TAX LAW & PRACTICE(CUAC

212)

PROG: BSCAC
LEVEL: 2.1
YEAR : 2023
CHIKONHI T (Bsc Accounting, Mphil accounting ,
MPAC Accounting, CIS Zimbabwe)
+263719445444
[email protected]
Block 6 room 9
 2.Gross Income(Section 8)
Gross Income(GI) is the starting point in the calculation
of income tax liability.
Definition(Section 8(1) of the Income Tax Act(ITA))
The total amount received by or accrued to or in favour of a
person or deemed to have been received by or to have accrued
to or in favour of a person in any year of assessment from a
source within or deemed to be within Zimbabwe excluding any
amount so received or accrued which is proved by the taxpayer
to be to be of capital nature.
 Components of Gross Income Definition
Total amount,
Received by,
Accrued to,
Deemed to have been received or accrued,
A person
Year of assessment
Source within or deemed to be Zimbabwe
Capital nature
 Total Amount(Section 2)
Money and non-monetary items that has an
ascertainable money value (section 2).
Example
A taxpayer received a salary amounting to $10,000 which
was deposited into his bank account. In addition, the
employer gave the employee a covid-19 allowance in the
form of groceries with a value of $5,000.
 Received
In possession of the income or;

Received on his behalf and for his own benefit.

Must have a legal claim to the amount.

However, prepayments for goods or services are taxed

when;
The goods are received or services are rendered.
 Received
Excludes;
Amounts stolen(COT v G(1981) 43).
Loans.
Amounts left in your custody(CIR v Genn & Co (Pvt) Ltd
(1955)).
Illegal operations formed part of gross income in(ITC
1624 (1997) 59 SATC 373).
Refundable deposits: ITC 675 (1949) 16 SATC 238.
 Accrued
Due and payable but not yet received.
Delfos vs CIR.
Also means the taxpayer is entitled unconditionally to
the income.
Lategan vs CIR.
 Deemed Accruals/Receipts(Section 10)
Implies that income has been received/accrued to the
benefit of a person indirectly.
Such income is included in his gross income.
 Deemed Accruals/Receipts(Section 10)
(i) Income not paid over
Amount reinvested, capitalized, or accumulated by
someone or on his behalf by others.
(ii)Partnership Income
Deemed to be income of individual partners.
Shared among them using their profit and loss sharing
ratios.
 Deemed Accruals/Receipts(Section 10)
(iii)Donations
Parent donates an asset to his minor child.
Income accrues to minor child as a result of donation.
Taxable in the hands of the parent.
 Deemed Accruals/Receipts(Section 10)
(iv)Cross Donations
Parent A donates to child of Parent B

Parent B donates to Child of Parent A.

