)
Amount $900 to a blind person
An amount not exhausted in assessment of blind person can be deducted as credit from
assessment of spouse if taxpayer is married.
To qualify taxpayer’s eyesight must be defective to do any work requiring eyesight for more
than half of the tax of assessment (defined FA).
A taxpayer married to an unemployed spouse will be granted credit for the the spouse e.g if
both of them blind = $900 + $900
To be considered blind taxpayer must be unable to perform any work for which eyesight is
3. Section 12 FA: Invalid appliances and medical expenses credit. Important definitions:
Invalid appliances
a) spectacles/contact lenses
b) Any special fitting to modify or adapt a motor car; bed, bathroom for use by a person with a
disability or defect
c) Artificial limb, crutch
d) Wheel chair or any mechanically propelled vehicle for transporting a disabled person.
Medical expenses =
a) Cost incurred in relation to modification, hire, purchase, repair or maintenance of any invalid
appliance for the taxpayer, spouse or any child during the tax year
b) Cost of the following-:
Services rendered by a medical or dental practitioner to tp, his spouse or his minor children
Cost of prescriptions by medical or dental practitioner for tp, his spouse or his minor
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Treatment, tests (includes accommodation) at a hospital, nursing home, clinic or similar
institution for tp. His spouse or his minor children
iv) Conveyance by ambulance (could be air or otherwise) = tp, his spouse or his minor children
c) Costs of contributions to a medical aid paid by tp for tp, his spouse and minor children.
Credit granted = 50% of cost
No credit to be allowed on medical expenses (exclude medical contribution) if taxpayer was
not ordinarily resident in Zim during tax year
Medical contributions will be allowed for a non resident.
Costs incurred by t/p paid by deceased estate will be deemed to have been incurred by the
tp immediately prior to date of death.
No credit will be granted for medical expenses made by tp which are reimbursed by medical
aid or any source
4. Mentally/physically disabled persons (S13 FA)
Amount $900
Granted to tp if t/p is mentally/physically disabled to a substantial degree (at least 50%)
(excludes blindness)
Granted for tp’s child that is mentally/physically disabled to a substantial degree (includes a
child that is blind).
If t/p married credit for a child granted to the husband first and any unexhausted amount on
the husband’s income tax chargeable is granted to the spouse.
Granted for a married tp if spouse disabled and unemployed.
Credit not granted to tp if he was not ordinarily resident in Zim during the ty.
No credit will be granted if the disability is transitional or temporal (must be permanent)
Ordinarily resident
to be ordinarily resident usually obvious. Tp has only residential property is in Zimbabwe and his
business or employment is in Zimbabwe
Approach in Zimbabwe needs to be established especially for people who have emigrated and still
have residential property and investments in Zimbabwe
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To determine income tax chargeable the following elements should be there:
Taxable income
Rate to be applied
Credits if applicable.
Section 8 deals with gross income
Section 14, 3rd schedule deals with excemptions
Section 15 deals with deductions.
Typical calculation of tax for company
Profits per finstats
Taxable income not included in profit
Deductions included in profit figure but disallowable in terms of ACT
Non-taxable income included in profit
Deduction / allowance not included in profit figure but allowable as a deduction in terms
of the AC
The acc for Magaba provides you with the following info for the tax year 2013;
Profit for the year is $86,481
Amount arrived at after taking into account the following
Trading receipts
Allowable deductions
Local dividends
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You are required to determine taxable income
Profits per accounts
Less exemptions:
Local dividends
Taxable income
Trading receipts taxable in terms of section 8(1)
Deductions are allowable in terms of section 15
Two types of gross income
1. The general definition, section 8(1)
2. Specific inclusion, section 8 (1a) – 8 (2)
Under specific inclusion, gross income is defined as income that does not qualify under the general
definition of gross income but because the Act specifies the amounts to be included, the amounts
become part of gross income.
Gross income general definition,
“gross income” means the total amount received by or accrued to or in favour of a person or
deemed to have been received by or to have accrued to or in favour of a person in any year of
assessment from a source within or deemed to be within Zimbabwe excluding any amount (not
being an amount included in “gross income” by virtue of any of the following paragraphs of this
definition) so received or accrued which is proved by the taxpayer to be of a capital nature and,
without derogation from the generality of the foregoing, includes—
(a) any amount so received or accrued by way of annuity other than that part of that amount which,
in the opinion of the Commissioner, represents, in the case of an annuity the right to which was
acquired by means of the payment of the annuitant or his spouse of a sum of money or the disposal
by the annuitant or his spouse of an asset or by both those means, a return of any part of that sum
of money or of the value of that asset in respect of which a deduction or a credit in terms of this Act
is not allowable or an abatement, deduction or rebate in terms of a previous law was not allowable;
Provided that, in the case of an annuity on retirement as defined in paragraph 1 of the First Schedule
the right to which was acquired from the disposal of any part of a lump sum payment to which
reference is made in paragraph 3, 4, 7 or 8 of that Schedule, the whole of such annuity shall be
(b) any amount so received or accrued in respect of services rendered or to be rendered, whether
due and payable under any contract of employment or service or not, and any amount so received
or accrued by reason of the cessation of the employment or service of a person other than a benefit
(not being a pension or gratuity) received or accrued by reason of contributions made to the
Consolidated Revenue Fund, and any amount so received or accrued in commutation of amounts
due under a contract of employment or service.
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Highlights of above definition
1. Gross income is total amount received / accrued to a person or taxpayer
2. Gross income can be judged to be received by / accrued to the taxpayer which implies that
the income might be for another person.
3. Gross income is accrued or received in a tax year.
4. Should be from a source within Zimbabwe
5. Can be judged to be from a source within Zimbabwe.
6. Gross income is not a capital receipt.
Total amount means the gross receipts or accruals and not net amount after deducting any
expenses or any other deductions. It also does not refer to the profit figure.
Amount is defined in section 2, as:
1. Money;
2. Any property received in kind which can be tangible or intangible with an ascertainable
money value.
W Lategan v CIR (1926) 2 SATC 16 GI = property corporeal or incorporeal with ascertainable $ value
The judge said that the word amount should be given its wider meaning not just restricting it to
money but to include property corporeal or incorporeal received or accrued to the taxpayer that had
an ascertainable value.
CIR v Butcher Brothers (Pty) Ltd 13 SATC 21 GI must have an ascertainable $ value
The Commissioner could not establish the amount representing the value of improvements made by
the lessee to the leasehold property. Because no amount was established by the Commissioner, the
court decided they could not be an inclusion in the gross income of the lessor.
The fact of the above case is that the taxpayer owned land that was leased to a cinema company for
a period of 50 years with further option to extend for another 49 years. In terms of the contract, the
lessee was obliged to erect a Cinema building at his own expense. At the end of the contract, the
building would become the lessor’s at no cost.
The onus is on the Commissioner to come up with a basis to value benefits received in kind. When
the Commissioner sets the system, the onus shifts to the taxpayer.
Cost to the employer basis
The teacher will be taxed 50% of fees that will be paid by another child per teacher’s child to a
maximum of three. If the teacher has more than 3, the 4th child+ will be taxed.
Where there are exchanges, the basis that the Commissioner uses to ascertain the monetary value is
the market value.
For example, if a person trades in a motor vehicle for a new one, the trade in value will be based on
market value. It is irrelevant whether a taxpayer has received a benefit or not.
Notional Income
Although it can be quantified, it does not constitute an amount because it remains a possibility but
not a reality.
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CSARS v Brummeria Renaissance
Developers received interest free loans from the future occupants of a retirement village which
granted occupancy rights to lifelong occupation of the units. Upon termination of the rights, through
death or cancellation, the occupant was refunded the loan. The occupant could not sale the unit, the
developer retained ownership of the unit. The developer was therefore receiving interest free loan
in exchange for life rights by the occupants. It was held that the loan itself was not gross income but
the interest-free was linked to the rights acquired by the occupants. This was gross income since a
monetary value could be determined. The notional interest was taxable.
Received by:
It is not defined in the Act
Actually receiving – this can also take place even though an amount may not be actually in the
possession of the taxpayer. This can happen in the in the following circumstances. If the person has
access & control over the amount which may have been credited to person’s account or which might
have been set apart for the person or otherwise made available for the prson to draw on it in the tax
An amount that is received by someone else on behalf of the taxpayer
In this case the taxpayer is deemed to have received the amount as long as he is entitled to it, e.g.
debt collection by taxpayer or receipt of rentals by estate agent.
Receipt of illegal income
If the amount is for business activities it still consists a receipt. It is irrelavent if it is an illegal activity.
ITC 1545 (1992)
The taxpayer was a dealer in stolen diamonds knowing them to be stolen The court held that the
proceeds from the sale receipt or accrual amounted to gross income. This was so because the
taxpayer was receiving the amount on his own behalf & for his own benefit irrespective of the fact
that the person was involved in illegal activity.
CIR v Delagoa Bay Cigarette Co (1918)
The illegality was irrelevant.
Overcharged amounts in the case of business
These constitute a receipt when received because a contract would have been entered into.
ITC 1624
An agent was recovering disbursements on behalf of a principal. The agent defrauded one customer
by claiming & receovering an amount in excess of the amount disbursed. The amunt was reflected
on income as a receipt and at the same time a deduction was also claimed by the principal to show
its obligation to restore what was unlawfully taken.
It was held that the amount had been paid to the taxpayer as part of its business receipts and
therefore it was part of business income. No deduction was allowed as there were no proceedings or
intimation of an action to recover the amount as yet by the customer & the customer had not
discovered the fraud.
If an amount is received from illegal activity & later the taxpyear is required by law to payback the
amount, it does not absolve the taxpayer from the fiscus responsibilities of paying tax.
Receipts of deposits
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When a deposit is paid for a container containing a product being sold. The deposit constitutes a
receipt in most cases.
Brookes Lemos Ltd v CIR (1945) Deposit GI becoz receipient benefited from deposit - bottles
A company received deposits for glass containers of product that were supplied to customers. The
company contested that the deposits were not receipts but amounts held in trust for the customer.
The courts agreed the amounts were held in trust & did not constitute receipts, but said that this
was not so in the case. The receipts were gross income because the recipient benefited from the
ITC 675 (1949)
Prospective purchasers of day old chicks to be delivered in the future paid a deposit which was not
refundable at the instance of the depositor. The amounts were held to be receipts in the hands of
the seller.
C v COT (1984) Deposit not GI as they were deposited in customer accounts
A petrol company had to pay cash for fuel it purchased for reselling. It requested its customers who
wanted to purchase fuel on credit to estimate one twelfth of their expected annual fuel purchases
fro the company and pay the one twelfth as a deposit. The company used the amount to purchase
fuel. This amount was however not reflected in the customer’s monthly statements or utilised vs the
monthly purchases of fuel. The amunts were credited to the respective customers in the company’s
books. The deposits were held not to be advance payments for fuel to be supplied but a form of a
loan. These amounts did not constitute a receipt.
Situation where an amount is not a receipt
An amount is not received by the taxpayer when he / she is not entitled to it.
Geldehuys v CIR
A usufrunt trust had been set-up, the children owned the sheep while the widow enjoyed the
income. The children & their mother decided to give up farming. The sheep were sold & the
proceeds were deposited into the mother’s account. The commissioner taxed the widow. It was held
that the sheep sold were less than the sheep that had been inherited. There was no profit to which
the mother was entitled to. The amount all belonged t the chidren.
If a receipt is a stolen amount
COT v G (1981)
The court held that the receipts taken by the taxpayer did not consolidate a receipt in terms of the
definition of gross income because the taxpayer had no right to the taking & therefore there was no
entitlement. The taxpayer had misappropriated funds in his car and therefore did not receive the
money on his behalf and for his own benefit. The taxpayer intention and the employer’s intention
who passed on the funds was crucial. The employer had no intention for the taxpayer to do as he
liked. (the employee is not receiving on his own behalf but on behalf of the business.
Receipt of a loan
CIR v Gen & Co. pty ltd (1955)
It was held that borrowed money is not a receipt since at the same moment that the borrower is
given possession of the amount, he falls under the obligation to repay. It is therefore not received
for his own behalf.
An amount held in trust
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It is not received for the taxpayer’s own behalf not for the taxpayers benefit. Separate accounts are
usually opened which is separate from accounts holding funds for the day to day running of the
Is referring to income that has not been received S (10) (7) of the ITA states that if a person becomes
entitled to income in the tax year & receives it in the following tax year, the accrual tax period is
when he becomes entitled to it and not whn it is received. The meaning of accrued is not clarified in
the Act.
Lategan v CIR (1926) Accrued = entitled
The taxpayer was a wine farmer and he entered into an agreement to sell his wine to a corporative
company. A portion of the selling price was paid prior to the end of his year of assessment and the
balance was to be paid at the end of the year of assessment.
It was held that accrued means become entitled to which mean means the instalments payable in
the following tax year in respect of wine produced during the year of assessment formed part of the
gross income for the year.
CIR v Delfos (1933) Accrued = due & payable
Two of the judges in this case interpreted accrued to mean due and payable. This interpretation can
mean, income can be taxed in different years of assessment because an amount can be due in this
tax year but only payable in the next tax year.
Delfos was entitled to remuneration of GBP3200 p.a. This was credited to his account as a director.
During 1924 – 1929, the company was going thru financial difficulties & less than ½ was actually paid
to him. Unclaimed balances were claimed as bad debt debts & the commissioner allowed. In 1930,
all arrears were paid & the commissioner taxed the whole amount in the year of receipt. Delfos
objected because he felt that the amounts should be taxed in the year that it was due.
When there is a condition accrual will only take place when the condition is fulfilled
Hersov’s Estate v CIR (1957) Accrual only takes place after condition has taken place
The court held that the amount that hersov had stated in an agreement with his co. shld be paid
2mnths after his death into his estate was only taxable in the estate’s hands as this is when the amt
is accrued. The agreement stated that the co.
The court held that the amount that Hersov had stated in an agreement with his company should be
paid 2 months after his death into is estate was only taxable in the estate’s hands as this is when the
amunt is accrued. The agreement stated that the company had to prepare a balance sheet within 2
months after his death & 2 ½ % of the excess assets where to be paid over to his estate.
