taxation of income

8/15/2019 Taxation of Income

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BAC 201: By Charles KimathiBAC 201: By Charles Kimathi

TAXATION OF INCOME


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1. THE YEAR OF INCOME

• This refers to a period of 12 mo ths !ith refere "e to!hi"h i "omes of i di#id$a%s & '$si ess $ its areassessed for ta( p$rposes.

•I "ase of "ompa ies) a%% i "ome ear ed i a spe"i*"period of 12 mo ths.

• I "ase of i di#id$a%s a%% i "omes ear ed for a spe"i*"period of 12 mo ths e("ept for emp%o+me t i "ome!hose +ear of i "ome m$st r$ from 1 st ,a $ar+ to -1 st

e".• I "ase of part erships a%% i "omes d$ri / a spe"i*"

period of 12 mo ths e("ept for emp%o+me t i "ome.

INCOME TAX ACT 0ITA CA 345


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Employment income include;

• basic salary•

bonus• commission,• benefts in kind• car & housing benefts• medical & insurance benefts• allowances etc ( rom employer).


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2. THE 6RA 7ATE 8CA9E

• I "ome :sh. .a Rate I "ome sh. p.m• 1 st 121 ; 1 st 15)1 Ne(t ;)?4<• - rd Ne(t 113) ;12 25> Ne(t ;)?4<• 3 th Ne(t 113);12 2?> Ne(t ;)?4<• E("ess of 3


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8$mmar+

• I "ome 0:sh .a rate• 1 st 121);• Ne(t 113);12 ie 01?> @25> @2?>• E("ess 3 155>


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Illustration

,oh ear ed the fo%%o!i / i "omes i 251?. Emp%o+me t i "ome -55)555 B$si ess i "ome 1?5)555 Re ta% i "ome 1?5)555

e!uiredComp$te ,oh s 6ross ta(a'%e i "ome


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"olution

Emp%o+me t i "ome -55)555B 8 i "ome 1?5)555Re ta% i "ome 1?5)555

Ta(a'%e i "ome


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"ummary

%st '' * +% %E("ess 0


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"olution

1 st 121 ; 12 1;< 113 ;12 -?> 13 2;=Ba%a "e 2=)25= ( 2?> 4)5?2

- , '


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ER8ON8 9IAB9E TO TAX

• A%% those assessa'%e to ta( are "a%%ed perso s !here the termem'ra"es a at$ra% perso 'ei / a d arti*"ia% perso 0'od+"orporate .

Note

i A%% perso s reside t i :e +a !hether or ot the+ are "iti e sare %ia'%e to pa+ ta( i :e +a.

ii A%% perso s ot reside t i :e +a '$t deri#e i "ome from a +propert+) trade emp%o+me t) professio et" i :e +a are%ia'%e to pa+ ta( o %+ o that i "ome ear ed i :e +a.

iii I "ome ear ed '+ a reside t perso from a'road 0forei/i "ome !hether or ot is remitted i :e +a is ot ta(a'%e i:e +a.


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E$ceptions

• Reside t i di#id$a%s are ta(ed o !or%d!ide emp%o+me ti "ome

• If a '$si ess is i "orporated i :e +a a d has 'ra "hes iforei/ "o$ tries) the pro*ts made '+ s$"h 'ra "hes areta(a'%e i :e +a


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E(amp%e 1

,oh is a :e +a reside t emp%o+ed '+ EAB9 & ear ed thefo%%o!i / i "ome i 251?.

8a%ar+ :sh. ;55)555Fees Ni/eria sh. ?5)555 0emp%o+me t i "omeB$si ess i "ome 0:ite /e%a :sh. 255)555.Re ta% I "ome 0BamaGo) Ma%i :sh 125 555

ro*t o sa%e of shares 0:e +a :sh =5 555ro"eeds from sa%e of %a d 0R$ir$ :sh 1?5 555


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e!uired

etermi e his ta(a'%e i "ome a d ta( %ia'i%it+

0perso a% re%ief :sh 1- ;33 p.a


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"olution

"alary (0enya) 1ees (2igeria) - B$si ess i "ome 0:ite /e%a 255)555Re ta% I "ome 0BamaGo) Ma%i I/ ore

Ta(a'%e i "ome %,%- ,

1 st 3


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Note

• 6ai or sa%e of shares a d pro"eeds from sa%e of %a d are"apita% /ai s & therefore %ia'%e to "apita% /ai s ta( o %+.

• O %+ emp%o+me t i "ome from a'road is ta(a'%e i :e +a fora reside t he "e !e i/ ore the re ta% i "ome.


