ACCT-4021EL Chapter Notes - Chapter 1: Taxation In Canada, Progressive Tax, Canada Revenue Agency
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Taxation table
Income Tax
| Standard personal income tax rates | ||
| Income band | Taxable amount | Rate |
| K1 to K39,600 | first K39,600 | 0% |
| K39,601 to 49,200 | next K9,600 | 25% |
| K49,201 to K74,400 | next K25,200 | 30% |
| Over K74,400 | 37.5% | |
| Income from farming for individuals | ||
| K1 to K39,600 | first K39,600 | 0% |
| Over K39,600 | 10% | |
| Company Income Tax rates | ||
| On income from manufacturing and other | 35% | |
| On income from farming | 10% |
Capital Allowances
Implements, plant and machinery and commercial vehicles:
| Wear and Tear Allowance â | Standard wear and tear allowance | 25% |
| Wear and tear allowance if used in manufacturing and leasing Wear and tear allowance if used in farming and agro processing | 50% 100% | |
| Non- commercial vehicles | ||
| Wear and Tear Allowance | 20% | |
| Industrial Buildings: | ||
| Wear and Tear Allowance | 5% | |
| Initial Allowance | 10% | |
| Investment Allowance | 10% | |
| Low Cost Housing | (Cost up to K20,000) | |
| Wear and Tear Allowance | 10% | |
| Initial Allowance | 10% | |
| Commercial Buildings | ||
| Wear and Tear Allowance | 2% | |
| Farming Allowances | ||
| Development Allowance | 10% | |
| Farm Works Allowance | 100% | |
| Farm Improvement Allowance | 100% |
Presumptive Taxes
Turnover Tax
| Monthly turnover | Turnover Tax per month |
| K1to K4,200 | 3% of monthly turnover above K3,000 |
| K4,200.01to K8,300 | K225 per month+3% of monthly turnover above K4,200 |
| K8,300.01 to K12,500 | K400 per month+3% of monthly turnover above K8,300 |
| K12,500.01 to K16,500 | K575 per month+3% of monthly turnover above K12,500 |
| K16,500.01 to K20,800 | K800 per month+3% of monthly turnover above K16,500 |
| Above K20,800 | K1,025 per month+3% monthly of turnover above K20,800 |
| Annual turnover | Turnover Tax per annum |
| K1to K50,400 | 3% of annual turnover above K36,000 |
| K50,400.01to K99,600 | K2,700 per annum+3% of annual turnover above K50,400 |
| K99,600.01 to K150,000 | K4,800 per annum +3% of annual turnover above K99,600 |
| K150,000.01 to K198,000 | K6,900 per annum+3% of annual turnover above K150,000 |
| K198,000.01 to K249,600 | K9,600 per annum+3% of annual turnover above K198,000 |
| Above K249,600 | K12,300 per annum +3% of annual of turnover above K249,600 |
| Presumptive Tax for Transporters Seating capacity | Tax per annum | Tax per day |
| K | K | |
| From 64 passengers and over | 10,800 | 29.60 |
| From 50 to 63 passengers | 9,000 | 24.70 |
| From 36 to 49 passengers | 7,200 | 19.70 |
| From 22 to 35 passengers | 5,400 | 14.80 |
| From 18 to 21 passengers | 3,600 | 9.90 |
| From 12 to 17 passengers | 1,800 | 4.90 |
| Less than 12 passengers and taxis | 900 | 2.40 |
| Property Transfer Tax | ||
| Value Added Tax |
| Rate of Tax on Realised Value of Land, Land and Buildings andshares | 5% |
| Rate of Tax on Realised Value of Intellectual Property | 5% |
| Rate of Tax on Realised Value on a transfer or sale of a miningright | 10% |
| Registration threshold | K800,000 |
| Standard Value Added Tax Rate (on VAT exclusive turnover) | 16% |
Customs and Excise duties on used motor vehicles
| Aged 2 to 5 years | Aged over 5 years | |||
| Motor vehicles for the transport of ten or more persons, including the driver | Customs duty | Excise duty | Customs duty | Excise duty |
| K | K | K | K | |
| Sitting capacity of 10 but not exceeding 14 persons including the driver | 17,778 | 22,223 | 8,889 | 11,112 |
| Sitting capacity exceeding 14 but not exceeding 32 persons | 38,924 | 0 | 13,840 | 0 |
| Sitting capacity of 33 but not exceeding 44 persons | 86,497 | 0 | 19,462 | 0 |
| Sitting capacity exceeding 44 persons | 108,121 | 0 | 43,248 | 0 |
