P1518 SWORD PRO 5135510319115 1 :5: DVANCED; T&XRTTOK

CONSIDERATION FOR CHARGEABLE ASSET: this is the amount received or receivabie

which is
always determined through bargaining. For the purpose of connecteFEgsons or
artificigi
transflqL or 1'e1ated Eersons transaction the relevant amount 511511 be the
higher_ of they.“ market
@ue a_nd the bargain price, ‘But where the market value [reisjjablek price an
asset com_n_1and 111 an

—.______
open market 111 an arms length transacting) exceeds the barwain price" the
market valuE) shail

superceed. 1113K1§1¢4v 1735‘“ Magnum (91—175: 511” iffikin 19“”

REASONS OR CONDITIONS WHERE MA_RK___E_T VALUE __WILL SUPERCEED SALES PROCEED: (

E... -.—— -—__—__ , fi

,1‘

I The acquisition of asset was otherwise than by way of a bargaining at arm

length.

. The acquisition ofthe asset was for a consideration that cannot be valued,
wholly or
partiy.

- The asset is acquired is connection with loss ofoffice or employment or

diminution of
emolument.

- The asset is acquired by trustee for creditors 0fthe person making the
disposal.

- The acquisition and disposai by way of gift

0 The acquisition between related persons. 1

- The asset is acquired by a creditor in satisfaction ofthe whole 01 part ofhis

debt.

- The acquisition is in consideration ofservices rendered.

Meaning of disposal : There is a disposal of an asset where any capital sum from
sale, lease,
assignment, compu1sory acquisition or any other form of disposition of an asset
110 t withstanding

that 110 asset is acquired by the person paying the capital sum. The following
constitutes disposal of
asset:

- Any capitai sum derived by way Ofcompensation for loss of office or

employment.
6 where any capital sum is received under a policy ofinsurance and the risk of
any kind or
damage or injury to, or the loss or depreciationbf, assets;

- The receipt of a capital sum in return for the ferfeiture or surrender of a

right or
restrain from exercising a right.

- Where a capital sum is received as consideration for use or exploitation ofan

asset

- Without prejudice to paragraph [a] of this section, where any capital sum is
received in
connection with or by virtue ofany gain from any trade, business or vocation.

CHARGEABLE/CAPITAL GAINS: This 15 the difference between the sales proceedingl

ess a1__1owable
expensesfincidentai expenses and cost of the asset

LOSSESS 0N DISPOSAL: There is WTOVTSiOfi_ for loss reliefin CGTA.Whe1e upon the
disposal of a
chargeable asset the sales proceed1s iess than the sum ofthe OEiginal cost of
acquisition and other
mcidental expenses on (115110531. 21 loss is obtained. The positien 01 1"the law
is that any loss incurred
on the disposal of a chargeable asset cannot be used to offset‘any capitai gains
arising from the
disposal of other assets i.e. ifa chargeable asset is dispose and a loss is
made, a subsequent disposal
of another chargeable asset 1eading to a capitai Gain cannot be use to relieve
the loss previousiy
made.

...giving you the PASSWORD to keep you ahead at all Levels :-

mum»

P15: SSWYORD PROF E8510 NALS I 151D? ANCED TAXATION

ALLOWABLE EXPENSES ACCORDING TO THE ACT: ‘%‘\/

1.A11y selling expenses

2. Any professional cost e.g. sohcitor's fee) accounting expenses, brokerage,

estate value
fee, agent commission etc.

3. Cost ofrefurbishing or improvingthe asset prior to disposal.

4-. Cost ofacqniring the asset.

DISALLOWABLE EXPENSES: any allowable expenses under the provision of CITA, PPTA,
AND PITA
and any insurance premium.

B “Costs incurred" in acquiring ownership 01‘ a chargeable asset means money

paid and the
market value ofa given property.

ARTIFICIAL TRANSACTIONS \/
Transaction between connected _persons shall be deemed to he artificial or
ficu'tious if 111 the
opinion of the Board those transactions have not been made 011 terms which might
fairly be

expressed to have been made by persons engaged' in the same or simiiar

activities dealing with one
another at arm's length

in relation to any direction made under this section, the provision of this Act
as to appeal against
any assessment shali be effected as if such direction were an assessment.

{QICONNECTED /RELATED PERSONS:C01111ected persons are persons who are treated as

being so

cl_eseiy involved with each other that they have to be viewed as the same person
or that
transactions betw een them need to be treated differently fi‘om transactions at
arm ‘3 1ength. Where
in a transaction, one person has control over the other; a connected person
transactions is deemed
to have taken place. A person who acquires ownership ofa chargeable asset in a
non-arm’s length
transaction is treated as having acquired the asset at a cost equal to the
market value of the asset at
the date of acquisition Capitalb Uain arising from it is obtained by deducting
the cost of acquisition
from the higher 0fthe market value and sales proceed. Examples are:

,_ - Transactions between husband and wife or relatives ofboth parties.

- Transactions between an individual and his or her spouse and the relatives of
his or her
I spouse;

- Transactions between a trustee of a settlement and the settler£creditorj of

that
settlement

- Transaction involving partnership With husband or wife.

v Transactions between a partner and the person with Whom he is in partnership;

1 - Transactions between two companies who are controlled by the same person

1‘ 0 A group related transaction between parent and subsidiaries.

Please note that the relevant consideration For connected persons transaction is
the higher of
market value and actuai sales proceed.

...giving you the PASSWORD to keep you ahead at all Levels ;

PA SSWG‘RD PROF ESSION 1321.5 . ADVANCED T&XA'HON

Realization
A person who owns a chargeable asset is treated as realizing the asset where
{3] that person parts with ownership ofthe asset including where the asset is
sold,
exchanged, surrendered or distributed by the owner ofthe assets; or

[b] Redeemed, destroyed or lost; or

[c] That person starts using the asset in such a way that it ceases to be a
chargeable
asset; or

[(1) That person is resident Who becomes a nonresident but only With respect to
chargeable assets.

it is worthy of note that realization ofa chargeable asset does not include
[a] A realization by way of gift; or '

{h} A realization involving the disposai ofshares in the course of the

liquidation ofa
company.

Owner” with respect to a chargeable asset means,

(a) in the case of an asset held by a partnership, the partners; and

[b] In the case of an asset heid by a company or body ofpersons, that company or
that
body only.

ASSETS SITUATED OUTSIDE NIGERIA

According to Sec. 4 of CGTA 2004, Where an asset situated outside Nigeria is
disposed of, capital
gains tax is chargeabie on that part of chargeable gains received or brought
into Nigeria provided
that:
[a] Where the disposal of assets is by an individual:
i. who is in Nigeria for some temporary purpose only and not with any view or
intent to
establish his residence in Nigeria, and

ii. if the period or sums of the periods for which he is present in Nigeria in
that year of
assessment exceeds 182 days; or

[b] Where the disposal is by any trustee of any trust or settlement and the seat
ofadministration of
the trust or settlement is situated outside Nigeria during the whole of that
year of assessment;
or

[(3] Where the disposai is by a company, which is not a Nigerian company within
the meaning of
section 105 of the Companies Income Tax Act, that is to say, a company whose
activities are
managed and controlled outside Nigeria during the whole of that year
ofassessment.

In any of the above circumstances, capital gains tax shall he charged on the
amounts [ifany]

received or brought into Nigeria in respect ofany chargeable gains, such amounts
being treated as

gains accruing when they are received or brought into Nigeria

GAINS ARISING FROM TAKEOVERS
Gains arising from Merger, Take-over or Absorption are exempted from capital
gains tax provided
that cash does not form part of the consideration offered for‘the shares
acquired.

Where cash is received as part of the consideration, the proportion of the gains
attributable to the
cash element of the consideration is taxable. According to FIRS [199313, 13113):

...giving_you the PASSWORD to keep you ahead at all Levels :_

P&SSW'O RD PROFESSIONétLS

151D Vflt NEED T&KRTIGN

Where shares in a company are acquired and such a company is taken over,
absorbed by, or
merged with another company, the apparent gains from such reorganization will
not be

subjected to tax provided:

- There is no disp osal ofsuch shares by the original holders;

- There are no cash payments for the shares involved;

- The acquired companyioses its identity.

