QUESTION $2$

Kubi Ltd is a manufacturer of hair products. Following a board resolution Kubi decided to cease business operations in Harare and relocate the business to Rusape.

Kubi disposed of the following property and equipment on $20$ April $2016.$

Date acquired Cost Selling price

US$ US$

Industrial building $2010100000200000$

Furniture fittings $20103000020000$

Factory plan & equipment $20115000030000$

Commercial building $2012120000220000$

Office equipment $20124000030000$

$340000500000$

The sales proceeds of the Harare operations were applied towards the acquisition of new property and equipment in Rusape on $25$ November $2016$ as follows:

Cost $($US$$)$

Industrial building $150000$

Commercial building $180000$

Furniture and fittings $30000$

Factory and equipment $60000$

Office equipment $40000$

$460000$

Kubi has always claimed the maximum capital allowances possible in any year.

Required

$($a$)$ State the relief available to Kubi in connection with the disposal of the Harare properties and state the qualifying criteria. $[10]$

$$ Rollover relief;

$$ Qualifying criteria:

$$ An election for rollover relief must be made;

$$ The election must be made before date of submitting return;

$$ Sold and property acquired must be immovable;

$$ Title deeds of new property must be in taxpayer$$s name;

$$ Both properties must be used for the purpose of the trade;

$$ Reinvestment to be made before end of assessment year.

$($b$)$ Assuming that the tax relief in $($a$)$ is claimed, calculate the capital gains payable by Kubi for the year ended $31$ December $2016.[15]$

Sale of industrial building $200000$

Sale of commercial building $220000420000$

Less recoupment on:

Industrial building $100000$

Commercial building $($$$120000$ x $2\mathrm{.}5\%$x$4)12000(112000)$

$308000$

Less allowable deductions

Cost of industrial building $100000$

Cost of commercial building $120000$

Less capital allowances $(112000)(108000)$

Inflation allowances

Industrial building $($$$100000$ x $2\mathrm{.}5\%$ x $7)17500$

Commercial building $(120000$ x $2\mathrm{.}5\%$ x $5)15000(32500)$

$167500$

Less partial rollover relief $(131607)$

$($$$330000/420000$ x $167500)$

Capital gain $33893$

Capital gains tax at $20\%1179$