| Aged 2 to 5 years | Aged over 5 years | |||
| Motor cars and other motor vehicles principally designed for the transport of persons including station wagons and racing cars | Customs duty | Excise duty | Customs duty | Excise duty |
| K | K | K | K | |
| Sedans | ||||
| cylinder capacity not exceeding 1000 cc | 12,490 | 10,824 | 7,136 | 6,185 |
| Cylinder capacity exceeding 1000 cc but not exceeding 1500 cc | 16,058 | 13,917 | 8,564 | 7,422 |
| Cylinder capacity exceeding 1500 cc but not exceeding 2500 cc | 16,545 | 21,508 | 8,423 | 10,950 |
| Cylinder capacity exceeding 2500 cc but not exceeding 3000 cc | 18,049 | 23,463 | 10,528 | 13,687 |
| Cylinder capacity exceeding 3000 cc | 22,561 | 29,329 | 12,032 | 15,642 |
| Hatchbacks | ||||
| cylinder capacity not exceeding 1000 cc | 10,705 | 9,278 | 7,136 | 6,185 |
| Cylinder capacity exceeding 1000 cc but not exceeding 1500 cc | 14,274 | 12,371 | 8,564 | 7,422 |
| Cylinder capacity exceeding 1500 cc but not exceeding 2500 cc | 15,041 | 19,553 | 8,423 | 10,950 |
| Cylinder capacity exceeding 2500 cc but not exceeding 3000 cc | 16,545 | 21,508 | 10,523 | 13,687 |
| Cylinder capacity exceeding 3000 cc | 19,553 | 25,419 | 12,032 | 15,642 |
| Station wagons | ||||
| cylinder capacity not exceeding 2500 cc | 16,545 | 21,508 | 9,024 | 11,731 |
| Cylinder capacity exceeding 2500 cc but not exceeding 3000 cc | 18,049 | 23,463 | 13,357 | 17,598 |
| Cylinder capacity exceeding 3000 cc but not exceeding 2500 cc | 22,561 | 29,329 | 18,049 | 23,463 |
| SUVs | ||||
| Cylinder capacity not exceeding 2500 cc | 21,057 | 27,374 | 9,024 | 11,732 |
| Cylinder capacity exceeding 2500 cc but not exceeding 3000 cc | 24,065 | 31,284 | 13,357 | 17,598 |
| Cylinder capacity exceeding 3000 cc | 28,577 | 37,150 | 18,049 | 23,463 |
| Aged 2 to 5 years | Aged over 5 years | |||
| Motor vehicles for the transport of goods - with compression-ignition internal combustion piston engine (diesel or semi diesel): | Customs duty | Excise duty | Customs duty | Excise duty |
| K | K | K | K | |
| Single cab | ||||
| GVW exceeding 1.0 tonne but not exceeding 1.5 tonnes | 21,926 | 9,501 | 8,770 | 3,801 |
| GVW exceeding 1.5 tonnes but not exceeding 3.0 tonnes | 26,311 | 11,402 | 15,348 | 6,651 |
| GVW exceeding 3.0 tonnes but not exceeding 5.0 tonnes | 30,697 | 13,302 | 17,541 | 7,601 |
| Double cabs GVW exceeding 3 tonnes but not exceeding 5 tonnes | 30,274 | 0 | 24,119 | 10,452 |
| Double cabs GVW exceeding 3.0 tonnes but not exceeding 5.0 tonnes, with spark ignition internal combustion piston engine | 30,697 | 13,302 | 24,119 | 10,452 |
| Panel Vans | ||||
| GVW exceeding 1.0 tonne but not exceeding 1.5 tonnes | 15,348 | 6,651 | 8,770 | 3,801 |
| GVW exceeding 1.5 tonnes but not exceeding 3.0 tonnes | 17,541 | 7,601 | 15,348 | 6,651 |
| GVW exceeding 3.0 tonnes but not exceeding 5.0 tonnes | 21,926 | 9,501 | 17,541 | 7,601 |
| Trucks | ||||
| GVW up to 2 tonnes | 21,926 | 9,501 | 10,963 | 4,751 |
| GVW exceeding 2.0 tonnes but not exceeding 5.0 tonnes | 28,504 | 12,352 | 13,156 | 5,701 |
| GVW exceeding 5.0 tonnes but not exceeding 10.0 tonnes | 24,724 | 18,955 | 10,817 | 8,293 |
| GVW exceeding 10.0 tonnes but not exceeding 20.0 tonnes | 30,905 | 23,694 | 11,744 | 9,004 |
| GVW exceeding 20 tonnes | 51,898 | 0 | 19,461 | 0 |
| GVW exceeding 20 tonnes, with spark ignition internal combustion piston engine | 37,086 | 28,432 | 13,907 | 10,662 |
Surtax
Surtax on all motor vehicle aged more than 5 years K2,000
Introduction
You are a tax assistant in a firm of chartered accountants. Thefirm has many clients and you are
part of a team that deals with small tax payers operating inZambia. Your Tax senior has assigned
you some responsibilities relating to some clients whoseinformation is presented in the extracts
below. You should deal with each client separately.