1. FORMAT FOR COMPUTING CGT [WHERE FULL CONSIDERATION IS RECEIVED}

Consideration received/sales proceed

Less: incidental cost of disposal

Commission and fees,

Other related services

Cost oftransfer or conveyance

Stamp duties

Advert

Valuation expense

Net consideration received

Less: cost of acquisition

incidental cost of acquisition

Cost of improving and defending the asset

:N:

XXX

XXX

XXX
Cost ofimprovihg and establishing title to asset XXX

Cost of preserving the asset

Original or purchase price ofasset
Capital/chargeabie gains

CGT @10%

XXX

:N:

XXX

(m)

(XXX)

m1

XXX

"giving you the PASSWORD to keep you ahead at 21“ Levels

PIESSWORD- PROFESSIONAXLS ' 152031915: NCED TEXATIDN

COMPUTATION OF CGT (WHERE THERE IS PARTIAL DISPOSAL}

Where a part of a whole asset is disposed, the issue is the correct

determination of the cost of
acquiring the cost of the part disposed.
Wherever a chargeable asset is partly disposed, the cost of acquisition of the
whole asset and
expenditure wholly, exclusively and necessarily incurred on the asset which are
allowable
deductions in computing capital gains shall be apportioned between the part of
the asset disposed
of and the part not disposed of. The cost attributable to the part disposed ofis
calculated as:

/
4L1; C /
A+B.
Where:
A = Market value or Consideration Received on part ofAsset disposed.
B = Market value ofpart of asset unsold.
C = Whole cost/Total cost/Aggregate go‘s; of asset.
The remainder ofthe cost is attributable to the part of the asset not disposed
of.

=N=
Sales proceed XXX
Less allowabie expenses [xxx]
Net sales proceed xxx
Less cost ofasset
A X C XXX
A +B XXX

Where:

A: Is the consideration received or receivable or market value [if applicable)

to the portion
disposed.

B: The market value of the remaining portion ofthe asset that is not disposed.
C: The aggregate ofthe cost of the whole asset.

CONSIDERATION RECEIVED IN PIECEMEAL / .

Where the consideration or part thereof taken into account in computing capital
gains is payable by
installments over a period exceeding 18months from the date of disposal, the
chargeable gain is
deemed to accrue in proportionate parts over the period of payment i.e. whenever
chargeable
assets were disposed and the consideration were received instalmentaily over a
period Which is
greater than 18month, it is the total consideration received in that relevant
year of assessment that

will be subjected to that in that year as CGT is assessed to tax on AYE. The
following are the steps to
be adopted:

...giving you the PASSWORD to keep you ahead at all Levels ?-

-iw ad...‘~K}A<MLfiE-LMA.M.£» .1

PASSXVGRD ?ROFESSIO NALS I fiDVIv’tNCED TMRTIO‘N

Step 1 Determine total capital gains on the transaction.

Step 2 Determine the date of each installment

Step 3 Determine the relevant tax year and the total consideration received in
each tax year.

Step 4 Determine the Capital Gain Tax payable for each tax year by adopting the
following formula:
Consideranon Receivable in the year X Total Chargeahle Gain

Total consideration receivable

:N:
Sales proceed xxx
Less allowable expenses and cost of asset [33131
Total Capital gains &
CGT for each relevant tax year:
Consideration received )1 total capital gains &

Total consideration receivable

CGT @ 10% / fl \/
4. GET ON HIRE PURCHASE: When an asset acquired on hire purchase is subsequently
disposed,

the tax law only gives recognition to thwihgipal elehifieritjof the cost of the
asset. Please note that

th e‘ficiitqest portioniis to Brewed or eliminated if included in the value of

the asset as this is an
y allowable expense tinder the provision of CITA AND PITA.

CONCEPT OF ROLLOVER RELIEE This concept states that ifa CWUSEd for the
purpose of tra is dispggzgi and th’ proceeds arisingtfrom thedisposal is
subsequently fiihyestegé

or applied to acquire’the same asset or asset within the samécl'as-s as the old
assetland used for the
\____=-—-' ’L M ’ " ' _ —"" J

purpose of the sanietr’a-de, then a Claim for 1011911131“ reLEF‘tan be made if—
an application can befladew'

in L n0. A time period of 12months is usually available for a new asset to be

acquired,
(CONDITIONS) Note that thmm amonntthgflgn be rolled over must not exceed the
Sapitai
gain; That is, rollover relief isé‘estricted totapital gairlsyhollover relief
can be computed as follows:

COMPUTATION OF ROLL-OVER RELIEF

in arriving at the roll over relief, the following procedure is to be follows:

N N
Consideration Received XX
Less: Cost ofthe Asset disposed
Total Chargeable gain available
Roll-Over Relief: lower of:
Sales proceed or net sales proceed XX
or
Amount Re—invested XX
Less: Cost of the Asset disp osed (XX)
Amount Roll-Over Li]
Capital Gains g

@233

...giving you the PASSWORD to keep you ahead at all Levels

PRSSW'ORD PROF ESSION 152 LS ' kDV’fiNCfiD‘ TAXATION

CGT at 10% XX
Note the following:
. A negative amount cannot be Roll—Over.
o Ifthe amount roll-over is equal to the total chargeable gain available, it is
called Full Roii—Over.

o If the amount roll-over is less than the total chargeable gain available, it
is called Partial Roll-
Over.

if the amount roll-over is equal to Zero [0], it is called Nil or Zero Roll-Over

CLASSESS 0F ASSET THAT CAN CLAIN ROLLOVER RELIEF

1. Class (1a)1anci and building x n AWL?»

2.C1ass (1b) Iant and machine \ ,. ,1:
‘3 W 117/ )P
3. Class (2] ship \1
\
4. Class [3] aircraft 1

5. Class [4] goodwill

TYPES OF ROLLOVER RELIEF. /

1. F111} rollover relief

2. Partial rollover relief

3. Nil roliover relief or zero rollover

EFFECTS OF ROLLOVER RELIEF

1. It enhances liquidity
2. its reduces the book value ofthe newly acquired asset CGT purpose
3. Leads to increased capital gains and CGT liability when the asset is
subsequently disposed.

ASSET LOST OR DESTROYED IN RELATION TO ROLLOVER RELIEF: Where an asset is lost

or 1
destroyed but a compensation is received under the policy of insurance, then the
capital sum
received by way ofcompensation is utilized to purchase another asset in
replacement for those lost
or destroyed within 3years _.,_.

/,

RELIEF FOR DELAYED REMiTTANCE OF CAPITAL GAINS TAX: arising from abroad Should
be
‘ remitted to Nigeria. But remittance may be deferred Where:

a The inability arose from problem transfer of fund.

- Inability arose as a result of host country laws.

- Difficulty in obtaining foreign Currency.

- the inability was not due to any want of reasonable endeavours on his part

...giving you the PASSWORD to keep you ahead at all Levels 3%.:

P151 SSWORD PROF E5510 NR LS ' $DV$NCED T&XAXHUNS

CONCEPT OF CARRYING COST: This can he described as the cost ofthe newly acquired
asset to
replace the asset disposed after the deduction of the amount rolled over.
CARRYING COST CAN BE
DESCRIBED AS AMOUNT REINVESTED LESS ROLLOVER RELIEF.

Cost of new asset xxx

Less: rollover relief [iced

Carrying cost XXX

PRACTICE QUESTIONS

QUESTION 1(OPTION]
Balsa Onile ltd sold an option ofa piece ofland for a sum of N500,000 to Omo
onile ltd who later
took up the right to buy the land for N2,000,000, the land was later sold for
N5,000,000 in 2012.
The option was acquired by baba onile from Lagos state government in 2008 for
N50,000.
Required:

(a) Compute CGT payable by baba onlle ltd

Co) Compute CGT payable of 01110 onile ltd

QUESTION 2(DEBT]
Banmu LTD reached a consensus to collect a motor vehicle” in exchange for a
cle_bt of N1, 000, 000
from Onigbese ltd. The book value oftnotor vehicle obtained as at the point of
exchange1s N1, 250,
000. This was converted to one ofthe poo] cars used oy the business. The vehicle
was later sold' in
2010 for N1, 500,000 afterjust one month ofusing the vehicle.
Required: Compute the capital Gain Tax liability.
QUESTION 3(CHATTEL)
SHA TAA LTD in 2011 disposed one ofits treasured tiny diamond kept in a bank for
N250, 000. The
diamond was acquired in 1999 in Rwanda for $120 at an exchange rate ofN90 then.
Required: Compute the CGT liability
QUESTION4
WODADA Plc acquired plots of land at ibafo in 2005 for N1, 800, 000. in 2008,
the company soid
them through an Estate agent called "Koseniani Agency" and incurred the
following expenses

Agent Charges 150,000

AciVert in new paper [Alaroye] 60,000
Legal 81 professional fee 70,500
Stamp and other duties ,1 L ‘41:;th 40,100
independent Valuers Professional fee 1'1“ 100, 000
The independent valuer value the plot of land for N3 800 000. As at 2005, when
the asset was
acquired, the foi lowing expenses were incurred: N
Agency commission 10,000

a rtitioning and‘ lencing 7,500

insurance premium 20,000
The asset was sold for N4,500,000 in 2008. Other related minor costs as at the
point of acquisition
were: N
Conveyance cost 20,000
Solicitors fee 5,000

/' "giving you the PASSWORD to keep you ahead at all Levels 7" l V
“awe“..w...m.mamm.mnmg

1/ I I x"
U LMJM-I 57.21 191151"'u".tLt~€ ”1/ $141.51., WW9

11W

P&SSWORD PROFESSEONRLS - ADVANCED T&XATEON

in 2007 the company drafted a plan to build blocks of flat on the land This was
however re] ected
and the related amount on the plan was N15, 000 Also the company receives a
rental income of
N250, 000 per annum on the land and pays ihsurance premium annually to the time
of N50, 000.
Required: Compute Capital Gain Tax liability for the relevant tax year.