Silverglen Investments v SIR (1968) Income will be taxed on receipt / accrual basis whichever
comes 1st
The court held that a taxpayer is obliged to decline income received & accrued & commissioner is
not at liberty to tax either on receipt basis or accrual basis. The commissioner cannot postpone
disclosed income to another tax year. Income will be taxed on a receipt / accrual basis whichever
comes first.
Maguire v COT (1966) Income accrued in prior years & not taxed will be taxed the following year
Income accrued to the taxpayer in an earlier year & was for some reason not included in that year.
The commissioner taxed it the following year. The judge said the taxation of gross income is not
limited to accrual.
Page 6-8 of student guide.
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In favour
Means on behalf of or for the benefit of the person.
Person as defined in S(2) includes a company, a body or persons, corporate or unincorporated not
being a partnership, local authority, a deceased or insolvent estate and a trust with no beneficiary.
A person can be a resident or non resident of Zim. There is no residential qualification for a person.
A child is taxable
Spouse taxed separately
Deemed received by & accrued to
The commissioner invokes or judges a receipt or an accrual to have taken place through conditions
covered in S(10).
Section 10 (1)
States that an amount is deemed to have been accrued to a person despite it being invested,
accumulated, capitalised by the taxpayer. If it has not been paid over to the taxpayer but has been
credited to an account or invested or accumulated or capitalised or otherwise dealt with in his
income or on his behalf it will be deemed to have been accrued.
Section 10 (2)
Income from a partnership accrues to the partners on the accountancy
Section 10 (3)
Income accruing to a minor child as a result of a donation, settlement or other disposition is deemed
to be income accruing to the parent.
If minor child qualifies as taxpayer, he / she will be taxed.
Overstone v CIR (1980)
Section 10:4
This section is mainly there to counteract evasion
A minor child becomes entitled to income in pursuance of a donation, settlement / disbursement
made by a 3rd party, i.e. a person other than the parent and the parent or near relative of the minor
child has made a donation to the 3rd party or his near relative, the child’s income will be taxable in
the hands of the parent.
What is taxed is the income that is generated by the donation
Near relative
a) Means a linear assent of an individual e.g grandparent, great grandparent and includes a
step father / step mother.
b) A child or linear descent of an individual other than a child.
c) Brother, half brother, step brother, sister, half sister, step sister, uncle, aunt, nephew and
d) Adopter / adopters of an individual.
e) Spouse of a relative of an individual referenced to in a-d above
Time is a minor. Tim’s cousin, Joe donates $30k to Tim. Interest on the $30k during he taxyear 2013
is $3600 accrues to Tim. Three years ago, John, Tim’s father donated his business to Joe.
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In terms of section 10:4, cousin does not fall into the definition of near relative. The income will be
taxed in the hands of the minor child, Tim.
Section 10:5
Deals with situations whereby a person makes a donation commonly to a trust for the purpose of
divesting himself of the right to the income from the the donated assets but at the same time
withholding such income from the beneficiaries until the happening of some event. The event can be
a fixed or contingent event.
Examples of events
1. If the distribution is left to the trustees discretion
2. The event could be death or marriage or attainment of a certain age.
Income accruing from such a donation is taxed in the hands of the donor.
Section 10:5 refer to a situation where the donor is still alive. Where the trust has been formed, that
trust is called a intervivos trust, that is, it has been established when the person was alive.
Testamentary trust is established as per the person’s will, i.e. when the person has died.
Section 10:
Deals with income from any deed of donation, settlement or other disposition in which there is
confer upon the settler, the right to revoke or to confer the income upon another beneficiary. In
such circumstances, the income is deemed to be the income of the settler or settlor so long as he
retians those powers
The tax year means from 1/1 – 31/12 and is 12 months but it can also be a period declared by the
tax authorities for various reasons, e.g. year that the FDS ws introduced, there were 2 tax years.
A period assessment is there is death of the taxpayer or when the taxpayer is declared insolvent.
Income can be included / exclude from gross income by looking at the date that it occurred.
Income that may not be taxable in this period will not escape tax but will be taxed in another period
Source is the real originating cause of the income.
CIR v Lever Brothers & Unilever Ltd (1946) Source is originating cause
The judge said that the source of receipts received as income is not so much where it comes from
but the originating cause of their being received as income. Originating cause is the work done by
the taxpayer to earn the income. The work done by the taxpayer is the business carried on activity
taking personal / physical / mental effort, employment of capital to earn income or renting it out for
use by someone else. As long as the originating cause of the income is Zimbabwe, it does not matter
where the funds are from neither is there a need for the earnings to be remitted to Zimbabwe. EG if
a person is working from an NGO in Zimbabwe, but the income is coming from abroad, the income
will still be taxed.
1. Dividends
The country where the company is incorporated which is where the share register is kept is
the source of the dividends.
2. Rent from immovable property
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Where the immovable property is situated is the source of the rental income because the
originating cause is the use of the property in that country, i.e. where the capital is
3. Rent on movable property
The principles that we will look at are derived from the case of
COT v British United Shoe Machinery (SA) (Pty) Ltd Long lease, source is place of use of
asset by lessee
From this case the length of the lease is very important. The case established that a long
lease, i.e. +5 years has the source as the place where the lessee uses the asset. In the case of
a short lease, the source will be where the lessor conducts his business.
4. Income from services rendered
When employed, the originating cause is the rendering of services by the taxpayer. The
place where the employment contract is concluded / where remuneration is paid does not
determine the source. This does not apply to occasional employment where someone comes
from another country where he is employed comes to tender his services in Zimbabwe on an
accessional basis.
If a person is specifically employed in a business both inside & outside Zimbabwe, income
from services rendered will be apportioned probably on a time basis. The contract of
employment will be the crucial document to establish the basis.
5. Income from business operations
The source is where the business is being conducted. This is the country in which business
operations are carried on, i.e. where capital is employed. It is not always as clear to
determine where ops are carried on because ops may be carried on in more than 1 country
or a contract is concluded in a different country.
Overseas Trust Corporation Ltd v CIR (1926)
A finance & investment company carried on business in SA buying & selling shares. A parcel
of shares was sold through brokers in Germany. It was held that the source was in SA
because the company did not carry out business in Germany or employ any of its capital
CIR v Black (1957)
A stockbroker carried on business in JHB where he lived. He earned profits from
shareholding in London. It was held that there were 2 distinct business & profits earned in
London were not from an SA source.
ITC 1585 (1995)
A taxpayer company processed mineral concentrates in SA on behalf of the owners and
earned commission on further work on the material performed overseas by other parties. It
was held that commission was not from a source in SA.
ITC 1103 (1967)
The taxpayer manufactured flour and sold some through its branches in Zambia. The flour
was transferred at cost plus railage to the branch. The commissioner taxed 10% of the
factory cost. When the case went before the courts, it was referred back to the
commissioner for re-assessment on the grounds that the commissioner arrived at the 10%
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without requesting the taxpayer to submit a proposal of what was to be taxed as the portion
relating to the source in Zimbabwe. The importance of this case is that although there was
no court determination, the judge pointed out that goods manufactured by a taxpayer in a
country & then sold by the same taxpayer in another country would have some of the profit
accruing from a source in the country of manufacture. The business is Zambia was
responsible for part of the overall profit. The commissioner was entitled to ascertain &
determine what part accrued to Zambia & what part was associated to activities in
NB: If business is situated in Zim, operates in Zim, if there is some business spillover into
another country, Zim is the originating cause.
If the business is carried out in Zim but is established in another country, the other country is
the originating cause.
Transvaal Associated Hided Skin Merchants v COT Botswana
The criteria that was used to determine the source was the country where the dominant
activity was carried out. The source of income was held to be where the dominant activity
took place. The approach to follow is therefore not very clear but where there is a double
taxation agreement, the agreement can clarify how tax profits from the 2 countries can be
taxed. The UK double taxation agreement with Zim outlines the following:
 Tax profits attributable to a permanent establishment in Zim of a company
incorporated in the UK will be from a Zim source & if the company has no
permanent establishment in Zim, all the profits will be taxable in the UK.
Where the trade is carried out both in Zim & another country & it is impossible or
impractical to determine taxable income in the manner provided for in the Act, the
taxpayer should in terms of Section 19 submit a proposal for the determination of the
taxable income. The commissioner has power to determine the taxable income if the
proposal is unacceptable or if one is not submitted.
If a non-resident is carrying out business within Zim then exports the products for sale in
another country, a proportionate part of any profits derived from the sale or disposal
out of Zim in terms of Section 19 will be from a source within Zimbabwe.
Where a trader purchases goods in Zimbabwe, then sells then in another country, this
can cause a problem. The general approach for the source of income will be the country
of sale.
Epstein case
The taxpayer was an agent for a partnership based in Argentina. He was sourcing
asbestos in SA and sending it to Argentina where it was sold. It was held that the source
of the his share of profits was SA because it was held that the originating cause of the
income was the activity that he was carrying out in SA. The share of profits of the other
partners resident in Argentina was not from a source within SA.
NB Student guide 11-13
6. Directors fees
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A director provides his service at the HQ where his voice is heard & therefore the source is
where the HQ is. If the director is an executive director, the source is determined by the
rules determining the source of services rendered.
7. Royalty fees
The source of the fees is where the author exercised his wits, labour & interlect.
Millin v CIR (1928)
Mrs Millin wrote books in SA which were published in England under a contract negotiated
there. The source was held to be SA. The approach applies to income on patent rights &
similar accruals for inventors.
Royalties for extraction of minerals
The source is determined by the place where the mine is situated.
8. Originating cause of interest Lever Brother & Unilever case
The Lever Brothers & Unilever Ltd case is the living authority. The originating cause of the
interest is the place where the credit was provided and not the loan. Credit was provided
outside of SA to a borrower resident in SA. Funds were used & interest was paid from SA.
The agreement was entered into outside SA & therefore the services were not rendered in
9. Annuities
The source is the place where the act / document is created. For a purchased annuity from
an insurance company, the source is where the contract is concluded.
For a trust established through a will, it is the place where the deceased wrote the will.
Zimbabwean director of a company with HQ in Namibia attends directors meeting in SA & earns
$2,600 for this meeting.
Is not from a source within Zimbabwe because the HQ is in Namibia.
Company A, resident in UK provides loan to Company B resident in Zimbabwe.
Loan provided in UK, the funds are available to company B in UK. The interest is not from
a source in Zimbabwe.
Company A provides the loan in Zimbabwe. The interest is from a source within
Applicable legislation for deemed income is Section 12 which deals with income which is doubtful.
Section 12 (1) (a)
The proceeds of any contract in Zim for the sale of goods are deemed to be from a source in this
country by a person carrying out business. This implies that if a non-resident signs a contract in Zim
to sell goods that he produces in his country, either here in Zim or in another country, the proceeds
from that sale will be deemed to be from Zim.
Section 12 (1) (b)
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Receipts for any services rendered in the carrying on in Zim of any trade irrespective of where or by
whom payment is made are deemed to be from a source within Zim
Definition of trade
Includes almost anything that is done to create wealth and includes any profession, activity or
ITC 56 (1926)
An accountant was practicing in SA & he performed audit work outside the country. It was held that
trade was carried within SA.
ITC 1105 (1967)
An insurance assessor carrying business in Zim carried out a loss investigation in Zambia & Malawi.
Reports were prepared in the Harare office. The fees were deemed to have been earned while
carrying out business in Zimabwe..
NB This does not apply to distinct trades for income o deemed to be from an activity in Zimbabwe. A
close link with the activities carried out in Zimbabwe should be established first. Where the link has
been established, the length of absence will be irrelevant.
Section as (1) (b) applies to business / professions but because the word trade is used, employment
cases may apply.
ITC 1130 (1969)
A salesman based in Harare travelled to neighbouring countries to effect sales. His commission was
held to be taxable in Zimbabwe in its entirety because of the close link of earnings for services
rendered outside & his employment in Zimbabwe.
If an MD of a holding company in Zimbabwe visited a subsidiary company in another country in his
capacity as a chairman / MD of the company, the earnings from such a visit would not be from a
source within Zimbabwe.
Section 12 (1) (C)
Deals with income from services rendered by an employee & this includes a company director who is
ordinarily resident in Zimbabwe during a period of temporary absence from Zimbabwe shall be
deemed to be from a source within Zimbabwe.
Temporary absence
Means an absence for a period not exceeding in the aggregate, 183 days in any year of assessment.
To do Illustration
Mr Lazarus visits Namibia during the tax year. While he is there, he is employed by Home Builders
Warehouse, a retailing shop for building material as bookkeeper. He earns an equivalence of
You are required to state the amount to be included in his gross income for the tax year in the
following circumstances:
a) The aggregate period that he was in Namibia was 163 days.
b) The aggregate period that he was in Namibia is 186 days.
c) If instead of being employed by Home Builders, he was contracted as a consultant.
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d) He is employed in Zimbabwe & his employer transfers him to work in Namibia for an
aggregate period of:
163 days
185 days
Section 12 (1) (d)
Deal with income from services rendered to the Zimbabwean Government either within or outside
Zimbabwe. The income shall be deemed to be from a Zimbabwean source. However, any amount
received by or accrued to or in favour of a person by virtue of services rendered outside Zimbabwe
shall not be deemed to be from a source within Zimbabwe, if the person was not ordinarily resident
outside Zimbabwe solely for the purpose of rendering service to the Zimbabwean government.
Section 12 (1) (e)
Any pension or annuity that arises from services rendered by a taxpayer from a source within or
deemed to be within Zimbabwe, the amount is taxable whether the taxpayer is still resident in
Zimbabwe or non-resident. Any pension or annuity for services rendered wholly or partly outside
Zimbabwe will be excluded wholly or only the part for services rendered outside Zim for gross
income. Where the services rendered were partly outside Zimbabwe, the amount to exclude will be
determined by apportioning the pension / annuity receipts based on the time served outside
Zimbabwe. If a person that did not render service becomes a recipient of a pension / annuity from a
non-Zimbabwean fund, will not be taxable on that amount, EG, when a widow becomes the
beneficiary of a pension for service that were rendered by the late husband from a fund outside
Section 12 (2)
Foreign interests & foreign company dividend shall be deemed to be from a source within Zimbabwe
if at the time the income accrues, the person is ordinarily resident in Zimbabwe.
