FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING & AUDITING
BACC 403: TAX LAW AND PRACTICE
ASSIGNMENT 2
AUGUST - DECEMBER 2023
Instructions
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All assignments must be typed using New Times Roman font size 12, 1.5 line spaced,
referenced using 6th Edition APA Guidelines, justified both sides, include a standardized
cover page and uploaded as a SINGLE PDF file.
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It is the responsibility of the student to upload their assignments in time to avoid
inconveniences due to internet failure, system failure, power outages or any other unforeseen
circumstances. NO submission extensions will be granted by the Department after the deadline.
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All queries for this assignment must be directed to the Course Leader whose contact
details are on the List of Course Leaders available on My Vista.
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Plagiarism is a serious academic offence. Credit will be given for well written and
referenced assignments. Please refer to the Tutorial Letter and other resources for more
information on academic writing.
Instructions
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Answer all Questions
QUESTION 1
In terms of the Income Tax Act Chapter 23:06, the general deductions formula states that deductions
allowable in determination of taxable income for businesses shall be, expenditure and losses to the
extent to which they are incurred for the purposes of trade or in the production of income except to
the extent to which they are expenditure and losses of a capital of nature.
(a) You are required to list and explain 10 expenses that are allowable deductions in terms of
section 15(2) (a) of the Income Tax Act Chapter 23:06.
(20 marks)
(b) An item of expense may have passed the general deduction formula but is prohibited in terms
of Section 16 of the Income Tax Act Chapter 23:06. What are prohibited deductions and give
4 examples of such expenses in relation to the provisions contained in the Income Tax Act. (5
Marks)
QUESTION 2
Zhola Pvt Ltd is a company carrying on business in Zimbabwe as a manufacturer. The following
information is furnished in respect of its business activities for the year of assessment ended 31
December 2022.
$
Sales
3 300 000
Cost of sales
(900 000)
Gross Profit
2 400 000
Less Expenses
Bad and Doubtful Debts
120 000
Research and Experiments
190 000
Motor vehicle repairs and Maintenance
150 000
Depreciation
110 000
Travelling Expenses
60 000
Import Duty on New Machinery
20 000
Audit Fees
12 000
Income Tax Advice
16 000
Zesa Connection Fees
28 000
Interest on loan to construct factory
52 000
Donations
300 000
General expenses
520 000
Proposed Dividends
90 000
Operating Profit
(1 668 000)
732 000
Additional Information:
1. Bad and doubtful debts are made up of the following:
Bad debts proved to be irrecoverable
$90 000
Provision for doubtful debts based on 10% of debtors
$30 000
Total
$120 000
2. 50% of the research and experiments relate to expenditure on equipment acquired at the
beginning of the year for purposes of the research and experiments..
3. Travelling Expenses
Business Trip
$40 000
Private expenses for the wife of the Managing Director
$20 000
Total
$60 000
4. Donations include:
Manufacturers Association
$60 000
Charitable
$40 000
University of Zimbabwe
$200 000
Total
$300 000
5. General Expenses:
Telephone expenses
$80 000
Fire Insurance
$20 000
Fuels and Electricity
$420 000
Total
$520 000
6. The company assets and their Income Tax Values (ITVs) at the beginning of 2022 were as
follows:
Cost
ITV
Motor Vehicles (Trucks)
$200000
100000
Furniture & Fittings
$100000
40000
Tractors
$120000
60000
Plant & Machinery
$240000
130000
Factory Building
$1200000
900000
The company had claimed SIA on trucks and Tractors during the year ended 31 December
2021. No Special Initial Allowance (SIA) was claimed on the other assets in previous years.
Additions to assets during the year were as follows:
Machinery
$200000
2 Tonne Truck (second hand)
$20000
New Office furniture
$40000
Extension to factory building
$12000
Required
A Computation of the company’s minimum taxable income or maximum assessed loss for the
year ended 31 December 2022 including any tax payable if any (25 Marks).
