“…but in this world, nothing can be said to be certain, except death and taxes.” ― Benjamin Franklin
In an effort to render the Mauritius tax system better understood by the taxpayer, we endeavour to present select case studies where rulings have been passed, thus providing our interpretation of such sections of the relevant taxation law of the land.
Under section 159 of the Income Tax Act, any person who derives or may derive any income, may apply to the Director General for a ruling as to the application of the Act to that income.
Case Study 24: Capital Gains, Annual Allowance on Capital Expenditure
Facts:
X is a private limited company incorporated and domiciled in Mauritius and is engaged in property development for the benefit of companies within a Group. It holds an appropriate licence as land promoter and property developer from the relevant authority. Y is another private limited company incorporated and domiciled in Mauritius and operates a chain of supermarkets throughout the island. X and Y are wholly owned subsidiaries of Z and are both VAT registered. All land and buildings belonging to X are presently rented to Y under an operating lease. The Management of X is considering the sale of all X’s properties to Y. The capital expenditure incurred by Y will be exclusively incurred in the production of gross income.
Points in issue
1. In case the disposal of the land and buildings by X is treated in accordance with Section 21 (7) (a) of the VAT Act, whether-
(a) the profit arising on disposal of the said assets in the books of X will be treated as a capital gain; and
(b) the credit for input tax will be allowed as a deductible expense for the purpose of corporate tax.
2. Whether Y will be able to claim capital allowances on the amount attributable to the buildings?
Ruling:
- It is confirmed that the sale of land and buildings is subject to VAT in view of item 48 (b) of the First Schedule to the VAT Act which reads as follows:
for any other purposes except land with any building, building or part of a building, apartment, flat or tenement together with any interest in or right over land, sold or transferred by a VAT registered property developer to a VAT registered person.
On the basis of the ruling given above, the issues raised do not arise.
- It is confirmed that Y will be entitled to claim annual allowance on the amount attributable to the buildings, in accordance with the provisions of Section 24 of the Income Tax Act 1995.
CAPITAL GAIN
Capital gain is a rise in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realised until the asset is sold. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes.
CAPITAL EXPENDITURE & ANNUAL ALLOWANCE FOR TAX PURPOSE
Where a succession, carrying on business other than tour operator or car rental, has incurred capital expenditure on or after 1 January 2011 on a motor car costing more than three million rupees, the annual allowance shall be 25% of the base value, limited to three million rupees in the aggregate. Base value means cost less any amount allowed by way of annual allowance.
Annual allowance – please refer to our previous tax series.
