Every objective and theory question in this paper, with answers where we have them, and the topic notes to revise each one.
| No. | Section | Marks | Covers |
|---|---|---|---|
| Q1 | Income tax of a Chief Accountant who changed employers, with NHF, pension, NHIS and life insurance | ||
| Q2 | Basis periods and capital allowances for the first three years of assessment of a new company | ||
| Q3 | Documents filed with a return, stockbroking information and the late filing penalty | ||
| Q4 | Section B | 20 | Four rules for loss relief, and unrecouped losses and capital allowances at the end of each year |
| Q5 | Section C | 15 | VAT remittable for a month, with sales returns, purchase returns and VAT already remitted |
| Q6 | Section C | 15 | Tax, fee, fine and penalty; features of tax; objectives of taxation; direct and indirect taxes |
| Q7 | Section C | 15 | Particulars on the certificate sent to the tax authority when an employee leaves employment |
Income tax of a Chief Accountant who changed employers, with NHF, pension, NHIS and life insurance
Basis periods and capital allowances for the first three years of assessment of a new company
Documents filed with a return, stockbroking information and the late filing penalty
Audu Enterprises Limited commenced business on June 1, 2009. The following are the adjusted Profit/(Losses) for the relevant Assessment Years: Profit/(Losses) N’000 Capital Allowances N’000 Period to December 31, 2009 (7 months) (200,000) 30,000 Year ended December 31, 2010 (140,000) Nil Year ended December 31, 2011 140,000 50,000 You are required to:
State any FOUR rules governing the claim for loss relief.
Compute the Adjusted Profit/Losses and unrecouped Capital Allowances of the business at end of the relevant years of assessments.
a. Four rules governing the claim for loss relief The following points are to be noted in the application of the rules on loss relief for companies:
i. Trading loss to be deducted from Assessable Profits of an Assessment Year shall not exceed the actual loss incurred by the company in the previous Assessment Years;
ii. Losses are not aggregated with Assessable Profits in the computation of a company’s Total Profits. In strict compliance with the provision of Section 31 (1) of CITA, a trading loss from one of the company’s sources of profits cannot be set-off against profits from another source. A loss incurred from a particular line of business can only be relieved in future years from Assessable Profits derived from the same source or line of business;
iii. When losses incurred in two different Assessment Years are being carried forward against future profits, the first loss incurred will be relieved in priority to the subsequent loss, subject to the four (4) year loss relief period for insurance companies; and
iv. When trade ceases, any terminal loss resulting there from which could not be relieved in that year of cessation due to insufficiency or non availability of profit, is deemed lost. There is no provision under the Nigerian tax system for carrying back of terminal loss.
b. AUDU ENTERPRISES COMPUTATION OF ADJUSTED PROFIT AND UN-RECOUPED CAPITAL ALLOWANCES YOA Basis Period N’000 N’000 2009 1/6/2009 - 31/12/2009 Loss for the period (200,000) Capital allowances (30,000) Loss and Capital allowances c/f to A. Y. 2010 (230,000) 2010 1/6/2009 - 31/5/2010 Loss brought forward (200,000) Loss - 1/6/2009 – 31/12/2009 (200,000) Loss - 1/6/2010 – 31/5/2010(5/12 x N140,000) (58,333) (458,333) Unrelieved loss restricted to actual loss (258,333) Capital allowance for the year - (30,000) Losses and Capital allowances c/f to A. Y. 2011 (288,333) 2011 1/1/2010 – 31/12/2010 Loss for the year (140,000) Unrelieved loss b/f (258,333) (398,333) Unrelieved loss c/f restricted to actual loss (340,000) Capital allowances brought forward 30,000 Capital allowance for the year - (30,000) Losses and Capital allowances c/f to A. Y. 2012 (370,000) 2012 1/1/2011 - 31/12/2011 Assessable Profit 140,000 Unrelieved Loss b/f (340,000) Unrelieved Loss c/f (200,000) Capital allowances b/f 30,000 Capital allowance for the year 50,000 (80,000) Losses and Capital allowances c/f to A. Y. 2013 (280,000)
a. Trading loss to be deducted 1 Losses are not aggregated 1 Relief of earlier loss 1 Terminal loss cannot be relieved 1 4 b. 2009 Assessment Year Loss for the period 1 Capital Allowance 1 2 2010 Assessment Year Loss brought forward 1 Loss (1/6/2009 – 31/12/2009) 1 Loss (1/6/2010 – 31/5/2010) 1 Unrelieved loss restricted 1 Capital Allowance for the year 1 5 2011 Assessment Year Loss for the year 1 Unrelieved Loss b/f 1 Capital Allowance b/f 1 Capital Allowance for the year 1 Losses and Capital Allowance c/f 1 5 2012 Assessment Year Assessable Profit 1 Unrelieved Loss b/f 1 Capital Allowances b/f 1 Capital Allowance for the year 1 4 20
EXAMINER’S REPORT The question tests candidates’ knowledge of the rules governing loss relief and carry forward of capital allowances on commencement of business. Not many candidates attempted the question but performance was fair. The commonest pitfall was the inability of the candidates to compute loss relief and capital allowances in arriving at assessable income. Candidates are advised to pay attention to the treatment of losses and capital allowances.
