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Income Tax > Assets > Flashcards

Assets Flashcards

Dep/Amm; Disposal; Acc vs Tax

1
Q

Are there any assets with 100% dep in 1st year?

A

Ramp (250k) & Mineral oil concerns

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2
Q

If Ramp for disabled values more than 250K

A

it will be classified Building and not ramp (100% dep)

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3
Q

Is building eligible of IA?

A

Section includes, Schedule does not provide rate; section prevails, Schedule subservient – Building also 25%

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4
Q

Rate for IA

A

25% for ALL EDAs

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5
Q

What is list of EDAs

A

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

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6
Q

What is comparison of EDA vs FYA vs Accelrated Dep.

5 points

like Persons; Assets; Businesses; Location; Rate

A

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%)

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7
Q

Industrial Undertaking

A

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

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8
Q

FYA – Which assets & which person

A

P&M by Co which is Ind Und 126N PI 2nd Sch

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9
Q

What is depreciation policy in tax for year of purchase & year of disposal

A

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

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10
Q

What is change in tax dep. Policy u/Fin. Act 2020 & What is impact

A

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)

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11
Q

What if business in tax exempt for few years and becomes taxable after

A

Dep. deductions not available but WDV will be calculated and WDV of taxable year will be used for dep. Calculation

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12
Q

What if asset is revalued, how dep. Will be calculated

A

Total Dep CAN NOT EXCEED Cost (original price); hence revaluation not admissible/allowed

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13
Q

What are 5 Special Areas of Dep

A
  1. 1-Jul-20; 50% of ND amount in year of purchase, 50% of Rate of ND in year of disposal
  2. PTV-NPfH – Max cost 2.5M
  3. 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
  4. Immovable (depreciable) property disposal & CR received>Cost – For gain calculation change Cost to CR i.e. make CR as cost, Gain=Dep
  5. 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)
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14
Q

Depreciation

Accounting vs Tax

11 points

A
  1. Land included (Improved land, like agri/mines which have life fixation, wear & tear, business use
  2. Dep. policy Reducing/IA/FA/Acc. Dep
  3. IA dep. will be allowed even in the case of partial business use.
  4. Start & end of dep.
  5. Revaluation not allowed
  6. Maximum cost fixed
  7. Gain; export of asset, building disposal, partial business use asset
  8. Exemption period & Tax period
  9. Fast dep. available to some business-like 1st year 25%;90%;100%
  10. Disposal treatment of Partial used & PTV-NPfH
  11. Dep-starts when asset is put into use (not when available for use)
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15
Q

What are Dep. Assets (3)

A
  1. Moveable
  2. Improved land e.g Agriculture/Mines (Life fixation, wear & tear, business use)
  3. Structural improvements
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16
Q

In case of Partial business use, is it better to dispose off or use full?

A

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)

17
Q

In case of disposal of PTV-NPfH, what is special treatment

A

CR will reduce proportionately

18
Q

What is difference b/w dep. treatment of RTV & PTV

A

RTV (PTV & GTV)-NPFH not eligibile for IA (EDA); PTV-NPfH not eligible for dep. more than 2.5M

19
Q

How Vehicles’ tax dep treatment different

A

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

20
Q

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

A

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)

21
Q

Whenever moveable asset is exported out of Pak, what is point to be considered (always)? & How does this impact tax payer

A

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)

22
Q

In which two assets categories (Movable & Immovable), CR has to be made as cost & Gain=Dep

A

Immovable (Building), Exported (movable)

23
Q

Whats included in intangible assets

A

List + ANY EXPENDITURE (Initial or Subsequent/Create, Acquire, improve, renew) with benefit >1 yr (Excl. Self generated goodwill)

24
Q

Amortization Expenses

5 Points

A

Over useful life; If not ascertainable 25 years; proportionate in a year; business use; available for use

25
Q

If partially used Intangible Asset is disposed

A

No add back of unallowed dep. in the year of disposal like Tangible assets

26
Q

Dep. vs Amm

4 Differences

A
  1. Special Dep – IA
  2. Method – RB vs STL
  3. Full year vs proportionate
  4. Disposal – Partial use
27
Q

Cost of Assets

  1. Purchased in cash?
  2. Purchase for in kind?
  3. Purchased with exempt income?
  4. Purchased with subsidy/grant?
  5. Purchased & recoupment of exp/waiver of loan?
  6. Private to Business use?
  7. Constructed?
  8. Purchased with FCY loan?
  9. Retained asset (after Partial Disposal) ?
  10. Transferred at end of Lease term?
  11. Transferred on cancellation of Lease
  12. Transferred under Non-recognition rule
  13. When acquisition gives rise to any right, etc (e.g share option) chargeable to tax (CG)
A
  1. Purchased in cash - Purchase + incidental expenses+ exp to improve/alter
  2. Purchase for in kind – FMV o fin kind
  3. Purchased with exempt income – exempt amount
  4. Purchased with subsidy/grant – exclude sub/grant from purchas eprice
  5. Purchased & recoupment of exp/waiver of loan - exclude recoupment of exp/waiver of loan from purchase price
  6. Private to Business use - FMV
  7. Constructed - construction+ incidental expenses+ exp to improve/alter
  8. Purchased with FCY loan – Gain/Loss (adjusted by hedging) on payments of Principal will also be included
  9. Retained asset (after Partial Disposal) – Cost of retained => FMV at acquisition
  10. Transferred at end of Lease term – Residual Value
  11. Transferred on cancellation of Lease– FMV
  12. 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

  1. Cost=amount paid + value of right when becomes exercisable (in other words FMV of asset at the day option becomes exercisable)
28
Q

What is Disposal

4 Cases

A
  1. Normal ways including cancellation (e.g license of intangible), cancelled, redeemed
  2. Transmission u/succession or will
  3. Personal to business
  4. Ceased to use/discarded
29
Q

What is Acquisition of assets?

A

includes when right is granted; personal to business use

30
Q

Consideration

  1. What is universal Principle?
  2. What is Consid of asset when ceased to use/ discarded?
  3. When assets sold in package/combo together?
  4. Lost/Destroyed asset?
A
  1. What is universal Principle – Higher of FMV or consideration
  2. What is Consid of asset when ceased to use/ discarded -FMV at the time
  3. When assets sold in package/combo together – Consid. Bifurcation wrt FMV at disposal
  4. Lost/Destroyed asset – Consid. Includes insurance other compensation, etc
31
Q

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

A
  1. Spouse, transfer u/agreement to live apart- resident
  2. Transmission on death- resident
  3. Gift to relative, spouse, adopted child, blood relatives - resident
  4. Compulsory acq.. By law if reinvested in similar asset in 1 year- resident
  5. 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

32
Q

What if payment against purchase of an asset is not through bank? Or Can we make payment against purchase of asset in cash

A

No dep for dep. assets when FMV> 1M or Cost=0 for CG when FMV>5M

33
Q

Is this possible that in first year of use Normal Dep. is charged but no IA for EDA

A

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.

Income Tax (30 decks)

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