Client 1 â Jacob Zuze
Jacob commenced to trade on 1 September 2017 and prepared the firstset of accounts for the
sixteen months period ended 31 December 2018. Your firm advisedJacob to register for Value
Added Tax (VAT) immediately he commenced to trade on 1 September2017. He had bought
goods for resale on 1 August 2017 for K125,000 (including VAT) andall of these goods were still
available at 1 September 2017.
Jacob is now interested in knowing the total amounts of income taxand VAT that were payable
by him for the period of trading ended 31 December 2018.
| The statement of profit or loss for the period as shownbelow: |
| Sales Revenue (excluding VAT) | 1,600,000 |
| Less: | |
| Purchases (including goods bought on 1 August 2018) | 806,200 |
| Closing inventory | 125,000 |
| Cost of sales | (681,200) |
| Gross profit | 918,800 |
| Wages and salaries | 235,000 |
| Entertaining customers | 119,000 |
| Depreciation of motor vehicles | 78,000 |
| Overheads | 276,080 |
| Other revenue expenses | 150,800 |
| Total expenses | (858,880) |
| Net profit | 59,920 |
The following additional information is available:
(1) Turnover and expenses accrued evenly throughout the sixteenmonthsâ period. 10% of the
turnover consists of zero rated supplies and 20% consist of exemptsupplies. The rest of the
turnover consists of standard rated supplies.
(2) 80% of purchases and other revenue expenses are attributed tothe taxable turnover. The
remaining 20% are attributed to exempt supplies.
(3) Jacob had the following transactions in implements, plant andmachinery during the sixteen
months period:
| Date | Transaction | Cost/ (proceeds) |
| K | ||
| 1 September 2017 | Bought Toyota Motor Camry Car | 60,000 |
| 1 September 2017 | Bought office furniture | 20,300 |
| 1 February 2018 | Toyota Hilux Motor Van | 87,000 |
| 31 March 2018 | Sold office furniture (VAT exclusive) | (18,000) |
| 31 March 2018 | Bought office equipment | 43,500 |
(4) It has been agreed with the Commissioner General that Jacob hasprivate use of 25% in the
Toyota Camry motor car. The other revenue expenses of K150,800shown in the statement
of profit or loss include K29,000 motor car expenses relating tothe Toyota Camry motor car
(5) Unless stated otherwise, all of the above figures are VATinclusive where applicable.
Client 2 â Vincent Kakuwa
Vincent commenced in business on 1 January 2017 trading as Kankuwa& Co. At the start of the
tax year 2017, his provisional income was K515,000. He calculatedand paid the provisional
income tax correctly on the due dates and he also submitted thereturn of provisional income for
the tax year 2017 correctly. At the end of the tax year 2017,Kakuwaâs final taxable profit was
K590,000. Kakuwa calculated the balance of income tax still to bepaid for the tax year 2017 and
he also calculated the provisional income for the tax year 2018 atK600,000 in January 2018.
