Topic: Capital Gains Tax (CGT)

Search 500 + past questions and counting.

ATAX – May 2016 – L3 – Q4b – Capital Gains Tax (CGT)

Analyse the transactions and determine the chargeable gains, provide an opinion on the transactions, and explain the role of the Federal Inland Revenue Service in handling bad debt.

Question

Your Tax Manager has just sent a memo in which you were asked to analyse the situation in a client’s file with the sole aim of determining the Chargeable Gains:

Contents of Memo:

Dr. Alexander Bold purchased a Duplex in Parkview Estate at a cost of N80 million on January 2009. It was used as a private residence. Another property was purchased in Banana Island in the year 2012, and Dr. Bold transferred the Parkview Estate Property to his wife as a birthday present on August 12, 2013. The market value of the property was N140 million. As a result of incessant flooding in Parkview Estate, the property was finally disposed of for N200 million on January 31, 2014 by the wife.
An option on a piece of land in Magodo, Lagos State, was sold by Dr. Bold for a sum of N120 million to Mr. Robert on July 1, 2010. Mr. Robert exercised the right to purchase the land for N150 million in 2013 and sold the property for N400 million in 2014.
Mr. Clyde, a friend of Dr. Bold, purchased a piece of property belonging to Bold and Wife Limited in Badagry at a cost of N240 million. The two parties agreed on installment payments starting with an installment of N80 million on July 1, 2010, and the balance of N80 million every 6 months thereafter. The last installment could not be settled on time because of Mr. Clyde’s illness, who managed to pay N20 million on January 1, 2013. The cost of the property to Bold and Wife Limited was N180 million.

Instalment Date	Amount Paid (₦)
July 1, 2010	80,000,000
January 1, 2011	80,000,000
July 2, 2011	40,000,000
January 1, 2013	20,000,000

Mr. Clyde eventually died on March 5, 2013, hence the balance of N20 million could not be recovered and this was written off as Bad Debt with the consent of the Federal Inland Revenue Service.

Mr. Saxon (S.A.N), a Legal Practitioner from the Chambers of Saxon in Lagos, was involved in a case on behalf of Dr. Bold’s wife. The case lasted for about 4 years and judgment was received in favor of the client. The fees were settled partly by cash and partly with an acre of land belonging to Mrs. Bold at Lekki Phase Two in Lagos. Although the debt was N85 million, the property was valued at N60 million. Mr. Saxon eventually sold the property for N220 million.

Required:

i. Chargeable gains (5 marks)
ii. Opinion on all the above transactions (9 marks)
iii. The role of Federal Inland Revenue Service on the issue of Bad Debt on payment by Mr. Clyde (2 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Chargeable Gains, Property Transactions, Tax Analysis
Level: Level 3

Topic: Capital Gains Tax (CGT)

ATAX – May 2016 – L3 – Q4a – Capital Gains Tax (CGT)

Define disposal and explain when an acquisition/disposal is considered effective under the Capital Gains Tax Act.

Question

a. With respect to the Capital Gains Tax Act Cap C1 LFN 2004 (As Amended)
i. What is ‘Disposal’? (2 marks)
ii. When can an Acquisition/Disposal be said to be effective? (2 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition, Capital gains tax, Disposal
Level: Level 3

Topic: Capital Gains Tax (CGT)

FM – Nov 2016 – L3 -SB – Q3 – Capital Gains Tax

Calculate EVA for Jack Limited and determine its market value added (MVA) based on provided assumptions.

Question

Jack Limited is a family-owned business that has grown strongly in the last 50 years. The key objective of the company is to maximise the family’s wealth through their shareholdings. Recently, the directors introduced value-based management, using Economic Value Added (EVA) as the index for measuring performance.

