Gross Income means

the total amount

received by or accrued to or in favour of
a person or
deemed to have been received by or accrued to or in
favour of a person
in any year of assessment
from a source within or deemed to be within Zimbabwe
excluding receipts of a Capital nature

There are special inclusions to Gross income which

will be discussed later in this module
 Amount means
money (hard currency) or
any other property corporeal or
incorporeal having an
ascertainable money value e.g.
payment in the form of shares or a
motor vehicle in place of actual
cash payment for work done
 Received by
the taxpayer, on his own behalf, for his
own benefit. A TP can be said to have rcvd
an amt even if not paid to him personally
but to his agent or if it is banked on his
behalf. Therefore rent received by an
estate agent on behalf of a client landlord is
not gross income in the hands of the estate
agent but in the hands of the principal.The
estate agent is only taxable on the
commission he charges for collecting the
rent on behalf of the landlord.
 Accrued To
means due and payable or entitled to.
 Income accrues when a taxpayer becomes entitled to it or
when it is due and payable to him. The TP is taxed on the
earlier of the date of receipt or accrual.
 Before including any receipt in gross income you need to
establish the date of accrual. Once this date is established
check on whether or not it falls within the tax year you are
assessing e.g. Directors fees accrue when voted while
Leave pay accrues proportionately on the last day of each
month during the leave period.
 Deemed Accruals
a) Income invested, accumulated or
otherwise capitalized by the taxpayer
b) Income which has not actually been
paid over to the taxpayer but is due and
payable to him
c) Income which has been credited to an
account, re-invested, accumulated or
capitalised on behalf of the taxpayer
 Deemed Accruals Cont’d
2) Partnership profits accrue to the
respective partners on the accounting
year end of the partnership
3) Income accruing to a minor child as a
result of a disposition by the parent is
taxable in the hands of the donor parent
4) Income arising as a result of reciprocal
donations to minor children is taxable
in the hands of the parent
 Person includes
a deceased estate
an insolvent estate
an association of persons not being a
partnership
a local or like authority
a company
a trust only i.r.o. income the subject of a
trust to which no beneficiary is entitled to
 Source
 has nothing to do with legality but has something to do
with what a practical man would regard as the originating
cause of the income.

 In identifying the true source of income we always use the

word ‘where’ because it gives us a particular location. If
that location is in Zimbabwe then there is a possibility that
such income becomes Gross income
Source Cont’d
Always ask yourself the following questions:
a) What is the originating cause of this income?
b) Is the originating cause in or outside Zimbabwe
c) Can the originating cause be deemed to be within
Zimbabwe?
 True Sources of Income
Employment income Where the services are
rendered
Company dividends where the shares are
registered
Directors fees Where the head office of
the company is located
Royalties Where the author exercised
his wit, labour and intellect
Business profits Where the business is
conducted
 True Sources of Income Cont’d
Interest from a loan Where the credit was
provided
Annuities Where the fund is situated
Rent from immovable Where the property is
property situated
Rent from movable property In the case of long leases (5
years and above) the source
is the place where the lessee
uses the asset. In the case of
short leases the source
would be where the lessor
conducts his business
 Deemed Source
1) Income may only be deemed to be from a
source within Zimbabwe with the support of
Section 12 of the Income Tax Act; examples
a) Contract concluded in Zimbabwe for the
sale of goods by a business person
b) Income for services rendered in Zimbabwe
c) Income from a source outside Zimbabwe
which accrues to an employee, who is
ordinarily resident in Zimbabwe, during a
period of temporary absence from Zimbabwe
 Deemed Source
d) Income earned for services rendered to
the Zimbabwe government
e) Pension or annuity from services
rendered
2. Foreign interest and foreign company
dividends
3. An annuity from a source outside
Zimbabwe where the person acquired
the right to the annuity while ordinarily
resident in Zimbabwe
 Year Of Assessment
means the period of 12 months beginning on 1 st
January
in any year i.r.o. which tax is to be charged, levied and
collected in terms of this Act, and includes any period
within such a year of assessment.
 Capital Receipts
Gross Income excludes any amount so received or accrued,
which is proved by the taxpayer to be of a capital nature. While
the burden of proof is on the taxpayer officers are advised not
lean on this always. The following metaphor can help distinguish
between revenue and capital receipts:
Capital receipts may be referred to as the tree while revenue
receipts may be regarded as the fruit. From a house one may get
rent. The rent being the fruit of the ‘tree’ (house) is revenue in
nature.

How would you treat proceeds from the sell of the rent earning
property?
 Capital Receipts Cont’d
A rough guide to determine whether income
is of a revenue or capital nature would be as
follows: -

If the amount flowed from the asset but the asset remained
in ownership it should be considered as revenue.

