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- 4 Marks
ATAX – May 2017 – L3 – Q3b – Capital Gains Tax (CGT)
List allowable deductions under the Capital Gains Tax Act for chargeable gains computations.
Question
Capital Gains Tax is imposed on gains arising from the ownership of a capital asset changing hands, either by exchange, transfer, sale, or gift.
The tax is chargeable on the total amount of the chargeable gains arising after deducting allowable expenses on the disposal of chargeable assets in any year of assessment.
Required:
State the allowable deductions under the Capital Gains Tax Act CAP C1 LFN 2004 as amended. (4 Marks)
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- Tags: Allowable Deductions, Asset Disposal, Capital gains tax
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
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- 16 Marks
ATAX – May 2017 – L3 – Q3a – Capital Gains Tax (CGT)
Compute Capital Gains Tax for hire purchase transactions and explain the implications of hire purchase interest on CGT.
Question
Global Company Nigeria Limited, a construction company based in Abuja, commenced business on January 7, 2009. The company has struggled to acquire necessary equipment due to poor financial results.
At a directors’ meeting on November 6, 2012, the company decided to approach a finance house for assistance. They provided the following information:
- The company purchased an excavator on hire purchase on March 1, 2013, and paid a deposit of N32,000,000.
- The excavator’s cost price was N55,000,000, with the balance payable in 25 monthly installments of N1,200,000 starting April 1, 2013.
The excavator was sold as follows:
- For N65,000,000 after installment payments on January 1, 2014.
- For N69,000,000 after installment payments on November 1, 2014.
You are required to:
i. Calculate the Capital Gains Tax (CGT) for the relevant Assessment Year, assuming the sales values above. (14 Marks)
ii. Explain the implications of hire purchase interest on Capital Gains Tax computations. (2 Marks)
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- Tags: Assessment Year, Capital gains tax, Hire Purchase, Tax computation
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
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- 30 Marks
ATAX – May 2017 – L3 – Q1 – Overview of Advanced Taxation
Explain tax concepts and calculate Companies Income Tax due for Rex Pharmaceuticals.
Question
You are the Tax Controller of Rex Pharmaceuticals (Nigeria) Limited having its Head Office in Ketu, Epe Local Government of Lagos State.
In the past three years, the company had been subjected to taxes by different Revenue Authorities within Lagos State and indeed, the entire country.
Apart from the Companies Income Tax, the issue of Withholding Tax is an area where the company’s management is very much concerned. The Managing Director is worried that this multiplicity of taxes is taking its toll on the company’s financials.
The company is already facing myriads of problems ranging from outrageous cost of capital which had led to increase in cost of production and attendant decrease in profit. The company’s goods are becoming uncompetitive, compared to imported goods. The long-term effect is either reduction in workforce or relocation to a more favorable economic climate.
The Managing Director summoned you to his office and among the issues raised at the meeting were:
(i) as a corporate body, the company ought not to be subjected to multiplicity of taxes beyond the Companies Income Tax;
(ii) the jurisdiction of the tiers of Government in imposition and collection of taxes;
(iii) the Withholding Tax;
(iv) the Pay As You Earn as it affects the staff; and
(v) the Capital Gains Tax.
You have also been informed of the following:
- The company’s technical agreement with the foreign Head Office and the need to remit funds;
- The Non-Executive Directors;
- The Non-Resident directors are to receive N2,500,000;
- Centralization of staff PAYE deductions;
- Dividend payment to shareholders in different parts of the country. Those resident in Kogi are to receive N375,000;
- Land for a factory in Abuja purchased from Alhaji Garuba Maito who resides in Kano;
- Rex Pharmaceuticals received N4,500,000 as Net dividend from an associated company Laiketop Limited for the year ended September 30, 2014. In the Audited Financial Statements of Rex Pharmaceuticals for the year ended December 31, 2015, a dividend of N9,500,000 was proposed. Out of this amount, N3,500,000 was from dividend received from Laiketop Limited while the balance was from a Total Profit of N22,500,000 from other trading activities;
- At present, out of the thirty employees in Abuja, five are resident in Suleja, Niger State.