Note on foreign dividend
Dividends are not to be offset against any assessed loss in the tax year.
Dividends are taxed at 20% and interest is taxed at the normal rate of 25%.
Amounts must be included in gross income as total amount including any tax paid in a
foreign country.
Section 12 (3)
Deals with an annuity paid for by a taxpayer from a source outside Zimbabwe, EG, if insurance
company is foreign and outside Zimbabwe, tha annuity shall be deemed to be from a source within
Zimbabwe if the person was ordinarily resident within Zimbabwe when he first became a member of
the fund.
Paid for can be in cash or otherwise / kind & at the time of payment / purchase must be ordinarily
resident in Zimbabwe.
To do Illustration
Mr X purchases an annuity from an insurance company in Botswana in the tax year 2011. During the
tax year 2012, Mr X dies and Mrs X becomes the beneficiary of the annuity. During 2013 tax year,
Mrs X receives the annuity.
State the position of the annuity under section 8 (1) or general definition of gross income.
Section 12 (4)
An amount paid for the use in Zimbabwe of any film, patent, design, trademark, secret formula or
any knowhow will be deemed to be from a source within Zimbabwe. This applies to the granting of
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permission to use & related knowhow regardless of where the patent / knowhow was produced or
imparted. This only refers to the revenue income which will be the continual receipt of income for
the continual use of a patent & excludes any capital receipt, for the example, payment of a
surrender of the patent.
1. A receipt will either be of a capital or an income nature but the same receipt can’t be both.
2. A single receipt may be apportioned between its capital & income elements, e.g. a contract may
stipulate that a person is to receive both income and a capital amount. The amounts/ratios may
be mentioned and it will be easy to determine which portion relates to income and which to
capital. If the actual amount/ratios may be mentioned, some basis of apportioning may be used.
3. Fortuitous receipts, gifts and inheritances are generally of a capital nature.
The basic principle to determine whether an item is of a capital/revenue nature is to examine
the intention underlying the transaction. If there is + 1 intention, the dominant intention will be
used. As a rule of thumb, any transaction that is undertaken for making profit is taxable despite
the fact that it might be an isolated transaction.
1. Was there a motive for profit making at the time the item was acquired?
ITC 1494 (1991)
It was found that the farmer that sold timber was wasting through rotting (the trees were not selfrenewing), no scheme of profit making was involved. The receipts were capital in nature. The farmer
was trying to make the best advantage of the situation that he found himself in.
2. What are the benefits from the transaction?
The intentions can sometimes be determined by looking at the benefit that comes out of a
transaction. If the ensuing benefit is short term, the expenditure could be considered to be on
revenue account and if it is long term, it is capital.
Subjective tests when courts try to determine whether there was a profit making motive/not.
Subjective tests is what the taxpayer says was his intention and what plans were and the time of
engaging in the transaction. The court takes seriously what the taxpayer thins. However the
intention may be tainted with self-interest and sometimes the taxpayer may not recall the actual
reason why the acquired asset or the taxpayer was not quite decide of the reason why they
were purchasing the asset or the possibility of mere reconstruction and the taxpayer’s credibility
becomes crucial.
Objective tests
A man buys a car with the intention of immediately selling it at a profit, his intention is
subjective and it is not easy to establish. Once he has sold the car, the fact that he owned the car
2 days becomes an objective and measurable factor which indicates that his intention was to
trade with the asset. Proceeds from such a sell would more likely be included under income. The
intention has to be considered with all other relevant factors.
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Objective factors
1. Circumstances surrounding the acquisition or sell of property
An acceptance of an unsolicited offer to buy property not on the market or being advertised
for sell but is being sold because of expropriation reasons as long as the asset was not part
of trading stock will be a very strong indication that the asset was acquired to be held as an
investment and therefore the proceeds will not be revenue in nature.
2. The nature of the taxpayer’s occupation
The continuity of activities
 Has the taxpayer acquired similar assets from time to time.
 This is not conclusive as the transaction could be an isolated transaction.
4. The history of holding onto the asset
 Short holding periods can indicate speculative motives. A number of times that the
taxpayer refuse to part with the asset can also indicate:- Its important to note that a short holding period is not indicative of a profit making
scheme because the sale may be forced due to family changing circumstances. A long
holding period although it can be indicative of a capital in nature transaction should
not be the only deciding factor. The intention at acquisition and continued holding
should still be looked at.
5. Documentary evidence
Correspondence agreements can be used to determine the intention. Accounting treatment
of the profit can be used to determine intention.
6. The ability of taxpayer’s financial resources to accommodate the professed intention
If the taxpayer gets a short term loan to purchase an asset rather than using personal funds,
this can be indicative of a speculative purpose. However, note that liquidity problem during
a period of ownership do not necessarily mean profit making motive, other factors have to
be looked at to determine the original intention.
When there is a change of intention, a mere decision of selling an asset of a capital nature
does not mean a change of intention has taken place. An enquiry must be made as to
whether the taxpayer was just realising the asset to the best advantage or using the asset
for profit making business.
Rough guide in determining whether receipt is capital/revenue
 Look at whether a transaction is of a floating capital or a fixed capital transaction.
 If the amount flowed from the asset but the asset remained in ownership, the amount
should be considered revenue e.g. rent
 If the amount flowed from the sold exchange of an asset, the receipts are capital in nature
and in general the principle applied is that of a tree and its fruits.
 The tree is capital in nature and the fruits will be revenue in nature.
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Proceeds from damages/compensation
The useful test that you have to apply is to determine what hole the payment fills. If the payments
are filling in the hole for profits, the payment/proceeds will be income in nature. If the proceeds for
filling in a hole of a fixed capital asset, they will be capital in nature.
Restraint of trade
Receipts are capital in nature, e.g. if you agree not to operate in a specific area for a defined period,
you are giving up the right to generate further income. That right is a capital structure and therefore
by giving up, it is a sterilisation of a capital asset and therefore the proceeds are capital in nature.
Proceeds from gambling
Gambling activities that are systematically undertaken become business or a profit making scheme
and the proceeds will be income in nature. If gambling activities are undertaken as a form of
entertainment, including hobby, the proceeds are capital in nature. It is very critical to determine
the intention of the taxpayer.
Proceed Grace Horse Owners & trainers
For this particular type of person, the proceeds whose batting is a regular practice are taxable
because it is difficult to distinguish jackpot winning from betting activities. The objective test being
applied is the occupation.
ITC 1508 (1991)
A Zimbabwean civil servant bought a car while on an overseas posting and sold the car in Zimbabwe
soon after returning. He was taxed on the proceeds because it was held that the motive of
purchasing the motor vehicle was a profit making scheme. This case shows that isolated transactions
can be taxable.
Inheritances, gifts and prizes
Receipts from the above are capital in nature unless the asset is sold in pursuance of profit making
scheme for example, if the inherited asset became part of the business carried on by the taxpayer.
Closure of business and sell of goodwill
Proceeds from trading stock in the course of winding business are income in nature. It does not
matter whether the business is sold lock, stock and barrel. Amount received for goodwill is capital in
nature, however if the seller bought the business in order to sell the goodwill at a profit, the
proceeds are income in nature. Goodwill must be a fixed amount to be capital even if it is being paid
as a lump sum or an installment.
Sale prize of business
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Trading stock
Other assets
$ 5,000
$ 9,000
$ 6,000
Trading stock – revenue in nature
Goodwill and other assets – capital in nature under normal circumstances.
Proceeds received in consideration for the granting of an option to buy an asset held by the grantor
as capital are of a capital nature.
Example – If a company is going to sell shares to employees through options.
Insurance proceeds
Proceeds for claims on loss of stock due to damage are taxable/revenue in nature.
Claims on loss of fixed assets, if there is no recoupment are capital in nature. If there is a
recoupment, the insurance proceeds are used to replace the asset within 18 months from the date
of damage and the asset is bought to use within 3 years from the date of damage will not be taxable.
Any amount received from an insurance cover for loss of profits is also taxable. Lump sum receipts
from policies taken by the taxpayer for payment or for a claim on the happening of an event are
capital in nature, e.g. policy to cover car, if car is involved in accident, payment is capital in nature.
Section 8 (1) (a)
Bring into gross income any amount received or accrued by a taxpayer as an annuity.
Section 8 (1) (a) brings into gross income any amount received or accrued by a taxpayer as an
Has to fulfill the following conditions: Has to be a fixed annual payment which could be paid in installments
 It is repetitive from year to year in perpetuity or for a certain period.
 It is chargeable against some person
How does annuity arise?
It can arise in following circumstances: From the will of the deceased
 Or it can be from a contract and this includes a purchase of an annuity from an insurance
 It can be from a deed of donation.
 It could be a pension from a pension fund or an annuity from a retirement annuity fund.
 It could arise from the sell of assets, e.g. goodwill of the business.
It is important to note that the revenue nature of an annuity is not dependent on the originating
cause or type of the income. Generally, donations, inheritances and goodwill are capital in nature
but once the payment is in the form of an annuity, they become taxable.
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Treatment of different types of annuity
Purchased annuity
Only the interest content is taxable excluding the purchase prize which would not have been allowed
as a deduction at the time of purchase. Rept Practice 34 provides a formula of how we calculate the
interest component.
Where:I is the interest component of the annuity.
P = annual payment
N = No. of payments expected. These can be definite/indefinite
In the case of an indefinite period, use the number of years based on the life expectancy of the
annuitant obtainable from insurance companies.
A = purchase price of the annuity not allowed as a deduction
1. Where the full amount of the contributions/purchase prize has been allowed as a deduction, the
annuity receivable is taxable in full and therefore the above formula will not be applied.
2. Sums received after normal expectation of life has been exceeded will be taxable in full as the
whole capital cost of the annuity would have been allowed in full.
3. The formula only uses the period referred to on n and is not adjusted if annuitant exceeds
expected life period.
4. An annuity on retirement purchased out of a lump sum payment from a pension is taxable in
full. The deduction would have been allowed in full.
Anna purchased an annuity for $30k from Eagle Insurance Company using part of a lump sum
payment she received from her employer as gratuity upon retirement. She is now entitled to a
monthly annuity of $1500 for life. The life expectancy is estimated at 10 years. She received the
amount from January 2002 to 31 December 2012. Calculate the taxable amount for the 2012 tax
= (1500 x 12) x 10 – 30000
Annuity from donation/inheritance
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This type of annuity is either taxable in full or not taxable in full depending on where the fund is
E.G. An annuity with a fund situated outside Zimbabwe received by a widow who is a beneficiary of
an annuity that was being received by the deceased husband who had rendered services in
Annuity arising from a sell of an asset
The formula used under a purchased annuity will be used and the cash value of the business at the
date of sell being accepted as the purchase price of the annuity A. The installments receivable
should be inclusive of interest.
Annuity in form of pension
The amount of a pension subject to tax cannot be reduced by the deduction of the capital cost
portion if the annual contributions have been allowed as a deduction. The amount of any arrear
pension fund contribution/ordinary contributions which would have not been allowed as a
deduction because of some technicality could be claimed as representing part of the purchase price
of the pension.
During a tax yar 2012, Anna received $6,000 pension.
a) The aggregate disallowed pension contribution while she was contributing to the pension
added to $15,000. Her life expectancy is 10 years.
b) Contributions were allowed in full
c) $20,000 of expected pensionable amount was commuted
a) (6000 x 10) – (15000)
= 4500
b) 6,000
c) (6000 x 10) –(15000-5000**)
**20000/60000 = 1/3
1/3 x 15,000
Section 8 I (b)
Captures amounts paid because of the employee / employer relationship. Services rendered by the
employee are the originating cause of the employer paying the income.
Examples of such payments are salaries, CILL allowances, benefits & severances.
It is important to note that:
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when an amount is paid in advance for a service yet to be rendered, the amount will be
taxed in the year of payment
Any amount paid for services rendered by an employee to the employer that will be
taxable will be brought into gross income whether or not there is s contractual
agreement in existence.
An amount will be taxable if it is not cash but in another form which has an ascertainable
monetary value.
An amount will be taxable even if it is unexpected or is gratuitously given by the
employer to the employee.
An amount that is given by a third party to an employee could be taxable if there is a
close link with employment, eg, teachers levy paid by the parents. This can be
controversial and for that refer to page 35 of the student’s guide.
Stande v CIR 1997
The taxpayer who won a prize as being one of the top 5 accountants of franchise dealers
marketing vehicles from a major manufacturer. The prize was an overseas trip for himself & his
wife. The cost incurred by the manufacturer was taxed in the taxpayer by the commissioner. He
court held that this could not be considered as payment for services rendered becoz the
taxpayer did not render services to the manufacturer and also did not expect any reward from
the manufacturer. The court also felt that the prize fell out of the term amount & the factors
that they took into account was that there were no vouchers or tickets given to the taxpayer nor
was he allowed to exchange for cash so as not to go for the trip.
Wedding gifts
If the employer claims a deduction/if the amount is exorbitant, the receipt will be included in gross
income. Exorbitant = +$50
Uniform purchases
If an employer gives an employee money to purchase uniform which is required at the work and
can’t be used for other occasions, the amount will not be taxable. It will come into gross income but
will be expensed on employer’s tax schedule para 15.
Uniform like a nurse’s uniform, policemen’s uniform, firemen’s uniform. For bank employees where
suits, it will be taxable = second hand value of the suit will be taxable. If the suit is given in cash, it is
Cash in lieu of leave
Taxable in full in the year of accrual.
Leave pay in advance
Accrues monthly during the period of leave. If leave is in different tax years.
Reimbursements for expenses actually incurred for the employer’s business are not taxable. Proof to
be submitted (receipts).
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Tax free bonus = $1000 (currently)
Apply relevant amount in exam if this in changed in November.
Severance package
Severance package on retrenchment of employment on a scheme approved by the Minister
responsible for labour or public service.
$5,000 or 1/3 whichever is greater is exempt to a limit of $15000.
