Taxation - Calculating loan benefit with solution

loan benefit is of the special/specific benefit in kind a and can be quantified as to find out how much to be included is someones total taxable  income, below is the an illustration of how to calculate the loan benefit.

Example

Mr, Joel has been employed by Vodacom (T) Ltd as a marketing manager. During the year of income 2013, His employer provided him with a free interest loan amounting to Tshs. 15 mil. Payable in 18 months while his basic salary was Tshs. 3 mil. p.m. Assuming the statutory rate is 20% p.a., calculate the loan benefits enjoyed by Mr. Joel

Solution

             Loan Benefit = P (r_s - r_e)
Whereby 
P- Loan principle
r_s = Statutory rate 
r_e = Employer’s loan rate

Then:

P= 15,000,000/ =

r_s = 20%    ;    '

r_e = 0% ( free interest loan)

Loan benefit - 15,000,000 (20%-0%)

Loan benefit = 3,000,000/=

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Depreciation allowance QUESTION & SOLUTION -TAXATION

Question.              

The Union Bearing manufacturing company Ltd. (UBMC) is a firm manufacturing UNIMOG trucks, bases and spare parts.  It has been in Tanzania as a branch of the Scania Ltd. of Kenya, for the past 20 years.  UBMC has the following classes of depreciable assets pools with their respective tax written down values as at 1^st January 2005:

Class I   :   2,550,000      Class II   :   6,000,000      Class III   :   2,583,700/=

In July 2004, the company had attended the International trade fair organized by the BET, which was held at Kurasini, Dar es Salaam.  UBMC won the 2^nd prize – a valmet tractor, worth by then 3,600,000/=. This tractor was ordered by the government from the Valmet plant in DSM.  However, the delivery of the tractor was delayed, pending a price review. 

Prices were reviewed to 10 mill/= per tractor during August 2005.  The UBMC received the tractor on 16/8/2005 and used it from the same date.  Part of the plant and machinery was sold for 3 mill/= on 3/2/2005.  UBMC decided to purchase a new aircraft on 3/3/2005 for 50 mill/= to enable it coordinate with the head office at Mombasa where its Board of Directors met since 2000 to-date.  It also purchased a new ship of 500 tons for 60 mill/=.  Both were used from the same date. 

A new boiler was purchased for 600,000/= for the glass manufacturing section.  A concrete foundation was constructed for 300,000/= to install the boiler.  This was used from mid December 2005. On the 15/8/2005, the ship, the market value of which was estimated at 20 mill/= was stolen at DSM harbour.

The company was using tyres manufactured by the General Tyre (EA) Ltd. of Arusha Tanzania and radiators manufactured by the Afro Cooling Company Ltd. (ACCL) of Pugu Road DSM. Since these major sources of raw materials had financial problems, the UBMC advanced a 6mill/= loan to the ACCL for purchase of plant and machinery; and 10mill/= loan to General Tyre (EA) Ltd. for the purpose of purchasing a lorry to transport rubber from Iringa rubber farms.  Part of the office furniture was sold during December 2005 for 1.2 mill/=.  While the purchaser took the furniture during the same month, payment was to be made during March 2006.  

Required: Calculate the depreciation allowance that UBMC is eligible to claim from TRA according to the ITA, 2004 as at 31^st December 2005.

Suggested Solution

Tax Payer: Union Bearing Manufacturing Company Ltd. (UBMC)

Year of Income: 2005

Computation: Depreciation Allowances

DEPRECIABLE ASSETS	DEPRECIABLE ASSETS POOLS
CLASS	I (Tshs.)	II (Tshs.)	III (Tshs.)

payable annually in advance.

Required: Compute depreciation allowances to be granted to ABC Co. Ltd. for the year of income 2006 under the Income Tax Act, 2004.      

Suggested Solution Tax Payer: ABC Co. Ltd.

Year of Income: 2006

DEPRECIABLE ASSETS	DEPRECIABLE ASSETS POOLS (‘000)
CLASS	I (Tshs)	II (Tshs)	III (Tshs)	VI (Tshs.)
RATE – A	37.5%	25%	12.5%	5%
COST:
2 lorries, P&M (initial allow.), AC	40,000		2,000
Saloon,OF,                        factory building	15,000		4,200	24,000
Factory building				15,000
Factory     building alterations				4,500
	55,000	0	6,200	43,500
Additions:                        exchanged lorry,godown	24,000			175,000

*(93,000,000/= + 900,000/=) less 23,700,000/= or (93,000,000 – 23,250,000) + 450,000 

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Investment income - question and solution TAX

Question.              

The following information refers to Peter for the tax year 2009.

(1)     Peter owns two properties, which are let out. Both properties are freehold houses, with the first property being let out furnished and the second property being let out unfurnished.

(2)     The first property was let from 6 April 2009 to 31 August 2009 at a monthly rent of Tshs 500,000/= payable in advance in each month. On 31 August 2009 the tenant left owing two months’ rent which Peter was unable to recover and the Commissioner for Domestic Revenue had accepted the amount as bad debt. The property was not re-let before 5 April 2010. During March 2010 Peter spent Tshs 200,000/= repairing the roof of this property. 

(1)     The second property was purchased on 1 July 2009, and was then let from 1 August 2009 to 1 April 2010 at a monthly rent of Tshs 820,000/= payable in advance in every month. During July 2009 Peter spent Tshs 200,000 on advertising for tenants. For the period of 1 July 2009 to 1 April 2010 he paid loan interest of Tshs 1,000,000/= in respect of a loan that was taken out to purchase this property.

(2)     Peter insured both of his rental properties at a total cost of Tshs 660,000/= for the year ended 31 December 2009, and Tshs 900,000/= for the year ended 31 December 2010. The insurance is

(3)     Peter Sold his investment of 100 shares in Twiga Cement (Pty) Ltd costing 12,228,500/= were sold for 21,025,260/= in February 2009.

(4)     Peter also received a dividend of Tshs 2,000,000 during the year from Twiga Cement where he owns 5% of all shares and withholding tax of Tshs 100,000/= was deducted.

(5)     During the tax year 2009 Peter received bank interest of Tshs 1,000,000/= from DECI a financial institution based in Dar es Salaam.

Required:

Calculate the Investment Income of Peter for the year 2009.

Suggested Solution

Computation: Employment Income

Tax Payer: Peter

Year of Income: 2009

Residential Status: Resident Individual

Rent from properties (Final)	Nil
Bad Debt for the rent	Nil
Advertising expenditure for tenants	Nil
Loan interest paid	Nil
Insurance premium paid	Nil
Gain on sale of shares (21,025,260 – 12,228,500)	8,796,760
Dividend received (Final)	Nil
Interest earned from DECI (Final)	Nil
Taxable Investment Income	8,796,760

credits to: Kessy Juma :: http://www.taxation-tz.blogspot.com

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(Investment income) solution & question TAXATION

Question 6.              

AADU is a newly formed company carrying out fishing business. During

the first year (2008) of operation it made the following transactions:-

(i)       Received dividend from SHIDUSA Ltd a resident corporation amounting to TZS 6,000,000. AADU owns 40% of the shares of SHIDUSA Ltd.

(ii)     Dividends amounting to TZS 3,500,000 were received from KWENU Ltd, which is listed on the DSE, and owned 22% by TABU Ltd a nonresident company.

(iii)    Dividends amounting to TZS 1,550,000 received from CHUCHUMA Company Ltd a resident company.

(iv)    AADU has its office along Ali Hassan Mwinyi Road, the office was underutilized. The company decided to rent the front office to Juma Bakari a shop businessman, who used it as a shop after paying TZS 800,000 as rent.

(v)     During the year the company received TZS 400,000 as rent from Mr. James a Tanzanian, with respect of a house occupied by him situated at Changanyikeni-Dar es Salaam.

(vi)    Also the company received royalty from Madengu Ltd amounting to TZS 400,000 out of lease of Video tapes used for promotion. 

(i)       During the year, AADU sold 6 hectares of land which was at KUNDUCHI and received TZS 300 million. This land was purchased for 2,000 in 1970. Three years prior to its sale, this land has been used for as agricultural land.

In addition to those transactions it earned business profit of TZS 100 million.

REQUIRED:

By applying the relevant provisions of the ITA, 2004 compute the Investment Income, Total Income and Tax Payable of the company for the year ending 2008.

Suggested Solution

A thorough analysis of each item:

(i)       Dividend from SHIDUSA (6,000,000) – 

ð AADU’s Investment Income (Nil) – Final Withholding – S. 86 (1) (a)

ð SIDUSA’s withholding tax (Nil) – Exempted – S. 54 (2)

(ii)     Dividend from KWENU Ltd (3,500,000) – 

ð AADU’s Investment Income (Nil) – Final Withholding – S. 86 (1) (a)

ð KWENU’s withholding tax (5% x 3,500,000) – 1^st Schd para 4 (b) (i)

(iii)    Dividend from CHUCHUMA Ltd (1,550,000)

ð AADU’s Investment Income (Nil) – Final Withholding – S. 86 (1) (a)

ð KWENU’s withholding tax (10% x 1,550,000)– 1^st Schd para 4 (b) (i)

(iv)    Rent from Bakari (800,000)

ð AADU’s Investment Income  (800,000)  – S. 9 (a)