Oloro Nigeria limited, a company engaged in the manufacture of home utensils, is based in Onitsha. The company commenced business on June 1, 2010. Although, the company has been in business for some time, it is yet to register and file returns with the Federal Inland Revenue Service (FIRS) incompliance with the Value Added Tax Act Cap VIL FN 2004 (as amended). FIR VA inspectors visited the company recently and enquired why the company has not complied with the VAT law since it commenced business. The Managing Director of the company feigned ignorance of the existence of the VAT Act and immediately approached your tax advisory firm to ascertain the company's VAT liability for the current month. You are given the following information relating to the previous month: Sales (VAT inclusive) Raw Material A (Vat inclusive) 270,000 Raw Raw -- Material Material -- B C - - -- 400,000 360,000 Assets purchased 570,000 El Cleaning t i it 150,000 Labour 427,000 Penalty for tax offence 36,000 SaIes returns 540,000 Purchase returns (Material) A 42,000 B 70,000 C VAT remitted in the month 50 000 66,000 . Required:
Calculate the VAT remittable to the Revenue at the end of the month.
Oloro Nigeria Limited acquired a property for N30m in the current year and the sale and purchase agreement for the transaction was sent to the Stamp Duties Office. The Managing Director is confused as to why the agreement should be sent to the Stamp Duties Office. You are required to: i. State any THREE implications of non-stamping of Instruments. (3 Marks) ii. Explain any TWO forms of Stamp Duties. (2 Marks)
a. OUTPUT VAT N N Sales 3,600,000 Returns (540,000) Net Sales 3,060,000 VAT (5/105 x N3,060,000) 141,714 Less: INPUT VAT (Raw Materials) (A) N Purchases 270,000 Less Returns 42,000 Net Purchases 228,000 (B) Purchases 400,000 Less Returns 70,000 Net Purchases 330,000 (C) Purchases 360,000 Less Returns 50,000 Net Purchases 310,000 Total Purchases 868,000 Total Input VAT (5/105 x N868,000) (41,333) 100,381 Less VAT already remitted 66,000 Final VAT remittable 34,381 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
Tax, Fee, Fine and Penalty are one way or the other similar but are not entirely the same.
i. What are the distinguishing features between tax and other public charges? (2 Marks) ii. State any THREE objectives of taxation. (3 Marks)
Explain briefly Direct and Indirect Taxes and highlight their differences.
Where an employee in respect o whom a Tax Deduction card has been issued cease to be in employment the employer shall send to the relevant tax authority a Certificate on the prescribed form containing the particulars of the employee.
You have been approached by the Managing Director of XYZ Nigeria Limited for an advice in respect of an assessment received by him from the Federal Inland Revenue Service. He indicated his interest to appeal against the assessment because he believes it is arbitrary and excessive. You are required to: State the contents of a valid Notice of Objection. (5 Marks) 6 NIGERIANTAXRATES 1. CAPITAL ALLOWANCES Initial% Annual% Office Equipment 50 25 Motor Vehicles 50 25 Office Buildings 15 10 Furniture and Fittings 25 20 Industrial Buildings 15 10 Non-Industrial Buildings 15 10 Agricultural Plant and Machinery Production 95 Nil Others 50 25 2. INVESTMENT ALLOWANCE 10% 3. RATES OF PERSONAL INCOME TAX Graduates tax rates with consolidated relief allowance of N200,000 or 1% of Gross Income whichever is higher+20% of Gross income. Taxable Rate of Income Tax N % First 300,000 7 Next 300,000 11 Next 500,000 15 Next 500,000 19 Next 1,600,000 21 Over 3,200,000 24 After the relief allowance and exemption had been granted, the balance of income shall be taxed as specified in the tax table above. 4. COMPANIES INCOME TAX RATE 30% 5. TERTIARY EDUCATIONTAX (2% of Assessable Profit) 6. CAPITALGAINSTAX 10% 7. VALUEADDEDTAX 5%