QUESTION 5

A. Ta die- die Ltd decided to sell part of its building it acquired 3 years ago
for N3n1illion in 2012

The transaction incurred the following expenses. N

Valuers fee 160,000

Transfer fee 60,000 3,}???

Agent commission 62, 000 ‘

The buildings were acquired for N3, 600, 000 and a subsequent improvement
expenditure
amounting to N410, 000 was incurred. The market value of the part unsold
amounted N4, 800, 000
Also the company also disposed a lagos state security stock for 1, 500, 000. the
cost of the stock is
N950, 000 while stock brokerage charge was N45 ,000. '

B. Mr. Durodola acquired two properties (A&B} in Lagos on 1 January, 1980 at a

cost of N4,
000 000 anti N5, 750, 000 respectivei y. He liyes in propertyA. in March 2004,
he used N1, 250 0.0.0.130
convert a part of his dwelling house into a self—contained flat and sold it to
his younger sister for
N1. 65111 an oftwo detached bungalows costing N5, 750, 000. He sold one of the
bhngalows to his ’elder brother for N3, 150, 000 also in March, 2004. ' 'P
Required: Comp\t e Capital Gain Tax payable by the company.

The arket EFICE of the a artment he sold to his younger sister, at the time of
sale was WU
Whilst the market pricejof the bungalow sold to his elder brother, at the time
of sale, was
N4, 3Z5, 000. H3136“ used N975, 000 to refurbish the bungalow before sale. The
market price of the
Lin nsolti bungalow on 1 March' 2004 was N5, 500, 000.

You are required to: Compute the Capital Gains tax payable by M1. Durodoia.

QUESTION 6
KOKUROLE Pic went into a hire purchase agreement to acquire a motor vehicle. An
initial deposit
of N800, 000 was paid while the balance is to be paid over 20 installment of
N10_,0 000 each. The
market value of the asset under an outright purchase is N2, 400, 000.
Required: Computed capital Gain tax assuming:

[a] Only 15 instalment were made and the asset was sold for N3,2.00,000.

[b] All the instalment were made and the asset was sold for N3,200,000.

QUETION 7

San die die ltdgsiclsEi'Bne ofhis Artwork he acquired at Ago- iwoye for
N12million on 1/7/2013.
The following expense on sales was incurred. N

Spraying cost 102,000

Advertisement on LTV 8 and koko inn iwe iroyin 15,000

Agent fee 7, 000

The Artwork was acquired for N6, 800, 000 in year 2010 Because of the huge
amount involved the
buyer entered into an agreement with San- die— die ltd to pay over 6 equal
instalments with 6

months interval. Thet irst installment was paid on the day or the transact1on.r
Required: Compute CGT for ail the relevant tax year.

..giving you the PASSWORD to keep you ahead at all Leveis f.“
t1 . 1111i 3 e

PASSWORD PROF ESSI 9N 3311.5 I 13: 011'th CED TAXATION

QUESTION 8
A.VireX Company Limited disposed off its building located in Warri for
N6,450,000 on 5 October
2008. The building was constructed at a cost of N3,010,000 in 2002.
Advertisement cost paid for
the disposal was N172,000. The company ac’quiyed a new building about 5 km away,
from the saies
proceeds of the old building, at a cost of Nfém October 2008. The lawyer’s
commission
for the acquisition of the new building amounted to N2 79,000.

Compute the Capital Gains Tax due '1

BJanid Investment Limited had sold its two buildings. One is situated on_1agas_—
_§aéag_ry

expressway, Amuwo, Lagos and the other in Ibadan. The_Lagos building site was
comp‘ulsorily,

acquired by the State Government 111 June 2008111 the course of the dualisatiofi'
of the road. A
compensation of N25,000,000 was paid for the huiiding which originally cost the
company
N2,500,000. Fearing that the same predicament might befall the Ibadan building,
the company
quickly soidf‘t‘he building for NWOO on 6 July 2008. Its original cost was
N85AQLQOHOZ.SaIes
expeiises amounted to N3,250,000. .

The company normally makes accounts to SlDeeember each year and the properties
which were
sold and purchased were reflected in the accounts to 31 December, 2008. The
company decided to
move to Ogun State where between September and November 2008, it acquired a new
site and
erected another business building at a cost ofN20,500,0110.

Required: ' “”7"

1. State one other alternative open to Eanid Investments Limited in discharging
its Capital
Gains Tax liability

2.Compute the Capital Gains Tax due

QUESTION 9

“1 N0 GO PAY” Limited 501d one of his machinery and provided you with the
following information:
N

Consideration received 750,000 -

Cost ofmachinery 550,000

New cost ofnew modern machine

{Amount reinvested) 750,000

Required: Compute:
[21) Capital Gain
[b] CGT payabie
[c] Rollover relief [if any] assuming
1. The whole amount ofthe consideration is re-invested (N75 0,0 00]
11. Only part ofthe consideration is re—invested [N650,000)1
iii. Where the amount re-invested is equal to the cost ofasset dispose
[N550,000]
iv. Where the whole consideraticn is re-invested and additionai fund is
introduced
N8 50,000.
v. Where the amount re-inyested is IOWEr than the cost ofthe asset disposed
[N500,0€0)

.-giving you the PASSWORD to keep you ahead at ali Levels 1 0

,. 127‘}

P25155113 0RD PROF ESSION 151 LS ‘ 1510‘! {ENCED T&XAHON.

QUESTION 10
Mogbon Pic has provided you with foilowing information for the year end 31st
September, 2001.
Asset Cost (N000) Consideration Received [N'000}
Building 1,800 4,2 00
Plant 2,100 2,800

Subsequently, during the year, after the above disposal, the company did the
following acquisition:

Building N5,100,000

Plant N5, 000, 000

Required: Compute Rollover reiief and the Carrying cost of the new asset.

QUESTION 11 w/

(a) Capstone Consultancy Limited acquired an asset on 10th May, 2004 at a cost
of N500, 000. 011
1st October 2008 the asset was destroyed by fire and the company received N560,
000 form
Leadwayn Lsnnanhe Limited The compensation was used to acquire similar asset on
lst
December, 2008 for N600, 000 The residual value of the old asset was N80, 000.
The new asset
was “soigbfly” the __con1pahy on 15th May, 2012 for N540 ,000.

Required: Assuming Capstone Ltd makes a claim as provided in Sec.18[1],con1pute

its
chargeable gains.

(b) Aminat Limited acquired an asset in 2009 for N340,000. In 2013, the asset
was stolen and the
company was paid N400,000 as compensation. The company used the compensation to
acquire
a new asset for N180,000 to replace the one stolen.

Required: Compute the chargeable gain and the cost of the new asset for capital
gains tax.

QUESTION 12

Mr. Okonjo who is resident in Port Harcourt owns a business enterprise

specializing in the repair
of generating sets. He decided to incorporate into a limited liability company
in the name of Rapid
Current Engineering Company Limited.

In order to raise sufficient capital, he agreed to invite some friends to take

up shares in the
company. You are given the values of the assets ofthe company for the purpose of
the take- -over as

follows: 1?? ,3}; * ea

Cost [N] Weed Value (N) _
Plant and Machinery 345,000 490, 000
Equipment 964,800 1,155,000
Land and Building 1,578,000 6,75 0,000
Stocks 57,000 90,000
Debtors 126,700 ‘ 99,000
Others 274, 000 250, 000

Mr. Okonjo decided to hold part of the' land and bu11dLgE‘or his private use the
value of wh1ch was
estimated as NWOH on the day of takeover The valuation and renovation costs of
thei land and
building, preparatory to the takeover amounted to N400, 000. He estimates that
the goodwill
attributable to the business was N3Inillion.

In consideration for the takeover, Mr. Okonjo received cash amounting to N4.
85miiiion and 2miiiion
W—

ordinary shares of N2. 50 each. ‘Tfi‘

Required: Compute the chargeable gain on the takeover and tax payable thereon

c ”141 -~ 2175' ‘ fix 1:" 3

Set 3 WC ()3 543W

811211.13 “A 1 31711715313" g‘t‘w’ 1;

5/3 31;?“
”giving YOU the PASS‘WORIEYDV heep you ahead at all Levels 7" " _
1,5 W

«g(i;

13131581111 O'RD PROFESSIONELS ‘ 25101331318150 T&Xi’i’l'iU-N

PRACTICE QUESTION FOR FINALIST

1. NORMAL Limited bought a house in 2005 for N4, 200,000. Letting and
acquisition expenses

incurred amounted to N210,000. in May 2009, the company sold the house for
N7,350,000 and the
incidental expenses are as foliows:

N
Agent’s commission 105,000
Solicitor’s fees 84,0 00
Advertising 31,5 00
ACcountant’s fees 105,000
Income Tax on rent collected by Estate Agent 63,000
Valuation fees 210,000

Normal Limited aiso sold for1,050,000 on 30th September 2009, National

Government Securities
which cost N840,000 111 2005. The incidental sales expenses totaled N52,500
Required: Compute the capital gains tax payable by NORMAL Limited.

