- 20 Marks
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)
Answer
Provisions of the Capital Gains Tax Act in respect of tax payable on disposal of assets situated outside Nigeria by a non-Nigerian company
Section 4 of Capital Gains Tax Act 2004 (as amended) provides that Capital gains tax shall be charged on the amounts (if any) received or brought into Nigeria in respect of any chargeable gains, such amounts being treated as gains accruing when they are received or brought into Nigeria.
b. Computation of capital gains tax payable for Damaturu Nigeria Limited
For the 2022 assessment year:
| Item | Land (N’000) | Plant & Equipment (N’000) | Factory Building (N’000) |
|---|---|---|---|
| Sales Proceeds | 32,000 | 15,000 | 38,000 |
| Less: Cost of Acquisition | 25,000 | 13,000 | 30,000 |
| Incidental Expenses: | |||
| Legal (1% of Sale Proceeds) | 320 | 150 | 380 |
| Professional Valuers (3% of Sale Proceeds) | 960 | 450 | 1,140 |
| Capital Gains Record | 5,720 | 1,400 | 6,480 |
| Less: Roll-over Relief | 3,000 | 1,400 | Nil |
| Net Capital Gains | 2,720 | Nil | 6,480 |
| Capital Gains Tax @ 10% | 272 | Nil | 648 |
In line with the provisions of Section 2, Finance Act 2020, the expected due date of payment of the tax liability is December 31, 2022.
b(ii) Roll-over relief computation
| Item | Land (N’000) | Plant & Equipment (N’000) | Factory Building (N’000) |
|---|---|---|---|
| Lower of: | |||
| Sales Proceeds | 32,000 | 15,000 | 38,000 |
| Amount Re-invested | 28,000 | 18,000 | 30,000 |
| Less: Cost of Acquisition of Old Asset | 25,000 | 13,000 | 30,000 |
| Roll-over Relief | 3,000 | 2,000 (restricted to N1,400,000 as in the capital gains record) | Nil |
- Topic: Capital Gains Tax (CGT)
- Series: NOV 2023
- Uploader: Dotse