Mr A receives a retrenchment package of
a) $4,000
b) $15,000
c) $60,000
Calculate the exempt amount
a) $4,000 === Nil taxable amount
b) $5,000 === $10,000 taxable amount
c) $15,000 ===$45,000 taxable amount
Gross income
Less exemptions
Taxable income
Golden handshake
Taxable in full
Taxed in full
Share options
a) Where the option is exercisable at any time and unconditionally, the tax position is as follows: When the employee is granted the option by the employer a share with the exercise price
being the same as the market price of the shares on the date of granting, there is no tax
 If the shares are granted with the market price being the same as the exercise price on the
date of granting and when the employee sells the shares when the prize of the share has
gone up, there is no tax liability.
 If the exercise prize granted for the shares to the employee is less than the market value the
employee will be taxed on the benefit that will be the difference between the market price
and the option price. This will accrue on the date of granting whether or not the employee
exercises the option.
b) If the exercise of the option has condition, then accrual only takes place when the condition is
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Where there is a condition refer to the Mooi case where there were conditions on the option and
accrual only took place after.
If an employee is participating in an approved employee share ownership scheme/trust, any
sell/redemption by the scheme/trust of any shares/stocks/units of the employee in the
scheme/trust is exempt from tax.
Section 8 (1) (f)
Fringe benefits
This covers an advantage/benefits that an employee enjoys from employment and they are valued in
the following 2 ways:i)
Value to the employee
- This is the basis used for occupation of quarters/use of furniture belonging to the employer.
ii) Costs to the employer
- This is where all other benefits fall.
Various benefits
1. Housing
Value of the employee is often open to dispute and the commissioner yardstick tends to be in
the case of rent-free housing in a municipal area, the open market rental which may be reduced
by any payment the employee makes towards rentals.
Where the house is located outside a municipal area, the commissioner uses 12½ of the basic
salary or 7% of the cost of construction of the quarters.
ITC 210
Where the house is outside municipal area, the commissioner’s approach is based on the %; of
12.5% of salary, or 7% of cost of construction.
ITC 1374
Where the house is within a municipal area.
2. Where furniture is being provided by employer. The amount to be assessed as the value of
furniture provided by the employer should be 8% of the cost of the furniture. This can be
contested by TP.
3. MV benefit
Two forms of benefits:a) Use of employers car
b) Employer can sell MV below market share
a) Using
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Valuation of the benefit will depend on the engine capacity and the commissioner will tax
the amount based on a deemed cost. Deemed cost can be reduced proportionally where the
period of use is less than the year of assessment.
Engine capacity
Up to 1500cc
1501 – 2000cc
2001 – 3000cc
Over 3000cc
Deemed cost
UZ gives the academic registrar a MV with an engine capacity of 2220cc. he has the use of the motor
vehicle from July 2012 – December 2012. When he is given the car, the reading on the speedometer
is recording 109,000km. On the 21/12/12 it is recording 121000km 2/3 of the distance travelled was
for private purposes. The cost incurred by the employer in maintenance of the car is $3100. How
much should be taxed in the hands of the registrar.
Use only the deemed cost
= ½ x 3600
= $1800
Motor vehicle is sold or disposed to an employee whether during or on termination of employees
If the car is sold below market value, we use the following formula:a–b
Where:a = market value of motor vehicle
b = amount that employee pays for the motor vehicle
In terms of this been, there is no advantage/benefit to an employee that is 55 years or over on the
date of sell/disposal
*This will not be part of TP’s gross income in terms of Section 1 (f)
Loan benefit
Interest-free loan given by employer to employee
- Excludes loans for purposes of education, technical training, and medical treatment of the
employee, his spouse or child.
If loan is interest-free, the benefit is calculated by adding 5% to Libor rate where the loan exceeds
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If the employer charges normal interest, the above percentage shall be reduced accordingly.
Mudzi is given a loan of $500 by his employer interest-free on 1/5/13. The loan is repayable on
31/8/13. How much is taxable of LIBOR rate is 0,41% and the taxpayer pay off the loan on time.
(5,4% x 500) x 4/12
= $9,02
Loan = $5,000
Interest = 5%
Libor = 0,41%
Period = 1/5/13 – 31/8/13
(0,41% x 5000) x 4/12
= $6,83
The whole amount received as an allowance is gross income. The third schedule para 15 exempts
what is expanded on employer’s business.
Passage benefit
The cost of any journey undertaken by an employee, his spouse/child borne by the employer is
potentially a passage benefit and thus taxable in the employees hands.
There are however exceptions to this rule. A journey undertaken to take up employment is excluded
if it represent the first such benefit granted by the employer to that employee. The same applies to a
journey in similar circumstances on termination of employment. For dual purpose trips like where
the employee who is required to travel on business uses the opportunity for a period of leave, the
whole amount of the passage benefit is taxable in full except in instances where the period spent on
business exceeds 10% of the total period of absence in which case the amount of the employee’s
passage benefit applicable to the period spent on business is not taxable and is determined by the
following formula:AxB
Where:A = number of days spent on business
B = amount of the passage money applicable to employee
C = number of days of the employees absence
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School benefit
Teaching/non-teaching staff at a school of the benefit is the waiver of the whole or part of levies,
school fees, boarding fees that may be granted by the employer for the child of the employee.
EXEMPTIONS (related to fringe benefits)
1. Allowance for full time state employees specified by a statutory instrument e.g. housing,
transport, teacher’s incentives. This is in terms of para 4 of the 3rd schedule.
2. Transport and accommodation allowance/value of accommodation given to a staff member of a
mission hospital, rural clinic operated by a religious organisation in terms of para 4 (t) of the 3rd
3. Amount accruing as a benefit for injury, sickness or death paid to the taxpayer or dependants or
deceased estate par 6 of the 3rd schedule.
4. Amount accruing from an insurance policy covering accident, sickness or death para 7 3rd
5. Amount accruing from medical aid society paid by the employer on behalf of employee para 8 (z)
of 3rd schedule.
6. Amount paid by the employer on behalf of the employee or his dependants for medical
treatment and this includes transport to get to the treatment para 8 (I) of 3rd schedule.
7. Expenditure expended on the employer’s business para 15 of 3rd schedule.
8. Half the amount of the school benefits of teaching or non-teaching staff at a school. This is only
allowed to a maximum of 3 children para 8 (3) of 3rd schedule.
9. Amount for state employees posted outside Zimbabwe paid in excess of he would have incurred
if, he was leaving in Zimbabwe para 4 (j) of the 3rd schedule.
Premium Section 8 (1) (d)
A premium means a consideration having an ascertainable monetary value passing from a lessee to a
lesser in cash or otherwise. It is distinct from and in addition to Butcher Brothers Case. This amount
is paid for the right of lease of an asset e.g. use of land, plant, building, machinery, trademarks,
secret formula, film etc.
Tests to apply – identify
1. Must be distinct in nature
2. Should have an ascertainable money value
3. Should pass from the lessee to the lessor or it could by sub-lessee to sub-lessor.
4. It should be paid in addition/in lieu of rent
If a prospective tenant pays a consideration to get the right of use of an asset to an existing tenant.
Is this a premium or not?
It will be considered a capital receipt in the hands of the existing tenant because he will be ceding or
selling the right to use the asset.
Mr A = Landlord
Mr B = Tenant
Mr C = Being tenant for B
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If Mr C pays a consideration over and above rentals to B, Mr B is taxed because he will be the sublessor.
Treatment of premium
A lessor agrees to let out land to a lessee for a lump sum payment of $1000 in addition to a monthly
rental of $250. The agreement is signed at the beginning of the tax year. By 31/12 of the tax year the
lessee is still occupying the land. What is the gross income of the lessor and what are the deductions
allowed to the lessee.
The gross income is looked at in two ways:i) $250 rental income will be taxed in terms of section
ii) $1000 will be taxed in terms of Section 8 (1) (d) and will be included in gross income in the year
in which it accrues or is received.
For the lessee, he will be allowed deductions as follows:i) Deduction for the rentals in terms of Section 15(2)(a) if the asset is being used for purposes of
If he is also using the asset for trade he will be allowed a deduction in terms of Section 5 (2) (d).
The deduction is spread over the life of lease or 10 years whichever is the lesser.
Where the period of the lease is not stated on the agreement, use 10 years. Where the period is
extended, use the initial period only in calculations. In the year in which the lease commences, or
ceases or where there is cessation of the period for business use, apportion as appropriate.
If the lessee, acquires ownership of the asset before the period of spreading the deduction is over
the last claim is in the year of acquisition which means it ceases the following tax year. For use of
knowledge, the period to spread the deduction is subject to the commissioner’s discretion.
Mr George leases his factory to Mrs Samantha. They sign the lease agreement on 01/07/12, a capital
amount of $1200 was paid upon signing the agreement. Rental payment of $700/month is paid in
advance with the first instalment due on the signing of the agreement.
What is the taxable income in the hands of Mr George and deduction for Mrs Samantha.
a) For 2012 tax year
b) For 2013 tax year
Assure rental payments are paid on time to the end of the year in each case.
Written, and then typed by my own fair hands. Leo. M 2013©
a) Landlords taxable income for 2012
700 x 6 = 4200
Taxed in terms of Section 8 (I)
Premium 1200 =
Section 8 (I) (d)
b) Rental income
700 x 12 = 8400
Lessee deductions
a) Rental payments if this is being used for business purposes = terms of section 15 (2) (d) = 4200
Lease premium
1 200 x ½ = 60
2013 tax year deductions
Rental payments
Lease premium
Tutorial 4
If it is in a municipal area or If outside municipal area = (7% of 155000_ - 2500 or (12% of gross
salary) – 2500.
Furniture value at 8% of $12000
$550 will not be a fringe benefit
$1500 wages for cleaner is taxable in full
Engine capacity 2000cc = deemed cost = $2400
$750 local club = fringe benefit if it is not for the purposes of getting new business
$1325 is an actual re-imbursement and this is not a benefit and is not gross income.
The deduction is spread over the life of the lease or 10years , whichever is the lesser.
Where period of lease is not stated use ten years. Where the period is extended use the
initial period only in calculations.
In the year in which the lease commences/ ceases or cessation of use for business,
apportion as appropriate.
Premium for use of knowledge commissioner uses his
discretion period to spread.
If lessee acquires ownership of asset before period of spreading deduction is over = last
claim ceases the tax year following tax year of acquisition.
Written, and then typed by my own fair hands. Leo. M 2013©
• Mr A George leases his factory building to Mrs C Samantha. They sign lease agreement on 1
July 2012. A capital amount of $1 200 was paid upon signing the agreement, rental
payments $700 a month are to be paid in advance with the first instalment due on signing
the agreement. What is taxable income in the hands of Mr George and what are the
deductions for Mrs Samantha for
• A) 2012 tax year
• B) 2013 tax year. ( Assume rental payments are paid on time to the end of the year in each
a) Taxable income
$1 200 (S 15(2)d + $4 200 = $5 400
b) $8 400
a) Rentals $ 4 200
Premium = $1 200/10 *6/12 = $60
Total deduction = $4 260
b) Rentals $ 8 400
Premium 1 200/10 = $120
Total deductions = $8 520.
• Lessor (S 8(1) e
• Improvements may arise because
• i) the asset to be used is not in existence e.g. there is only land and a building needs to be
constructed or
• ii) the asset does not meet lessee’s requirements .
• In order for the lessor to be taxed under this section the improvements must be obligatory
in terms of the agreement for the lessee to effect.
• Treatment of proceeds
a) Stipulated amount in the agreement is what is brought to gross income of the lessor.
b) If there is no stipulated value, an amount representing, in the opinion of the Commissioner,
a fair and reasonable value of the improvements = in practice CG takes actual cost unless the
lessor can prove the amount to be unreasonable.
An agreement entered into by the lessee and lessor in 2010 stipulated that the lessee
a) Had to make improvements to the value of $100 000. The lessee makes improvements to
the value of $150 000.
b) The lessee had to make specified improvements with a minimum value of $100 000. What is
the value of improvements if cost was $150 000?
• Answer
a) 100 000
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b) 150 000 because tenant has to meet the specified improvements (fair and reasonable unless
landlord can prove this was unreasonable.
Taxation of the value of improvements is spread in equal monthly instalments over the unexpired
period of the lease from date effected or completed with the following consideration:
a) Limit to 10yrs if unexpired period more than 10yrs.
b) Period indefinite of lease or agreement silent = 10 yrs with a further reduction of the
construction period.
• Example
Mr Jones lets property to Mr White. It is a condition of the lease, which commences on the 1st of
January 2012 that Mr White is required to erect buildings to the value of $200,000. Otherwise the
type and quality of the buildings are not specified.
Six months after the commencement of the lease Mr White who is a building contractor, completes
and occupies the required improvements. By virtue of his technical expertise and personal exertions
he manages to erect suitable buildings at a cost of only $120,000. The landlord accepts the buildings
as complying with the lease obligations and is advised by an expert that the buildings are worth at
least $200,000. What is the taxable amount lessor if
a) Lease is 5yrs with an option to further extend the lease for a further 3yrs b) lease is 13yrs and c)
lease indefinite? What is the taxable income for the 2012 tax year?
• Answer
a) Taxable $200 000/54 * 6 = $22 222
b) Taxable 200 000/120*6 = $9 999
c) Taxable 200 000/ (120-6) *6 = $ 10 526.
Value stipulated in the agreement.
Agreement to affect /construct improvements must be on land and buildings must be legally
enforceable on the lessee. This can be specific or implied or inferred (implied Rex Tearoom
Cinema (Pty) Ltd v CIR (1946).
An upward revision of the stipulated value before completion of improvements will fall
under the section COT v Ridgeway Hotel Ltd (1961)
If upward revision takes place after completion it will not fall under the section (Professional
Suites Ltd v COT (1960)
Circumstances to bring untaxed bal of improvements into gross income.
On cancellation of the agreement
On cession or assignment of the agreement
On sale or any other form of disposal of the land or buildings on which the improvements
were effected.
On death or insolvency of the lessor.
Lessee S15(2)e
The expenditure on the improvements is allowed in monthly instalments beginning in the
year in which the improvements are first occupied or used for the purposes of trade or in
production of income. Lease period or 10yrs whichever is the lesser is used as the
denominator. Where improvements are used for both private and business purposes only
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the business portion will be allowed as a deduction. What are the deductions in the
previous example for Mr White.
