Notes for Income Tax Liability
Start with profit before tax given. Then deduct or add back incorrect adjustments included in profit given,
then deduct or add correct adjustments.
1) Advertising cost –
full deduction
Cost of erecting billboard – capital creates enduring benefit – Nill deduction.
2) Annuity paid due to ill health or retirement is deductible.
3) Bribe paid – Nil prohibited deduction.
4) Bad Debts – deduct current year only
5) Deposit – not deductible. Capital expenditure.
6) Design and Trademarks:
New Trademark purchased – no deduction. Nil
Registration of trademark – full deduction
Renewal of trademark – full deduction
7) Doubtful Debts:
Current @25%
Older than 120 days @ 40%
Prior year added to taxable income
8) Capital Allowances:
Manufacturing asset – New @ 40% year 1, 20% afterwards
- Used @ 20%
- SBC New @20% for 5 years and used 40%Y1,20%Y2,20%Y3,20%Y4
- Manufacturing assets not apportioned
- Moving Cost added to cost if brought into use same year
If at later stage -remaining period of capital allowance
(Moving Cost /3) will be added to cost.
Vehicle/office furniture / computers/Equipment /billboard – SBC 50%Y1, 30%Y2, 20% Y3
If not SBC cost-residual / use of life
Building – Manufacturing, Commercial, office and residential @ 5%
-Urban Development @ 20% Y1, 8% remainder of life
- Refurbishments @ 20%
- Low-cost residential units @ 10%
- Additional multiplications * Erecting of portion of building @55%
*Improvements @ 30%
9) Dividends paid – Not deductible.
10) Dividend Income – Exempt
11) Donations to company employees – Lesser of Mv/Cost -Tax value = Recoupment is added back.
12) Double deduction – not allowed.
13) Employee Expenses:
Salaries and wages – full deduction
Medial aid or provident – full deduction
Leave pay/Leave provision – not allowed.
14) Foreign exchange profit/ loss: Occurs when trading stock is imported from other countries.
Purchase Price *(End of Financial year exchange rate if settled next financial
year – Exchange Rate on Purchase Date)
15) Furniture + Fittings – Wear + tear divided by binding rule years given * remaining months of life/12.
16) Holiday expense – prohibited. non -trade expense.
17) Interest on bank overdraft – Prohibited. Nill
18) Interest on loan for Machinery /Building is deductible fully as soon as trade commenced.
19) Interest Income – must be included.
Start with profit before tax given. Then deduct or add back incorrect adjustments included in profit given,
then deduct or add correct adjustments.
1) Advertising cost –
full deduction
Cost of erecting billboard – capital creates enduring benefit – Nill deduction.
2) Annuity paid due to ill health or retirement is deductible.
3) Bribe paid – Nil prohibited deduction.
4) Bad Debts – deduct current year only
5) Deposit – not deductible. Capital expenditure.
6) Design and Trademarks:
New Trademark purchased – no deduction. Nil
Registration of trademark – full deduction
Renewal of trademark – full deduction
7) Doubtful Debts:
Current @25%
Older than 120 days @ 40%
Prior year added to taxable income
8) Capital Allowances:
Manufacturing asset – New @ 40% year 1, 20% afterwards
- Used @ 20%
- SBC New @20% for 5 years and used 40%Y1,20%Y2,20%Y3,20%Y4
- Manufacturing assets not apportioned
- Moving Cost added to cost if brought into use same year
If at later stage -remaining period of capital allowance
(Moving Cost /3) will be added to cost.
Vehicle/office furniture / computers/Equipment /billboard – SBC 50%Y1, 30%Y2, 20% Y3
If not SBC cost-residual / use of life
Building – Manufacturing, Commercial, office and residential @ 5%
-Urban Development @ 20% Y1, 8% remainder of life
- Refurbishments @ 20%
- Low-cost residential units @ 10%
- Additional multiplications * Erecting of portion of building @55%
*Improvements @ 30%
9) Dividends paid – Not deductible.
10) Dividend Income – Exempt
11) Donations to company employees – Lesser of Mv/Cost -Tax value = Recoupment is added back.
12) Double deduction – not allowed.
13) Employee Expenses:
Salaries and wages – full deduction
Medial aid or provident – full deduction
Leave pay/Leave provision – not allowed.
14) Foreign exchange profit/ loss: Occurs when trading stock is imported from other countries.
Purchase Price *(End of Financial year exchange rate if settled next financial
year – Exchange Rate on Purchase Date)
15) Furniture + Fittings – Wear + tear divided by binding rule years given * remaining months of life/12.
16) Holiday expense – prohibited. non -trade expense.
17) Interest on bank overdraft – Prohibited. Nill
18) Interest on loan for Machinery /Building is deductible fully as soon as trade commenced.
19) Interest Income – must be included.