You are provided with the following financial information:

Statement of Profit or Loss and Other Comprehensive Income for the year ended December 31, 2015:

₦’million	2015
Operating profit	340.0
Finance charges	(115.0)
Profit before tax	225.0
Tax at 25%	(56.3)
Profit after tax	168.7

Notes

Notes	2015 (₦’m)	2014 (₦’m)
(i) Capital employed – from the Statement of Financial Position	6,285	6,185
(ii) Operating costs:
Depreciation	295	285
Provision for doubtful debts	10	2.5
Research and development	60	–
Other non-cash expenses	35	30
Marketing expenses	50	45
(iii) Economic depreciation is assessed to be ₦415 in 2015. Economic depreciation includes any appropriate amortisation adjustments. In previous years, it can be assumed that economic and accounting depreciation were the same.
(iv) Tax is the cash paid in the current year (₦45million) and an adjustment of ₦2.5million for deferred tax provisions. There was no deferred tax balance prior to 2015.
(v) The provision for doubtful debts was ₦22.5million on the 2015 Statement of Financial Position.
(vi) Research and development cost is not capitalised in the accounts. It relates to a new project that will be developed over five years and is expected to be of long-term benefit to the company. The first year of this project is 2015.
(vii) The company has been spending heavily on marketing each year to build its brand long term.
(viii) Estimated cost of capital of the company:
Equity	16%
Debt (pre-tax)	5%
(ix) Gearing (Debt/Equity) Ratio 1.5: 1

Required:
a. Calculate, showing all relevant workings, the Economic Value Added (EVA) for the year ended December 31, 2015. Make use of the adjusted opening capital employed. Comment on your result and make appropriate recommendations. (15 Marks)

b. Irrespective of your answer in (a) above, assume the company’s current EVA is ₦120million and that this will decline annually by 2% for the next ten years and then increase by 4% per annum in perpetuity. Assume the following for this part only:

Cost of equity 14%
WACC 10%

Calculate the market value added (MVA) by the company. Show all workings. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost of Capital, EVA, Financial Performance, MVA, Value-Based Management
Level: Level 3

Topic: Capital Gains Tax (CGT)
Series: NOV 2016

AT – Nov 2016 – L3 – SB – Q3 – Capital Gains Tax

Compute chargeable gains, capital gains tax, and new cost of remaining plant and machinery after a sale.

Question

since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013, for ₦24,600,000.

The Finance Director convinced the Board to dispose of part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for ₦37,925,000 and spent ₦5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was ₦15,375,000 as of December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

You are required to:
a. State any FOUR Chargeable Assets. (2 Marks)
b. State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c. Compute the Chargeable Gains on the asset sold. (4 Marks)
d. Compute the Capital Gains Tax. (2 Marks)
e. Compute the new cost of the remaining asset. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital Gains, Chargeable assets, Roll-Over Relief, Tax implications
Level: Level 3

Topic: Capital Gains Tax (CGT)
Series: NOV 2016

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Allowable Deductions, Asset Disposal, Capital gains tax
Level: Level 3

Topic: Capital Gains Tax (CGT)

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assessment Year, Capital gains tax, Hire Purchase, Tax computation
Level: Level 3

Topic: Capital Gains Tax (CGT)

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Disposal, Business Relocation, Capital gains tax, Deemed Disposal, Roll-Over Relief
Level: Level 3

Topic: Capital Gains Tax (CGT)

ATAX – May 2019 – L3 – Q4a – Capital Gains Tax (CGT)

Define when acquisition or disposal is effective under the Capital Gains Tax Act.

Question

a. With respect to the Capital Gains Tax Act Cap C1 LFN 2004 (as amended), when is acquisition or disposal effective? (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition, Capital gains tax, CGT, Disposal, Tax law
Level: Level 3

Topic: Capital Gains Tax (CGT)

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.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital gains tax, Disposal of assets, Fixed Deposit Income, Investment income, Rental Income, Tax computation
Level: Level 3

Topic: Capital Gains Tax (CGT)
Series: NOV 2014

ATAX – May 2021 – L3 – Q5 – Capital Gains Tax (CGT)

Computation of capital gains tax, reliefs, and tax implications on compensation and reorganization transactions.

Question

DD Nigeria Limited, a private limited liability company, was incorporated in March 2010. The company produces highly successful spring water. The Board of Directors of the company comprises a non-executive Chairman, his wife as the Managing Director, and the Chairman’s childhood friend. For the day-to-day running of the business, the Managing Director is being assisted by the Production Manager, Sales/Marketing Manager, Administrative Officer, and Accounting Officer (a diploma graduate).