Required:
(a) Explain briefly the following:
i. Capital Gains Tax
ii. Withholding Tax
iii. Double Taxation Treaty
iv. Multiple Taxation (12 Marks)
(b) Discuss measures put in place by the government to reduce cases of multiple taxation. (6 Marks)
(c) State the arms of government empowered by the Constitution to legislate on tax matters. (6 Marks)
(d) Determine the Companies Income Tax due from Rex Pharmaceuticals Limited for the year ended December 31, 2015. (6 Marks)
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- 18 Marks
ATAX – May 2019 – L3 – Q4b – Capital Gains Tax (CGT)
Advise on capital gains arising from various business transactions, deemed disposal, and roll-over relief for Smaposu Nigeria Limited.
Question
Smaposu Nigeria Limited is based in Ibadan, Oyo State, and is involved in the manufacturing of computer accessories. The company undertook the following transactions during the year ended December 31, 2018:
(i) Plant and machinery: Part of the plant and machinery was purchased in the year 2014 at an all-inclusive price of ₦12,500,000. A machinery was sold for ₦8,100,000, and the value of the undisposed part was ₦5,740,000. Selling expenses incurred amounted to ₦150,000.
(ii) Motor vehicle: A motor vehicle, which was acquired in 2016 for ₦3,000,000 for the purpose of the business, was sold to the company’s general manager for ₦2,900,000. The market value of the car as at the point of disposal was ₦3,500,000. The company re-acquired a similar car for ₦3,500,000.
(iii) As a result of an unfavorable business climate in Ibadan, the company relocated to Ikeja, Lagos State. The land and buildings acquired in Ibadan in 2009 for ₦30,000,000 were sold for ₦65,500,000. The cost of valuation and professional fees incurred on disposal was ₦2,000,000. A reinvestment was made in Ikeja through the acquisition of another landed property valued at ₦50,000,000.
Smaposu Nigeria Limited has just appointed your firm as the company’s tax consultant.
You are required to advise the management on:
i. “Deemed” disposal of an asset. (5 Marks)
ii. The capital gains (if any) arising from these transactions. (6 Marks)
iii. The roll-over relief (if any) on re-investment made on the acquisition of new assets by the company. (4 Marks)
iv. Capital gains tax payable. (3 Marks)
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- Tags: Asset Disposal, Business Relocation, Capital gains tax, Deemed Disposal, Roll-Over Relief
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
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- 2 Marks
ATAX – May 2019 – L3 – Q4a – Capital Gains Tax (CGT)
Define when acquisition or disposal is effective under the Capital Gains Tax Act.
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- Tags: Acquisition, Capital gains tax, CGT, Disposal, Tax law
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
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- 15 Marks
AT – Nov 2014 – L3 – SC – Q7 – Capital Gains Tax (CGT)
Compute total income for 2011 tax assessment and capital gains tax for relevant year.
Question
Mr. James Zonto lived in Canada for thirty years and decided to settle down permanently in Nigeria with effect from January 2007.
Based on advice from his secondary school classmate, Mr. James Zonto repatriated a huge amount of money to Nigeria. He took advantage of the better investment climate in Nigeria and acquired the following properties:
- Uyo Duplex: Bought on 2 March 2008 for N25,320,000. Rental income: N855,000 per annum (net of withholding tax).
- Fixed Deposit Account: Invested N14,000,000 on 4 January 2008 with Doronine Bank Plc, yielding interest (net of withholding tax) of N180,000 per month.
- Onitsha Property: Acquired on 6 October 2008 for N31,500,000 with incidental expenses of N2,400,000. Annual rent: N1,800,000.
- Okija House: Bought for N10,000,000 as a personal residence; not rented out.
In 2012, he decided to resettle in Toronto and took the following actions:
- Uyo House: Sold for N47,450,000 after incurring the following expenses:
- Advertising: N650,000
- Valuation fees: N2,000,000
- Estate Agent’s Commission: N2,372,500
- Legal fees: N1,500,000
- Fixed Deposit: Matured on 31 December 2011; not rolled over.
