ZICA T5 - TaxationRatings:  (0)|Views: 4,368|Likes: 16Published by Mongu RiceSee more

 

ALEXANDRINA WONANIAlexandrina owns a cottage, which she lets out,

furnished at an annual rent of K12million, payable monthly in advance. During

2005/06 she incurs the followingExpenditure:May 2005 K

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

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

December 2005Motor Mower 1,000,000May 2006Redecoration (work completed on 31.3.

2006) 480,000Additional Informationa)Windows were replaced with new VVPC 

double-glazed units. It isestimated that the improvement element in the expenditure 

wasK600,000. b)The tenant had vacated the property during June 2001 without

havingpaid the rent due for June. Alexandrina was unable to trace th

edefaulting tenant, but managed to let the property to new tenants from1st

July 2006.

Required Compute the taxable Rental Income assuming Alexandrina claims full capitalallowances on the

motor mower.T5 – Taxation Amendment Act 2006/07 30 

 ANSWER 

Computation of Taxable Income K KR e n t  ( A n n u al   G r o ss )   1 2 ,

0 0 0 , 0 00Less: Allowable ExpensesWear & Tear Allowance on motor mower 2 5%   x   1 , 0

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

0,000 – 600,000) 2,400,000Insurance (3/12 x 500,000 + 9/12 x 700,000) 650,000D r a i n  

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 ---------------

(5,230,000)----------------Taxable Rental Income6,770,000----------------Bad debts:♦

Specific bad debts are allowable. If a tenant leaves without paying th

eoutstanding rent, it becomes a specific bad debt and hence allowable as adeduction

for tax purposes. Therefore: K12,000,000/12 = K1,000,000 per month.Improvement 

expenditure of K600,000 is not allowable as a deduction for taxpurposes.Expenditure

on motor mower is capital expenditure, and does not qualify as anallowable

deduction, but the expenditure does in fact qualify to Rank for Wear andTear

Allowance on Plant and Machinery.************************************************************************

T5 – Taxation Amendment Act 2006/07 30 

T5 – Taxation Amendment Act 2006/07 

32Activity (14)

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