A) 120 000/54 *6 = $13 333
B) & C 120 000/ 120 *6 = $6 000.
Where lessee acquires ownership of the property the lessee ceases to qualify for an
allowance the tax year following acquisition.
Recoupment (premium, rent and improvements ) S 8(1) l
Where a person who has paid rent or/and premium or/and improvements for, e.g. a
business property, subsequently purchases it for a price which is diminished as a result of
taking into account the amounts already paid, the amount which is then applied in reduction
of the purchase price is treated as forming part of the gross income of the purchaser.
Where a property is sold to a lessee below mkt price by the lessor the difference will be
brought into gross income (considered a recoupment) The taxpayer can elect to spread it
over the six years, if he sells the property before the end of six years the balance is taxable
the year of disposal.
Section 8 (i) (h)
As read with the 2nd schedule
Brings the value of trading stock as determined in the second schedule into gross income.
List included
1. Closing stock
2. Stock taken for private use/personal consumption
3. Trading stock on hand on the date on insolvency of the person or on the date of death of
the person
4. Donated stock
5. Stock sold through a court order/sold through other means for example the sale of a
6. Stock attached through a court order
Trading stock
Defined as goods of product sold in the ordinary course of trade and it includes
packaging and advertising material.
EGS of trading stock
Whatever it is you are trading in
ii) Goods of products being manufactured or otherwise being made ready for sale.
iii) Raw materials and consumables that would be used up in the production process.
iv) Work in progress
Under Department Practice No. 38, WIP by professional persons will only be taxable
upon consumption e.g. builders, auditors
Valuation methods
Found in 2nd schedule
 The following stocks: Closing stock
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Attached stock in pursuance of a court order
Donated stock
Stock disposed of through other means other than a sale or an exchange
Stock on hand on date of death of a person or insolvent person
You can elect to use one of the following methods:1. Cost price to the taxpayer
The commissioner will accept: FIFO
But you cannot use LIFO. NEVER, NEVER, NEVER.
2. Replacement cost at the date of valuation
3. Market value
The method can be varied from year-to- year
Valuation of stock disposed through a sale
 Sell of a business
 Sell in pursuance of a court order
 Use the selling price as valuation method
Stock used for private/domestic consumption
Can elect to use one of the following:1. Cost price
2. Market value
Cannot use the replacement method
Partially produced goods
Use what the commissioner considers to be fair and reasonable
 Cast to the taxpayer
Cost price
1. Freight charges
2. Insurance premiums for goods when they are being brought to premises for resale.
3. Any other expenses incurred in bringing stock to hand.
Writing down of the value of stock is only permitted when there is slow moving or outdated
stock bringing it to the market value.
Section 8 (i) (k)
Concessions by creditors
If the sale price of any commodity is adjusted downwards such that the purchaser ends up
paying less than the amount previously charged, that adjustment is brought into gross income
in the hands of the debtor only of the full purchase price was allowable as a deduction before
such adjustment. This adjustment only affects purchases of trading stock or assets that may
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be subject to capital allowances but will not affect a loan, creditor or where the waiver of the
debt is for a business that has gone into liquidation.
Section 8 (i) (m)
Deals with grants and subsidies
An amount accrued by way of a grant/subsidy in respect of any expenditure allowed as a
deduction should be brought into gross income e.g. a subsidy paid by government after the
construction of a farm dam. The subsidy is subject to tax in the year in which it accrues even
though the project in respect of which it arises may have been completed during a previous
Section 8 (2)
Deals with exchange gains and earnings
In the case of foreign transactions, the gross income is the amount accrued expressed in the
currency used in Zimbabwe. If due to a fluctuation in the rates of exchange, the amount
received is more than what is accrued, the amount received expressed in the currency used
in Zimbabwe constitutes the recipients gross income. If the receipt and the accrual occur in
different years of assessment, effect must be given to the increase in the year in which the
amount is received.
Illustration 1
Mr Nyoni selling goods for R8000
On date of sale R8000 = us$800 on 29/11/2012
Payment is only received on 15/12/2012 but due to changes in rate of exchange the USD
equivalent for the R8000 is now us$850.
What is brought into gross income is the actual Zim currency value received, that is $850.
Illustration 2
Sale is on 29/11/2012 for R800.
Funds only received on 5/1/2013 equivalent $850.
For 2013 tax year what is brought gross income is the $50.
If the $50 is a loss, then it will be a deduction in 2013.
Section 17 - Suspensive or Hire Purchase Sales
The section deems all proceeds from a suspensive sale to accrue on the date of the signing of the
agreement. It deals with special provisions relating to Hire Purchase Agreements and other
Agreements referring to property sold.
Important factors:
1. Where an agreement delays ownership (movable assets) or transfer (immovable assets) until
the fulfilment of certain conditions e.g. payment of the whole amount ( the whole price including
finance charges), the whole amount shall be deemed to have accrued to the vendor (seller) on the
day the agreement is concluded and must thus be returned in the year in which the sales took
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This may cause hardship (as not all of the sale price will have been received by the year end) and
thus the Act provides allowances to recognise this.
Movables Assets (Hire Purchase Agreement etc.)
The Commissioner gives an allowance which he thinks is fair and reasonable. The following
methods are adopted in practice:
 Full sale price including finance charges must be returned by taxpayer as gross
income in the year of accrual.
 Allow irrecoverable debts in terms of Section 15(2)g.
 Section 17 allowance = gross profit % of debtors not due and payable to taxpayer, i.e.
not yet receivable, at the end of the tax year or accounting year after allowing
S15(2)(g) forming part of such debtors, that is, deduct only irrecoverable debts that are
applicable to instalments not due and payable.
 The Section 17 allowance is added back in the following year of assessment. The
calculation in effect achieves an estimate of profit applicable to instalments not yet due
and payable and this amount constitutes the allowance.
 No allowance in year in which taxpayer cedes or otherwise cancels the agreement.
 The allowance is merely an estimate of the profit applicable to all instalment debtors
not yet receivable at the tax year end / accounting period.
The allowance is at the Commissioner‘s discretion and is calculated as follows:
Gross HP Sales
Less: Cost of sales
Gross profit
Gross Profit % = Gross profit x 100
Gross HP sales
Less: Profit applicable to instalments not yet receivable
(i.e. GP% x Instalment not due & payable = allowance)
Taxable income
Where there are irrecoverable debts forming part of both instalment debtors receivable and not
yet receivable:
 Allow irrecoverable debts (subject to normal tests) on both instalment debtors
receivable and not receivable under section 15(2) (g) in the profit and loss account; and
 Then calculate the allowance as follows:
Gross HP sales
Less: Cost of sales
Gross profit
Less: Section 17 allowances:
Instalments not yet receivable
Less: Bad debts forming part thereof
Xxxxxx @ GP%
Taxable income
When gross profit percentage is determined in the trading account, the cost of sales will have
been allowed. Thus by allowing for the profit relating to, instalment not receivable by the yearend, the instalments receivable is taxed.
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a) The allowance granted in one year must be included in the taxpayer‘s income in the following
b) If the agreement is ceded or otherwise disposed of for valuable consideration then the
allowance ceases in such year of cession or disposal.
c) The allowance for credit sales in section 18 is calculated in a similar manner.
Gross H/P Sales during the year
Cost of sales
Outstanding H/P debtors at end of year
Calculate the taxable income after allowing the S17 allowance.
Gross H/P sales
600 000
450 000
Gross Profit
150 000
Gross Profit % = (150 000/600 000)*100%
= 25%
Less S17 allowance :
Outstanding H/P debtors
400 000
Allowance 400 000*25% =
100 000
Taxable income
100 000
50 000
NB allowance c/f following tax year and brought in as income.
Immovable Assets (Hire Purchase Agreement etc.)
With regards to immovable property the second proviso permits an allowance which is deducted
each year and included in income in the following tax year. It has the effect of bringing to
account the profit on the sale over the period of the agreement in the same ratio as the instalments
bear to the selling price. In this case also, if the agreement is ceded or otherwise disposed of, no
allowance is made in the year of sale or other disposal.
In practice a township developer selling land under suspensive conditions would be assessed in
the following manner:
 The land which the owner of the township holds is considered to constitute floating
capital and thus trading stock in his hands, 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 except to the extent that
it is allowable in terms of section 15 (2) (v).
 When the full selling stage is reached, any further development or administration costs of
the type referred to in the above paragraph will not be capitalized, as it is considered that
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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.
2. The allowances to be determined in terms of section 17 will be calculated in the same manner.
The "cost to the Client of the immovable property" referred to in proviso (ii) will only include
development and other charges which have been added to the cost of the land prior to the full
selling stage being reached.
3. The allowance is calculated using the following formula:
D x [E – (F + G)]
i.e. Instalments not yet due and payable x (Selling price – Cost of sales)
Selling price
Section 18 – CREDIT SALES
This section relates to the taxation of income accruing from sales made on credit with the price
being paid in instalments. It removes the doubt of the date of accrual of such income by bringing
the full selling price to account at the date of the agreement.
Proviso (i) enables the Commissioner to make any allowance that he considers reasonable. The
allowance to be granted will be the same as that given in respect of movables sold under hire
purchase agreements.
Proviso (ii) ensures that the allowance granted is brought in as income in the following year of
Mr X is a developer in Norton, a town in Zimbabwe, buys 4acres of land for $250 000 in 2012 which
he wants to subdivide into 8 !/2 acre stands. He pays $15 000 to the Local authority for the
subdivision in the 2012 tax year. He is required to ensure the area has water. In the 2013 tax year he
spends $25 000 on water piping to bring water from a nearby dam into the development and $10
000 erecting a water reservoir. He also pays $900 to the Local authority for them to grant him a
certificate of compliance after making the required service which he is granted on the 1st July 2013.
By the end of the tax year he has sold 6 stands on suspensive sales agreements. The sale price of
each stand is $80 000 with $50 000 being paid upon the signing of the agreement and the balance
payable over three months with interest on the outstanding amount at a rate of 25%. At the end of
the year he has received $420 000 and $13 125 in interest. One customer still owing $30 000 is laid
off his work on the 15th December 2012 and it is highly unlikely that he will be able to pay the
balance. Mr X is claiming a S15(2) g deduction . He also wishes to claim a provision for another
customer of $20 000. He has also paid $500 in advertising costs for the stands.
Calculate taxable income for Mr X
a) before allowing S17 allowances.
b) After allowing S17 allowances.
Less COS
$480 000
6(37 612.50)
Written, and then typed by my own fair hands. Leo. M 2013©
(225 675)
Purchase of land
$250 000
Development costs:
Subdivision costs
$15 000
Provision of water exp $35 000
Certificate expenses
Total costs
$300 900
Cost per stand
$37 612,50
254 325
Add c/s (S 8(1) h at cost
75 225
Interest receipts S8(1)
13 125
Total gross income
342 675
Less allowable deductions:
Bad debt (S 15(2)g
($30 000)
Provision (prohibited S16)
Selling expenses (S15(2)a)
($ 500 )
Taxable Income
$312 175
Allowance in terms of S17
= 60 000-30 000 *(480 000 –225 675 )
480 000
= 30 000(254 325)
480 000
Deduct allowance from the Taxable income =
= 15 895.31
387 400 – 15 895.31
$355 609.37
NB Allowance is c/f to gross income for the next tax year.
Written, and then typed by my own fair hands. Leo. M 2013©
Determining taxable income
Gross income
Less exemption
Less deductions
General formula S15 (2) (a)
Prohibited deduction S16
Specific deductions
General aspects of deductions
A change in payment due to exchange fluctuations. The amount actually paid in Zimbabwe
currency is what should be deducted. If a transaction in different tax years,
increase/decrease adjustment should be effected in the tax year of payment.
Purchases = R10,000
On date of purchase it translates to $100
But date of payment, it translates to $90 or $110
What you are allowed to deduct is what you are actually paying if transaction takes place in
the same tax year.
If transaction takes place in different tax year, adjust in year of payment
2012 = deduction = $100
2013 = deduction - $10 if it went up bring in $10 into gross income
Deductions can only be made to income they relate to Mining – you can only deduct mining
expenditure from mining income.
No deduction from any of these activities should be made on employment income. Expenses
from passive investments are limited to that income and cannot create a loss e.g. investing
money to get interest / annuity
Section 15 (2) (a)
The deductions allowed shall be expenditure and losses to the extent to which they are
incurred for the purposes of trade or in the production of the income except to the extent to
which they are expenditure/losses of a capital nature.
Written, and then typed by my own fair hands. Leo. M 2013©
What is expenditure & losses? Joffe & Company v CIT
The judge in Joffe & Company (Pty) Ltd v CIR stated that expenditure and losses was
defined as follows:Expenditure is a voluntary payment of money while a loss is an involuntary deprivation
suffered by the loser. Deductions of expenditure are not restricted to cash only but also
include outlays in other forms. The cost to the taxpayer is used in cases where other form of
payment is used in linen of cash. Where a taxpayer uses an asset that he has created as a
form of payment only the input cost of what he would have created is deducted. His labour
costs are not taken into account.
If a taxpayer makes a barter for trading stock with an item that he would make if the market
value of the item that he makes is higher than the cost, the cost is what will be the allowable
deduction and not the market value of the item. Where the asset would have been acquired
through a donation or inheritance, the amount deducted would be the fair market value.
Expenditure and losses does not only include cash outlays but also includes losses such as
pilferage, breakages, destructions etc. expenditure and losses is not net loss as per
statement of comprehensive income.
What is meant by to the extent to which?
Expenditure may be incurred for more than one purpose, e.g. the expenditure could be for
both business and private, the fuel costs paid for running the MV will be for both business
and private purposes. A loan can be taken in order to purchase a capital item and to run
some routine business expenditure, e.g. the loan could be used to purchase shares and the
other part used to pay salaries. The interest payments will be for 2 purposes. Apportionment
is allowed. The Act does not lay down the basis but court cases have given guidelines that it
should be a fair and reasonable basis considering the facts of the case. Example: with a MV
a log book could be kept to show mileage covered for private and business purposes and
that could be used as the basis for allocation of expenses.
What does incurred mean?
Incurred means expenditure actually paid and also what the taxpayer has incurred as a
liability. Meaning of incurred means it includes both expenses paid and owing but does not
mean due and payable.