- Onitsha Property: Sold one of the four duplexes for N14,175,000. Remaining duplexes valued at N40,500,000.
- Okija House: Sold for N36,500,000 after incurring incidental expenses of N3,650,000.
Required:
(a) Compute the Total Income for Income Tax purposes for 2011 year of assessment.
(b) Compute the Capital Gains Tax payable for the relevant year of assessment.
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- 20 Marks
ATAX – May 2022 – L3 – Q3 – Capital Gains Tax (CGT)
Address the principles of disposal under CGT Act, and compute CGT for transactions in Ikeja, Calabar, Abuja, and Kano.
Question
Disposal of assets is an important concept in the determination of capital gains tax payable. Section 6 of the Capital Gains Tax Act 2004 (as amended) specifically provides that a disposal of assets by a person occurs where any capital sum is derived from a sale, lease, transfer, an assignment, a compulsory acquisition, or any other disposition of assets, notwithstanding that no asset is acquired by the person paying the capital sum. In the same vein, Section 2 (4) of the Finance Act 2020 states the period for filing of self-assessment returns and when payment of the tax computed in respect of chargeable assets disposed of is to be made.
Nice-One Nigeria Limited, a manufacturing concern, with head office in Calabar and branches in Ikeja, Kano, and Abuja, has been in business for several years, reporting its accounts to December 31 of every year. The extracts from the books of accounts of the company during the year ended December 31, 2021, revealed the following transactions:
(i) Disposal of an option
On February 1, 2021, the company sold an option on a piece of land in Ikeja for the sum of ₦8,500,000 to Eco-Raheem Limited, which subsequently exercised the right by purchasing the land for ₦32,200,000.
(ii) Acquisition of asset in exchange for debt
On March 15, 2021, one of the company’s debtors in Calabar, Mr. Baba Tee, reached an agreement with the company by exchanging his piece of land, which was valued at ₦15,000,000, for the debt of ₦13,500,000. The company, on May 7, 2021, disposed of the land for ₦18,000,000. Incidental expenses incurred towards the disposal of the land were ₦250,000.
(iii) Disposal of a building
The company has a staff estate, which comprises five buildings in its Abuja branch. In order to source funds to construct a new staff estate in Kano, the company, on August 12, 2021, sold one of its buildings in the Abuja estate for ₦110,000,000. The cost of acquisition of the five buildings in the estate was ₦250,000,000. The cost of acquisition of the building sold was ₦75,000,000, while the remaining buildings unsold were professionally valued at ₦240,000,000. The company also incurred for the purpose of the disposal of the building, ₦400,000 on building repairs and a professional valuer’s fee of ₦1,100,000.
(iv) Disposal of industrial plants
One of the company’s industrial plants in the Kano branch, which cost ₦4,500,000, was disposed of on September 15, 2021, for ₦6,000,000. A new plant was bought for the purpose of the company’s operations the following month for ₦8,000,000. During the installation of the new plant, it was found that the plant could not efficiently satisfy the requirements of the company and it was subsequently sold on December 2, 2021, as “second-hand” for ₦7,300,000. The company incurred the sum of ₦25,000 as disposal expenses.
The Managing Director of the company is of the opinion that issues around the transactions undertaken by the company in the financial year are “technical,” which only competent professional accountants with experience in tax matters can conveniently handle. Accordingly, your firm of accountants was contacted to help provide tax advice on each of the above transactions.
Required:
You have been directed by your firm’s Head (Tax Matters) to take charge of the assignment and submit a report to him by the close of work in three days.
Your report should specifically cover:
(a) The principles of disposal as provided for in Section 6 of the Capital Gains Tax Act 2004 (as amended) (3 Marks).
(b) Computation of capital gains tax payable and when the tax due is to be paid to the relevant tax authority for the following stated transactions:
i. Disposal of an option in Ikeja branch (2 Marks).
ii. Acquisition of asset in exchange for debt in Calabar head office (3 Marks).
iii. Disposal of a building in Abuja branch (4 Marks).
iv. Disposal of industrial plants in Kano branch (8 Marks).
