Advanced Taxation(CUAC 408)

Assumed knowledge-
CUAC 212
 ADVANCED TAXATION
Taxation of Miners in Zimbabwe
Chinhoyi University Of Technology
School of Entrepreneurship and Business Sciences
Department of Accounting Sciences and Finance
CHIKONHI T
MPHIL ACCOUNTING (CUT)
MCOM PROF ACCOUNTING AND CORP GOV (GZU)
BSC ACCOUNTING (CUT)
CGI (CIS)
[email protected]
0773445444/0719445444
2
 Reflection!!
• What tax related activities are you doing or
have you done at work or business?
• What challenges have you faced in executing
them? Have any knowledge you acquired in
CUAC 212 been applicable?
• What are you looking forward to learn during
the course that will help you perform better in
your tax-related and decision making tasks.
 TAXATION OF DECEASED ESTATES AND TRUSTS

LEARNING OBJECTIVES
• To explain the legal status of deceased estates
and trusts. Section 2
• To discuss the taxation of income generated
by assets in a deceased estate. Section 11
• To discuss the implications of the Income Tax
Act in relation to deceased estates and trusts.
• Compute taxable income and tax liability of
deceased persons, deceased estates and
trusts.
 TAXATION OF DECEASED ESTATES AND TRUSTS

• Section 2 of the ITA specifically interprets a

person to include:
A deceased estate or insolvent estate; and
A trust, for income in relation to which no
beneficiary is entitled.
 TAXATION OF DECEASED ESTATES AND TRUSTS

SECTION 11(ITA)
• Section deals with INCOME DERIVED from
assets in a deceased estate.
• Key terms:
Ascertained beneficiaries S11(1).
Assets in a deceased estate S11(1).
 TAXATION OF DECEASED ESTATES AND TRUSTS

Pre and Post-death income.

• On the death of a taxpayer an income tax
assessment is raised on the deceased’s
taxable income accruing to the date of death.
• A new taxpayer i.e. a deceased estate, comes
into being after the death.
• A determination has to be made as to in
whose hands post-death income is taxable.
 TAXATION OF DECEASED ESTATES AND TRUSTS

SECTION 11:POST-DEATH INCOME

• Section 11 provides for the taxation of the
post-death income.
• There are at least three possible taxpayers
that may be liable to income tax after a
person has died.
The deceased person; where income is
determined to have been pre-death.
An ascertained beneficiary.
The deceased estate or trust.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Identifying the tax payer

• Terms of a will are very important.
Section 11(2)
• Where a specific asset is left to a specific
person : ascertained beneficiary.
• The ascertained beneficiary is taxable on the
income derived from the asset from the day
after death of the deceased.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Identifying the tax payer

• Terms of a will are very important.
Section 11(3)
• Residue in a will is taxable in the hands of the
estate.
• Residue refers to income from assets with no
ascertained beneficiary.
• It is taxable in the hands of the estate from
the day after death until date of distribution
by the executor.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Identifying the tax payer

Section 11(4)
• Income by virtue of a right forming part of the
assets in a deceased estate which become
due and payable after the death of the
deceased person shall be income if the
amount would have been income of the
deceased person had it been received in
his/her lifetime.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Identifying the tax payer

Section 11(4)
• Such income shall therefore be taxable in the
hands of either the deceased estate or
ascertained beneficiary.
• The income is not taxable if :
The deceased had no right the amount in his
life time;
The amount is received ex gratia.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Identifying the tax payer

Usufruct arrangement
• A usufruct is where a beneficiary is given a
right to income deriving from an asset but not
to inheritance of the asset itself.
• Thus for instance, a father may leave a farm to
his son but granting a life usufruct to the
widow.
• The usufructuary is generally taxable
immediately on the post-death income.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Identifying the tax payer

Income subject to a trust
• Where the will provides that the estate shall
be transferred to a trust, say for the benefit of
minor children, the transfer of which will be
made on attaining majority age;
• The trust created will be liable to tax
immediately after the death of the deceased.
 TAXATION OF DECEASED ESTATES AND TRUSTS

• Mr Masocha died on 4 March 2020, his will

specifically bequeathed to his mother a sum of $40
000 and to his son an industrial building in Msasa
industrial area. The rest of the estate was to be
shared equally between the testator’s son and
daughter. The executer of the estate distributed
these to the son and the daughter on 1 August
2020. The executor’s first and final distribution
account was confirmed by the Master on 1
December 2020.
• Show how income which accrued in the post-death
period will be assessed.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Solution
• The son is taxable on rentals from the industrial
building from 5 March 2020, being the day after the
death of Mr Masocha.
• The estate is taxable on income accruing in the
period 5 March 2020 to 31 July 2020.
• The son and daughter are taxable on any income
accruing from assets transferred to them from 1
August to 31 December 2020 (year-end).
 TAXATION OF DECEASED ESTATES AND TRUSTS

Solution
• The estate is taxable on an income accruing from
the assets in ‘residue’ from 1 August to 31
December 2020.
• The mother incurs no tax liability on cash
bequeathed to her.
• The son and daughter are taxable on income from
any further assets transferred to them from 1
December 2020 to 31 December 2020.
Advanced Taxation(CUAC 408)