2.W1th respect to Capital Gains Tax Act Cap C1 LPN 2004.

1. Explain briefly what is meant by "Rol1 over Relief”.
ii. What is allowable expenditure?

E.Mrs. Patricia has a storey building 111 Aja, Lagos State, which was acquired
on let August, 2000 at
a cost of N15milhon. She was approached by a TeIecommunications company for a
small portion of
the landed property within the building premises for the erection of a booster
mast. Mrs. Patricia
decided to sell the whole asset 011 315t December 2010 to the Telecommunications
Company for the
sum of N35m1111011. Cost of professional services of Estate Manager and Legal
advisers stood at
N2.2m11110n and N1.8m11iion respectively.
Required:
1. Compute the Capital Gains arising from the disposal of the asset;
ii. Ascertain the tax payable on the gain on the disposal.

QUESTION 2

Mr. ILEYA lived in Canada for thirty years and decided to settle down
permanently in
Nigeria with effect from January, 2007.

Based on the advice he received from his secondary school classmate, to invest
his funds in
Nigeria, Mr. ILEYA repatriated a huge amount of money to Nigeria.

He took advantage of the probably better investment climate in Nigeria and

acquired some
properties as follows:

1.He bought a duplex building in Uyo on 2 March 2008, for the sum 0fN25,320,000.
The building was rented out immediately. The rental income from the house is
N855,000 per
annum, net OfWithhoiding tax.

110114 1anuary 2008, he invested the sum of N14,000,000 in a Fixed Deposit

accountwith
DORONINE Bank Pic, from which he derives an 1nterest£net ofWithholding tax)
ofN180,000
per month.

iii. He acquired another building complex cffour duplexes, on 6 October 2008, in

Gnitsha for

N31,500,000 and incurred incidental expenses of 012,400,000. The Onitsha

property fetches an
annual rent ofN1,800,000_

._.giving you the PASSWORD to keep you ahead at all Levels

13151351151081} 88.085531051111515 . 15101515111630] TRXATIONS

iv Although his office 15 based 111 Owetri. he decided to settle down in Okij a
and bought a house
in the town for the sum of N10, 000, 000 No part ofthe house was let out to a
third party
because it serves as his main residence.

v. 011 4 january 2012, Mr. fames Zonto decided to resettie in Toronto. He took
the following
decisions:

1. 03/0 house was disposed off for N47,450,000 after incurring the following
expenses:
N
12 Advertising cost 650,000
2 Valuation fees - 2,000,000
E1 Estate Agent’s Commission 2,372,500
121 Legaifees 1,500,000

11. The Fixed Deposit matured on 31 December 2011 and was not rolled over.
iii. He sold one of the four duplexes of the Onitsha building complex for
1114175000.
The rest ofthe duplexes were valued at N40, 500, 000.

iv. He aiso sold the O1<1ja house for N36, 500, 000 after incurring 1nc1denta1
expenses in
the sum 0fN3, 650, 000.

You are required to compute:

[a] The Total Income for Income Tax purposes for 2011 year ofassessment.
m Capital Gains Tax payable for the relevant year of assessment 1.1143

QUESTION 3

3. Under the Capital Gains Tax Act CAP C1 LFN 2004;

[i) When is a disposal deemed to have taken place? [2 Marks}

[ii] How can a part disposal of an asset take place? [3 Marks]

b IFA Limited bought a building on 28 February 2005 for N975,000 and incurred
N195,000 on
immediate improvement of the building.

011 1 August 2012, the Company sold part of the building for N650, 000 and paid
N39, 000 as
professional charges on the sale

The market value ofthe unsold part of the building was put at N1,300,000_
You are required to:

[i] Compute the Capital Gains Tax payable by the company. (8 Marks]
[ii] Compute the cost ofthe part ofthe building not disposed. [2 Marks] (M14)
QUESTION 4

KOKUROLE Limited sold a Plant to BEMO on 31 December 2007 for N5,200,000 which
cost N3,250,000 to acquire an 1 March 2005.

The sales agreement provided for payment of an initial deposit of N2,080,000 011
the day of sa1e
and the balance of N3,120,000 payable in three equal instalments on 31
December, 2008, 2009 and 2010.

020 Nchi made actual payments as detailed below:

“giving you the PASSWORD to keep you ahead at 311 Levels ,. 7 L

' 4‘» ML_1J___Q 4444.23.41 M..J‘_m..

FRSSX-‘IORD ?ROF ES-SION 1511.5 ' RDVANCED TAXkflON

Date 1N

31/12/2007 2,080,000
31/12/2008 11,040,000 ;
31/12/2009 1,040,000 1
31/12/2010 260,000 3

BEMO died and the balance of N780,00CI couid not he recovered by KOKUROLE
Limited as at

31 December, 2012. Consequently, the balance was written off as Bad Debt, with
the consent of
the FIRS.

You are required to:

Compute the Capital Gains Tax payable. [:5 Marks) (N13)

QUESTION 5

Mrs. OLOWO who acquireda two—wing Duplex at Festac Town at a cost ofNSO miihon,
later
disposed one wing at N30 million and the part left was valued at N80 million.
The cost of
valuation was N5 million and the Estate Agent‘s commission was N3 million.

You are required to:

a. Calculate the Capital Gains Tax payable. 7 Marks]

h. Identify a Chargea‘ole Person and the bodies to which Capital Gains taxes can
be remitted.
{4 Marks)

c. Describe Parfial Disposal of an asset and how the cost of the Partial Disposal
is calculated.
{4 Marks] [Total 15 Marks} (M13)

QUESTION 6

c] Ewupe Realty Limited is a company that deals in Properties and other

Investments.
During the year ended 31 December 2007, the followingtransactions tookpiace.

(1) The company said one Generator for Nl0,000,000, which originally cost
N3,200,000.
Advertising cost was N60,000. Paymentis to he madein four equal bi-annual
instalments
commencing 1 June 2008.

{11] One wing of a two-wing Duplex Which was completed in 2002 for N2,230,000
was
sold for N5,500,000. A11 Estate Valuerhas valuedthe unsold wing at N4;400,000 in
the
open market and 3% of the consideration for the part sold, was paid to the
Estate
Agent as commission while the Estate vaiuer received a fee of 7.5% of the
valuation,
Addih‘onai cost incurredin improving the disposed wing prior to sale was
N325,000.

[111} One of its Buildings constructed in 2003 for N850,000, was disposed of for
N3,200,000
during the year. The cost ofadvertising was N75,000 while the Estate Agent
received 3% ofthe
sales value as commissionAnew Building was built during the year for N2,000,000.

You are required to compute the Capitai Gains Tax Payable for each of the
transactions.
{10 Marks)

{Total 15 Marks] (N11)

QUESTION 7

Ianid Investment Limited had sold its two buhdings. One is situated on Lagos—
Badagry expressway,
Amuwo, Lagos and the other in Ihadan. The Lagos building site was compulsorily
acquired by the
State Government in June 2008 111 the course of the dualisation of the road. A
compensation of
N25,000,000 was paid for the building which originally cost the company
N2,500,000. Fearing that
the same predicament might befall the Ibadan building, the company quickly sold
the building for

N15,500,000 on 6 juiy 2008. its original cost was N850,000‘ Sales expenses
amounted to
N3,250,000.

...giving you the PASSWORD to keep you ahead at all Levels

PASSWORD PROFESSIO‘NQLS . 159131! 12.016130 TMATIDN

The company normally makes accounts to 310ecember each year and the properties
which were
sold and purchased were reflected in the accounts to 31 December, 2008. The
company decided to
move to Ogun State where between September and November 2008, it acquired a new
site and
erected another business building at a cost of N20,500,000.

Required:

(aJCompute the Capital Gains Tax liahihty for the relevant year of assessment.
(6 marks}
(hJState one other alternative open to Janid Investments Limited in discharging
its Capital Gains
Tax liability and the time limit for exercising the option.[3 marks]

in January 2001, Mr. Smith bought a property for N3,456,000 with the intention
of building an
Estate. The legal fees, stamp duty and other relevant costs amounted to
N1,220,000.