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- Tags: Capital gains tax, CGT Act, Compliance, Disposal of assets
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
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- 15 Marks
ATAX – May 2023 – L3 – Q5 – Capital Gains Tax (CGT)
Analyze the tax implications of asset disposal and re-acquisition for Fashion Stitches Ltd.
Question
Fashion Stitches Limited, Lagos, is a private limited liability company specializing in sewing and sales of clothes and allied materials for medium and upper-class clients in highbrow areas of the country.
The company has a core sewing staff, while other employees frequently travel to major cities such as Abuja, Kaduna, Ibadan, and Port Harcourt to receive orders from clients.
While reviewing their activities for the first quarter ended March 31, 2022, the Operating Officer noted that the recent increase in travel and staff costs, which had risen by over 150% compared to the corresponding period in 2021, negatively impacted the company’s financial performance.
Management decided to relocate the business to the Federal Capital Territory (FCT), Abuja, where over 75% of their clients reside. The move is planned for November 15, 2022, involving the disposal and re-acquisition of some assets required for the business.
The following transactions took place between April and October 2022:
- Property Disposal and Acquisition:
- The property (land and building) in Lagos, acquired in 2008 for N18,220,000, was sold for N65,100,000.
- Incidental costs of disposal included:
- Estate valuer’s fee: N1,627,500
- Renovation expenses: N1,800,000
- Advertisement cost: N250,000
- A new property was purchased in the FCT for N80,000,000.
- Disposal and Re-Acquisition of Sewing Machines and Equipment:
- Sewing machines and tailoring equipment, bought between 2015 and 2019 for N3,300,000, were disposed of for N2,800,000.
- New machines and equipment were acquired for N7,130,000.
- Disposal and Re-Acquisition of Generating Set:
- A 10 KVA generating set, which cost N1,500,000 in 2017, was disposed of for N1,900,000.
- Another generating set was acquired for N2,450,000.
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- Tags: Asset Re-Acquisition, Capital gains tax, Tax Reliefs
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
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- 20 Marks
ATAX – Nov 2021 – L3 – Q4 – Capital Gains Tax (CGT)
Explanation of tax implications for transactions considered artificial involving connected persons.
Question
Colends Nigeria Limited, Abeokuta, is a manufacturer of plastic materials. The company is well known for prompt payment of taxes as at when due. The cordial relationship between the company and the Federal tax authorities is about to be breached as a result of disagreement in the classification of some transactions made by the company. The tax authorities considered those transactions to be artificial or fictitious, while the Managing Director, who is not an accountant, felt otherwise.
The company is in the process of re-organising its operations so as to compete favorably with its contemporaries, particularly with the implementation of the Africa Continental Free Trade Area Agreement (ACFTA) by some African countries.
The following transactions were concluded by the company during the financial year ended December 31, 2020:
- Land and building acquired for ₦70 million on March 6, 2015, were sold for ₦125 million. Advertisement cost was ₦500,000, while the estate agent received a 5% commission of the sale proceeds.
- Plant and machinery, which originally cost ₦28 million, were sold for ₦32 million to one of its subsidiaries, Colmas Limited. The market value of the assets sold was ₦40 million.
- A saloon motor vehicle acquired for ₦5 million in 2017 was sold to the General Manager of the company for ₦3.5 million. The market value of the car was put at ₦5.5 million.
- A giant generator that was acquired in 2018 for ₦12 million was disposed of for ₦15 million. The cost of disposal amounted to ₦200,000.
At a recent meeting of the board, the following transactions were approved and implemented in December 2020:
- Acquisition of a large acreage of land and a building in the outskirts of the city-center for the business at ₦100 million.
- Purchase of a modern plant and machinery for ₦50 million.
- A saloon motor vehicle was purchased for ₦10 million.
- A brand new generator costing ₦20 million was acquired.
Colends Nigeria Limited has recently appointed you as its tax consultant.