Assumed knowledge-
CUAC 212
 TAXATION OF DECEASED ESTATES AND TRUSTS

Deceased estates :Employment income

• Where a deceased person who was in receipt
of employment income dies during a tax year,
his or her income may be taxed in
(a) pre-death period or
(b) post death period or;
(c) may not be taxed at all.
• The following principles are crucial:
 TAXATION OF DECEASED ESTATES AND TRUSTS

Deceased estates :Employment income

• Any amount which accrues in the pre-death
period is taxable in the assessment to date of
death.
• This includes;
salary earned,
a bonus or executive director’s fee already
voted, and
contractual commissions due at that stage.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Deceased estates :Employment income

• Amounts accruing after death and which are
taxable in the assessment for the post-death
period are those;
to which the deceased had a right to, and;
which would have been taxable in his hands
had they accrued during his lifetime.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Deceased estates :Employment income

• These include;
leave pay under a contract of employment,
contractual commissions falling due after date
of death.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Deceased estates :Employment income

• Amounts accruing after death which are not
taxable (in either period) are those;
• to which the deceased had no right, such as;
 non-contractual leave pay,
a bonus voted after death and;
directors’ fees as are not fixed in the company
articles of association.
Gratuity.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Expenditure against post-death income

• Medical expenses of a deceased paid after
death : claim a credit in the pre-death period.
 TAXATION OF DECEASED ESTATES AND TRUSTS

Tax rates
• Consider the identity of the income:
Employment income
Trade and investment income
Advanced Taxation(CUAC 408)

Assumed knowledge-
CUAC 212
 TAXATION OF TRUSTS

(a) (i)Clear vested right

• Income has to be paid to a beneficiary and the
trustee have no discretion on the matter.
• Such income is taxable in the hands of the
beneficiary.
(a) (ii) Again a vested right.
• A trustee, have a discretion over the amount
to be distributed, but undistributed amount is
accumulated for the beneficiary.
• The beneficiary is taxable on the income.
 TAXATION OF TRUSTS

(b) Delay in the vesting of right

• This is where the beneficiary’s enjoyment of
the income is entirely at the discretion of the
trustee.
• In such circumstances, the trust is taxable on
the undistributed income and the beneficiary
is taxable only on amounts distributed to him.
 TAXATION OF TRUSTS

(c) Contingent right

• Beneficiary only has right to income upon
meeting certain conditions, e.g. completion of
degree programme.
• Only the distributed income is taxed in the
hands of the beneficiary.
• The retained income is taxed in the hands of
the trust.
 TAXATION OF TRUSTS

(d)Neither vested, nor contingent right

• This means that distributions are made at the
discretion of the trustees.
• All income is taxed in the hands of the trust.
 FURTHER POINTS ABOUT A TRUST

(a) Identity of trust income

• The general rule is that trust income will
retain its identity in the hands of the
beneficiary.
• In other words if the trust receive a bank
interest and distribute it to the beneficiary,
the income will still be called bank interest in
the hands of a beneficiary.
• This is known as the conduit pipe principle.
 FURTHER POINTS ABOUT A TRUST

(a) Identity of trust income

• An annuity however forms an exception to the
general rule.
• As long as an amount is received as an annuity
by a beneficiary it will always be taxable.
 FURTHER POINTS ABOUT A TRUST

(b) Trust expenditure

• If the expenditure is allowable under the
general deduction formula it will also be
allowable against trust income.
• Prohibited expenditure is disallowed.
 FURTHER POINTS ABOUT A TRUST

(c)Residence of trust
• A trust is assumed to be ordinarily resident of
Zimbabwe if;
Part of its income is from a source in
Zimbabwe, or
The executors or trustees are ordinarily
residence in Zimbabwe, or
The person who created the trust was
ordinarily residence in Zimbabwe at the time
of creating the trust.
 FURTHER POINTS ABOUT A TRUST

(d)Expenditure on exempt income

• No expenditure is allowable in respect of
exempt income.
• In a case where trustees earn a commission
on all income they earn for the trust, and part
of that income is exempt;
• Then the commission is only deductible to the
extent that it does not relate to the exempt
income.
 FURTHER POINTS ABOUT A TRUST

(d)Expenditure on exempt income

• Use the following formula to determine the
non-deductible portion of the expenditure:
• (A ×B)/C
A – exempt income
B – direct expenditure in production of trust
income
C – total gross income created by trustees
 FURTHER POINTS ABOUT A TRUST

Example:
• Mhere trust was created on 31/07/2020 and
is administered by Tendai and Tinotenda.
During the current year of assessment the
trust earned a total income amounting to
$800,000, included in this income is dividend
from a company incorporated in Zimbabwe
amounting to $40,000. The trustees were paid
commission amounting to $120,000. How
much is allowable against trust income?
 FURTHER POINTS ABOUT A TRUST

Solution
$
• Total commission paid
120,000
• Less (40x120)/800 (6,000)

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• Allowable commission 114,000
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