Assets Flashcards
Dep/Amm; Disposal; Acc vs Tax
Are there any assets with 100% dep in 1st year?
Ramp (250k) & Mineral oil concerns
If Ramp for disabled values more than 250K
it will be classified Building and not ramp (100% dep)
Is building eligible of IA?
Section includes, Schedule does not provide rate; section prevails, Schedule subservient – Building also 25%
Rate for IA
25% for ALL EDAs
What is list of EDAs
All except 4 [F&F, local used P&M, Vehicle-RTV NPfH (both PTV & GTV-NPfH), assets that are 100% depreciated in 1st year of purchase
What is comparison of EDA vs FYA vs Accelrated Dep.
5 points
like Persons; Assets; Businesses; Location; Rate
EDA -Persons (all); Assets (all except 4); Businesses (All); Location (Whole Pak); Rate (25%)
FYA -Persons (Co., Ind. und); Assets (P&M when EDA); Businesses (Any Manufacturer including Cellular phone); Location (Rural, FBR); Rate (90%) – 126N PI 2nd Sch
Acc. DA - Persons (Co., Ind. und); Assets (P&M when EDA); Businesses (use in generation of alt. energy, wind/solar); Location (Whole Pak); Rate (90%)
Industrial Undertaking
in Pakistan; Min. 10 persons (machine intensive), Min. 20 persons (labor intensive, no energy use); Activities – Manufacturer, Construction contractor when imports related P&M, Resident (Company) in Hotel biz, Ship-build, Power, Mines/Oil, specified by FBR
FYA – Which assets & which person
P&M by Co which is Ind Und 126N PI 2nd Sch
What is depreciation policy in tax for year of purchase & year of disposal
Assets purchased before 1-Jul-20: Full year dep in year of purchase and no dep.
Assets purchased after 1-Jul-20: 50% of ND in year of purchase and 50% of Rate of ND
What is change in tax dep. Policy u/Fin. Act 2020 & What is impact
Assets purchased before 1-Jul-20: Full year dep in year of purchase and no dep.
Assets purchased after 1-Jul-20: 50% of ND in year of purchase and 50% of Rate of ND
Net Impact: Lower gain and net income (gain on disposal-dep. charge in the year of disposal)
What if business in tax exempt for few years and becomes taxable after
Dep. deductions not available but WDV will be calculated and WDV of taxable year will be used for dep. Calculation
What if asset is revalued, how dep. Will be calculated
Total Dep CAN NOT EXCEED Cost (original price); hence revaluation not admissible/allowed
What are 5 Special Areas of Dep
- 1-Jul-20; 50% of ND amount in year of purchase, 50% of Rate of ND in year of disposal
- PTV-NPfH – Max cost 2.5M
- Export/Transfer of Dep. Asset outside Pak – Event considered as disposal; For gain calculation change Cost to CR i.e. make CR as cost, Gain=Dep
- Immovable (depreciable) property disposal & CR received>Cost – For gain calculation change Cost to CR i.e. make CR as cost, Gain=Dep
- Partial business use Dep. & Disposal– IA-full; Dep EXPENSE Proportionate; WDV calculation – full including Biz+non-biz use for calculation of subsequent years’ dep. On disposal (full) WDV to be increased by dep. not allowed (This will decrease/increase gain/loss to benefit owner for dep. not allowed)
Depreciation
Accounting vs Tax
11 points
- Land included (Improved land, like agri/mines which have life fixation, wear & tear, business use
- Dep. policy Reducing/IA/FA/Acc. Dep
- IA dep. will be allowed even in the case of partial business use.
- Start & end of dep.
- Revaluation not allowed
- Maximum cost fixed
- Gain; export of asset, building disposal, partial business use asset
- Exemption period & Tax period
- Fast dep. available to some business-like 1st year 25%;90%;100%
- Disposal treatment of Partial used & PTV-NPfH
- Dep-starts when asset is put into use (not when available for use)
What are Dep. Assets (3)
- Moveable
- Improved land e.g Agriculture/Mines (Life fixation, wear & tear, business use)
- Structural improvements
In case of Partial business use, is it better to dispose off or use full?
In order to compensate dep. exp. Not allowed sell the asset as WDV will be increase by the dep. not allowed thereby decreasing gain or increasing loss. (incentive)
In case of disposal of PTV-NPfH, what is special treatment
CR will reduce proportionately
What is difference b/w dep. treatment of RTV & PTV
RTV (PTV & GTV)-NPFH not eligibile for IA (EDA); PTV-NPfH not eligible for dep. more than 2.5M
How Vehicles’ tax dep treatment different
RTV-NPfH-No IA; PTV-NPfH-Dep max 2.5M, disposal CR to reduce proportionately; Lease rental Principal of PTV-NPfH also max 2.5; Plying for hire eligible for IA and no cost restrictions
Whenever there is disposal of business used immovable property , What is point to be considered (always)? & How does this impacts tax payer
What does immovable asset means here?