Required:
Draft a report to the Managing Director of the company explaining:
a. The concept of connected persons and artificial transactions. (4 Marks)
b. The tax implications, if any, on transactions executed by the company in accordance with the provisions of the Capital Gains Tax Act Cap C1 LFN 2004 (as amended). (16 Marks)
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- 15 Marks
AT – May 2024 – L3 – SC – Q6 – Capital Gains Tax
Prepare a report calculating Kanadu Nigeria Limited’s capital gains tax, undisposed property cost, roll-over relief, and tax payment due dates.
Question
Kanadu Nigeria Limited is a manufacturer of leather shoes, bags, and allied accessories since 2017. The recent changes in the taste of customers, particularly the quest for imported, cheaper leather shoes and bags, have had a negative impact on the company’s profits. The management has decided to re-organize the business in a way to better satisfy the customers.
The following transactions were extracted from the books of the company:
(i) June 2017: Acquisition of an acre of land at the outskirts of the State capital for N8,500,000. The company spent an additional amount of N1,500,000 to sand-fill the land;
(ii) August 2017: A factory was built on the acquired land for the purpose of the business at a cost of N65,000,000;
(iii) May 2022: Sold part of the factory’s land for N25,500,000;
(iv) The market value of the remaining property unsold, as valued by a professional valuer, at the time of disposal in May 2022, was N99,500,000;
(v) July 2023: Acquisition of a new acre of land in the town for N45,000,000 (utilized all the proceeds from the disposal of the land). This is expected to be used for the construction of another factory in the same line of business.
The company’s General Manager, who is an engineer, has just engaged your professional accounting firm as its tax consultants.
Required:
As the Principal Partner, you are to prepare a report to the General Manager, stating the:
a. Capital gains tax payable in line with the provisions of Capital Gains Tax Cap C1 LFN 2004 (as amended) (10 Marks)
b. New cost of undisposed property (2 Marks)
c. The roll-over relief (if any) the company is entitled to (2 Marks)
d. Due date(s) for the payment of tax liabilities (1 Mark)
(Total 15 Marks)
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- 14 Marks
AT – May 2018 – L3 – SB – Q3b – Capital Gains Tax
Calculate capital gains for asset disposal under hire purchase with specific instalment conditions.
Question
Alero Manufacturing Limited, Abeokuta, Ogun State, purchased a chargeable asset on hire purchase in year 2014. The deposit paid for the purchase was N800,000. The balance was to be paid in forty instalments of N75,000. The cash price of the asset was N2,400,000.
Required:
Calculate the capital gains, assuming the asset was sold as detailed below:
(i) For N4,200,000 after payment of thirty instalments. (7 Marks)
(ii) For N4,500,000 after payment of all the instalments. (7 Marks)
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- Tags: Capital gains tax, Disposal, Hire Purchase, instalment payments, Interest Element
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
- Series: MAY 2018
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- 6 Marks
AT – May 2018 – L3 – SB – Q3a – Capital Gains Tax
Explain disposal under Capital Gains Tax Act, define incidental costs, and describe delayed remittance relief conditions.
Question
Capital gains may be defined as gains arising from increases in the market value of capital assets, to a corporate body or person who does not habitually offer them for sale, and in whose hands they do not constitute inventory-in-trade.
With respect to the Capital Gains Tax Act, you are required to explain:
(i) When a “disposal” is said to have taken place. (2 Marks)
(ii) What constitutes “incidental costs”? (2 Marks)
(iii) Under what circumstances can a “delayed remittance” relief be granted? (2 Marks)
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- 30 Marks
AT – May 2018 – L3 – SA – Q1 – Taxation of Corporations
Discuss multiple taxation, jurisdiction, withholding tax, and penalties related to Rex Pharmaceuticals.
Question
You are the tax controller of Rex Pharmaceuticals (Nigeria) Limited, having its head office at Ketu in Epe local government of Lagos State.
In the past three years, the company had been subjected to an array of taxes by different revenue authorities within Lagos State and indeed the entire country.