Both parents taxable on income accruing to their minor

children.
 Deemed Accruals/Receipts(Section 10)
(v)Suspensive Conditional Donations
Where asset is going to be transferred on fulfillment of
a future event.
Donor taxed on the income accruing before the
suspensive condition materializes.
 Deemed Accruals/Receipts(Section 10)
(vi)Donation where the donor retains the power to
change the persona of the beneficiary
Income accruing is taxed in the hands of the donor who
retains the rights.
 A Person(Section 2)
An individual or;
Any other entity with a separate legal identity,
For example, a company or a trust.
It excludes a partnership business.
 Year of Assessment(Section 2)
A period of 12 months;
Commences 1 January and ends 31 December or;
Any period within the year.
 Source of Income
Only income that is from a source within Zimbabwe is
taxed in Zimbabwe.
Definition of source is found in case law.
The source of income is the work that was done in order
to earn the income.
Therefore, where this work was done is the true source
of the income.
 Source of Income
How do we determine source of Income?
Ask 2 questions;
1. What is the ‘originating cause of the income’?
i.e. what form of work did the taxpayer do in order to earn the
income?
2. What is the geographical location of this ‘originating cause of
income’?
i.e. where did the taxpayer do the work which resulted in
him/her earning the income?
The geographical location of the originating cause of income is
the source of income
 Source of Income
How do we determine source of Income?
• Mr Kwesa is an ordinary resident of Zimbabwe. He wrote a book
on Animal Biology while he was on a holiday trip in Brazil. He
came back to Zimbabwe and published the book with Mambo
Press. During the current year he received royalties from
Mambo Press amounting to US$3,500. These were paid from
Mambo Press’ offshore account in Jamaica.
• Required: Explain the income tax implications of the royalties
received by Mr Kwesa in Zimbabwe.
 Specific Sources of Income
(i)Royalties
Where the author exercised his wits, labour and
intellect
Case: Millin v CIR (1928).
 Specific Sources of Income
(ii)Trademarks and ‘know how’
Where the recipient carries on the activity, or employs
the asset, giving rise to such income.
ITC 1491 (1991).
(iii)Services rendered under an employment contract
Where services are rendered.
Case :COT v Shein (1958).
 Specific Sources of Income
(iv)Directors’ fees
Where the head office of the company to which the
director renders his services is located.
Case: ITC 106 (1927).
 Specific Sources of Income
(v)Services rendered in the course of carrying of
business or trade.
Where the services are rendered.
(vi)Sale of shares
The place where the shares were traded.
Case:CIR Vs Black, 21 SATC 226.
 Specific Sources of Income
(vii)Income derived from trade
The place where the trade is carried out ,
Case: Smith & Co. v Greenwood, 8 T.C. at 203-4. or ;
Where the trade is controlled;
Case: San Paulo (Brazilian) Rly Co. Ltd v Carter, [1896].
 Specific Sources of Income
(viii)Business operations- profits
The place where the operations are being carried out.
If business operations extend beyond one country;
Source of profits is the country of dominant activities
For Trading activities which extend beyond one country;
Source of profits is the country in which the goods are sold.
Australian Case :Commissioner of Taxation of Western
Australia v Murray Limited, 42 C.L.R. 332.
 Specific Sources of Income
(ix) Dividends
The country in which the company which paid the
dividends is incorporated.
Case: Boyd v CIR (1951).
 Specific Sources of Income
(x)Annuities
Contractual Annuity: the place where the contract was
concluded:
Boyd v CIR (1951).
Will trust: the place where the will was executed
ITC 826 (1956).
 Specific Sources of Income
(xi)Interest
Source of interest is the place where;
the credit was granted(for a loan) or;
the place where the capital producing the interest was
employed(for trading activities).
Case: Dunn & Co. and Overseas Trust Corp Ltd. v
C.I.R, 1926 A.D.
 Specific Sources of Income
(xii)Rentals
Immovable property: the country in which the property
is located.
Movables:
Depends on whether its short-term lease or long-term
lease.
• Short term leases(less than 5 years).
The country in which the owner of the hired assets
carries on business.
 Specific Sources of Income
(xii)Rentals
Movables:
Long term leases(5years and above),
The country where the asset is used by the customer.
Case:COT v British United Shoe Machinery (Pty) Ltd
(1964) 26 SATC 163.
(xiii) Partnership profits
The place where the partner renders his services to
earn the partnership income.
CIR v EPSTEIN, 1954.
 Deemed source(Section 12)
Cases where the ITA assumes that income is from a
source within Zimbabwe;
Even if the true source is not Zimbabwe.
(i)Contract for the sale of goods made in Zimbabwe:
Sect 12(1) (a)
(ii)Income derived from rendering of services in
Zimbabwe: Sect 12(1) (b)
Services rendered in the course of employment or;
In carrying on of a trade.
Where the payment comes from doesn’t matter.
 Deemed source(Section 12)
(iii)Income from services rendered by an employee
during period of temporary absence from Zimbabwe:
Sect 12(1) (c)
A period of temporary absence is a period not
exceeding 6 months in aggregate during a year of
assessment.
This includes a director as an employee.
 Deemed source(Section 12)
(iv)Services rendered to Zimbabwe government: Sect
12(1) (d)
Remuneration paid to;
A Zimbabwean government official;
 Who is an ordinary Zimbabwean resident;
 For services rendered to Zimbabwe government;
Outside Zimbabwe.
Excludes;
Remuneration earned by a non-resident of Zimbabwe;
To the Zimbabwean government;
Outside Zimbabwe.
 Deemed source(Section 12)
(v)Pension and Annuities for services rendered in Zimbabwe:
Sect 12(1) (e)
(vi)Foreign Interest and dividends received by a resident of
Zimbabwe: Sect 12(2)
(vii)Foreign annuities purchased by ordinary residents of
Zimbabwe: Sect 12 (3)
 Deemed source(Section 12)
(viii)Foreign Royalties from the use of intellectual
property in Zimbabwe (Sect 12(4))
Use of a design, trade mark, patent, secret formula or
film in Zimbabwe.
(ix)Recoupment/Recoveries (Sect 12 (5))
Any recoveries made outside Zimbabwe; if
The taxpayer once enjoyed allowances in Zimbabwe.
For example, disposal of a motor vehicle outside
Zimbabwe which was granted capital allowances in
Zimbabwe.
 Deemed source(Section 12)
(x) Any amount receivable by or on behalf of;
A satellite broadcasting service domiciled outside Zimbabwe;
From persons resident in Zimbabwe.
E.g Dstv, Netflix [s12(6)]
(y) Any amount receivable by or on behalf of;
An electronic commerce platform domiciled outside Zimbabwe;
From persons resident in Zimbabwe
E.g facebook, amazon, Alibaba [s12(7)]
 Deemed source(Section 12)-Double Taxation Relief
To avoid double taxation on income deemed to be from
a source within Zimbabwe;
A foreign tax relief is granted on income which was
subject to foreign tax.
Most common with foreign interest and dividends.
 Deemed source(Section 12)-Double Taxation Relief
Procedure
1.Calculate Zimbabwean tax on the foreign income;
2.Compare the Zimbabwean tax to the Foreign tax paid.
3.The lesser of the Zimbabwean tax and Foreign tax is the
double taxation relief.
4.Deduct the double taxation relief from the tax payable
on the income.
 Deemed source(Section 12)-Double Taxation Relief
Take Note
Foreign interest is taxable @ 24%+3% AIDS Levy (24.72%).
 Expenses incurred on foreign interest are an allowable
deduction.
Foreign dividends are taxed @ 20%.
 Expenses incurred are not an allowable deduction.
 i.e. foreign dividends are taxed gross.
 Not subject to 3% AIDS Levy.
 Deemed source(Section 12)-Double Taxation Relief
Example
• Mr. Chimutsa is ordinarily resident in Zimbabwe. During the current year of
assessment he earned the following income from foreign sources:
• (i) Dividends from Zulu Ltd, a company listed on the Johannesburg Stock Exchange
valued at $25 000 net of Non-residents tax (N.R.T) of $5 000.
• (ii) Bank interest from Ekeme Banking Corporation, a Nigerian bank located in
Abuja. The amount was $10 000 gross of 10% of Non-residents tax on Interest.
Expenses amounting to $1000 were incurred in earning the income.
• (iii) Rental income of $40 000 from a commercial property in London, United
Kingdom. No tax was charged on this income.
• Required
• Compute Mr. Chimutsa’s tax payable after granting any relief available to him.
Calculation of Double Taxation Relief