The company has a track record of steady growth in profitability and market share. In a bid to cut down its cost of raw materials, particularly polythene, the Board at its recent meeting decided to acquire a polythene company in the neighborhood that is witnessing dwindling fortunes due to insufficient funds to finance its working capital. The Board has also lost confidence in the Accounting Officer as his poor knowledge in tax-related matters was brought to the fore during a recent visit to the company by officials of the Federal Inland Revenue Service.

The Managing Director has approached your firm of tax consultants to help provide professional advice on tax matters in respect of some transactions and activities that occurred in the last one year.

Records of the following transactions were made available to you:

(i) The company purchased plant and machinery at a cost of ₦5,000,000 on April 1, 2019. Plant was later disposed on September 15, 2019, for ₦3,500,000. The undisposed machinery was valued at ₦4,300,000. Incidental expenses incurred on disposal were ₦250,000.

(ii) The company sold an acre of land, which was acquired on May 22, 2018, at a cost of ₦6,750,000 for ₦12,500,000 on October 19, 2018. In the following month, the company bought another land, which was to be used for the purpose of the business, for ₦15,000,000 to replace the one sold. It was, however, subsequently disposed of for ₦18,000,000 in June 2019.

(iii) Part of the industrial building (where the production unit is located) was damaged in October 2020 during a protest by some youths in the area. The company, in November 2020, received ₦2,200,000 as compensation under a policy of insurance. The company has the intention of utilizing the fund for the acquisition of another building.

Required:

As the tax consultants to DD Nigeria Limited, draft a report to the Managing Director of the company explaining and providing computations (where necessary) on the:

a. Capital gains tax liability for the relevant tax year in respect to transaction (i). (5 Marks)
b. Relief available (if any) and tax liability due in respect to transaction (ii). (9 Marks)
c. Tax implications on the compensation under the policy of insurance received on the damaged industrial building. (2 Marks)
d. Treatment of gains arising from business reorganization in line with the provision of Section 49, Finance Act 2019, which amended Section 32, Capital Gains Tax Act Cap C1 LFN 2014. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business Reorganization, Capital Gains, Finance Act 2019, Insurance Compensation
Level: Level 3

Topic: Capital Gains Tax (CGT)

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).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital gains tax, CGT Act, Compliance, Disposal of assets
Level: Level 3

Topic: Capital Gains Tax (CGT)

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.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Re-Acquisition, Capital gains tax, Tax Reliefs
Level: Level 3

Topic: Capital Gains Tax (CGT)

ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

Question

Obioma and Sons Limited, a company based in Emene – Enugu, has been producing vegetable oil since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013 for N24,600,000. The Finance Director convinced the Board to dispose part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for N37,925,000 and spent N5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a) State any FOUR Chargeable Assets. (2 Marks)
b) State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c) Compute the Chargeable Gains on the asset sold. (4 Marks)
d) Compute the Capital Gains Tax. (2 Marks)
e) Compute the new cost of the remaining asset. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Disposal, Capital Gains, Chargeable assets, Plant and Machinery, Roll-Over Relief
Level: Level 3

Topic: Capital Gains Tax (CGT)

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Artificial Transactions, Capital gains tax, Connected persons, Roll-Over Relief, Tax implications
Level: Level 3

Topic: Capital Gains Tax (CGT)

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital gains tax, Land Valuation, Payment Due Dates, Property Disposal, Roll-Over Relief, Tax Compliance
Level: Level 3

Topic: Capital Gains Tax (CGT)
Series: MAY 2024

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital gains tax, Disposal, Hire Purchase, instalment payments, Interest Element
Level: Level 3

Topic: Capital Gains Tax (CGT)
Series: MAY 2018

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Disposal, Capital gains tax, Delayed Remittance Relief, Disposal, Incidental Costs, Tax Relief
Level: Level 3

Topic: Capital Gains Tax (CGT)
Series: MAY 2018

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital gains tax, Compensation, Highway Construction, Inheritance, Property Disposal, Tax authority, Transfer of Assets
Level: Level 3

Topic: Capital Gains Tax (CGT)

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Assessment Year, Capital gains tax, Installment Payment, Jewelry Sale, Tax computation
Level: Level 3

Topic: Capital Gains Tax (CGT)

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Reinvestment, Capital gains tax, Disposal of assets, Financial Reporting, International Taxation, Legal Compliance, Tax Relief
Level: Level 3