Apart from the Companies Income Tax, Withholding Tax is another tax that the company‟s management is concerned about. The Managing Director is very much worried that this multiplicity of taxes is taking its toll on the company‟s financials.
The company is already facing myriads of problems ranging from high cost of capital which led to increase in cost of production and attendant reduction in profit. The company‟s goods are becoming uncompetitive compared with imported similar goods. The long term effect is either reduction in work force or relocation to a more favourable economic environment. The Managing Director has invited you to his office to discuss the following issues:
(i) Whether as a corporate body, the company ought to be subjected to myriads of taxes beyond the corporate tax;
(ii) The jurisdiction of the tiers of government in the imposition and collection of taxes;
(iii) Withholding Tax;
(iv) Pay-As-You-Earn (PAYE) as it affects the staff; and
(v) Capital Gains Tax.
You have also been provided with the following information:
- The company‟s technical agreement with the foreign head office and the need to remit funds;
- Non-resident directors are to receive N2,500,000;
- Staff P.A.Y.E has been centralised;
- Dividend has been paid to shareholders in different parts of the country, and those resident in Kogi State of Nigeria, received N375,000;
- Land for a factory in Abuja was purchased from Alhaji Garuba Maito who resides in Kano;
- The company received N4,500,000 as net dividend from an associated company, Laiketop Limited, for the year ended September 30, 2014;
- In the audited financial statements of Rex Pharmaceuticals for the year ended December 31, 2015, a dividend of N9,500,000 was proposed. Out of this amount, N3,500,000 was from dividend received from Laiketop Limited while the balance was from a Total Profit of N22,500,000 from other trading activities; and
- Out of the thirty employees in Abuja, five are resident in Suleja, Niger State.
You are required to prepare a memo to the Managing Director explaining the following:
(a) i. Double/Multiple Taxation.
ii. Double Taxation Treaty.
iii. Multiple Taxation in Nigeria.
iv. Measures put in place to reduce cases of multiple taxation in Nigeria.
v. Withholding Tax with respect to (i) to (v).
vi. Penalty for non-deduction/remittance of Withholding Tax. (12 Marks)
(b) The arms of government empowered to legislate on tax matters by the Constitution. (4 Marks)
(c) Relevant tax authority and the Withholding Tax due, if any. (4 Marks)
(d) i. The appropriate description of the income received from Laiketop Limited.
ii. The tax due from other trading activities of Rex Pharmaceuticals.
iii. Amount to be recouped by Rex Pharmaceuticals, if any.
iv. Net amount received by shareholders of Rex Pharmaceuticals.
v. Relevant section of the law to buttress your points in (i) and (ii) above. (10 Marks)
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- Tags: Capital gains tax, Corporate Tax, PAYE, Tax Compliance, Tax Planning, Withholding Tax
- Level: Level 3
- Topic: Taxation of Companies
- Series: MAY 2018
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- 15 Marks
ATAX – Nov 2018 – L3 – Q5 – Capital Gains Tax
Calculation of capital gains tax for properties sold, inherited, and acquired by the government, with tax authority determination.
Question
As a senior official in a firm of tax consultants, your tax manager has just discussed issues relating to one of your clients.
The summary of the discussion is as follows:
Mr. Eket, a native of Oron who resides in Uyo, Akwa Ibom State, owned two properties, one in Kano and the other in Benin. The property in Kano was built at a cost of N23 million, while that in Benin was acquired at a cost of N19.5 million. In the year 2012, the property in Kano was sold by Mr. Eket for N32 million, with disposal expenses amounting to N2.80 million.
In the year 2014, Mr. Eket died, and the property in Benin was transferred to his wife, Emem, by the executor of his will. The market value of the properties in Kano and Benin were N28 million and N23 million, respectively.
In October 2016, the property in Benin was acquired by the Edo State Government for highway construction, and a compensation of N27 million was paid to Emem.
Required:
- (a) Determine the capital gains tax payable (if any).
(5 Marks) - (b) Determine the relevant tax authority to which the liability is due.