QUESTION 3
Moyo and Dube are in partnership sharing profits and losses in the ratio 2:3 respectively. Their income
statement for the year ended 31 December 2022 showed a net profit of $800 000.
The following information is available.
Included in their income are the following:
Interest on tax reserve certificates
$40 000
POSB Interest
$35 000
Dividends received from Zimbabwe Companies
$60 000
Expenses deducted in the income statement were:
Depreciation on non-current assets
$100 000
Insurance premiums: Partnership joint life policy
$50 000
Life policies on behalf of partners: Moyo
$20 000
Interest on capital accounts
Contributions to pension fund:
Dube
$30 000
Moyo
$64 000
Dube
$50 000
Moyo
$10 000
Dube
$10 000
Medical Aid Contributions:
Medical Expenses Incurred
Salaries
Moyo
$46 000
Dube
$30 000
Moyo
$20 000
Dube
$25 000
Moyo
$90 000
Dube
$85 000
Additional Information
1. During the year, the partnership purchased the following assets:
Office Furniture
$300 000
Mazda 626
$400 000
2. Moyo borrowed the amount he used to purchase his share in the partnership practice and
paid $5 000 interest.
3. During the year, the partnership, made the following donations, which were not taken into
account when determining the above profit figure:
National Scholarship Fund
$10 000
Ministry of Health and Child Welfare for the purchase of drugs $120 000
Required
Calculate the partnerships joint taxable income and the taxable income of the individual
partners. (25 Marks)
In terms of section 15(2)(a) of the Income Tax Act Chapter 23:06, allowable deductions for
businesses include the following expenses:
1. Insurance: Premiums paid for business insurance policies are deductible.
2. Agents' fees: Fees paid to agents or brokers for services rendered in connection with the
business.
3. Management expenses: Other expenses related to the management of the business, such
as cleaning expenses.
4. Repairs: Expenses incurred for repairing assets used in the business.
5. Motor expenses: If the taxpayer uses the HMRC approved mileage allowances, they can
deduct the mileage expenses at the approved rate per mile.
6. Finance expenses on residential property: These expenses are not deductible, except for
specific provisions related to tax relief.
7. Fees and subscriptions to professional bodies: Payments made to relevant professional
bodies for membership or accreditation.
8. Travel expenses: Travel expenses incurred necessarily in the performance of employment
duties.
9. Capital allowances: Deductions for plant and machinery provided by an employee for use
in their duties.
10. Approved mileage allowances: Deductions for travel and subsistence expenses incurred in
the performance of employment duties.
True Prohibited deductions, as per Section 16 of the Income Tax Act Chapter 23:06, are
expenses that are not allowed as deductions for tax purposes. Four examples of prohibited
deductions are:
1. Entertainment expenses: Expenses incurred for entertainment purposes, unless they are
specifically related to entertaining employees.
2. Non-trade write-offs: Write-offs of non-trade debts or expenses that are not related to the
business.
3. Personal expenses: Expenses incurred for personal purposes, not directly related to the
business.
4. Capital expenditure: Expenditure on assets that are of a capital nature and not deductible
as revenue expenditure.
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Eradication expenses on bilharzias.
Expenditure on replacement of tilita clips. The first purchase can be granted
SIA or Wear & Tear.
Expenditure on construction of temporary roads realigning temporary or
permanent roads if for the prevention of soil erosion.
Cost of valuation of assets such as business premises, stock, plant and
machinery for insurance purposes.
Entertainment expenses incurred by professional persons for the purposes of
producing income.
Travelling and entertainment expenses incurred by insurance agents.
Cost of preparation of income tax returns but not cost of professional advice
on income tax matters.
Expenses incurred on the connection of municipal services such as water.
Electricity and sewerage to business premises (but not installation costs).
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Contributions made towards the cost of a private railway siding in which
ownership remains with NRZ.
Telephone connection fee paid to PTC.
Irrecoverable contribution to the Electricity Supply Commission towards the
cost of a power line.
Entertainment expenses incurred by bookmakers and the cost of their
apparatus at racecourses.