The building of the estate was completed in year 2003 at a total cost of
N49,550,000. Mr. Smith
immediately advertised for tenants at a cost of N525,000. He later decided to
sell the entire estate
and advertised for prospective buyers after the estate was valued by a
registered valuer at
N159,350,000. Other incidental costs incurred were as follows:—

Advertising cost for buyers N1,250,000

Surveyor's and valuers fees N15,650,000
Estate agent’s commission N12,122,340
Stamp duty and other official costs N15,335,000
Required:

Calculate the Capital Gains and the Capital Gains Tax payable [6 marks]
(Total 15 Marks) 0411)

QUESTION 8

MELTDOWN CONSTRUCTION LIMITED purchased a bulldozer on hire purchase 011

1 February 2007 and paid a sum ofN28,500.000 as a deposit on the purchase price.
The cash price of the bulldozer at the time ofpurchase was N45,000,000, but
Meltdown

Construction Limited was aiiowed to pay the balance in twenty monthiyinstalments

of
N1,000,000 each with effect from 1 March 2007.

You are required to calculate the Capital Gains Tax for the relevant year of
assessment,
assuming that the bulldozer was sold for:

0 N48,400,000 after the payment of instalment on 3 December,2007.

[Smarks]
o N49,600,000 after the payment of instalment on 5 September,2008.
[5 marks] (~10)
QUESTION 9

(a) Lazarus Company Limited purchased the following assets:

Date Type Amount

1/4/01 Plant and Machinery N1,200,000

Part of the plant and machinery was sold on 31 December, 2005 for N1,850,000.
The company
spent N250,000 as expenses incidental to the sale. The market value of the
remaining piant and
machinery was N750,000 on 31 December, 2005. '

You are required to compute:

..giving you the PASSWORD to keep you ahead at all Levels ,.

?ASSWORD PROF E5510 NALS ' ADVENCED T&XfiTTO‘N:

The chargeable gain on the asset sold [4 Marks)

The capital gains tax. [2 Marks) ‘
The new cost of the remaining asset. [2 Marks)

respect to Capital Gains Tax Act Cap C1 LPN 20 04.

{1] Explain briefly what is meant by "Roll Over Rehef‘.

[ii] What are allowable expenditure? {3 Marks]

[’4 Marks]

(mm

...giving you the PASSWORD ":o keep you ahead at all Levels ,

.M‘ __..-- 1.2-1.1».1Wn - ., 11.1-2

153455110110. eaoeassiomts a01’s-aea0 TaxarIo-N

QUESTION 9 [CS]

YEWO & Co. Limited is an old established manufacturer ofKitchen. Utensils. As a

result of
political crisis in its area of operation, the Management of the Company in May
2012, decided
to relocate the organisation to another town, which it considered to be safer.

The Accounting Year~end ofthe Company is 31 December.

The following details were obtained from the Books of the Company:

1.1 January, 2012: Cost of acquisition

N
Freehold Land & Buildings 12,100,000
Plant and Machinery 24,400,000
Motor Vehicles 14,000,000
Generator 3,000,000
11.31 May, 2012: Disposal ofassets. N
Freehold Land 81 Buildings 14,6000 00
Piant and Machinery 23,500,000
Generator 4,000,000
111.3 July, 2012; Cost ofacquisition of new assets:

N
Freehold Land 81 Buildings 15,600,000
Generator 1,800,000
As the newly appointed Tax Consultant to the Company, you are required to draft
a Report to
the

Managing Director of the Company, showing explicitly, for the relevant tax year:

a.The relief, if any, available for the replacement of the Assets.(10 Marks]

b.Capita1 Gains Tax Payable. {5 Marks)

[Total 15 Marks)

[M15}

QUESTTON 10

Best Manufacturing Wig.) Limited is engaged in the production ofbuilding

materiais in Ota,
Ogun State. Due to sudden power surge at night, one ofthe two factories got
burnt before fire
fighters arrived the scene.

The factories were comprehensively insured with MACON insurance Company Pic. The
management decided to move the factory from Ota to Lagos State.

Concerted efforts were made to acquire land for a new factory in Ejigbo and
the‘factory in Ota
that was not burnt which cost N1,800,000 six years earlier, was sold for
014,200,000 in March
2007. The amount formed part of the cost of construction of the new factory at
Ejigho which
was completed in November 2007, at a cost of N5,600,000.

in 2008, for the Ota factory costing N3,700,000, the insurance company paid
N5,900,000 to
Best Manufacturing [Nigj Ltd. Out of the compensation received, N4,600,000 was
spent on the

construction of the new factory in Ejigbo Whilst the balance was put in a fixed
deposit account
to yield interest.

Best Manufacturing [Nigj Ltd has just appointed you as the company’s Tax
Consultants. You
are required to advise the management on:
(a) The Capital Gains [if any) arising from the events;
11] The Capital Gains tax payable;
111) In addition, suggest how the company can reduce the Capital Gains Tax
0013511001 11011011505)

...giving you the PASSWORD to keep you ahead at all Leveis : -; , _ L i {9155’

F 131551110 RD PRO FESSIO NALS 13: D VANCE) TAXfitTIO N

In its efforts to improve the Corporate image of Soioke Limited, the Board of
Directors approved
the relocation of its Corporate Head Office from Lagos Mainland to Ikoyi with
effect from 1
December, 2013. The ultra modern Corporate Head Office was acquired for
N320miilion on 15
juiy, 2013 and the sum of N140milhon incurred on improvement and renovation. The
old
Corporate Office in Lagos Mainland built at a total cost of N200rnilhon in 2006
had carrying
value of N3001niilion as at 31 December, 2012 and was disposed of on 27 June,
2013 for
NZBOrniliion.

You are required to:

a.Outiine the tax implications of the disposal of Lagos Mainland office and
compute the relevant
tax payable on disposa1.[9 Marks]

b.Ascertain the cost of the new ultra modern head office for the purposes of
Capital Gains Tax
and Capital Allowance.(3 Marks)

c.Expiain briefly the concept of Capital Gains arising on assets on which Roll—
Over Relief had
been granted.[3 Marks)

[Total 15 Marks]
QUESTEON 12

a. With respect to the Capital Gains Tax Act‘Cap C1 LFN 2004 [As Amended)

i. What is 'Disposal? (Zmarks)

It. When can an Acquisition/Disposal be said to be effective? [Zmarks]
0. Your Tax Manager has just sent a memo in which you were asked to analyse the

situation in a client's file with the sole aim of determining the Chargeable
Gains:

Contents ofMemo

Dr. Alexander Bold purchased a Duplex in Parkview Estate at a cost of

N80rniliion on January 2009. It was used as a private residence. Another
property was purchased in Banana Island in year 2012 and Dr. Bold
transferred the Park View Estate Property to his wife as a Birthday present on
August 12. 2013. The Market Value of the property was N140n11111011. As a
result of incessant flooding in Park View Estate, the property was finally
disposed off or N200million on January 31, 2014 by the wife.

- An option on a piece of land in Magodo, Lagos State, was 50111 by Dr. Bold for
a
sum of N120milhon to Mr. Robert on July 1. 2010. Mr. Robert exercised the
right to purchase the land for N150milhon in year 2013 and sold the property
for N40 01111111011 in year 2014.

- Mr. Clyde a friend of Dr. Bold, purchased a piece of property belonging to

Botd
and Wife Limited in Badagry at a Cost of N240 rnilhon. The two parties agreed
on

...giving you the PASSWORD to keep you ahead at all Levels ,

P1313511! 0RD PROF 555-1051151115- . ADV 151111 CED TEXIRTTG N

instalment payments starting with a lst Instahnent of N80miliion on Juiyl, 2010,

the balance of
N80 million every 6 months thereafter The last instalment couid not he settled
on time because of

Mr. Clyde 5 illness who managed to pay N2 01111111011 on January 1,2013. The
cost of the property to
Bold and Wife Limited was N180million.

N
Juiyl,2010 80,000,000
Januaryl2011 80,000,000
JulyZ, 2011 40,000,000
January, 1,2013 20,000,000

Mr. Clyde eventually died on March 5, 2013 hence the balance of NZOMiliion could
not he

recovered and this was written off as Bad Debt with the consent of the Federal
Inland Revenue
Service.

Mr. Saxon (3A. N] a Legal Practitioner from the Chambers of Saxon in Lagos was
involved in a
case on behalf of Dr. Bold's wife. The case lasted for about 4 years and
judgement was received
in favour of the client. The fees were settled partly by cash and partly with an
acre of land
belonging to Mrs. Bold at Lekki Phase Two in Lagos.
AlthoughthedebtwasN85rnillion, the
property was valued at the N601nillion. Mr. Saxon eventually sold the property
for N220
million.

Required:

You are to prepare a memorandum on the above issues in respect ofthe following:
ii. Chargeabl e gains£5 marks]
111. Opinion on all the above transactions [9 marks]

iv. The role of Federal Inland Revenue Service on the issue of Bad Debt on
payment by Mr.
C1yde(2 marks]

[Total 20
markshmsm

...giving you the PASSWORD to keep you ahead at all Levels

wig:
@E‘

Psh—SSWORD PROFESSIONALS ' 25101513076130 T&XfiTION

QUESTION 13
Obiorna and Sons Limited, a company based in Emene 4 Enugu, has been producing
vegetabie oil since 2015.1t has been a leading name in the production of a
popular brand
ofhousehold vegetable 011 known as "Abop" which is in high demand.

Given the fact that the company is doing very well, it secured funds from its
bankers and
bought additional Plant and Machinery in excess ofits immediate needs on June 1,
2013
for N24,600,000.

The Finance Director convinced the Board to dispose part of the plant and
machinery to
boost the company’s working capital. Consequently, on December 31, 2015, the
company sold part of the Plant and Machinery for N37,925,000 spent N5,125,000 as
expenses incidental to the sale. The market value of the remaining Plant and
Machinery
was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to

the
Managing Director, who is visibly disturbed that the Federal inland Revenue
Service

[FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a. State any FOUR chargeable Assets. [2 Marks]

b. State any FOUR conditions for granting Roli—Over Relief. [8

Marks)

C. Compute the Chargeable Gains 011 the asset sold. (4 Marks)

0. Compute the Capital Gains Tax. _ (2 Marks)

E. Compute the new cost of the remaining asset. (4 Marks]

(Total 20 Marks]{ATQ3N16]

...giving you the PASSWORD to keep you ahead at all Levels i-

P151 SSWORD PRO FESSIG‘NALS . 151 DVANCED T&XIKTEGN

eiohaaa 11015111111011 /

INTRODUCTION

The Industrial Development (income Tax Relief] Act 1971 came into force on lst
April, 1970. The Act
makes provision for the exempti_on of companies_yhich meet certain requirements
from payment of
tax for aLnirnum period of three yfiand a maximum period of five yewa‘r'syi. e.
an initial period of
three years and an extension by two years a er mWain conditions This is one of
the tax
incentives offered by the Federal Government to encourage the establishment or
development of

certain 1ndustries. The Act is now referred to as the industrial Development

[Income Tax Relief] Act,
Cap.17 LFN 2004

DEFINITION OF TERMS /

1. Accounting period: means a period for which accounts have been made up
according to the act.
2. Board: means FBIR.

3. Company: means a company limited by shares, registered, incorporated and

resident in Nigeria.
4. The Director: means director appointed according to the act.

5. The Minister: means minister of industries.

6. New trade or business: means a trade or business ofa pioneer company

commencing at day after
the tax relief period.

8. 01d trade or business: means a trade or business during the tax reiiefperiod.

9. Permissible by product: means any goods or service so described in the

pioneer certificate.

10. Pioneer certificate: means a certificate issued under the act, certifying a
company to be a
pioneer company.

11. Pioneer company: means a company certified by a pioneer certificate.

12. Pioneer enterprise: means a company into production and sale of pioneer
product or products.
13. Pioneer industry: means any trade or business in any 11st published under
the act.

14. Pioneer product: are goods or services included in any published list 111
the act.
15Principa1act: means CITA.

1‘6. Production day: means the day on which the trade oéioneer company
commences.

17. QCE: means qualifying capital expenditure ofsuch nature for the purpose
ofthe act.

18. Relevant pioneer product: means pioneer product, and permissible by product
specified in the
pioneer certificate.

19. Tax relief period: means a period specified under the act of initial 3 years
maximum
period and an extension of an additional 2 years maximum. ‘= =4 "—--’" """’\
20.1ndigenous controlled company: ‘ f -—~._s_,1-_

*Voting rights ofshares' is vested 111 persons who are citizens of Nigeria

*persons mention above must control the composition of board of directors of the
company.
QUALIFTCATION FOR APPLICATION: Any company incorporated in Nigeria, or a group
of persons
on behalf ofa company which is to be incorporated in Nigeria [promoters] may
qualify to be granted
pioneer status. Based on the 11st of pioneer industries and products published,
an applicat1on may be
made at any time for the issue ofa pioneer certificate to any company in
relation to any such pioneer
industry or pioneer product.

...giv1ng you the PASSWORD to keep you ahead at all Levels V

WW._~&,«.‘_._._‘. ' ._____....m- ..u.

P1XSS1XIORD PROFESSIONKLS ‘ fiDh’fiNCED TAXRTIONE

The Act stipulates that no application for the issue of a pioneer certificate to
any company shall he
made unless the estimated cost of quaiiififing capital expenditure [QCE] to be
incurred by the
company on or before production day fifths application is approved) 15 an amount
which:

(a) In the case of an indigenous controlled-company is notless than N50,000; or

[b] In the case of any other company, 15 not less than N150,000.

However, According to Section 2(2) of the Act, An application for a pioneer

certificate should be
addressed to the Minister of Industr1e5 and should be in the prescribed form and
stating the grounds
upon which the applicant relies. The applicant for the issue of a pioneer
certificate to any company
must state in the application:

2. Grounds of application must be made, if for pioneer certificate, applicant

shall state:
*whether the company shall be an indigenous controlled company

*Give details of QCE including their source and estimated cost 011 or before
production date and
3years following production date.

3. Specify place asset will be Iocated or situated.

4.Est11nate or state probable date ofprocluction of the company.

5. State any product and by product [not being a pioneer product) proposed to be
produced in
quantity and value during a period of one year from production date.

6. Give details of any loan and Share capital or proposed, amount and date the
issue or proposed
issue and source from which the capital is to he raised.

7. For already incorporated company, name, address and nationality of each

director including the
amount of shares held by them.

8. for a proposed company, name, address and nationality of each promoter.

9. Incase ofind1genously controlled company QCE must not be less than 50,000
nairabut for any
other company 150,000 naira.

10. Must include a nonrefundable fee of 100 naira which would be transferred to
the CRF.

11. A declarah'on signed by the applicant that all particulars and information
are true and an
undertaking to produce proof when required.

The application shall contain a declaration signed by the applicant that all the
particulars stated
therein are true and an undertaking to produce proof, if required. The
application shat} be
accompanied by a nonrefundable fee ofN100 which shall be credited to the
Consolidated Revenue
Fund of the Federation. The Minister may require the applicant to furnish such
further particulars as
he may consider necessary to enable the President to consider the application.
The Minister W111 then

...g1y1ng you the PASSWORD to keep you ahead at ail Levels ‘1‘

9172551111011 D PROFESSIONRLS , :5: DVR: NCED T&XATION

submit the application to the President and, subject to the provisions of the
Act; the President may
approve or disapprove the application

PIONEER CONDH‘IONS

Under section 1(1) of IDA 2004, the President may direct publication in the
Gazette of a list of
pioneer industries and pioneer products. Before any industry is included in the
list of pioneei~
industries and pioneer products, the President must be satisfied that:

[a] The industry or company must be a mahufagmrer of ayroduct or service not in“
ex1stence but 15
needed fer economtc d_evelopment :
(11];Prod‘uct or servicehis already in existence but has not beemdevempei fuily
for economy
deveTopm t. That 15.41% industry has favorable prospects offurther development
In Nigeria

(c) It 15 in t pubhc interestfio encourage the development establishment ofsuch

industryin
Nigeria. ’ ‘3”

[deroduCt or service is for pubhc use animinimum_ QC_E has been acquired.

An application may be made for the inclusion of any industry in the list of
pioneer industries and
pioneer products by a company incorporate; in Nigeria or by a group of persons
on behalf of a
company which is to be so incorporated. Note that the President may from time to
time, on any
ground Which appear to him sufficient, amend the list of pioneer industries and
pioneer products.
TERMS OF A PIONEER CERTIFICATE [SECTION 3] U/
1. Terms ofthe application and any variation as the president deems fit.

2. The pioneer product and any permissible byproduct including any limitation to
the by product in
terms ofquantity and value.

3. If for a Iproposed company, period ofincorporation not later than 4months

af_ter the date after

when issued
4. Undertaking as to conditions attached to the pioneer certificate.
5. Notice that cancellation may arise if not obligatory.

A pioneer certificate to he issued to a proposed company shall be issued only

after the incorporation
of the company and the certificate shall be effective from a date, not earlier
than the date on which
the application for the pioneer certificate was submitted to the Minister or the
date, on which the
company was incorporated, whichever is the later. The President may also require
that an
undertaking shall be given by the company for the purpose of ensuring the due
compliance by the
company with any conditions endorsed on its pioneer certificate.

In any case where a pioneer company:

[a] has acquired or proposes to acquire assets from any company to which a
pioneer certificate has
been granted under the Aid to Pioneer Industries Act, the'lndustrial Development
[Income Tax
Relief] Act 01' this Act; or

...giving you the PASSWORD to keep you ahead at all Levels

P25285113) RD PROF E5510 Nz’tLS ‘ ADVANCED TMleO‘N‘

{b} has taken over or proposes to take over the whoie assets of any other
company which is not a
pioneer company, the pioneer certificate may spec1fy the maximum tax rehef
period, not
exceeding five years, to be enjoyed by thfiheer company (Sec 3(6JOfID1TRA 2004-]

AMENDMENT OF PIONEER CERTIFICATE

According to Section 4 of the Act, An application in writing may be made by a

pioneer company at
any time dur1ng its tax relief period for the amendment of its pioneer
certificate to include any
additional pioneer product.