(5 Marks) - (c) Give reasons for the treatment in (a) and (b).
(5 Marks)
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- 5 Marks
ATAX – Nov 2018 – L3 – Q4b – Capital Gains Tax (CGT)
Computation of capital gains tax for jewelry sold on installment with multiple assessment years.
Question
(b) Fidelis Agom recently decided to relocate to Sweden as a result of a new appointment offered to him by a multinational company. His wife, Chioma, decided to sell all her jewelry, which she acquired for a sum of N6.3 million. The buyer, Chief Mrs. Ngozi Danladi, was unable to pay immediately the sum of N8.4 million. She therefore decided to enter into a sale agreement with Chioma Agom to pay in four installments within an interval of three months as follows:
- N3.5 million
- N2.1 million
- N2.1 million
- N0.7 million
The first installment was paid on November 10, 2013, which was the day of the sale.
You are required to:
Compute the capital gains tax for the relevant years of assessment.
(5 Marks)
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- Tags: Assessment Year, Capital gains tax, Installment Payment, Jewelry Sale, Tax computation
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
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- 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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- 15 Marks
AT – Nov 2017 – L3 – Q7 – Tax Implications of Mergers and Acquisitions
Advise on tax implications for Aba Foods merger/acquisition options with Ifedi Foods.
Question
The prevailing economic condition has led to the business cessation of many SMEs. Aba Foods Limited, a well-known food and beverage company in Abia State, faced difficulties in securing long-term loans, preventing the replacement of its outdated equipment and leading to losses. To ensure continuity, the company considered mergers or acquisitions and entered discussions with Chief Egodi of Ifedi Group. Chief Egodi, concerned about the tax implications of potential arrangements, sought advice from your firm, Aliyara & Co., Chartered Accountants.
Required:
Provide a presentation in the form of advice:
(a) Explain the tax implications of Aba Foods Limited merging with Ifedi Foods and Beverage Limited, with Ifedi inheriting all assets and liabilities. (5 Marks)
(b) Explain the tax implications if Ifedi Foods and Beverage Limited is reconstituted to take over Aba Foods’ assets and liabilities. (5 Marks)
(c) Explain the tax implications if Ifedi Foods and Aba Foods enter a Joint Venture or Partnership Agreement. (5 Marks)
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- Tags: Acquisition, Capital gains tax, FIRS, Merger, Partnership, Taxation, VAT, WHT
- Level: Level 3
- Topic: Tax Implications of Mergers and Acquisitions
- Series: NOV 2017
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- 20 Marks
AT – Nov 2017 – L3 – Q4 – Capital Gains Tax (CGT)
Compute capital gains tax for equipment sale; define key CGT concepts.
Question
Mr. Afolabi, owner of Afolabi Mining Limited in Itakpe, bought a pulverizing equipment on hire purchase on January 1, 2013, making a deposit of ₦49,875,000 against a cash price of ₦78,750,000. The balance was payable in 20 monthly installments of ₦1,750,000 starting February 1, 2013.
As the Tax Consultant, you are required to:
a. Compute the Capital Gains Tax (CGT) payable for the relevant Years of Assessment, assuming the equipment was sold for:
i. ₦ 84,700,000 after installment payments on November 3, 2013.
ii. ₦ 86,800,000 after installment payments on August 5, 2014.
b. Outline the allowable and disallowable deductions in computing Capital Gains Tax.
c. Explain ‘Year of Assessment’ in the context of the Capital Gains Tax Act CAP C1 LFN 2004.
d. Explain the term ‘Connected Persons’.
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- Tags: Allowable Deductions, Capital gains tax, Connected persons, Year of Assessment
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
- Series: NOV 2017
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- 1 Marks
TAX – Nov 2020 – L1 – SA – Q19 – Capital Gains Tax (CGT)
Calculate the balancing charge on the disposal of an asset.
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- Tags: Balancing Charge, Capital gains tax, Disposal of assets, Tax Written Down Value
- Level: Level 1
- Topic: Capital Gains Tax (CGT)
- Series: NOV 2020
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