{UAH} WBK:CALCULATING RENTAL TAX
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7:50 AM |
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We are not oblivious that some, if not most us hate figures(maths), but sometimes we can't do without them.
Let's try out this.
🎾Computing Rental Tax for Individuals
To compute the rental tax for individuals, you apply the prescribed rate to the chargeable income.
🎾
i) The Rate of Tax for Individuals
The rate of tax for resident individuals is prescribed under Part VI of the Third Schedule to the Act(Income Tax Act) which provides that;
'The rate of tax applicable to an individual for purposes of Section 6(2) is 20% of the chargeable income in excess of 2,820,000/=.''
🎾
ii) Chargeable Income for individuals
Chargeable Income is the gross income of the individual for the year(year of income) less allowable deductions (See Section 15, Income Tax Act).
Remember Rental Tax is computed separately and the gross income considered is only Rental Income. So while computing rental tax, don't add rental income with income from other sources.
Section 5(3), of Act, further provides that expenditures and losses incurred by the individual in the production of rent shall be allowed as a deduction for the year of income only as provided for under Section 22(1)(c).
🎾
iii) 1st Allowable Deduction
Section 22(1)(c) provides that a person shall be allowed as deductions in any year of income;
''…In the case of rental income, 20% of the rental income as expenditures and losses incurred by the individual in the production of such income''.
🎾
2nd Allowable deduction
Section 22(1)(ca) provides that a person shall be allowed as a deduction interest on a mortgage from a financial institution as expenditure incurred by an individual to acquire or construct premises that generate rental income.
The law assumes that your expenses shall represent only 20% of rental income. This therefore, calls for diligent and prudent management of expenses in any given year, otherwise, your rental business may never break even. This awareness should also guide your pricing for the rental units. The income derived should reasonably settle your expenses and enable you to meet your tax obligations.
🎾Summmary on Computation of Rental tax for Individuals
To compute rental tax therefore, for an individual, the following steps should be followed;
⚒
a) Determine gross rental income. For example's sake, let's assume, total earnings in rent to be Ushs. 40,000,000.
⚒
b) Determine chargeable income; Gross Income(Rental Income) - Allowable deductions; 40,000,000-(20%x 40,000,000) =32,000,000/=
⚒
c) Subtract the interest on a loan(acquired from a financial institution) to construct the rental premises. Let's assume the tax payer acquired a 100 million loan payable at an interest rate of 15% per annum.
⚒
32,000,000/=(Chargeable income after the 1st allowable deduction)-(15%(interest rate) × 100,000,000/=(loan))
32,000,000/= - 15,000,000/(2nd Allowable deduction)= 17,000,000/=
17,000,000/=(Chargeable income after the 2nd allowable deduction)
⚒
c) Reduce amount in (c)above by 2,820,000/= (Minimum threshold): The taxable rental income is the amount by which the gross rental income exceeds the minimum threshold.17,000,000-2,820,000= 14,180,000/=
14,180,000 /= (Taxable Amount)
d) Apply 20% Tax rate to the Taxable Amount.
20℅ × 14,180,000/=
20% × 14,180,000 = 2,836,000/=
2,836,000(Rental Tax payable by such an individual)
In the above example therefore, someone earning 40,000,000/= as his gross(total) rental income and had acquired 100 million at an interest rate of 15% p.a. to construct rental apartments from which the income is derived would be required to pay rental tax of 2,836,000/=
--
-- Let's try out this.
🎾Computing Rental Tax for Individuals
To compute the rental tax for individuals, you apply the prescribed rate to the chargeable income.
🎾
i) The Rate of Tax for Individuals
The rate of tax for resident individuals is prescribed under Part VI of the Third Schedule to the Act(Income Tax Act) which provides that;
'The rate of tax applicable to an individual for purposes of Section 6(2) is 20% of the chargeable income in excess of 2,820,000/=.''
🎾
ii) Chargeable Income for individuals
Chargeable Income is the gross income of the individual for the year(year of income) less allowable deductions (See Section 15, Income Tax Act).
Remember Rental Tax is computed separately and the gross income considered is only Rental Income. So while computing rental tax, don't add rental income with income from other sources.
Section 5(3), of Act, further provides that expenditures and losses incurred by the individual in the production of rent shall be allowed as a deduction for the year of income only as provided for under Section 22(1)(c).
🎾
iii) 1st Allowable Deduction
Section 22(1)(c) provides that a person shall be allowed as deductions in any year of income;
''…In the case of rental income, 20% of the rental income as expenditures and losses incurred by the individual in the production of such income''.
🎾
2nd Allowable deduction
Section 22(1)(ca) provides that a person shall be allowed as a deduction interest on a mortgage from a financial institution as expenditure incurred by an individual to acquire or construct premises that generate rental income.
The law assumes that your expenses shall represent only 20% of rental income. This therefore, calls for diligent and prudent management of expenses in any given year, otherwise, your rental business may never break even. This awareness should also guide your pricing for the rental units. The income derived should reasonably settle your expenses and enable you to meet your tax obligations.
🎾Summmary on Computation of Rental tax for Individuals
To compute rental tax therefore, for an individual, the following steps should be followed;
⚒
a) Determine gross rental income. For example's sake, let's assume, total earnings in rent to be Ushs. 40,000,000.
⚒
b) Determine chargeable income; Gross Income(Rental Income) - Allowable deductions; 40,000,000-(20%x 40,000,000) =32,000,000/=
⚒
c) Subtract the interest on a loan(acquired from a financial institution) to construct the rental premises. Let's assume the tax payer acquired a 100 million loan payable at an interest rate of 15% per annum.
⚒
32,000,000/=(Chargeable income after the 1st allowable deduction)-(15%(interest rate) × 100,000,000/=(loan))
32,000,000/= - 15,000,000/(2nd Allowable deduction)= 17,000,000/=
17,000,000/=(Chargeable income after the 2nd allowable deduction)
⚒
c) Reduce amount in (c)above by 2,820,000/= (Minimum threshold): The taxable rental income is the amount by which the gross rental income exceeds the minimum threshold.17,000,000-2,820,000= 14,180,000/=
14,180,000 /= (Taxable Amount)
d) Apply 20% Tax rate to the Taxable Amount.
20℅ × 14,180,000/=
20% × 14,180,000 = 2,836,000/=
2,836,000(Rental Tax payable by such an individual)
In the above example therefore, someone earning 40,000,000/= as his gross(total) rental income and had acquired 100 million at an interest rate of 15% p.a. to construct rental apartments from which the income is derived would be required to pay rental tax of 2,836,000/=
--
"When a man is stung by a bee, he doesn't set off to destroy all beehives"
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