1. The apphcation should be addressed to the Minister and shouIti specify the
additional pioneer
product and the reasons for the appl1ca1jon.
2. Spec1fication of additional product or by product.

3.Where an application for amendment of the pioneer certificate is approved by

the President(w1th
or without variation], it shall amend the pioneer certificate of the pioneer
company in such terms

and subject to such cond1t1ons as the President may think fit and may be
operative from a
retrospective date.

RETROSPECTIVE OPERATION OF PIONEER CERTIFICATE

Subject to any other provision of the Act, Where a pioneer certificate is to

take effect from a
retrospective date, any tax paid since that date which wouId not have been paid
if the pioneer
certificate had been in force at that date, shall be refunded to the pioneer
company by the FIRS as
soon as may be after the expiration of three months from the production day
ofthe company.

CERTIFICATION OF THE DATE OF PRODUCTION DAY /

Section 6{1)ofID1TRA 2084 requires: ~

1. A pioneer company to apply in wr1t1ng to the Directory IndustriaI

Inspectorate Division of the

Federal Ministry of Industries not later than one month after the material date
requesting him to

certify the date of1ts produch‘on day. The company is to propose a date to be
certified as its

production day and g1ve reasons for choosing that date.

"Material date"n1eans:

(a) In relation to a pioneer company engaged in a pioneer industry consisting of

the provision of
serv1ces, the date which the company is ready to provide such serv1ces on a
commercial scale.

[b] 111 reIation to a pioneer company engaged in a manufacturing, processing,

mining, agricultural
or any other pioneer industry, the da:e on wh1ch the company begins to produce a
pioneer
product in marketable quantities [See Section 6(12] ofthe Act]

The Director shall consider the application and, if necessary, tail for further
information. Thereafter
he shall issue a certificate to the pioneer company certifying the date of its
production day. The
pioneer company can object to or appeal against the certificate issued by the
Director as 1f1t were a
notice of assessment given under the provisions of CITA. The date ofthe
production day certified by
the Director shall be communicated by him to the Minister and the FIRS.

Note that the production day is the day {111 which the trade or business of a
pioneer company
commences.
“giving you the PASSWORD tc keep you ahead at all Levels 3, -, ' A ‘

t . ,

PRSSW'O RD: PROFESSIONA LS . E&DIVfiNlCED THATION

CERTIFICATION OF QUALIFYING EXPENDITURE “3‘

Section 6(2) Of IDITRA 2004 requires a pioneer company to apply in writing to

the FIRS not later
than one month after the certification ofthe product1on—day of the compan or
within such extended
time as the FIRS may allow requesting the FIRS to certify the amount of
quahfying capital
expenditure [QCE] incurred by the company before the production day. The company
is to prov1de
fuil particulars of the capital expenditure so incurred.

Where an asset has been disposed ofbefore the pioneer company's production day,
the proceeds of
disposal shall be deducted from the total amount of qualifying capital
expenditure incurred to
determine the amount of qualifying capitai expenditure to be certified. For
example, a pioneer
company acquired :1 Motor vehicle for NSO0,000 and disposed of the vehicle for
N4D0,000 before its
production clay. The FIRS will have to‘ reduce the total capital expenditure by
N400,000 in
determining the amount of qualifying capital expenditure incurred by the pioneer
company prior to
its production day. However, Where the disposal of asset has not been made at
arm's length or
where the pioneer company has control over the purchaser or the purchaser has
control over the
pioneer company, the asset shall be deemed to have been disposed of for an
amount which it would
have realized ifsold in the open market at the date of disposal less reasonable
expenses which would
have been incurred 1f the asset were so sold.

The FIRS shall consider the application together with such further information
as it may request for
and shall issue a certificate to the pioneer company certifying the amount of
the qualifying capital
expenditure incurred by the company prior to its production day. The pioneer
company can object to
or appeal against the certificate issued by the FIRS as if it were a notice of
assessment given under
the provisions of CITA. The amount of the qualifying capital expenditure
certified by the FIRS shall
be communicated to the Minister.

CANCELLATION 0F PIONEER CERTIFICATE /

The pioneer certificate issued to a pioneer company can be cancelled if:

[a] Shem or certifies that the dateof P?QdHCEIQH day of a pioneer company is
more the

(115131133 an the estimated date given in the company‘s application for a

pioneer certificate.
Nevertheless, the President may not revoke the pioneer certificate if he is
convinced that the
delay is due to circumstanceibeyond the control of the company or to other good
and sufficient
cause.

[13) The FIRS certifies that the qualifyincr capital expenditure incurred by the
pioneer company on
or before the production day_igmm the case of an indigenous-controlled
company or N150,000 in the case of any other company.

[c] The p'tohger'company applies’fgerthe cancellation gfjts certificate.

[d] The pioneer company hashefitiarvened any proVTS—iohi of the Industrial

Development [Income
Tax Relief] Act or has failed to filmmfie‘hr proposal made in its application for
a
pioneer certificate or any conditions contained 111 its pioneer certificate.

Note that in the case of [c], the Minister shall cancel the pioneer certificate
but In the other

circumstances, the Minister shall report to the President who may either revoke
the pioneer
certificate or restrict the tax reliefperiod ofthe company as he may Consider
appropriate.

...giving you the PASSWORD to keep you ahead at all Levels "

P&SSWORD PROF ESSION 151115 ‘ 1’1th I&NCED TEXATIO‘N

The effective date ofcancellation ofa pioneer certificate ofa company shall be; _

(a) The pioneer date if the pioneer comp any has been in operation forst than
pne ye:1'jafter the
pioneer date; and ~43; .,-_i._

(b) The date of the last anniyersary of the pioneer date if the pioneer company
has been in operation
for not less thanmer mm

Note thmfid/aémefifie from Wmmoneer certificate takes effect.

ILLUSTRATION 1

Mama Limited was granted a pioneer certificate with the pioneer date given as
lst July, 2008. ‘

{a} What is the effective date of \cgiincelilation of the certificate assuming

that it was cancelled on 30th
Aprn 2009? LS

[121] What1s the effective date of cancellation ofthe certificate assuming that
it was cancelled on 30th
April 2011? Jazz, Wt amuwsafi 1 a gal {[10
DISCLOSURE/PUBLICATION 0F PIONEER CERTIFICATE

Except at the instance of the pioneer company, the contents of the application
for a pioneer
certificate and the contents ofthe pioneer :ertificate itselfare not to be
published in the Gazette or 111
any other manner. The Act requires the Minister to publish in the Gazette:

a. The name of any company given a pioneer certificate

b. The pioneer industry or pioneer product to which the certificate relates.

c. The name of any company whose pioneer certificate has been cancelled and the
effective date of
the cancellation;

d. Any restric’don ofthe tax relief period of a pioneer company.

MINISTERS POWER TO DEMAND FOR INFORMATION

1. The minister through an officer may demand for information such as:

2. Local production cost and factory price ofthe product.

3. Relative cost ofimported product.
4-. Any other information.

TAX RELIEF PERIOD

A tax relief period or tax holiday is a specified period of years during which a
taxable person is
granted freedom from payment of tax on part on the whole of his/its income or
profits. in other
words, the taxpayer is not required to pay tax dur1ng the tax holiday or tax
relief period A pioneer
company is usually granted a tax relief period of three years commencing on the
date of the
production day ofthe company. At the end of the three years, the President may
grant an extens1on
oft 1e tax reiiefperiod for period of:

a one ear and thereafter for another enod of one year starting from the end of
the first period of
Y P
extension; or

[b] Two years at once.

L——~~-'—" a.

..giving you the PASSWORD to keep you ahead at all Levels f

.. . . 11.1”.

P13155511! 0RD PROF ESS-ION 252115: 1 fiDih’ANCED T&KRTTON

1
A

1*
CONDITIONS/FACTORS TO CONSIDER FOR RENEWAL OF PIONEER STATUS \/
The extension of the tax reiiefperiod will not be granted except the President
is satisfied as to:

a] The rate of expansion, standard of efficiency and the level of development of

the company:
13) The implementation of any scheme:

- for the utilization ofiocal raw materials in the processes of the company; and

- for the training and development of Nigerian personnel in the relevant

industry;
1:] The relative importance of the industry in the economy of the country;
(1] The need for the extension, having regard to the location ofthe industry;
and
e} Such other relevant matters as may be required.

in order to obtain a certificate of extension of the tax reiief period, the

pioneer company must apply
in writing to the FIRS not later than one month after the end of the initial tax
relief period of three
years 01" of any extension thereof. The application shall contain particulars of
ail capitai expenditure
incurred by the company by the requisite date (i.e. the date When the tax
reliefperiod expired]. The
FIRS shall censider the application together w1th such further information as it
may call for and shall
issue a certificate to the company certifying the amount of the qualifying
capital expenditure
incurred by the company by the requisite date.