The protection of trading rights and the elimination of competition are in
general allowed as a deduction unless the payment is of a capital nature that is
if an asset or advantage of an enduring nature is acquired as a result of the
payment.
Cost incurred in distributing dividends but not interest on any borrowed
amount from which to pay the dividends.
Expenses incurred by pilots:
Cost of replacing navigation computers, navigation dividers, protractors and
straight edges. Cost of twice yearly medical examinations, annual flying tests
and licence renewals and passport renewals.
Loan raising fee and finance charges:
These are apportioned on a pro rata basis to the items on which the loan was
used..
If a loan is used to purchase assets, the charges be capitalized when
calculating capital allowances. The loan-raising fee in respect of working
capital is allowed as a deduction under section 15.2.a. If a loan is used for
capital expenditure, which does qualify for capital allowances, then the loanraising fee applicable is not allowable
If a portion of a loan to a farmer is used for items under paragraph 2 of the 7th
schedule a proportionate amount of the raising fee will also be allowed in
terms of that paragraph .
Expenses incurred in the removal of stock or minor removal of plant within
the same premises.
Expenditure by farmers on protection work in respect of abandoned mines or
prospects including the refilling or blocking of shafts and the erection of
fencing even though the element of capital may be present.
Insurance premiums on accident insurance or term assurance policies taken
by an employer for an employee whether the proceeds are for the benefit of
the employee or the employer. Any payment to an employer under either
policy is taxable in his hands.
Any benefit payable to an employee’s estate under a term assurance is of a
capital nature whether the policy covers one individual or a group of
employees. Premiums paid on an individual term assurance policy is gross
income to the employee..
The cost of replacement of tradesman tools.
The cost to the employer or employee of protective clothing such as overalls,
boots, helmets, specially required for the employment and which cannot be
used for ordinary purposes.
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Irrecoverable salary advances to employees where it is the custom of the
employer’s trade to make salary advances in order to ensure the retention of a
satisfactory labour force.
 Donations and similar contributions made from purely business motive not
charitable motive.
 Losses of cash by petty pilferage and losses through embezzlement or theft by
an employee who is not in the position of proprietor.
 Expenditure incurred by freelance radio or television artists on:
Special clothes for television appearance. Dry cleaning and laundering of
clothes.
Entertainment expenses for business purposes. Travelling expenses between
the town office and the studio and subsistence expenses incurred through
working during normal meal hours or away from home.
Expenditure not allowed as a deduction
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Customs fines and legal expenses incurred as a result of Customs Act.
Entrance fees, but not annual subscriptions to business associations or
societies or clubs.
Excessive director’s fees or other remuneration, which cannot be linked to
production of income.
Cost of license policy insuring a pilot in case of illness or injury.
Losses by embezzlement occasioned by the act of a proprietor.
Fines incurred by the taxpayer or by any other person and reimbursed by the
taxpayer.
Removal expenses whether incurred voluntarily or compulsorily are capital
expenditure except removal expenses for stock,. Removal expenses may be
apportioned between capital assets and stock. Removal expenses on assets are
capitalized and wear & tear may be granted but not S.I.A.
Insurance policies on :
Joint life policy: It is a policy taken on the lives of the partners for the befit of
the partnership business. The expense is not allowed as a deduction.
Ceded policy: It a policy on the life of a partner for the benefit of the
partnership business. The premium is not allowed as a deduction..
Individual life policies: It is a policy for each partner for his own benefit. The
expense is allowed as a deduction to the partnership and taxable to the
individual partner.
Balancing charges policy: Balancing charges policies are entered with a view
to mitigate consequential losses by way of tax, which may become payable on
recoupment arising from the receipt of insurance proceeds when an asset is
damaged or destroyed .Premiums paid on such policies are allowable and the
proceeds are of a capital nature.
Zhola Pvt Ltd is a company carrying on business in Zimbabwe as a manufacturer. The following
information is furnished in respect of its business activities for the year of assessment ended 31
December 2022.
