TAX – May 2022 – L2 – SA – Q6 – Tax Administration and Enforcement

Identify the badges of trade and compute the minimum tax payable for a given year of assessment.

Question

a. The difficulty in determining what constitutes a trade has led to many litigations and the huge number of tax cases that exist on the issue. The problem from the decided cases is that of finding an absolute test for identifying a trade.

The conclusion had always been that there are no fixed rules but that each case could be examined on its own facts.
Required:
State FOUR considerations that influence the identification of badges of trade. (8 Marks)

b. Ndakogi Nigeria Limited commenced business in 2007. The extract of the statement of profit or loss of the company for the year ended December 31, 2021, has revealed the following:

Required:
Compute the minimum tax payable

Answer

a. Badges of Trade:
The badges of trade include:
i. The subject-matter of the realization.
ii. The length of period of ownership.
iii. The frequency or number of similar transactions.
iv. Supplementary work on or in connection with the property realized.
v. The circumstances that were responsible for the realization.
vi. The profit-seeking motive.
vii. The source of finance.
viii. Method of acquisition.
ix. Existence of similar trading transactions or interest.

b. Computation of Minimum Tax Payable for Ndakogi Nigeria Limited: