ICAP CFAP CFAP-5: Tax Practices and Planning Syllabus

CFAP-5: Tax Practices and Planning syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for CFAP-5: Tax Practices and Planning in ICAP CFAP, not a summary of it.

1. 1

   Income Tax — Computation and Heads of Income

   2 topics

   • Computation of Income under Various Heads
   • Losses, Deductible Allowances, Tax Credits and Concessions
2. 2

   Income Tax — Administration and Procedures

   3 topics

   • Returns, Assessments and Appeals
   • Records, Audit and Penalties
   • Collection, Recovery and Refund of Tax
3. 3

   International Taxation and Tax Planning

   2 topics

   • International Taxation Aspects
   • Organizational Strategies for Direct Taxation
4. 4

   Sales Tax

   4 topics

   • Output and Input Tax on Supplies
   • Registration, De-registration, Returns, Records and Audit
   • Provincial and Capital Territory Sales Tax on Services
   • Organizational Strategies for Indirect Taxation
5. 5

   Federal Excise Duty and Tax Ethics

   3 topics

   • Levy, Collection and Payment of Federal Excise Duty
   • Principles of Fair Tax Legislation and Equitable Administration
   • Ethics for Legislators, Administrators, Taxpayers and Practitioners

CFAP-5: Tax Practices and Planning flashcards for ICAP CFAP

20 of 57 cards from the CFAP-5: Tax Practices and Planning deck — real questions with worked answers.

1. Under the Income Tax Ordinance 2001, what are the five heads of income under which total income is computed?

   (1) Salary, (2) Income from Property, (3) Income from Business, (4) Capital Gains, and (5) Income from Other Sources.

2. How is the 'value of rent' for income from property determined where actual rent is below fair market rent?

   The chargeable rent is the higher of the actual rent received/receivable or the fair market rent for the period the property was let, except where the difference is due to genuine hardship.

3. What is the basis of taxation (cash vs accrual) for income under the head Salary?

   Salary is taxed on a receipt basis — salary is treated as received when it is actually paid, credited, or made available to the employee, whichever is earlier.

4. Under the head 'Income from Business', on what basis must a company account for income and deductions?

   A company must use the accrual (mercantile) basis of accounting; other persons may use cash or accrual basis.

5. Define a 'capital asset' for the purpose of computing capital gains under the Income Tax Ordinance 2001.

   A capital asset is property of any kind held by a person, whether or not connected with business, but excludes stock-in-trade, depreciable assets, intangibles on which amortization is allowed, and movable property held for personal use.

6. What rate of capital gain is taxable where a capital asset (other than securities/immovable property under special regimes) is held for more than one year?

   Only 75% of the capital gain is taxable (i.e., 25% is exempt) where the asset is held for more than one year; if held for one year or less, 100% of the gain is taxable.

7. What is the treatment of the income under 'Income from Other Sources' and give three examples.

   It is the residual head covering income not chargeable under other heads. Examples: dividend, royalty, profit on debt, ground rent, rent from sub-letting, annuity, and prize/winnings.

8. Under the Income Tax Ordinance 2001, how is a business loss for a tax year set off?

   A business loss is first set off against income under any other head for that year (except salary income); any unabsorbed business loss is then carried forward to set off against business income only.

9. For how many tax years can a business loss (other than speculation/capital/depreciation) be carried forward?

   A business loss can be carried forward and set off against business income for the following six tax years immediately succeeding the year of the loss.

10. How is unabsorbed depreciation (and amortization/initial allowance) treated differently from a normal business loss on carry-forward?

    Unabsorbed depreciation/initial allowance/amortization can be carried forward indefinitely (no time limit) and set off against business income of subsequent years, but only after current-year depreciation and brought-forward business losses are adjusted.

11. Against what income can a speculation business loss be set off and for how long can it be carried forward?

    A speculation loss can only be set off against speculation business income, and can be carried forward for six tax years against speculation income only.

12. How is a capital loss treated under the Income Tax Ordinance 2001 regarding set-off and carry-forward?

    A capital loss can only be set off against capital gains; it cannot be set off against any other head. It may be carried forward for six tax years against future capital gains.

13. List the deductible allowances available to an individual under the Income Tax Ordinance 2001.

    Zakat paid under the Zakat & Ushr Ordinance, Workers' Welfare Fund/Workers' Participation Fund (as applicable), educational expenses (subject to conditions and income threshold), and profit on debt for house construction/acquisition (subject to limits).

14. What is the difference between a 'deductible allowance' and a 'tax credit' under the Income Tax Ordinance 2001?

    A deductible allowance is subtracted from total income to arrive at taxable income (reduces the base), whereas a tax credit is deducted from the tax payable (reduces the tax) and is usually computed at the average rate of tax.

15. Name three tax credits available under the Income Tax Ordinance 2001 (current regime).

    Charitable donations to approved institutions (Section 61), investment in a pension fund/voluntary pension scheme (Section 63), and tax credit for certain persons such as non-profit organizations / point-of-sale integrated retailers (Sections 100C / 64D-type credits).

16. How is the amount of tax credit for charitable donations computed under Section 61?

    Tax credit = (A/B) x C, where A is the tax assessed before credit, B is taxable income, and C is the lesser of the donation amount or 30% of taxable income (20% for associations of persons/companies in certain cases).

17. What is the due date for filing an income tax return for an individual and an association of persons under the Income Tax Ordinance 2001?

    For individuals and AOPs, the return is due by 30 September following the end of the tax year (tax year ending 30 June).

18. What is the due date for filing the income tax return of a company with a tax year ending 30 June versus a special tax year?

    A company with a normal tax year (ending 30 June) files by 31 December; a company with a tax year ending between 1 January and 30 June files by 30 September following the year-end.

19. What is a 'best judgement assessment' under Section 121 of the Income Tax Ordinance 2001?

    Where a person fails to furnish a return, statement, or required documents, the Commissioner may, based on available information and to the best of his judgement, make an assessment of the taxable income and tax due.

20. Explain the concept of 'deemed assessment' under Section 120 of the Income Tax Ordinance 2001.

    When a complete return of income is filed, it is treated as an assessment order issued by the Commissioner on the day the return was furnished — the return is deemed to be the assessment (self-assessment).

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