Sales: $3,300,000
Cost of sales: ($900,000)
Gross Profit: $2,400,000
Less Expenses:
- Bad and Doubtful Debts: $120,000 (made up of $90,000 bad debts and $30,000 provision for
doubtful debts)
- Research and Experiments: $190,000 (50% of which relates to expenditure on equipment acquired
at the beginning of the year)
- Motor vehicle repairs and Maintenance: $150,000
- Depreciation: $110,000
- Travelling Expenses: $60,000 ($40,000 for business trip and $20,000 for private expenses)
- Import Duty on New Machinery: $20,000
- Audit Fees: $12,000
- Income Tax Advice: $16,000
- Zesa Connection Fees: $28,000
- Interest on loan to construct factory: $52,000
- Donations: $300,000 (including $60,000 to Manufacturers Association, $40,000 charitable, and
$200,000 to University of Zimbabwe)
- General expenses: $520,000 (including $80,000 telephone expenses, $20,000 fire insurance, and
$420,000 fuels and electricity)
- Proposed Dividends: $90,000
Operating Profit: $732,000
Additional Information:
- The company assets and their Income Tax Values (ITVs) at the beginning of 2022 were as follows:
- Motor Vehicles (Trucks): Cost $200,000, ITV $100,000
- Furniture & Fittings: Cost $100,000, ITV $40,000
- Tractors: Cost $120,000, ITV $60,000
- Plant & Machinery: Cost $240,000, ITV $130,000
- Factory Building: Cost $1,200,000, ITV $900,000
- Additions to assets during the year:
- Machinery: $200,000
- 2 Tonne Truck (second hand): $20,000
- New Office furniture: $40,000
- Extension to factory building: $12,000
To compute the company's minimum taxable income or maximum assessed loss for the year ended
31 December 2022, we need additional information such as the tax rates and allowances applicable
in Zimbabwe.
To calculate the partnership's joint taxable income and the taxable income of the individual partners,
we need to consider the income and expenses mentioned in the question.
Income:
- Net profit of the partnership: $800,000
- Interest on tax reserve certificates: $40,000
- POSB interest: $35,000
- Dividends received from Zimbabwe companies: $60,000
Expenses:
- Depreciation on non-current assets: $100,000
- Insurance premiums for partnership joint life policy: $50,000
- Life policies on behalf of Moyo: $20,000
- Life policies on behalf of Dube: $30,000
- Interest on Moyo's capital account: $64,000
- Interest on Dube's capital account: $50,000
- Contributions to pension fund for Moyo: $10,000
- Contributions to pension fund for Dube: $10,000
- Medical aid contributions for Moyo: $46,000
- Medical aid contributions for Dube: $30,000
- Medical expenses incurred by Moyo: $20,000
- Medical expenses incurred by Dube: $25,000
- Salaries for Moyo: $90,000
- Salaries for Dube: $85,000
Additional Information:
1. Assets purchased by the partnership:
- Office Furniture: $300,000
- Mazda 626: $400,000
2. Moyo borrowed money to purchase his share in the partnership and paid $5,000 in interest.
3. Donations made by the partnership:
- National Scholarship Fund: $10,000
- Ministry of Health and Child Welfare for the purchase of drugs: $120,000
To calculate the partnership's joint taxable income, we need to subtract the deductible expenses
from the total income:
Total Income = Net profit + Interest on tax reserve certificates + POSB interest + Dividends received
Total Expenses = Depreciation + Insurance premiums + Life policies + Interest on capital accounts +
Contributions to pension fund + Medical aid contributions + Medical expenses + Salaries + Donations
Joint Taxable Income = Total Income - Total Expenses
To calculate the taxable income of each partner, we need to allocate the partnership's joint taxable
income based on their profit-sharing ratio:
Moyo's Taxable Income = Joint Taxable Income * (2/5)
Dube's Taxable Income = Joint Taxable Income * (3/5)
Please note that the tax rates and any specific tax rules are not provided in the question, so we
cannot calculate the actual tax liability.