Answers

Fundamentals Level Skills Module, Paper F6 (LSO) June 2017 Answers

Taxation (Lesotho) and Marking Scheme

Section B Marks

1 Ukefu

(a) Minimum chargeable income

M
Principal residence amount (2,100,000 x 5%) 105,000 1
Schooling amount (minor only) 110,000 1
Secondary residence amount (150,000 x 8) x5%)) 60,000 1
Vehicle amount:
First vehicle (850,000 x 25%) 212,500 1
Second vehicle (610,000 x 25%) 152,500 1
Air travel amount (240,000/4 x 3) x100%) 180,000 2

Minimum chargeable income 820,000 7

Tutorial notes:
The costs attributable to elder child of Ukefu are excluded because the child is not a minor.
The amount for the principal residence is the greater of the market value and the adjusted cost base.
The amount for the secondary resident is the greater of the eight times the actual rent paid and eight
times the market value of the house.

(b) The chargeable income of Ukefu for the year ended 31 March 2017 is M820,000 because it is greater than
the declared loss of M22,700. 1

(c) The provision for minimum chargeable income is not applicable where a taxpayers income consists solely
of employment income or pension income and; 1
if the chargeable income of a taxpayer is greater than the minimum chargeable income. 1

2

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2 Bolima Diamonds Ltd

(a) Fringe benefits payable by Bolima Diamonds Ltd

M
(1) Accommodation fringe benefit ((9,800 500)*3) 27,900 1
(2) Car fringe benefit ((420,000*15%)*3/12) 15,750 1
(3) Utilities fringe benefit (12,000*3/12) 3,000 1
(4) Medical expenses fringe benefit (exempt) 0
(5) Loan fringe benefit (see working): (2,083*3/12) 521

Taxable values 47,171

Taxable amount (47,171/070) 67,387
FBT (47,171*30%) 14,151

Working:
Loan fringe benefit: (25,000*2/3*20%) 3,333 1
(25,000*5%) (1,250)

2,083 1

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(b) The quarterly fringe benefits are submitted within 14 days after every quarter. 1

(c) If Bolima Diamonds Ltd were a public international organisation (PIO), it would be exempt from both
corporation tax and FBT; and 1
the taxable values amounting to M47,171 would form part of the chargeable income of Mosa. 1

2

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 Marks
3 (a) A person must register for VAT if the value of taxable supplies (including zero-rated supplies) in any 12-month
period exceed the tax threshold of M850,000. 2

(b) VAT payable/refundable

M
Input VAT
Opening stock ((5,600 + 3800)*14/114) 1,154 1
Purchases (62,600 12,500)*14/114 6,153 1
Operating expenses:
Rent (4,500*14/114) 553
Finance lease (18,000*14/114) 2,211 1
Electricity (2,300*5/105) 110
Other operating expenses (11,200*14/114) 1,375

11,556

Output VAT
Revenue:
Zero-rated supplies 0
Taxable supplies (56,600*14/114) 6,951

6,951

Tax refundable (11,556 6,951) 4,605
The due date for filing a VAT return for April 2017 is on or before 20 May 2017. 1

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Tutorial note: Input VAT allowable for opening stock relates to stock acquired in two months prior to
registration, which is stock for February and March in this case.

4 (a) Chargeable gains Sempe

M
Shares
Sale proceeds 110,500
Less: Adjusted cost base (ACB) (1,700*25) (42,500) 1
Selling expenses (110,500*2%) (2,210) 1

65,790

Land
Proceeds from Government 320,000
Less: ACB ((350,000*5/15)*310/140) (258,333) 1

61,667

Factory building
Insurance proceeds 1,380,000
Less: Cost incurred on replacement (1,320,000) 1

60,000

Chargeable gains (65,790 + 61,667 + 60,000) 187,457 6

(b) When an asset is destroyed, and insurance proceeds are not wholly reinvested in a similar asset, this is an
involuntary conversion of an asset and it is treated as a disposal for tax purposes; however, any gain or loss 1
arising between the insurance proceeds and the adjusted cost base of the asset is not recognised for tax 1
purposes; rather, it will be deferred and recognised in the future, when the new asset is disposed of. What 1
will be recognised will be the difference between the insurance proceeds and the replacement costs. 1

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18
 Marks
5 Mofokeng

(a) Income tax payable

M M
Employment income
Annual salary 460,500
Housing allowance 46,050
Bonus 15,000
Education allowance 23,025

544,575
Less: Employee superannuation fund contributions 42,000 1
Membership fees 24,000 1

Car expenses reimbursed 0 1
(66,000)

478,575
Sitting allowance (76,000/095) 80,000 1

558,575

Business income
Revenue 73,400
Less: Secretarial costs 23,600
Depreciation (18,200*20%*5/12) 1,517 1

(25,117)

48,283

Chargeable income (558,575 + 48,283) 606,858

Tax payable:
M56,964*20% 11,393
M549,894*30% 164,968

176,361
Less: Personal tax credit (6,466) 1
Withholding tax on sitting allowance (76,000/095) (4,000) 1
PAYE (144,022) 1

Net tax payable 21,873

The due date of payment of tax liability is on or before 30 June 2017. 1

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(b) Reimbursed car expenses are business expenses incurred by the employer on behalf of the employee. They
should be excluded from employment income of Mofokeng because Likuena Flours as the employer would
otherwise have been entitled to a deduction had the expenditure been directly incurred by Likuena Flour. 2

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6 Soks Electrics Pty (Soks)

(a) Income tax instalments for the year ended 31 March 2017
M
Corporation tax paid for the year ended 31 March 2016 80,400
Less: Withholding tax (13,200)

67,200

Each instalment (67,200*30%) 20,160 1

2

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 Marks
(b) ACT payable
M
Dividends paid on 31 October 2016 55,500
ACT (55,500*25/75) 18,500 1
Less: Instalment paid up on 30 September 2016 (20,160) 1

ACT payable 0

Payable on or before 7 November 2016. 1

3

Tutorial note: The liability of the ACT payable will satisfied by the first instalment paid up on 30 September
2016.

(c) Corporation tax payable for the year ended 31 March 2017
M M
Operating profit as per question 420,000
Add:
Annuity payment (40,000 1,200) 38,800 1
New equipment purchased 22,100
Profit on disposal of business asset (12,000 10,000) 2,000 1
Withholding tax on local interest (24,300/09*10%) 2,700 1

65,600

485,600
Less: Depreciation on new equipment (22,100*20%*3/12) (1,105) 1
Tax exempt income (local dividends) (10,175) 1

Chargeable income 474,320

Tax payable (474,320*25%) 118,580
Instalments (20,160*3) (60,480) 1
Withholding taxes: Revenue (5/100*620,000) (31,000) 1
Local interest (2,700)
Foreign tax credit (30,525*25%) (7,631) 1

Net tax payable 16,769 10

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