As a result of unfavourable business conditions at the start of theyear 2018, kakuwa revised his
provisional income in February 2018, from the original amount ofK600,000 to only K510,000. The
unfavourable business conditions at the start of the year 2018resulted in Kakuwa experiencing
serious liquidity problems such that he paid the provisional incometax for the quarter ended 31
March 2018 and also submitted the return of provisional income forthe tax year 2018 on 30 June
2018. In addition, he paid the provisional income tax for thequarter ended 30 June 2018 together
with the balance of income tax for the tax year 2017 on 13 August2018. He also submitted his
self assessment income tax return for the tax year 2017 on 13August 2018. Cash flow problems
were fully resolved after 13 August 2015 and Kakuwa is certain thatall the outstanding taxes
thereafter would be paid properly.
In September 2018, Mooya received a notice from the CommissionerGeneral stating that his self
assessment Income tax return for the tax year 2018 was the subjectof a compliance check. When
computing taxable income of K590,000 for the tax year 2017, it isalleged that Kakuwa deducted
a non-allowable private expense of K27,600. The CommissionerGeneral therefore raised an
assessment for underpaid income tax of K10,350 in respect of thetax year 2017 and this notice
was served on Mooya on 15 September 2018. No adjustment wasrequired to the return of
provisional income for the tax year 2018 as this return wassubjected to the compliance check.
Client 3 â Jennifer Liungu
Jennifer intends to commence in business on 1 January 2019. Sheneeds to engage four workers
in her business and each worker will be paid an annual salary ofK48,000. Jennifer will also earn
an annual salary of K72,000 from the business. Her business isexpected to earn a turnover of
K760,000 per annum in each of the first two years of trading. Allof Jenniferâs sales will be zero
rated supplies for VAT purposes and the business will beprofitable. Jennifer will run the business
from rented premises.
The budgeted statement of profit or loss for the year ending 31December 2019 is as follows:
| K | K |
| Sales revenue | 760,000 |
| Cost of sales (equal to purchases) | (290,000) |
| Gross profit | 470,000 |
| Less operating expenses | |
| Depreciation | 30,000 |
| Wages and salaries | 264,000 |
| Rent | 43,500 |
| Other revenue expenses | 15,500 |
| Total operating expenses | (353,000) |
| Net profit before taxation | 117,000 |
Rent and other revenue expenses are standard rated supplies and theamounts recognized in the
statement of profit or loss are inclusive of VAT. Sales revenue,cost of sales and operating
expenses will accrue evenly throughout the year ending 31 December2019.
Required:
(a) Client 1
| (i) | Explain why Jacob Zuze was advised to register for VAT when hecommenced to |
| trade on 1 September 2017. | (6 marks) |
(ii) Calculate the VAT paid by Jacob for each of the tax years 2017and 2018. You MUST
clearly show the amounts of output tax and the recoverable inputtax for each supply
for each of the two tax years. Monthly figures of VAT are NOTREQUIRED.
(15 marks)
(iii) Assuming that the income tax rates and bands for the tax year2018 apply to the tax
year 2017 as well, calculate the income tax paid by Jacob for eachof the tax years
2017 and 2018. (20 marks)
(iv) Explain how the VAT and income tax you have calculated aboveshould have been
properly paid, stating the relevant due dates and the amountspayable on each due
date. (4 marks)
(b) Client 2
(i) Advise Kakuwa of the amounts of penalties and interest onoverdue taxes and tax
returns charged on all payments and tax return submissions made upto and including
13 August 2018. (16 marks)
(ii) State the possible reasons why the Commissioner General hassubjected Kakuwaâs
self assessment income tax return for the tax year 2018 to acompliance check.
(6 marks)
(iii) Explain the initial alternative courses of action that areopen to Kakuwa following
receipt of the notice of assessment showing additional income taxpayable for the tax
year 2017 of K10,350. (6 marks)
(i) Advise kakuwa of the interest on overdue tax and penalties thathe may be liable for
as a result of the Commissioner Generalâs compliance check into hisself assessment
income tax return for the tax year 2017and state a possible reasonwhy these penalties
and interest may apply. (7 marks)
(c) Client 3
| (i) | Calculate the amount of Turnover Tax payable by Jennifer forthe tax year 2019 and |
| explain how it will have to be properly paid. | (5 marks) |
| (ii) | Explain why it may be beneficial from a taxation point of viewfor Jennifer to register |
| voluntarily for VAT purposes. | (6 marks) |
(iii) If Jennifer registers voluntarily for VAT, calculate:
(1) The amount of VAT that she would pay and explain how it mayhave to be properly
paid. (4 marks)
(2) The amount of income tax that she would have to pay (5marks)
(Total: 100 marks)
