- 20 Marks
AT – Nov 2023 – L1 – SB – Q3 – Capital Gains Tax
Evaluate capital gains tax implications and relief for Damaturu Nigeria Ltd on asset disposal and reinvestment under Nigerian tax laws.
Question
a. Explain the provisions of the Capital Gains Tax Act C1 LFN 2004 (as amended) in respect of tax payable on disposal of assets situated outside Nigeria by a non-Nigerian company. (2 Marks)
b. Damaturu Nigeria Limited had been in business as a manufacturer of dairy products for several years. In its bid to re-engineer its operations by investing in another viable product line (to be cited in a major city), the Board of Directors in February 2022, approved the sales and re-acquisition of some assets as shown below:
(i) The underlisted assets were acquired in 2015:
| Description | N’000 |
|---|---|
| Land | 25,000 |
| Plant and equipment | 13,000 |
| Factory building | 30,000 |
(ii) Sales proceeds from assets disposed of in July 2022:
| Description | N’000 |
|---|---|
| Land | 32,000 |
| Plant and equipment | 15,000 |
| Factory building | 38,000 |
(iii) Expenses incurred (as percentage of sales proceeds) in connection with disposal of assets:
- Legal: 1%
- Professional valuers’ fees: 3%
(iv) Re-investment in new assets (for the purpose of the business) to replace the disposed ones, was made between September and October, 2022:
| Description | N’000 |
|---|---|
| Land | 28,000 |
| Plant and equipment | 18,000 |
| Factory building | 30,000 |
Required:
i. Compute the capital gains tax payable (if any) for each of the transactions and state the date of payment of the tax due. (14 Marks)
ii. Determine the relief available (if any) on the investment in the new assets. (4 Marks)
(Total: 20 Marks)
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