Income Zim Tax Foreign Tax Relief

Dividends from Zulu (SA) (25 000 + 5 000) X 20% =6 000 5,000 5,000

Bank Interest from Ekeme (Nigeria) (10 000 -1 000) X24.72%=2 225 1,000 1,000

Rental Income from London Source not Zimbabwe - -

Double taxation relief 6,000

Chimutsa
Calculation of tax liability from trade and investment income for the year ended 31 December 2019
Gross Income $ $
Dividends from Zulu Ltd 30,000
Bank Interest from Ekeme 10,000
Rental Income (Source not Zimbabwe) -
40,000
Less Exemptions -
Income 40,000
Less Allowable Deductions
Interest-related expense (1,000)
Taxable Income 39,000
Tax chargeable
Tax on dividend (20% X30 000) 6,000
Tax on other taxable income (39 000 -30 000)X24.72% 2,225 8,225
Less Double Taxation Relief (w1) (6,000)
Tax Liability 2,225
 Income of a Capital Nature
Income of a capital nature is excluded in gross income.
Income from disposal of a non-current asset by the
taxpayer is income of a capital nature.
Not part of gross income as long as the taxpayer is not a
dealer in those assets.
Consider taxpayer’s intention
Consider intention of taxpayer when he initially
acquired the asset.
• Use to generate revenue-income from disposal is capital-
not part of gross income.
• Resell later to make profit-income from disposal is
revenue-part of gross income.
 Income of a Capital Nature
Examples of capital receipts
Insurance policy proceeds (no profit motive).
Goodwill (surrender of an asset).
Lottery wins(gambling proceeds) (no profit motive).
Inheritance (not actively sought and worked for).
Payment in restraint of trade (surrender of an asset)
Damages compensation (no profit motive).
Fortuitous receipts (not actively sought and worked for)
Proceeds from sale of assets in which taxpayer does not
trade (no profit motive, surrender of an income
generating asset).
 Income of a Capital Nature
A rough guide
If the amount flowed from the non-current asset but;
The asset remained in ownership;
It should be considered as revenue.
If the amount flowed from the sale or exchange of a
non-current asset,
It should be considered as capital.
Capital receipts may be referred to as the tree,
While revenue receipts may be regarded as the fruit.
 Income of a Capital Nature
Determine the Gross Income for 2021 from the information
given below for an ordinary resident of Zimbabwe($)
Insurance Policy Proceeds 12,000
Rent from a house in Harare 25,000
Fixed Deposit account interest from South Africa 1,000
Econet Zimbabwe dividends 3,500
Textbooks royalties from Zimbabwe 53,000
Rent from a house in Botswana 250,000
Salary from ZIMRA 110,000
 Income of a Capital Nature
Determine the Gross Income for 2021
Royalties from a book written in Nigeria 3,600
Zimbabwe debenture interest 60,000
Annuity from a fund in Zimbabwe 10,000
Allowances from Zimbabwe Government for services rendered in
Swaziland 60,000
Leave pay (for December 2021 & January 2022) 200,000
Cash in lieu of leave 12,000
Groceries received from employer 500
Commission earned from sale of motor vehicle 74,000
Loan from local building society 50,000