In Caltex Oil (SA) Ltd vs SIR (1975) it was held that expenditure actually incurred does not
mean expenditure actually paid during the tax year but meant all expenditure for which
liability has been incurred during the year whether or not the liability has been discharged.
A payment incurred in advance is expenditure in the tax year of payment.
Port Elizabeth Electric Tramway Company Ltd vs CIR (1936) outlined the principle that
inefficiencies resulting in high expenditure are irrelevant in whether or not an expenditure
should be allowed as a deduction. What is important is that the expenditure has been
incurred by the taxpayer. There must be clear legal liability to pay at that particular time.
Written, and then typed by my own fair hands. Leo. M 2013©
Take note that although high expenditure is irrelevant, excessive directors’ fees may be
disallowed by the Commissioner.
In what incurred does not mean
1. It does not mean expenses, losses or provisions that are uncertain e.g. provision for
irrecoverable debts S15 2 (g) – Provision for bad debts, depreciation etc.
2. Expenses and losses that may arise in the future.
3. Expenses and losses in pending/expected.
Edgars Stores Ltd vs CIR (1988) Expenditure not actually incurred is not allowable
The taxpayer was the lessee leasing premises for conducting business and entered into
several agreements. In terms of the agreement, there was a basic rental which was paid
monthly plus a turnover rental which would be calculated if the annual turnover exceeded a
certain specified amount. This could only be determined at the end of the lease year.
Dispute with the Commissioner arose in instances where the lease period ended after the
taxpayer’s tax year end. The taxpayer included genuine estimates of the turnover rentals to
be paid in the accounts. The Commissioner disallowed these estimates. The court held that
that the obligation to pay turnover rental was contingent until the turnover for the lease year
is determined. Thus the expenditure was not actually incurred in a tax year that ended prior
to the end of the lease year.
The principle learned is that where there is a condition incurred takes place upon the
fulfilment of the condition.
The following case helps us determine when incurred takes place. When does incurred
CIR vs Golden Dumps (Pty) Ltd
A dispute arose between the employer and employee which resulted in shares previously
promised to the employee being withheld by the employer. The employee took the employer
to court in 1981 but the case was only heard in 1983. In 1985 upon appeal by the employee,
the taxpayer was ordered to deliver the shares promised to the employee. The employer
claimed a deduction of the cost of shares in 1985 and the commissioner disallowed claiming
the costs were incurred in 1981 when the court action was instituted. The taxpayer
countered that the expenditure was actually incurred only in 1985 when the dispute was
finally resolved. The court held that a liability is only contingent in the case when there is a
genuinely disputed claim, this does not include tactics to delay payment. Liability only arises
when decision of court or an arbitrator. If by the end of the tax year, the dispute is
undetermined, the liability has not actually been incurred and cannot be claimed.
Expenditure as a general rule is deductable in the year incurred and cannot be
retrospectively deducted.
What does for the purposes of trade mean?
The meaning is for the purposes of enabling a person to carry on and earn profits in the
trade. The ordinary recurrent expenses of business such as trading license fees, audit fees,
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council rates, secretarial fees, insurance premiums, advertising costs – they will usually pass
the test i.e. for purposes of trade.
Deduction of expenditure
Is only allowed if the taxpayer is carrying on trade. The definition of trade is important.
NB: Passive investments do not include trading. That limit is placed by Section 15 (i) (b)
which will only allow deductions to the income they relate to speculation in shares constitute
trade. Trade also means there must be a hope to make a profit based on reasonable
possibility not on fanciful expectation. This does mean if a company has a lost it is not
trading. A trader can deliberately sell articles at a loss for business purposes. Where there is
no reasonable expectation to make a profit expenses are limited to the income produced by
that activity.
Expenses that are incurred to ensure future profits will be an allowable deduction e.g.
eviction costs of a non-rent paying tenant to have new rent paying tenant into a property.
Types of expenditure incurred for purposes of trade
2 types
1. Designed expenditure where money is voluntarily and designedly spent by the taxpayer
for the purposes of his trade e.g. salaries, rentals, electricity bills, stationery costs.
2. Fortuitous/unplanned expenditure.
Money is involuntarily spent because of some mischance/misfortune which has overtaken
the taxpayer.
Planned expenditure
The requirement is that the expenditure be incurred is also included:S15 (2) (a) Pre-incorporation expenditure is disallowed.
Incurring expenditure on vacant property – can’t claim. Expenses incurred by a company in
distributing dividends is an allowable deduction in terms of the departmental practice 16.
Unplanned/fortuitous expenditure
The onus is on the taxpayer to prove that it was – an unavoidable expense for purposes of
carrying trade.
Port Elizabeth Electric Tramway Company Ltd vs CIR Deduction allowed for all
expenditure connected to business for purpose of earning income
The taxpayer company carried on business as a tramway transporter. A driver of one of it
tran cars lost control whilst descending a steep gradient. He died sometime thereafter as a
result of injuries sustained in the accident. A claim for damages was lodged vs the taxpayer
in terms of the Workman’s Compensation Act of South Africa. The Cape provisional division
of the Supreme Court compelled the taxpayer to pay an amount as compensation to the
driver’s widow. In addition the taxpayer also incurred legal costs in resisting the claim. The
taxpayer claimed both expenditure and both were disallowed by the Commissioner. The
court held that the general deduction Section allows a deduction for all expenditure attached
to the performance of a business operations genuinely performed for purposes of earning
income, if such expenditure is necessary for its performance. This could be attached by
chance if it is closely connected that it is regarded as part of performing.
Written, and then typed by my own fair hands. Leo. M 2013©
Employment of drivers was necessary for carrying on the business of the company and the
employment of drivers carried with it as a necessary consequence the potential liability to
pay compensation if such drivers move in furred in the course of their employment. The cost
made by the company as compensation was to be regarded as part of the cost of the
company’s operations for the purposes of making income and was therefore deductable.
The legal cost was not incurred for purposes of earning income and were therefore not
deductable. (This is a South Africa case but in Zimbabwe the legal costs might be an
allowable deduction).
 Brings out principle is applied when one is trying to establish if the expense was a
necessary expense.
Test called the “Inevitable concomitant” or closely connected test.
Apply test through
1. Purpose of the expenditure must be determined.
2. Determine whether the task was necessary or an expected or foreseeable risk attached
to the task.
3. Answer the question of whether or not the expense is closely connected to the income
earned to be regarded as a cost of performing it.
Expenditure to protect the ability to trade e.g. eviction costs – deductable.
Expenditure allowed closely connected to income generation.
1. Damages that are paid by accountants/auditors for a loss arising out of their conduct of
their profession. The damages may be an allowable deduction if they are not covered by
2. Expenditure incurred by a business on a publicity camp sign to resist nationalisation of
its assets will be allowable.
Not closely connected to business
L v COT Not closely related to income producing operations
A legal practitioner underwent eye surgery and he claimed the surgery cost as a deduction
because he felt that he needed his eyesight to practice. The cost were disallowed on the
basis that although he needed his eyesight, the costs were remotely related to income
producing operations.
Joffe & Co. (Pty) Ltd v CIR
The taxpayer company carried on business as engineers in re-enforced concrete. A concrete
wood/tower for a power station which they were supervising collapsed and the workman
employed by the building contractor was killed by the falling material. In a delictual action it
was established that the taxpayer company had been negligent in the performance of its
work and it was required to pay damages to relatives of the deceased workman. The
commissioner disallowed the compensation claim as well as the legal costs incurred in
defending the action. It was held that expenditure was not incurred for purposes of earning
profit nor was established that negligent construction was a necessary concomitant of the
trading operations of the re-enforced concrete engineer and therefore not deductable. The
legal costs were also not deductable.
Expenditure not allowed
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A deduction is not allowed where the expenditure which though arising out of the manner in
which a taxpayer conducts his trade falls upon him in his capacity as a law breaker rather
than as a business man e.g. traffic fine, customs fine, parking fine, expenditure due to
negligent is not allowed. Embezzlement of funds by a trusted/custodian of the business is
generally disallowed. However, if there is fraud by a junior staff, the loss is allowed as the
risk is perceived to be there in the process of carrying out trade.
ITC 1221 (1974)
A department store was embezzled by the accountant. The taxpayer needed to prove that
the risk of the mishap was inherent in the carrying out of trade. The taxpayer was allowed as
a deduction because it was held that an accountant is a recognisable hazard that is, it is
closely connected.
Embezzlement by a Managing Director/Manager would be disallowed.
A loss from an independent contractor would also not be allowable as it is not closely
connected to business operations e.g. a loss suffered from an auditor and his staff
conducting and auditing on the client’s premises.
Donations are not allowed as they are not for purposes of trade. Not closely linked to
performance of trade. 15 (2) ® - some donations are allowed.
Expenditure to secure an offer/employment is capital in nature and therefore disallowable.
Interest payments on borrowings used for business are allowable except in circumstances
where no close connection can be established with the company’s trading e.g. if a company
lacks funds to pay dividends it does the following:a) The borrowings are used to pay dividends
b) Interest from credit loan accounts of shareholder where dividends are declared but
not paid out.
Cases of where an element of private and personal is present (but this can be tricky) e.g.
You purchase a suit for work, the expense will be disallowed even though it might be a
Use of a room as an office at a taxpayers residence. Only the position relating to business
use will be allowed.
Where overall loses are incurred because trade was not carried on, the expenditure is
disallowed e.g. where a property going to be let out expenditure is incurred prior to the
owner taking occupation.
Contractual payments to employees are deductable but voluntary payments are not
deductable. They will only be deductable if it is the custom of the employer to do so e.g. bad
debts by an employee that was given a loan by the employer. If it is the custom of the
employer to give loans to the employees, that bad debt will be allowed as a deduction.
Expenditure incurred prior to cessation of business e.g. scraping allowance on disposal of
assets in not an allowable deduction because the expense has been incurred to go out of
business e.g. cash in lieu of leave because business is being closed.
Expenditure incurred after cessation of business is also disallowable. NB: Temporary
cessation with intention to resume operations e.g. shut down of the factory in order to
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refurbish machinery, expenditure incurred during that period would be allowable. Pre-trade
expenditure is also not allowable except if it qualifies under S15 (2) (t).
Company A is planning to start trading in 6 months time i.e. from July.
During the period January to June, it incurs interest on borrowings that it made for:1. Purchase of fixed assets
2. Salary of a marketing personnel
State how you will deal with the interest – is it allowable.
Interest for purchase of fixed assets is not allowable because of its close connection.
Both-interest not allowed because not incurred for purposes of trade.
From July when trading starts, the interest in both cases will be allowable.
Trades man tools purchased by the taxpayer are allowed as a deduction.
What does in the production of income mean?
What is not in the production of income = exempt income.
 Expenditure incurred for producing exempt income e.g. interest from PUPS & POSB
 Expenditure for capital receipts are not allowable as a deduction
What is expenditure/losses of a capital nature?
New State Areas Ltd v CIR
The taxpayer company carried on the business of gold mining. The company was legally
required to install a system of waterborne sewerage and to link up with the local authority’s
system. The system installed consisted of sewers and connections upon the company’s own
property and sewers upon land outside the company’s properties linking up the system into
the local authorities main system. The system was installed at the local authorities cost but
this was recovered by way of charges payable by the company over 60 months for the cost
of the system on its own property (which would become its own property) and over 180
months for the cost of the system which was not located on its own property (to remain the
local authority property. When claimed as a deduction, the commissioner disallowed all the
monthly amounts payable to the local authority as being expenditure of a capital nature. The
payments made in relation to the internal sewers of a capital nature being the payment of
instalments towards the acquisition of an asset owned by the company. The payments made
in respect of the external connections which did not produce my permanent asset for the tax
payer consisted a charge for the use of the local authority system which remained a
recurrent business cost.
Principle to use in order to see if expense is capital/revenue.
1. Operations of structure test
Expenditure performing income earning operations is an allowable deduction whereas
expenditure for establishing/improving/adding to the income earning structure is
disallowable e.g. initial cost of getting a business license in order to start a business is
disallowable but renewal costs of the license will become allowable.
Written, and then typed by my own fair hands. Leo. M 2013©
Purchase an asset to use in the running of a business (not trading stock) is not
expenditure which is usually recurrent as expenditure spent in creating wealth and
therefore the expenditure will not be an allowable deduction.
Other tests to apply to determine if expense is revenue/expense
2. By applying the fixed and floating capital test
Fixed capital expenditure creates an enduring benefit or a permanent asset which is not
an allowable deduction buy may rank for capital allowances e.g. a permanent advertising
sign along the roadside creates an enduring benefit while a weekly advertisement in the
Herald does not create an enduring benefit.
3. Once & for all test
Is this expenditure that is incurred once and for all. This test cannot be universally
applied but should not be dismissed either e.g. purchase a building for use, the
expenditure will be capital in nature.
4. The nature of business test
This refers mainly to expenditure that is not related to your business e.g. suffer a loss
from a loan expenditure. The loss will be capital in nature if that is not your business e.g.
if you are not a money lender. That loss will be a revenue expense for a money lender.
5. The closeness of the expenditure to the income earning structure as against the
income earning operations. If the expenditure is close to the income earning structure, it
is disallowable e.g. expenditure for duty on importing a capital asset. That duty will not
be an allowable deduction while duty on importation of trading stock will be closely
connected to income earning operations and will be an allowable deduction.
Specific examples of allowable expenditure that we get from tax cases.
Section 16 Prohibited Deductions
S16 prohibits expenditure that may be allowable under the general deductions formula and it
also clarifies situations where disallowances may not be clear.
The following is prohibited expenditure
S16 (l) (a)
Cost of maintenance of taxpayer and his household.
S16 (l) (b)
Domestic and private costs and included are costs of travelling between home and work.
Also included is cost travel between two distinct business. Costs to pay a maid in order to be
able to go to work was determined in ITC 833 to be a domestic or private expense. Rental
payments of the taxpayers’ dwelling place will be disallowable.
