- 15 Marks
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.
Answer
(a) Total Income for Income Tax Purposes (2011 Year of Assessment):
| Particulars | Naira (N) |
|---|---|
| Rental Income: | |
| Uyo Duplex (Net Rental Income) | 855,000 |
| Onitsha Property (Annual Rent) | 1,800,000 |
| Total Rental Income | 2,655,000 |
| Fixed Deposit Income: | |
| Monthly Interest (N180,000 × 12 months) | 2,160,000 |
| Gross Income for Tax Purposes | 4,815,000 |
| Adjusted Total Income (after deductions): | 4,815,000 |
(b) Capital Gains Tax (CGT) Payable (Relevant Year of Assessment):
- Uyo House:
- Sale Proceeds: N47,450,000
- Less: Acquisition Cost: (N25,320,000)
- Less: Incidental Costs:
- Advertising: (N650,000)
- Valuation Fees: (N2,000,000)
- Estate Agent’s Commission: (N2,372,500)
- Legal Fees: (N1,500,000)
- Chargeable Gain: N15,607,500
- Onitsha Duplex (One Sold):
- Sale Proceeds: N14,175,000
- Less: Cost of Acquisition (1/4 of N31,500,000): (N7,875,000)
- Less: Incidental Expenses (1/4 of N2,400,000): (N600,000)
- Chargeable Gain: N5,700,000
- Okija House:
- Sale Proceeds: N36,500,000
- Less: Acquisition Cost: (N10,000,000)
- Less: Incidental Costs: (N3,650,000)
- Chargeable Gain: N22,850,000
- Total Chargeable Gains:
- Uyo House: N15,607,500
- Onitsha Duplex: N5,700,000
- Okija House: N22,850,000
- Total: N44,157,500
- Capital Gains Tax (CGT) Calculation:
- CGT Rate: 10%
- CGT Payable: N44,157,500 × 10% = N4,415,750
Summary of Tax Liabilities:
- Total Income Tax (2011 Year): N4,815,000
- Capital Gains Tax Payable: N4,415,750
- Topic: Capital Gains Tax (CGT)
- Series: NOV 2014
- Uploader: Dotse