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E$ample

ia a %eft :e +a i 2554 to sett%e i Ca%ifor ia as a do"tor. I251? 8he ear ed the fo%%o!i /J

Basi" 8a%ar+ 078 8h. =55)555Re ta% i "ome 0:iam'$ sh. -?5)555B$si ess i "ome 0NaG$r$ 8h. 2?5)5558a%e of propert+ 0Te(as sh.


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e!uired;

etermi e) her)

• Reside tia% stat$s• Ta(a'%e i "ome & ta( pa+a'%e if a +.


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"olution

a. ia a is ot reside t i :e +a 8i "e she has sett%ed a d sheis sta+i / a d emp%o+ed i the 7.8 as a do"tor.

#a$able income

Re ta% i "ome 0:iam'$ -?5)555B$si ess i "ome 0NaG$r$ 2?5)555#a$able income ' ,


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Ta( pa+a'%e1 st 3


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E"I4E2#"

• This is a matter of ph+si"a% prese "e !here a i di#id$a% is"o sidered to %i#e temporari%+ or perma e t%+ i a "o$ tr+.


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esidents in respect iindi5iduals

• A i di#id$a% is "o sidered a :e +a reside t if

He has a perma e t home i :e +a a d !as prese t i:e +a for at %east a da+ i the +ear of i "ome.

He has o perma e t home i :e +a '$t !as prese t i:e +a for

• A tota% of 1=- da+s or more i the +ear of i "ome 0< mo ths .

• A a#era/e of 122 da+s or more i the +ear of i "ome p%$st!o pre"edi / +ears.


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251? 1552513 ( 155 @ ( @ + or /reater tha 122 da+s251- + -


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E(amp%e

Co sider the fo%%o!i / i di#id$a%s !ith o perma e t home i:e +a..

Year ,oh Bett+ Caro% a#id251? 2-5 ;5 LLLL ?52513 =5 -55 -55 =5251- 155 215 255


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8o%$tio

6ohn• He is a reside "e as he !as prese t for more tha 1=- da+s i

the +ear of i "ome. • 7etty 8he is a reside t as she !as prese t for more tha a

a#era/e of 122 da+s i the - +ears. • i.e ;5 @ -55 @ 215 255 -


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• 8arol 8he is ot a reside t as she !as tota%%+ a'se t i the

+ear of i "ome.

• 4a5id 9 He is ot a reside t as he !as prese t for %ess tha

1=- da+s i the +ear of i "ome i.e 251? either !as sheprese t for more tha a a#era/e of 122 da+s i the - +ears.


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ERMANENT HOME

• The term perma e t home has ot 'ee de* ed '+ the I.T.A

• i.e. I "ome Ta( A"t has ot de* ed %e/a% or mea i / & thatm$st 'e i terpreted or "o str$ed i its ordi ar+ se se or

at$ra% mea i /.

• The "o$rt i terpreted the !ord home to mea the fo%%o!i /J

i. A home does ot e"essari%+ mea a ho$se) at) apartme t)'$ /a%o! et".

• It sha%% i "%$de a hote% room !here o e has resided for a"o sidera'%e time.


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ii. The home "a either 'e o! ed or re ted.

iii. The home m$st 'e a#ai%a'%e to the i di#id$a% for at %east apart of the +ear.

i#. The i di#id$a% m$st ha#e f$%% "o tro% o#er the home.

#. I the home o e sho$%d e(pe"t fami%+ or perso a% 'e%o /i /sof the i di#id$a%.

#i. The home to a s$'sta tia% m$st ha#e 'ee o""$pied '+ thefami%+ or i di#id$a% himse%f.


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8i/ i*"a "e of reside "e toi di#id$a%s

i. A reside t perso $a%i*es for perso a% re%ief !hi%e a oreside t does ot i.e. perso a% re%ief :shs. 1-);33 p.a 0sh.11


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0ii Reside ts i respe"t of 'od+"orporate

• A "ompa + is "o sidered a :e +a reside t ifJ

1. It is i "orporated or re/istered i :e +a $ der :e +a 9a!s.

2. The ma a/eme t & "o tro% is e(er"ised i :e +a i the +ear ofi "ome $ der "o sideratio .

-. The "ompa + has 'ee /a etted '+ mi ister for * a "e as areside t "ompa +.


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• "ignifcance o esidence to body 8orporate

1. Reside t "ompa ies are ta(ed at -5> !hi%e o reside ts at-4.?> "orporatio Ta(.

2. Reside t Compa ies are a%%o!ed o "ertai e(pe ses as per8e"tio 1? of I.T.A !hi"h are ot a#ai%a'%e for o reside ts.

taxation of income

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