S16 (l) (c)
Any cost recoverable from insurance only what is not covered by insurance can be claimed
e.g. if your repair business premises and insurance pays for the repair, that repair cost the
deduction would not be allowed
S16 (l) (d)
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Tax and interest chargeable on income of the taxpayer in terms of the Act or any law of any
country e.g. PAYE, tax paid on foreign dividend/interest.
S16 (l) (e)
Income carried to a reserve fund or capitalised in any way. The commissioner accepts
directors fees and staff business if the following conditions apply:i) They are voted by the date of the relevant accounts or AGM.
ii) They accrue for tax purposes the latest the following tax year.
iii) Staff leave pay if it has been incurred despite it being termed a provision will be allowed
as a deduction.
S16 (l) (f)
Expenditure incurred on exempt income. Under this provision, expenses incurred for
unproductive purposes will also not be allowed e.g. interest payment where a company
borrows money to give a faculty director or shareholder interest free while it pays interest,
the interest will be prohibited as a deduction.
S16 (l) (g)
Any contributions by employers to pensions, annuities or sickness accident or
unemployment or other benefits fund approved or registered in terms of laid down
procedures for employees/the widows/children/dependants or nominees of the deceased
employees subject to restrictions in the 6th schedule. Contributions per employee to a
pension fund are restricted to $5400. The allowable deduction where an employer is
contributing more than $5400 the allowable deduction is only $5400 as per the 6th schedule.
Same applies to an individual taxpayer the maximum allowable is $5400.
S16 (l) (h)
Loss on interest that could have been earned on capital employed in any trade.
 Opportunity cost
S16 (l) (i)
Rental cost of repairs to property not used for purposes of trade or is used as a dwelling
place by the taxpayer or is not been rented but for trading purposes.
S16 (1) (j)
Any expenditure incurred by the taxpayer in pursuance of an obligation imposed on him
under an agreement which restraints another person from selling goods other than those
supplied to him by the taxpayer, e.g. Total Petroleum Company if it pays a Total Charge to
only sale their brand of petrol and oil.
S16 (I) (k)
Lease payment of over $10,000 (not per annum but in total with payments in other years on
the same car) on a leased passenger motor vehicle
S16 9(l) (L)
The cost of shares awarded to any employee by the company including director.
S16 (l) (m)
Any expenditure incurred by the taxpayer on entertainment whether directly or by provision
of an allowance to an employee to incur expenditure on entertainment on behalf of the
taxpayer. Entertainment is defined to mean any hospitality in any form. It means a business
lunch entertainment for the furtherance of the employers business is not allowed.
S16 (l) (n)
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Any expenditure incurred on production of foreign dividends is prohibited.
S16 (l) (o)
Expenditure incurred on production of interest from loan or deposits with banks, discount
houses and building societies.
S16 (l) (q)
Any expenditure incurred by a local branch/subsidiary of a foreign company or by a local
company or subsidiary of a local company in servicing any debt/debts contracted in the
connection of production of income to the extent that such debt/debtors cause the person to
exceed a debt/equity ratio of 3:1.
Specific deductions
S15 (2) (b)
Cover repairs
This section allows expenditure on repairs on property used by the taxpayer as a deduction.
Repair on the following: Machinery
 Implementations
 Utensils
Other articles employed by the taxpayer for purposes of his trade.
Also included are repairs resulting from the letting of property.
Repairs that are allowed are repairs that have actually been incurred in the year of
Confusion of whether an expense is a repair or an improvement sometimes arises.
A repair is deductable and an improvement is a capital expense and therefore nondeductible
but capital allowances may apply.
A repair is a restoration of some material thing or structure by the renewal of decay or worn
out parts or re-fixing what has become loose or detached.
A repair is a restoration by renewal or replacement of subsidiary parts of a whole.
Renewal/improvement is distinguished from repair is a construction of the entirety. Entirety
does not necessarily mean the whole but substantially the whole.
In case where repairs constitute a renewal it is not necessary that the material used is
identical to the material
Improvements increase the income making capacity whole repairs restore the asset to its
original condition.
Improvements lead to an improved/better asset.
A repair of an inherent fault in an asset for example inferior construction will not constitute a
repair in terms of S15 (2) (b).
There should have been an impairment deteriorated/damage or weakness for an expense to
be considered a repair. If an owner of a property decides to change the roof of a property in
order to get a better look and therefore have a better rent he removes Zimtiles and puts
Harvey Tiles the expenditure is not a repair however if the roof was dilapidated thus the
owner was compelled to change it, this would constitute a repair.
Written, and then typed by my own fair hands. Leo. M 2013©
Rhodesia Railways Ltd vs GT (Botswanaland)
ITC 1264
Rhodesia Railways Ltd vs COT
ITC 238
S15 (2) (g)
Bad Debts
S15 (2) (g) allows the taxpayer to claim bad debts if the following conditions are fulfilled:1. The debts must be due and payable to the taxpayer.
2. The taxpayer must prove to the satisfaction of commissioner general that the debts are
3. The debts must have been included in the taxpayer’s income during the tax year in
question or in previous tax years.
This rules out bad debts on debts purchased on acquisition of a business or that would have
been acquired through inheritance.
Irrecoverable loans are not allowable under this section except if the taxpayer is a money
Allowance of bad debts should be specific and not based on a percentage of outstanding
S15 (2) (m), (n), (o)
All these three sections deal with experiments and research expenditure.
(m) allows expenditure relating to experiments and research relating to the taxpayer’s trade.
This expenditure is allowable as a deduction if the taxpayer incurs the expenditure.
NB: It does not include capital expenditure incurred on plant machinery, land or premises or
an acquisition of a right.
(n) allows expenditure that is incurred by a 3rd party to carry out experiments and research
on behalf of the taxpayer relating to his trade.
Only the contribution made by the taxpayer will be deducted.
(o) provides a double deduction of any contributions that a taxpayer makes to an approved
scientific or educational body with the condition that the contribution be used for industrial
research or scientific experimental work connected to the taxpayer’s trade.
S15 (2) (p)
Educational grants
Grants, bursaries or scholarships paid by the taxpayer are allowed as a deduction in respect
of a person undergoing technical training. The course being undertaken must be related to
the taxpayer’s trade and must be at an educational institution. The person undertaking the
training should be the taxpayer, taxpayers spouse or near relative. If the taxpayer is a
company, the person should not be person controlling the company nor his spouse/near
relative and not a director of the company his spouse or new relative.
S 15 (2) (q)
Pensions, annuity or gratuity payable to a former employer or dependent.
Where an employer makes ex-gracia awards to retired employees who may have little or no
right to a pension from a fund the payment is allowable provided the employee retired due to
ill health, infirmity or old age. The amount is restricted to $500 per employee if the retired
employee received another pension or annuity which was contributed to by the former
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employer, the amount deductable will be $500 less the amount of pension. Payment to
dependants of the former employee are restricted to $200 and the amount will be reduced by
any amount of pension or annuity which the dependant might be receiving from a fund of the
former employer of the employee. The deduction does not include payments that may be
made to domestic or private employees.
S15 (2) (r1) – (r5)
Allowable donations
Donations to the national scholarship fund, national bursary fund and a charitable trust
administered by the Minister of Social Welfare/Minister of Health, the taxpayer is allowed a
deduction of the amount donated. Payments by the taxpayer to the state or a fund for
purposes approved by the Health Minister towards the purchase of medical equipment,
construction/extension/maintenance of a hospital or any procurement of drugs including
ARVs to use in a hospital run by the state, local authority/religion organisations, the
deduction shall not exceed $100,000.
Payments made by the taxpayer towards purchase of educational equipment for a school,
construction or extension, maintenance or a school, procurement of books or other
educational materials to be used in a school operated by the state, Local authority/religious
organisations – amount maximum $100,000. Payment to a public private partnership fund,
the deduction will not exceed $50,000. The same applies to a payment to the Destitute,
Homeless Persons Rehabilitation Fund.
S15 (2) (s)
Payment during the year made by the taxpayer in respect of continued membership for
any period of any business, trade, technical or professional association is allowed as a
deduction. Does not have to be related to taxpayer’s trade.
NB: Exclude joining fees
 Capital nature
S15 (2) (t)
Expenditure incurred prior to commencement of business.
The expense will be allowed as a deduction of the following 3 conditions:1. Expense should have been incurred within 18 months before commencement of
2. Expense should have been allowable as a deduction had business commenced.
3. It should be claimed as a deduction in the tax year business commences.
S15 (2) (u) & (v)
Both deal with trading stock
(u) allows the taxpayer to deduct as opening stock the value of closing stock included in the
previous tax year.
(v) allows a deduction of trading stock acquired through donations/inheritance or stock
previously in a hobby business but now introduced for purposes of trade. No expenditure
would have been incurred to acquire the stock by the taxpayer and were it not for this
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provision the amount would not have been deductable. The amount allowed as a deduction
is what the commissioner considers fair and reasonable value of the stock when it was
acquired or brought to hand. The deduction must not exceed what it would have been from
the person acquired from. In cases of an inheritance a fair and reasonable value is the
estate valuation.
S15 (2) (w)
Conventions & trade missions
The cost of attending not more than one convention or trade mission connected to the
taxpayers trade is allowed as a deduction but should not exceed $2,500 per annum. If the
convention or trade mission commences in one tax year and ends in another, attendance
and expenditure is deemed to be in the year it ends.
S15 (2) (aa)
Legal costs on income tax appeals
If a taxpayer appeals to the special court/high court and the appeal is allowed in full a
deduction of legal cost termed “taxed” costs is allowed. Taxed costs will be determined by
the registrar of courts. If the appeal is allowed to a substantial degree, the court may direct
that the costs be deductable.
S15 (2) (bb)
Legal costs on appeal tax taken to Supreme Court. A deduction of the legal cost is allowed
to the taxpayer if the case is upheld in full or if it is to a substantial degree, the courts may at
its discretion permit the cost to be deducted.
S15 (2) (hh)
Allows a deduction of the amount of any tobacco levy paid in the year of assessment in
terms of Section 36 (a).
S15 (2) (jj)
S15 (3) Deal with assessed losses
Where a taxpayer has income from one business activity but sustains a loss on another, the
later is set-off and only the balance is taxable. If the deduction exceeds the income, the
excess is defined as the assessed loss. An assessed loss determined in the previous year of
assessment is deductable. Any assessed loss incurred before the date of insolvency or date
of death cannot be carried forward to the insolvent estate or deceased estate. No assessed
loss shall be carried forward where there is a change in shareholding with the intention of
taking advantage of the assessed losses. This is essentially designed to avoid trafficking in
shares of companies with assessed losses. Taxpayers would normally engage themselves
in such activities so as to take advantage of the assessed losses. Whenever the exchange
of shares of such a company takes place, the onus lies with the taxpayer who buys the
shares to prove that the transaction was devoid if a motive to take advantage of the
assessed loss. In cases where losses have accumulated for a number of tax years and
taxable income is realised in any of the subsequent tax years, the assessed loss incurred
first should be exhausted before losses that occurred later. Except in the case of mining, no
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assessed losses shall be carried forward after the expiry of 6 years from the end of the year
of assessment in which it was determined.
Gross income
Less exemption
Allowable deductions
Assessed loss c/d
Assessed loss (1st year) c/f
If tax year 2012 had an assessed loss of $6,000.
$6,000 assessed loss is allowed to be utilized up to 2018.
Assessed loss December 2009
Taxable income 2010
Assessed loss 2011
Assessed loss 2012
Assessed loss 2013
Taxable income 2014
Taxable income 2015
Taxable income 2016
S15 6
No assessed loss shall be allowed as a deduction from income consisting of interest payable
by a bank, discount house or building society. Interest already exempt – it will not be
S15 2 8
No assessed loss attributable to business operation carried on by the taxpayer shall be
allowed as a deduction from employment income.
S15 (2) (c) Capital allowances
It should be read with the 4th schedule S15 2 (a0 excludes expenditure and losses of a
capital nature from deductions which means expenditure for acquiring assets for trading
purposes is not allowable.
Accounting allows depreciation which is not an allowable deduction for tax purposes. Under
the ITA deductions allowed are for capital allowances which are in the form of either special
initial allowance South Africa or wear and tear or scrapping allowance. This is only granted
on the following classes of assets:1. Immovable assets
 Commercial buildings
 Industrial buildings
 Farm implements
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Staff housing
Railway lines
Tobacco barns
2. Movable assets
 Articles
 Implements
 Machinery
 Utensils
Commercial building
 Building constructed on or after 01/04/75 and is used 90% or more for trade.
 Include a block of flats, a hotel registered under the Tourism Act.
Commercial building – what is it not
 Not a farm improvement, industrial building, staff housing, tobacco barn, railway line
 Also not a building used 100% or more for residential purposes.
 Also not a building owned under the condominium principle. This is a building/a complex
of buildings containing a number of individually owned apartments or houses. Each
apartment or house is a condominium, that is, the owner has full title and undivided
interest in the share part of the property.
Industrial building
These are buildings used mainly in connection with manufacturing or industrial research,
licensed hotels and licensed refers to liquour license/casino license. Fencing surrounding
such building will also be included in the definition. Also include certain buildings used in
connection with computer international or data capture operations.
Toll bridges, toll roads e.g. Limpopo River Bridge, Industrial building include storage
buildings use by the taxpayer for the storage of goods manufactured by the taxpayer.
NB: Warehouse do not qualify as industrial buildings if they store goods not manufactured by
the taxpayer.
The main use of the building for the stated purpose should be at least ≥ 50% for the stated
Staff housing
These are permanent building used by the taxpayer for housing employees. In order to
qualify as staff housing each residential unit should not exceed $25,000 cost of construction.
Allowances shall be granted on actual cost or $25,000k. Staff housing for staff employed on
a farm clinic, school, nursing home or hospital allowances are limited to $10,000 and the
excess is ignored.
NB: As long as cost exceeds $25,000, the building ceases to be staff housing.
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1st Unit
Total cost of
2nd Unit
$25,000 qualifies
$50,000 qualifies
$60,000 – does not qualify
Farm improvements
It is a building or structure of a permanent nature or work including water &&&&& used for
carrying out farming operations. It also includes a permanent building erected on or after
1/4/88 as a school, clinic, nursing home or hospital used for farming operations. To qualify
as a school, it must be used by at least half of the children of the taxpayer’s farm employees.
To qualify as a clinic, nursing home or hospital, half the patients attended to must be the
taxpayer’s farm employees and their dependants. Allowance on the school/clinic is restricted
to $10,000 and the excess is ignored.
Examples of farm improvements
 Sheds
 Cattle dips
 Permanent roads
 Bridges
 Irrigation
What farm improvements are not
It’s not staff housing
Tobacco barns
Dweling used by the taxpayer as a homestead
7th schedule, para 2 assets
Tobacco barn
Any building used for curing tobacco
Moveable assets
No definition in Act
Problems can arise with articles where they are attached to a building. The general guideline
from case law is that an article can be dismantled without causing any major changes to the
Examples of articles
 Demountable partitions
 Carports
If a taxpayer is leasing an article, any costs of additions or alterations incurred by him will be
allowed for capital allowances.
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Passenger Motor Vehicles PMV
The limit of costs considered for capital allowance is the cost to a maximum of $10,000 and
any excess is ignored. A passenger motor vehicle is the luxury type of cars which excludes
lorries, trucks other than twin cabs, buses, mini buses commuters and cars which have a
sitting capacity of 16 passengers or more including the driver, and motor vehicle meant for
leasing as well as taxis.
Type of capital allowances
1. SIA
Accelerated wear and tear
2. Wear & tear
Long term wear and tear
3. Scraping allowance
SIA in terms of the 4th schedule para 2 & 9. It has to be elected by the taxpayer to be
granted on qualifying assets. If an asset is acquired in one year and only put into use in a
later year of assessment, SIA is only allowed in the 1st year of use. The rate for SIA is 25%
and then after that, the next three, it will be accelerated W & T, will be 25% for each tax year.
For an SME, the 1st year, SIA = 50% and then accelerated W & T of 25% for each of the
next two years will be granted.
Immovable assets – SIA
SIA is granted on constructed additions and alterations on farm improvement, industrial
building, tobacco barns, railway lines, staff housing
SIA is granted on the cost.
Accelerated W & T will also be calculated on the cost.
NB: SIA on immovable assets is not allowed on purchases
SIA is not allowed on commercial buildings
Moveable Assets
Granted on the purchase or articles, implements, machinery or utensils belonging to and
used by the taxpayer for the purposes of his business. For an asset to rank for SIA, it must
be used at least 90% for business purposes. SIA on assets purchased by the taxpayer for
lease hire may only be granted if the taxpayer is entitled to the return of the leased assets at
the end of the lease period. He should not have given/intends to give the lease or any other
person the right to acquire ownership or any other right in relation to the said assets and
such assets should not have been purchased for lease to a particular person with the
intention of giving the other person such rights as given above.
ITV – Income Tax Value
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SIA shall not be allowed in respect of half of the capital expenditure incurred or the purchase
of any fiscalised electronic register which qualifies for relief in terms of Section 15 (3) (k) of
the VAT Act.
Mr Zhou runs a manufacturing business in Ruwa. In July 2013, he acquired a lorry for
$35,000 and made alterations to the factory of $25,000. He makes an election to claim SIA.
What capital allowances will he be entitled to for the 2013 & 2014 tax years?
SIA (25%)
December 31 *(ITV)
Acc W & T (25%)
December 31 *(ITV)
NB: SIA is never apportioned i.e. not prorated. If acquired in June, allow the whole amount.
Wear & tear
Granted in terms of para 3 of 4th schedule.
General aspects of W & T
Granted where SIA is not granted and i.e. where an election has been made or where the
asset does not qualify.
W & T is granted on acquisition, additions or alterations to commercial building, farm
improvements, industrial buildings, tobacco barns, ranking lines and staff housing.
Rate for commercial building = 2,5% of cost
All other = 5%
It is not apportioned = charged in full i.e. even if the asset is partly used for private and is
always calculated on a straight line method i.e. on cost.
W & T granted on purchase of article implements, machinery or utensils belonging to or used
by the taxpayer for the purposes of his trade. It can be apportioned where there is dual
usage to allow only the proportion which relates to business. It can also be apportioned
when business commences when business ceases.
Motor vehicle = 20%
Machinery, equipment and furniture = 10%
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Mr Zhou runs a manufacturing business in Ruwa. In July 2013 he acquired a lorry for
$35,000 and made alterations to the factory of $50,000. What capital allowances will he be
entitled to if he does not elect SIA in 2013 & 2014.
W & T (20%)
December 31 (ITV)
5% 2,500
W & T (20%)
December 31 (ITV)
Scrapping allowances
Para 4 of 4th schedule
It arises where an asset is sold at less than ITV.
It is the difference between the selling price and ITV at time of sale.
An asset should have become worn out/outdated is disposed of while the taxpayer’s
business continues.
A scrap on cessation of trade is not allowed as a deduction because it is not for purposes of
trade. As a concession however where there is both scraping and recoupment on closure of
business, a net scrapping will not be allowed.
In the year in which the asset is scrapped, no W & T is allowed. Where W & T allowances
have been apportioned in previous years, the scrapping allowance is similarly reduced
Mr Zhou purchased a lorry in 2013 for 35,000 and sold on the 15/10/14 for $25,000. What is
the scraping allowance if:a)
The lorry was used 100% for business
The lorry was used 80% for business and 20% private purposes
W & T (20%)
Selling price
Scrapping allowance
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Selling price
Less disallowable portion
1400 x 3,000
Scrapping allowance (2,400)
W & T (20%)
W & T (2014)
x 2,600
7,000 + 5,000
= 520
Assets with restricted allowances
PMV, farm clinic
Mr Svosve bought a PMV in 2011 for 20,000. He sells the asset for 9,500 in 2013.
Cost (2011)
SIA (25%)
ITV Dec 2011
Acc W & T 2012 (25%)
ITV Dec 2012
Deemed selling price
Scrapping allowance
Deemed selling price
= 10,000
= 4,750
Recoupment S8 (I) (j)
This section does not include amounts allowed as deductions in terms of the following:-
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6th schedule deductions
7th schedule special deductions for farmers
Recoupment arises where an asset at a price which is ≥ ITV.
It is the difference between SP & ITV at time of sale
Recoupment is always restricted to allowances previously granted. Where the asset has not
been granted W & T / SIA even if sold the proceeds are capital in nature and not brought into
gross income. For moveable asset if the asset was used for dual purposes, such that only
the business portion of the W & T was allowed as a deduction, the recoupment is similarly
Purchase 2012
SIA (25%)
ITV December 2012
Selling price
Possible recoupment
Actual recoupment – GI
Capital receipt
Plant & machinery
Damaged assets with compensation provided for. The compensation constitutes a deemed
sale price for purposes of calculation recoupment. A recoupment will not arise where
allowances have been granted on an asset if the following is met.
1. The purchaser or construction of an asset of a like nature takes place within a period of
18 months from the date when the asset was damaged or destroyed.
2. The new asset so purchased/constructed is used within 3 years from the date the old
asset was damaged/destroyed for purposes of the taxpayer’s trade. Any part of the
compensation which is not used in the purchase or construction of the new asset shall
constitute gross income. Where the taxpayer does not meet the conditions set above,
recoupment shall be calculated as usual.
S12 (5)
Deemed source of a recoupment
Any amount recovered outside Zimbabwe which otherwise falls within S8(1) (j) is deemed to
be from a source within Zimbabwe thus a sale outside Zimbabwe of an asset such as a
motor vehicle on which capital allowances had been granted could give rise to a taxable
Para 8 (I) & (2) of 4th schedule
Allocation of purchase price that is required.
1. Where a sale of business takes place,
2. Where assets are sold, the purchaser and the purchaser and the seller in both cases
must submit a jointly signed statement to the CG showing the allocation of the purchase
consideration among the various assets. The CG has power to determine the prices of
the various assets if he is not satisfied with the allocation or if a statement is not
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Situations where assets can be transferred at ITV
1. Companies under the same control can elect to try assets for tax purposes at the ITV
regardless of the actual price. This is only allowable when there is a reconstruction,
merger or a similar transaction. Liability of any recoupment will be realised in the
transferees’ hands and not the transferor’s hands. Control of a company is when the
person controlling has the majority of the casting rights attached to all classes of shares
in the company controlled directly or indirectly.
2. If a foreign incorporated company voluntarily decides to be incorporated in Zimbabwe,
maintaining the same shareholders and shareholding which was in old company in new
Company A is being liquidated with shareholding taking shareholding in a new company B
on 01/01/13. An election was made to transfer the asset at ITV at the end of the 2012 tax
year. In 2013 Company B sells all the machinery acquired to Company C which is not part of
the group because it has acquired new machinery.
SP = $27,000
Assets transferred from Company A to B
Factory = Cost $95,000 – ITV @ 2012 = 0. Transfer price = $45,000
Warehouse storing a tenant’s goods – Cost $20,000, ITV = 0, Transfer price $16,000
Lorry for delivery – Cost $40,000 ITV $10,000
Transfer price = 25,000
Machining – Cost $150,000 ITV 12,000
Transfer Price = 33,000
Required to show the tax position of Company A & Company B in 2012 and 2013 with
regards to the above transactions.
Company B
Transfer price
SP 27,000
Possible 15,000
Actual 15,000
Company C
If assets are ITV, if they sold outside the group, for purposes of calculating income tax.
S14 (I) as read with the 3rd schedule. The schedule sets out the receipts and accruals which
are exempt from tax.
Par 1
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Exempt receipt accruals of local authorities, RBZ, Zambezi River Authority, POSB, Natural
Resources Board.
Para 2
Exempt receipts and accruals of Agricultural, Mining & Commercial Societies not operating
for the profit of the members e.g. CFU, Chamber of Mines.
Approved benefit funds, pension funds, building societies, friendly societies, institutes and
association which are organised and operated solely for social welfare, civic improvement,
pleasure recreation or advancement or control of any profession or trade which do not
distribute their profits to their members except as remuneration for services rendered.
Religious, charitable and educational institutes of a public character and trusts of a public
Trade unions
Employees savings scheme
Para 3
Approved government agencies and special international and financial organisations.
Para 4
Receipts and accruals of certain persons
1. Salary and emoluments of the President paid in respect of his office.
2. Salary and emoluments of the staff of the President if the President pays such salaries &
3. Allowances paid to the spouse of the President or Vice President in respect of duties the
spouse performs for and on behalf of the state.
4. Salary and emoluments of person/officials of UN organisations and its agencies.
5. Allowances granted to senior government officials, Ministers, Deputy Ministers,
Provincial Governor, Speaker and Deputy Speaker.
6. Allowances or value of any benefit which is granted to any person in full employment of
the state as specified in a statutory instrument e.g. housing & transport allowance for civil
7. Allowances payable to a chief/headman.
8. Allowances payable by the state to a person in its service in respect of the expenditure
incurred by the person in the discharge of his duties outside Zimbabwe.
Para 4 (o) tax free bonus = 1,000
Exempts bonus accruing to an employee up to a limit of $1,000.
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Para 4 (s)
Exempts a reward paid to whistle blowers by the CG in terms of S34 (b) of the Revenue
Authority Act.
Para 4 (t)
 Refer to previous
Para 4 (v) $3000 for +55 years TP
Exempts the 1st $3,000 being rental income accruing to a taxpayer who has attained the age
of 55 years and in the year of assessment.
Para 6 (h)
Exempt a pension paid from a pension fund or the (CRF) consolidated revenue fund to a
taxpayer was attained the age of 55 before the commencement of the year of assessment.
Para 7
Exempts an amount accruing by way of a benefit in respect of an injury, sickness/death of a
person which is paid to the person/his dependants or deceased estate.
By a trade union
From a benefit fund
In terms of any insurance policy covering accident, sickness/death
By a medical aid society
Para 8
Medical expenses paid by employer.
Para 9 dividend paid by Zim company
Dividends paid by company’s incorporated in Zimbabwe provided that such a company is
chargeable to tax.
Para 10
Interest paid on sums deposited in POSB, tax reserve certificates, class C permanent
Para 10 (1) (n)
Exempts the 1st $3,000 being interest from any deposit with a financial institution accruing to
a taxpayer who is 55 years and over in the year of assessment.
Para 10 (1) (o)
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Exempts the 1st $3,000 being interest accruing from Bankers Acceptance and other
discounted Instruments traded by financial institutions accruing to a taxpayer who has
attained 55 years or over in year or assessment concerned.
Para 15
Exempts that portion of entertainment allowance paid to our employee which is expended on
the business of the employer.
Para 17
Exempts receipts and accruals of an industrial park developer during the 1st 5 years of
S 14 (2)
States that the exemption granted to the various organisations – listed in Para 1 & 2 of the
3rd schedule does not extend to salaries and pensions paid to employees of the
S 14 (3)
State that the exemption provides in respect of dividends and interest by Para 9, 10, 11 of
3rd schedule does not apply to annuities paid out of such exempt income.
Licensed Investor
This is a holder of an investment license covering his operations in an expert processing
Zone. This EPZ is declared in terms of the EPZ Act Chapter 14:07. The licensed investor is
exempt for the year of assessment in which he commences operations and for the following
4 years.
No tax for first 5 years
Apply 25% from 6th years
Industrial Park Developer
Is a person who owns and maintains an industrial park and an industrial park is any
premises or area approved by the Minister through a statutory instrument and which 2 or
more persons carry on business of manufacturing/processing either goods for export from
Zimbabwe or components of goods intended for export from Zimbabwe.
Taxpayer exempt for the year the industrial park is established or approved whichever is the
area and for the following 4 years of assessment on receipts and accruals directly from the
operations of his industrial park.
From 6th year = 25%
Boot & Bot arrangements
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Boot = Build Own Operate & Transfer
Bot = Build Operate & Transfer
These must be approved by the commissioner general. The taxpayer undertakes to
construct an item of infrastructure for the state or a statutory cooperation in consideration for
the right to operate/control if for a specific period after which period he will try or restore
ownership or control of the item to the state/statutory corporation.
For 1st 5 years, tax rate
Next 5 years i.e. from 6th year
From 11th year +
Pensions funds are taxed @ 15%
Deceased estates taxed @ 25%
No AIDS levy
No personal credits
Trusts taxed at 25%
(where trust has a beneficiary)
There is AIDS levy
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