Assets

Question 1

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

Answer 1

Ramp (250k) & Mineral oil concerns

Question 2

If Ramp for disabled values more than 250K

Answer 2

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

Question 3

Is building eligible of IA?

Answer 3

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

Question 4

Rate for IA

Answer 4

25% for ALL EDAs

Question 5

What is list of EDAs

Answer 5

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

Question 6

What is comparison of EDA vs FYA vs Accelrated Dep.

5 points

like Persons; Assets; Businesses; Location; Rate

Answer 6

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 2^nd 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%)

Question 7

Industrial Undertaking

Answer 7

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

Question 8

FYA – Which assets & which person

Answer 8

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

Question 9

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

Answer 9

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

Question 10

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

Answer 10

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)

Question 11

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

Answer 11

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

Question 12

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

Answer 12

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

Question 13

What are 5 Special Areas of Dep

Answer 13

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)

Question 14

Depreciation

Accounting vs Tax

11 points

Answer 14

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 1^st 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)

Question 15

What are Dep. Assets (3)

Answer 15

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

Question 16

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

Answer 16

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)

Question 17

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

Answer 17

CR will reduce proportionately

Question 18

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

Answer 18

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

Question 19

How Vehicles’ tax dep treatment different

Answer 19

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

Question 20

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

Answer 20

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)

Question 21

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

Answer 21

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)

Question 22

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

Answer 22

Immovable (Building), Exported (movable)

Question 23

Whats included in intangible assets

Answer 23

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

Question 24

Amortization Expenses

5 Points

Answer 24

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

Question 25

If partially used Intangible Asset is disposed

Answer 25

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

Question 26

Dep. vs Amm 4 Differences

Answer 26

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

Question 27

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)

Answer 27

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

Question 28

What is Disposal 4 Cases

Answer 28

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

Question 29

What is Acquisition of assets?

Answer 29

includes when right is granted; personal to business use

Question 30

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?

Answer 30

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

Question 31

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

Answer 31

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

Question 32

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

Answer 32

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

Question 33

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

Answer 33

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.