zica t5.docx
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ZICA T5 - TaxationRatings: (0)|Views: 4,368|Likes: 16Published by Mongu RiceSee more
ALEXANDRINA WONANIAlexandrina owns a cottage, which she lets out,
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furnished at an annual rent of K12million, payable monthly in advance. During
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2005/06 she incurs the followingExpenditure:May 2005 K
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R e p l a c e me n t o f w in d o w s ( no t e 1 ) 3 ,0 0 0 , 0 0 0June 2005Insurance for year from 5 J
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uly (previous year K500, 000) 700,000November 2005D r a i n c l e a r an c e 4 50 , 0 0 0
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December 2005Motor Mower 1,000,000May 2006Redecoration (work completed on 31.3.
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2006) 480,000Additional Informationa)Windows were replaced with new VVPC
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double-glazed units. It isestimated that the improvement element in the expenditure
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wasK600,000. b)The tenant had vacated the property during June 2001 without
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havingpaid the rent due for June. Alexandrina was unable to trace th
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edefaulting tenant, but managed to let the property to new tenants from1st
July 2006.
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Required Compute the taxable Rental Income assuming Alexandrina claims full capitalallowances on the
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motor mower.T5 – Taxation Amendment Act 2006/07 30
ANSWER
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Computation of Taxable Income K KR e n t ( A n n u al G r o ss ) 1 2 ,
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0 0 0 , 0 00Less: Allowable ExpensesWear & Tear Allowance on motor mower 2 5% x 1 , 0
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0 0 , 0 0 0 2 5 0 , 0 0 0B a d d e b t – J u n e 2 00 1 R e n t 1 , 0 0 0 , 0 00 Window Repairs (3,00
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0,000 – 600,000) 2,400,000Insurance (3/12 x 500,000 + 9/12 x 700,000) 650,000D r a i n
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c l e a r an c e 4 50 , 0 0 0 Re d e c or a t i o n 4 8 0 , 00 0 ---------------
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(5,230,000)----------------Taxable Rental Income6,770,000----------------Bad debts:♦
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Specific bad debts are allowable. If a tenant leaves without paying th
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eoutstanding rent, it becomes a specific bad debt and hence allowable as adeduction
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for tax purposes. Therefore: K12,000,000/12 = K1,000,000 per month.Improvement
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expenditure of K600,000 is not allowable as a deduction for taxpurposes.Expenditure
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on motor mower is capital expenditure, and does not qualify as anallowable
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deduction, but the expenditure does in fact qualify to Rank for Wear andTear
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Allowance on Plant and Machinery.************************************************************************
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T5 – Taxation Amendment Act 2006/07 30
T5 – Taxation Amendment Act 2006/07
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