If the amount flowed from the sale or exchange of an asset

it should be considered as capital.
Capital receipts Cont’ d
Thus the disposal of fixed capital e.g assets results in
non taxable receipts.
Various tests have been used by courts to distinguish
between capital and revenue & some of these are
The intention
Mixed intention
Change of intention
Capital receipts cont’d
The method of financing the asset or disposal
The holding period
Occupation of the taxpayer
Activities of the TP prior to acquisition of the asset.
Operation of business in a scheme of profit making
Other tests. Nature of asset, income& transaction
 Capital Receipts examples

insurance policy proceeds,

goodwill,
lottery wins,
inheritance , gifts
proceeds from sale of fixed assets
sale of shares (excludes share dealers)
Gross Income – Special Inclusions
Gross income as earlier defined
excludes items of a capital nature
Specific/ special inclusions are items
of a capital nature that the
Commissioner has seen fit to
consider as revenue, Section 8 (1)
refers.
 a) Annuities- Section 8(1) (a)
Annuity defined - An annuity is defined as a repetitive
annual payment paid to a particular person for life or for
some period.

Characteristics
a) It provides for an annual payment, even if divided into
instalments;
b) It is repetitive, payable from year to year, at any rate, for
some period and;
c) It is claimable from one person to another.
 a) Annuities Cont’d
Types Of Annuities:
An ordinary annuity purchased from an insurance
company

An annuity by way of a gift or legacy

An annuity granted as consideration for the sale of a

business or an asset or surrender of a right.

Pension for services rendered

 i) Purchased Annuity
A purchased annuity is taxable to the extent of the interest
content, which is spread over the expected annual payments.
This means the cost/ purchase price of the annuity is not
taxed as quite often the TP would have used his after tax
income to purchase the annuity.

I = (P x N) – A
N
 Purchased Annuity Cont’d
I = interest content of annuity that is taxable;

P = the gross annual annuity receivable;

N = number of payments expected (this may be a

definite period or, in the case of an annuity payable for
life, a number of years based on the life expectancy of
the annuitant);

A = the purchase price of the annuity (cost), that was not

allowed as a deduction.
 Class Exercise
A taxpayer used $200,000 from his income
to purchase a retirement annuity fund
policy with Old Mutual. The policy
matured on 1st July 2014 and from there
then he started receiving an annuity
amounting to $10,000 per month. His life
expectancy was estimated at 6 years.

How much is to be included in gross

income during the tax years ended 31st 2014
and 31st December 2015
 Solution
P = 10,000 x 12 = 120,000
N = 6 Yrs
A = $200,000

[(10,000 x 12) x 6] – 200,000

6

Interest per annum = 86,667

Interest per month = 7,222

Year ended 31/12/2014

July – December= 7,222 x 6 = 43,332
Year ended 31/12/2015
Fully year = 86,667
ii) Sale Of Business / Asset

Treatment same as for a Purchase

Annuity
iii) Annuity from Gift /
Legacy
This type of an annuity is either taxable
in full or not taxable in full depending
on where the fund is situated. A
widow’s pension, which is one example
of this type of an annuity, is not taxable
in Zimbabwe if it is situated outside
Zimbabwe even though her late
husband may have rendered services in
this country in the past.
iv) Annuity Pension From Services
Rendered

Annuity in respect of services may be in

the form of contributions to a pension
fund or from non contributory pensions.
In this case the annuity is taxed in full
provided
• there is no cost attached to the annuity
•Contributions made towards the pension
were allowed in full.(what if contributions
were restricted ?)
Example
Susan received a monthly annuity of $200 in the form
of pension from a pension fund with effect from 1
Feb 2015. Her estimated life expectancy is 10 years,
during his tenure a total of $8000 was of her pension
contribution was disallowed
CALCULATE HER TAXABLE INCOME
b) Income From Services Rendered

A special rate of tax shall be applied

to re-engagement or extended service
gratuities payable to members of the
police, army or Air Force. The tax
chargeable on such amounts is
calculated in the same way as for lump
sum payments – refer to section 14(4)
of the Finance Act for the calculation
of tax thereon.
Irregular receipts from services
rendered: Section 8(1)(b)
These are gross income amounts in addition to an
employee’s remuneration, which are connected with
employment or services rendered. These include
remuneratory gifts, back pay, bonus, awards, cash in
lieu of leave and gratuitous receipts from employer
except ex gratia payments to a deceased employee’s
widow as these are of a capital nature as she rendered
no services
 c) Lump Sum Payments –
Section 8(1)(c)
Theseare payments arising from a
member’s withdrawal or the winding up of:
a) A Pension fund or contributions to the
Consolidated Revenue Fund
b) A Benefit fund
c) An Unapproved pension/benefit fund

All Lump Sum Payments (L.S.Ps) are charged to tax at a

special rate, that is the highest marginal tax rate of 50%
 excludes
a) An annuity, pension or amount from services
rendered, or
b) An amount received or accrued by way of a
Lump Sum Payment referred to in the 1st
Schedule.
c) An amount, which represents a return or
repayment of any money in respect of whose
payment, a deduction was not allowed under
this Act.