ð J. Bakari’s withholding tax (10% x 800,000) – S. 82(1) & (2)(a)

ð Tax credit to AADU (10% x 800,000) – S. 87

(v)     Rent from Mr. James(400,000)

ð AADU’s Investment Income (400,000) – S. 9(a)

ð Mr. James‘s withholding tax  – Not a withholding payment

(vi)    Royalty from MADENGU Ltd (400,000)

ð AADU’s Investment Income (400,000) – S. 9(a)

ð MADENGU’s withholding tax (15% x 400,000) – 1^st Schd para 4 (b)

ð Tax credit to AADU (15% x 400,000) – S. 87

(i)       Gain from sale of land at KUNDUCHI (300,000,000)

ð AADU’s Investment Income (300mil – 2,000 = 299,998,000)

ð AADU shall pay 10% x 299,998,000 as a single instalment on disposal as required by S. 90(1)(a)

ð Tax credit to AADU (10% x 299,998,000) – S. 90(7)

Computation: Investment Income, Total Income & Tax Payable by AADAU

Residential Status: Resident Corporation for 2008

Dividend fro SHIDUSA	Nil
Dividend from KWENU	Nil
Dividend from CHUCHUMA	Nil
Rent from Bakari	800,000
Rent from Mr. James	400,000
Royalty from MADENGU	400,000
Gain from sale of land at KUNDUCHI	299,998,000
Income from Investment	301,598,000
AADU’s Business Income	100,000,000
AADU’s Total Income	401,598,000
Tax thereon (30%)	120,479,400
Less: Tax credit available:
Tax withheld from rent by Bakari	(80,000)
Tax withheld from royalty by MADENGU	(60,000)
Single instalment tax paid on sale of land	(29,999,800)
Tax payable by AADU	90,339,600

credits to: Kessy Juma :: http://www.taxation-tz.blogspot.com

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Tax RETURNS, ASSESSMENT, INTERESTS AND PENALTIES Q&A

Solution for question number 5 from  this tutorial page click here to see question 5.

Start by:-

Year of income:  2011

timeline

01/09/2011        

                         1^st-instlmnt                       2^nd-instlmnt              3^rd-instlmnt                         

↑                         30^th/11/2010                        18^th/02/2011                   31^st/05/2011                          31^st/08/2011                      30^th2012

         

                                                                                                          Submission of       paid tax in                                                                                                                                                                                Tax Statement       full(15/06/2011)                        

Note: the final due date is 6 months after the statement.

CALCULATING The penalties for failure to file statement of estimates and returns (under section s.78(1) of ITA 2004).

Estimated tax ,(A) = 4,040,000

Declared = 4,800,000

Assessed by =

                                                  FORMULA for installments

                                                    A – C                                  where:  C = previous payment,                 A = estimated tax

                                                         B                                                       B = instalments left

For the first instalment

There was no previous payment, C = 0  and A = 4,040,000            

So from the formula:            4,040,000 – 0            =     1,010,000 tsh

                                                         4                 

2^nd instalment

 Previous payment was C = 1,010,000   , A = 4,040,000            

From the formula:                  4,040,000 – 1,010,000             =   1,010,000   tsh

                                                           3                 

3^rd instalment

Previous tax payments C, was 2,020,000 , A = 4,040,000            

                                           :   4,040,000 – 2,020,000             =   1,010,000   tsh

                                                                2                 

4^th installment

Previous tax payments C, was 3,030,000 , A = 4,040,000            

                                           :   4,040,000 – 3,030,000             =   1,010,000   tsh

                                                               1                 

  Due dates for the above instalments:

                         1^st       -        30/11/2010

                         2^nd      -         28/02/2011

                         3^rd      -         31/05/2011

                         4^th      -          30/08/2011

Nb: in real sense the due date is supposed to be only on the first instalment and it’s the compulsory to submitting tax statement

i.                     Failure to file tax returns

a). penalty for failure to submit tax statement (refer to the red text above).

                               -        30/11/2010    (due date)

                              -         15/04/2011    (submitted)

                              -         01/12/2010   (start of failure) 1^st day after due date above

                              -          15/04/2011 (end of failure)

DURATION OF FAILURE =5 months i.e. from: 01/12/2010  to  15/04/2011

Calculating penalty:

                             Penalty = 2.5% ( A – C )         compare with         penalty = 15Cp      

(CP – currency points 15,000)

                                          = 2.5% ( 4,040,000 – 0 )                     VS                      = 15 x 15,000 t

Take the greater:

                                             =    1,010,000                                   vs                           = 225,000

So penalty was 225,000 per month.

                                                       5 x 225,000 = penalty was = 1,125,000

ii.                   Failure to submit returns of income.

(comment below to request update of this part)

                   

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