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- 8 Marks
Question
Fridays Ltd is a resident company. It provides cleaning services across the country. The following is available from its tax returns for the 2020 year of assessment.
Other relevant information:
- The dividend was received from Z Ltd, a resident company where Fridays Ltd has 27% shares.
Required:
i) Compute the tax payable assuming its tax rate is 25%. (6 marks)
ii) Explain the treatment of the following:
- Rental income (1 mark)
- Dividend (1 mark)
Answer
i) Computation of Tax Payable for Fridays Ltd
BASIS PERIOD JANUARY 1-DECEMBER 31, 2020
ii) Treatment of Rental Income
Rental income is taxed as investment income, and withholding tax applies. For residential premises, the rate is 8%, and for commercial premises, the rate is 15%. This withholding tax is treated as final.
(1 mark)
Treatment of Dividend
Dividends paid by a resident entity to another resident entity are exempt from tax if the recipient holds at least 25% voting rights in the paying entity. In this case, since Fridays Ltd holds 27% of Z Ltd’s shares, the dividend is exempt from tax.
(1 mark)
- Tags: Corporate Tax, Dividend, Rental Income, Treasury bills
- Level: Level 2
- Topic: Corporate Tax Liabilities
- Series: MAY 2021
- Uploader: Theophilus