A gratuity (thank-you payment) is also excluded

as it is brought into gross income under Section
8(1)(b)
 Difference between ‘Terminal
benefit’ and ‘Lump Sum Payment’

Terminal benefit XXXX

Less: Proportion thereof
relating to period of XXXX
service outside Zimbabwe
Lump Sum Payment XXXX
LSP- OLD FUND, FCR& NEW
FUND
 a lump sum can be paid out of a pension or benefit
fund which can be an old fund, a fund with changed
rules (FCR) or a new fund. An old fund is a fund to
which a member joined before 01/07/1960. A FCR is
an old fund whose rules changed after 01/07/1960. A
new fund is a fund which a person or a member
joined after 1 July 1960. The table below shows
computations of a person’s gross income
L S P from approved P F&
approved benefit fund
Benefit Pension
fund fund
Payment OLD FCR NEW OLD FCR NEW
details FUND FUND FUND FUND
LSP Exempt xxxx xxxx Exempt xxxx xxx
received
Less: (XXXX) (1800) (Y) n/a
greater of
Y& $1800
Less (XXXX) (XXXX) n/a n/a
transfer
to BF
Less (XXXX) (XXXX) (XXXX) (XXXX)
transfer
to PF
LS P from approved PF
&approved BF
The letter Y represents an mount which would have
been received by the person had the rules remained
unchanged.
For an FCR fund the deduction is the greater of Y and
$1800 &new fund is$1800
 LSP Calculations Cont’d
b) Unapproved Funds:

Lump sum payment xxxxxxx

Less: Member’s own contributions xxxxxxx
Gross Income xxxxxxx
Lease premiums & lease
improvements-Section 8 (1)
(d&e)
Lease premiums case law: COT VS DESA
COT VS REX TEA ROOM
The premium is taxed in full in the hands of the
lessor or landlord
 f) Fringe Benefits- sect 8(1)
(f)
are advantages or benefits from
employment or other gainful occupation
they exclude ‘passage benefits’ received
or accrued on:

a) taking up employment and

b)termination of services
if it is the first such benefit enjoyed by the
employee from that employer.
 Fringe Benefits Cont’d
 These benefits shall be valued as follows:

1. in the case of the occupation of quarters

or the use of furniture by reference to the
value to the employee.

2. in the case of all other benefits by

reference to the cost to the employer.
 Advantage or Benefit
a) means
i) board
ii) occupation of quarters or residence
iii) use of furniture or motor vehicle
iv) use or enjoyment of any other property
whatsoever including a loan
v) an allowance
granted to an employee, his spouse or child
by or on behalf of the employer in cases
where such payment has nothing to do
with the employer’s business
b) includes a passage benefit
Passage benefit
Passage benefit covers the cost borne by the employer
for journeys made on taking up employment and any
other journey made by the employee, his spouse and
children in so far as it is made for the purpose of the
employer’s business.
The 1st journey on taking up employment and first
journey on termination of employment, with each
employer are excluded from the person’s gross
income
Passage benefit example
Miss Nyoni travelled to Tanzania for a 20 day
business trip. Her stay was extended by further 2days
because she had to attend to a personal matter. The
employer paid$19 500.
Calculate Miss Nyoni’s taxable income
Example
NB, a trip which accounts for less than 10% of its time
on the business of the employer is regarded as a 100%
private trip. The business time is considered
incidental to the trip and vice versa.
Mpho was on a 5day holiday in Zanzibar, whilst she
was on holiday her co requested her to extend her
period outside Zimbabwe for the purpose of attending
a 10day business meeting in Nairobi, Kenya .
Benefits continued
The company paid $20 000 to cover the holiday and
the business meeting. How much is Mpho’s taxable
income?
Entertainment and subsistence allowance- becomes
gross income in the employee’s hands to the extent
that it is not expended on the employer’s business.
Benefits examples
Soft loans- with effect from 1/01/10, over $100 – benefit
is P(A- B)
A is 5% plus LIBOR p.a
B is the interest rate paid on the loan by the
employee. The benefit is apportioned where the loan
tenure is less than a year
Furniture- annual benefit is8% of cost of furniture
items
Any allowance tax in full except portion utilised for
employer’s business.
Example
Miss Samantha , a marketing manager with Econet
was given a loan of $10 000 in beginning of April 2015.
She is supposed to pay back the loan together with
interest(charged at 3% p.a) at the end of the year.
Libor is 2.5%.
Calculate his taxable benefit for the year 2015
Housing benefit
Housing: The value for a free use of a residence or
quarters granted by the employer is the residence or
quarter’s open rental. In municipal areas- market
value & outside municipal areas value determined as
12,5% of salary or 7% of cost of house
NB, use the 12.5% of the employee’s basic salary when
not given open market value, 7% only when examiner
Exercise
Ben pays $200 per month for occupying his company
house. The prevailing charge for renting a similar
house within the area is$4000 p.a. How much is John
‘s gross income?.
Mrs Dube borrowed $15 000 from her employer on 28
Feb 2015 at an interest rate of 2.6%p.a and repaid the
amount in full on 31 Dec 2015. The average Libor
during 2014 was 0,6%, Compute Dube’s
Motoring benefit
Engine capacity Deemed monthly Deemed annual benefit
benefit ($) ($)

