FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING & AUDITING

BACC 403: TAX LAW AND PRACTICE
ASSIGNMENT 1
JANUARY - JUNE 2023

Instructions
• 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 standard-
ized cover page and uploaded as a SINGLE PDF file.

• It is the responsibility of the student to upload their assignments in time to avoid in-
conveniences due to internet failure, system failure, power outages or any other un-
foreseen circumstances. NO submission extensions will be granted by the Department
after the deadline.

• 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.

• Plagiarism is a serious academic offence. Credit will be given for well written and ref-
erenced assignments. Please refer to the Tutorial Letter and other resources for more
information on academic writing.

Question 1
Differentiate between exemption, allowable deduction, prohibited deduction and credit. You
are required to state the authority of the treatment of each item from the Income Tax Act
(Chapter 23:06) and Finance Act (Chapter 23: 04). (25
marks)

Question 2
Jonas Makura is an economist who works for the government initially based at head office in
Harare for the past five years. He has just been transferred to Manicaland to spearhead the
National Development Strategy 1 (NDS1) programme. His transfer was effective from 15
June 2022. Details of his earnings for the year ended 31 December 2022 were as follows:

Salary and benefits

(i) Salary of $4 800 000. He received a bonus of 10% on 30 November 2022.

(ii) Fringe benefits of $100 000 being fuel allowance of $10 000, accommodation
allowance of $40 000, representation allowance of $30 000 and school fees allowance
of $20 000 for his minor children.

(iii) Standard relocation allowance of $50 000 when he transferred to Manicaland but his
actual expenses were $35 000.

(iv) He got an interest free loan of $150 000 from his employer on 1 August 2022. Of the
loan amount $100 000 he used to purchase a car for his wife and $50 000 was used for
his postgraduate studies. The Libor for the year ended 31 December 2022 averaged
1.5% per annum.

(v) He had an employer allocated vehicle with an engine capacity of 3 2000cc.

(vi) A total of $120 000 from a matured retirement annuity fund (RAF). His contributions
to the fund over the years were allowed as a deduction.

Payment by Jonas
(vii) Pension contributions amounting to 7.5% of his salary. Jonas also contributed towards
his R.A.F

(viii) Professional subscription fees of $15 000.

(ix) Medical Aid contributions of $60 000.

The PAYE deducted by Jonas’s employer for the year amounted to $94 000.

Other income
(x) Net rental income of $230 000 from a holiday cottage in Durban.

(xi) Net non-executive director’s fees (after deduction of withholding tax at source) of $80
000.

Required
Calculate the taxable income and income tax payable by Jonas Makura for the year ended 31
December 2022. (25 marks)

NOTE: For the calculation of the taxable income please use the original January to December
2022 tax table.

Question 3
Jann Limited owns a plot of undeveloped commercial land in Harare on which it intends to
construct an industrial building. Due to cash flow constraints, Jann Limited entered into a 20
year lease agreement with Chabika (Pvt) Limited (CPL) for the development of the
commercial land. The terms of the lease agreement are as follows:

(i) Chabika (Pvt) ltd to construct an industrial building and a security wall on the
commercial land at a cost of not less than $150 000 for the building and $50 000 for the
wall.

(ii) Chabika (Pvt) Ltd to make use of the property for the duration of the lease agreement
subject to payment of a monthly rent of $8 000 and a one-off premium of $60 000.

(iii) The lease agreement was signed on 1 January 2022, on which date the rent and
premium were duly paid. Construction of the building and the security wall commenced
soon after the signing of the lease agreement. The agreed construction period was six
months.

(iv) The industrial building and the security wall were constructed within the agreed cost
and timeframe and brought to use on 1 August 2022.

(v) CPL obtained a loan of $100 000 on 1 May 2022 from a bank in order to be able to
complete the construction of the industrial building and the security wall. The interest
rate on the loan is 20% per annum.

(vi) CPL paid a total of $28 000 in provisional tax for the year ended 31 December 2022.
The accountant had calculated the taxable income for the year ended 31 December 2022
at $280 000 without taking into account the lease agreement provisions and the bank
loan.

Required
(a) Calculate the adjusted taxable income and tax payable by Chabika (Pvt) Ltd for the year
ended 31 December 2022. (20 marks)

(b) Calculate the amounts to be included in the gross income of Jann Limited in connection
with the lease agreement for the year ended 31 December 2022.
(5 marks)