CERTIFiCATION OF LOSSES DURING PIONEER PERIOD -/

Where a pioneer company has incurred a loss in any accounting period falling
Within its tax relief
period, the FIRS shall issue a certificate to that effect. The loss in this
instance is the adjusted loss.
This loss will be deemed to have been incurred on the date of the new trade.
This loss shall be
available for relief in subsequent tax years However, where a company is not
satisfied with any
certificate given by the FIRS or any notice of refusal to give a certificate, it
can object to or appeal
against the certificate or the notice of refusal as 11 it were a notice of
assessment given under the
provisions of CITA.

OLD AND NEW TRADE OR BUSINESS \/

A pioneer company is deemed to have permanentiytjeased itsoigi trade or business
at the end ofits

tax relief period and to have commenced aE ewrtradaot hhsiness onthe@lloMnitEfg

of its tax reliefperiods. The pioneer company shaii make up accounts of the old
trade or business for
the following periods:

[a] A period not exceeding one year commencing on1ts production day;
(13] Successive periods of one year thereafter; and

(c) A period not exceeding one year ending at the date when its 3 rehefper1od
ends.

After the tax relief period, the company will prepare the first accounts of its
new trade or business
using as the opening figures the closing figures of assets and liabilities as
per the last accounts of the

tax teliefpefiod.

ex"—

EXISTING COMPANY AND PEONEER STATUKSQV" ‘/

Where an existing company is granted a pioneer status, the company is deemed to
have permanentiL

ceased its non-pioneer bus1ness and commenced the production ofa pioneer
product. The cessation
rules will, therefore, apply to the nen-pioneer business. The business is deemed
to have ceasega gay
1/7 fig; h J

...giv1ng you the PASSWORD to keep you ahead at ail Levels

4 , . , _

?RSSW'ORD PROFESSIONAXLS ‘ IEDVzX‘aWCED TfiXfis’l‘IO-N

business to the pioneer business at thehgta‘q written down v_alu:sron the

production date.
in summary: ‘ 7 x

1. Determine the pioneer date1.e. date p1oneer status was granted.

before the production day Assets are deemed to have been transferred from the
non— pioneer

2. Determine the day before production date. i.e. day of cessation ofthe old
business.

3. Determine penultimate and ultimate year and apply the cessation rule.

.1:

. Determine the pioneer period i.e. Syears from the production date.

RESTRICTION ON TRADING DURiNG THE TAX RELIEF PERIOD (PROFIT FROM NON PIONEER
PRODUCT OR SERVICE)

During the tax reiiefperiod a pioneer company is not allowed to carry on any
trade or business other
than its pioneer activities. Where it does, the profits earned from other
operations and activities not
covered by the pioneer certificate will be liable to tax under CITA.

1
1

d U
DIRECTION ON THE TREATMENT OF CERTAIN RECEIPTS AND EXPENDITURE

Where any sum of money is payable to a pioneer company during its tax
reiiefperiod which should
normally have been payable after that period, the FIRS may direct that the sum
be treated as having
been payable' 1n respect of the company s new trade or business on such date
during the non— relief
period as the FIRS thinks fit

Where any expense is incurred by a pioneer company within one year after the end
ofits tax reiief
period Which should normally have been incurred during its tax relief period,
the FIRS may direct
that the expense be treated as having been incurred in respect of the company's
old trade or
business and on such date during its tax relief period, as the FIRS considers
fit.

However, where the tax relief period of a pioneer company is varied, the FIRS
may amend that
direction accordingly.

CAPITAL ALLOWANCES ~’

A pioneer company cannot claim Capital allowances during the tax relief period.
Where a pioneer
company has incurred quaiify1ng capital expenditure on an asset during the tax
relief period and the
asset is used for the purpose of the new trade or business the expenditure 1s
deemed to have been
incurred on the day foiiowing the end of the tax relief erioti .Capital
aiiowances wiii be granted' 1n
respect ot the new trade or business.

However, where a company has been in business prior to its pioneer period,
capital allowance
computed for assets obtained prior to pioneer period shall be accumulated and
carried forward to
post—pioneer period.

...giving you the PASSWORD to keep you ahead at all Levels f: I

_, . u f
1 .1 .. ,1 .7 ' 1 _

Pessn’oen PRO EESSIONMS . antennae TAXfitTID N:

LOSSES ‘/

In determining whether a pioneer company has incurred a loss in any accounting

period within the
tax relief period, the FIRS may 1n its absolute discretion exclude such sum as
may be in excess of an
amount appearing to the FIRS to be just and reasonably paid or payabie by a
pioneer company in

espect of:
fie] Remuneration to directors of the company;
[‘0] Interest service, agency or other similar charges made by a person who is a
shareholder of the
company or by a person controlled by such shareholder.
Where the losses incurred by a pioneer company during the tax relief period
exceed the profits made
during the same period, the net loss shall be deemed for the purposes of
comput1ng total profits to
have been increase on the day following the end of the tax relief period {i.e.
the day on wh1ch the
company's new trade or business commences). The computation of a loss is similar
to that of a profit.
For each accounting period, the FIRS shall issue to the pioneer companies a
statement showing the
amount of income or loss computed for that period. The company can make an
objection or appeal if
it is not satisfied with the statement.

EXEMPTION OF PROFITS AND DIVIDENDS FROM INCOME TAX L/

Any profits stated in the statement of income issued to the pioneer company by
the FIRS for each
accounting period shail be exempt from tax under CITA. Where the statement is
under objection or
appeal, the FIRS may declare that the whole or a specified part of the profits is
not in dispute, and

any such undisputed profits shall be exempt from tax under CITA pending the
statement becoming
final and conclusive.

A pioneer company shaii maintain an account [often called section 17 account)

which W111 be
credited with amount of profits of the company exempted from tax. Any dividends
paid out of the
exempted profits shall not be subject to tax in the hands of the recipient
shareholders. The dividend
shall be debited to the account.

Where it appears to the FIRS or the relevant tax authority that any amount of
exempted profits of a
pioneer company, or any dividend exempted in the hands of a shareholder, ought
not to have been
exempted by reason of:

(a) A direction given by the FIRS;

(b) The cancellation ofa pioneer certificate,

the FIRS or the relevant tax authority may at any time within six years of the
direction or
cancellation make such additional assessment upon the pioneer company or
shareholder as may be
necessaiy to counteract any benefit obtained from the amount which ought not to
have been-
exempted.

...giv1ng you the PASSWORD to keep you ahead at eli Levels '_‘ f: .1 ;w I

P&SSWORD PRO F 155510 NfiLS ' RDVRNCED TfiXfiTTO‘N:

RESTRICTION ON DIWDENDS AND LOANS

During its tax reiiefperiod, a pioneer company shall not:

(a) Distribute any dividend or bonus to its shareholders in excess of the credit
balance in the
account maintained for exempted profits as at the date ofsnch distribution;

(11} Grant any loan without first obtaining the consent of the Minister. The
Minister's consent shall

only be given if he is satisfied that the pioneer company is obtaining adequate

security and a
reasonable rate ofinterest for any such loan. 1

SECTION 17 ACCOUNTS

1. Any profit in this account at the end ofthe pioneer period cannot be disbursed
within 6years
uniess with the permission ofthe minister.

2.D1vidend can be paid out ofthe section 17 account ifit has a credit balance.
3. Such dividend is not subject to tax in the hands ofthe first recipient.
3. Loans cannot be granted without the consent of the minister from the section
17 account.

4. Remuneration to directors, interest, services charged by any shareholder can

only be deducted
With permission of the minister.

PLANTATION INDUSTRY
Where a pioneer certificate is granted to a company which operates a plantation,
the trade of the
company is deemed to commence on the date when planting first teaches maturity.
Any expenditure

incurred on the maintenance of a pianted area up to that date is deemed to be

qualifying plantation
expenditure and is eligible for capital allowances.

FALSE INFORMATION
Section 21 ofiDiTRA provides that:
[1] Any person who for the purpose of obtaining a pioneer certificate 01- of
complying with any
provisions ofthis Act:
(a) makes or presents any declaration or statement which is false in any
material particular; or
[b] produces any invoice or undertaking; which is false in any material
particular or has not been
given by the person by whom it putports to have been given or which has been in
any way
altered or tampered with, shaii be guilty of an offence under this section
unless he proves
that he has taken all reasonable steps to ascertain the truth of the statement
made or
contained in any document so presented or produced or to satisfy himself to the
genuineness
ofthe invoice or undertaking.
[2] Any person who is guilty of an offence under this section shaii be liable on
conviction to a fine
not exceeding N1, 000 or to imprisonment for a term of five years or to both such
fine and
imprisonment.

OFFENCES BY BODY CORPORATE

Where an offence under this Act is committed by a body corporate, or firm or

other association of
individuals:
[a] every director, manager, secretary or other similar officer ofthe body
corporate;

[b] every partner or officer ofthe firm;

[13) every person concerned in the management ofthe affairs of the association;
or

.._giv1ng you the PASSWORD to keep you ahead at ail Levels

MM»WMM#¢W