Upto 1500cc 300 3600

1501 t0 2000cc 400 4800
2001 to 3000cc 600 7200
3001 and above 800 9600
Example
Mpho is employed by CB Ltd as a Finance Director. In
April 2015 the company bought her brand new Isuzu
with a3000cc engine capacity as her company car,
which she has been using from April 2015 to date.
Since 1 Jan 2015 She is also enjoying the free use of
company house with market rentals pegged at
$700/m. The house is fully furnished at a cost $15000.
Calculate her taxable benefit for 2015
Specific inclusions continued
Mileage allowances to employees who use their own
car on business journeys. The business mileage
should be recovered using AA rates and any excess is
a benefit to the employee. No tax payments on
reimbursements for use of own car.
Sale of motor vehicle to an employee- a benefit may
arise if the vehicle is sold at a discount.
Specific inclusions continued
The benefit is the difference between the fair market
price of the property and its discounted price. In this
case it will be A-B
A is the market value at the time of sale to the
employee.
NB, the benefit is exempt from tax if sold to an
employee who is over 55 years at the date of sale of
the vehicle.
Specific inclusions continued
Sect 8(1)(n) &(r)- Any portion above one third
commutation from retirement annuity fund or
pension is taxable
Sect 8(1)(m)- grants and subsidies
Free or subsidized lunches- no benefit arises if
supplied by employer to employee during business
hours or extended working hours.
Continued
Subscriptions for social or sports club by employer on
behalf of employee is taxable
Where the subscriptions are for an employee’s
professional membership of an association, these are
exempt from tax.
Where the employee pays on his own. He gets a full
deduction of the expenditure.
Clothing benefit- ordinarily not gross income if
clothing is protective clothing
Continued
Mobile phone usage- if expenditure is fully used for
business, amount will not be gross income as long as
business usage can be proved and justified failure of
which it will constitute gross income.
Grossing up benefits- employer wishing to pay tax for
employee or grosses up employee benefits’ , the Act
brings into income the gross up the tax paid by
employer on behalf of employee
continued
School fees benefit- Where an employer pays school
fees on behalf of the employee, spouse or children
that is a benefit to the employee.
NB if free education is provided at a school owned by
the employer to all pupils, no amount accrues to an
employee in respect of free places allocated to his
children.
School fees benefit continued
In the past school fees benefit was tax free but with
effect from 1Jan 2013, it is proposed to specifically
include the benefit into gross income.
For teachers and non teaching staff- the benefit is in
respect of a waiver of the whole or a portion of fees
payable by the member of staff.
In the hands of teaching and non teaching staff the
whole or portion waiver is gross income
continued

NB, the teacher or non teaching staff would then be

granted an exemption of 50% of the value of the
benefit up to a maximum of 3 children.
A scholarship, a bursary, a payment in respect of
tuition fees paid on behalf of a student at a schl,
college or university is tax exempted unless provided
for as a result of services rendered by the person or
his relative.
EXERCISE
Norah used her own car when he went to
Masvingo for tax presentation on behalf of
his employer, SD, Accountants. He travelled
500km. The employer gave him an allowance
of $615 to cover his fuel and wear& tear on
the car. You are told that the all inclusive AA
rate is 50cents per km, compute Norah’s
taxable income.
 e) Other Gross Incomes
h. Valuation of Trading Stock other than
Farm Trading stock
k. Compromise / Concession to a Debtor
m. Grants and Subsidies
r. Commutation of a pension from a
Pension fund or by way of contributions
to the Consolidated Revenue Fund – tax
the amount only if it was taxable prior to
commutation.