Will this check be applied for all kinds of buildings personal or business
Compare CR with (Original) Cost if CR>cost; Change cost and make it equal to CR, hence Gain=dep. Gain reduces, benefit to owner (Cost=>CR)
Immovable asset in this section= practically building as disposal of land whether business non-business shall be taxed as CG
This check to be applied only for building used for business (depreciated)
Whenever moveable asset is exported out of Pak, what is point to be considered (always)? & How does this impact tax payer
Compare CR with (Original) Cost whether CR received or not; Change CR and make it equal to Cost, hence Gain=dep. Gain increase, disadvantageous to owner (CR=>Cost)
In which two assets categories (Movable & Immovable), CR has to be made as cost & Gain=Dep
Immovable (Building), Exported (movable)
Whats included in intangible assets
List + ANY EXPENDITURE (Initial or Subsequent/Create, Acquire, improve, renew) with benefit >1 yr (Excl. Self generated goodwill)
Amortization Expenses
5 Points
Over useful life; If not ascertainable 25 years; proportionate in a year; business use; available for use
If partially used Intangible Asset is disposed
No add back of unallowed dep. in the year of disposal like Tangible assets
Dep. vs Amm
4 Differences
- Special Dep – IA
- Method – RB vs STL
- Full year vs proportionate
- Disposal – Partial use
Cost of Assets
- Purchased in cash?
- Purchase for in kind?
- Purchased with exempt income?
- Purchased with subsidy/grant?
- Purchased & recoupment of exp/waiver of loan?
- Private to Business use?
- Constructed?
- Purchased with FCY loan?
- Retained asset (after Partial Disposal) ?
- Transferred at end of Lease term?
- Transferred on cancellation of Lease
- Transferred under Non-recognition rule
- When acquisition gives rise to any right, etc (e.g share option) chargeable to tax (CG)
- Purchased in cash - Purchase + incidental expenses+ exp to improve/alter
- Purchase for in kind – FMV o fin kind
- Purchased with exempt income – exempt amount
- Purchased with subsidy/grant – exclude sub/grant from purchas eprice
- Purchased & recoupment of exp/waiver of loan - exclude recoupment of exp/waiver of loan from purchase price
- Private to Business use - FMV
- Constructed - construction+ incidental expenses+ exp to improve/alter
- Purchased with FCY loan – Gain/Loss (adjusted by hedging) on payments of Principal will also be included
- Retained asset (after Partial Disposal) – Cost of retained => FMV at acquisition
- Transferred at end of Lease term – Residual Value
- Transferred on cancellation of Lease– FMV
- Cost for transferred with no gain/loss cases=
Business assets = cost of transferor
Compulsary acq=cost of asset+any additional amount paid
Capital assets - listed securities= cost of transferor
Capital assets (all) to spouse on separation=cost of transferor
Capital assets like land, building, jewellary, etc (other than listed securities & spouse agreement) = FMV @ transfor
- Cost=amount paid + value of right when becomes exercisable (in other words FMV of asset at the day option becomes exercisable)
What is Disposal
4 Cases
- Normal ways including cancellation (e.g license of intangible), cancelled, redeemed
- Transmission u/succession or will
- Personal to business
- Ceased to use/discarded
What is Acquisition of assets?
includes when right is granted; personal to business use
Consideration
- What is universal Principle?
- What is Consid of asset when ceased to use/ discarded?
- When assets sold in package/combo together?
- Lost/Destroyed asset?
- What is universal Principle – Higher of FMV or consideration
- What is Consid of asset when ceased to use/ discarded -FMV at the time
- When assets sold in package/combo together – Consid. Bifurcation wrt FMV at disposal
- Lost/Destroyed asset – Consid. Includes insurance other compensation, etc
What are cases of disposal where no Gain/Loss arises ; What will be cost of assets In hands of transferee
for business depreciable assets
for capital assets - immovable, movable
capital assets - securities
- Spouse, transfer u/agreement to live apart- resident
- Transmission on death- resident
- Gift to relative, spouse, adopted child, blood relatives - resident
- Compulsory acq.. By law if reinvested in similar asset in 1 year- resident
- Dist. on liquidation/dissolution- resident
Cost for transferred with no gain/loss cases=
Business assets = cost of transferor
Compulsary acq=cost of asset+any additional amount paid
Capital assets - listed securities= cost of transferor
Capital assets (all) to spouse on separation=cost of transferor
Capital assets like land, building, jewellary, etc (other than listed securities, spouse agreement) = FMV @ transfor
What if payment against purchase of an asset is not through bank? Or Can we make payment against purchase of asset in cash
No dep for dep. assets when FMV> 1M or Cost=0 for CG when FMV>5M
Is this possible that in first year of use Normal Dep. is charged but no IA for EDA
IA starts from
year of 1st use
or
Commercial Production
whichever is later
In the case of trial production, ND wil be charged but
no IA as Commercial Production starts later.
