KYAMBOGO UNIVERSITY

FACULTY OF ENGINEERING
DEPARTMENT OF LANDS AND ARCHITECTURAL STUDIES

COURSE UNIT: LE322-TAXATION

TASK: GROUP COURSEWORK

NAME OF LECTURER: MR. ELONG SAMUEL

DATE OF SUBMISSION: 2ND APRIL, 2019.
GROUP 2A
GROUP MEMBERS
NO. NAME REG. NO. SIGN.
1. AKWI MARY 17/U/5987/BLE/PE
2. WANGOLO EMMANUEL 17/U/6015/BLE/PE
3. NANZIRI DOROTHY 16/U/4135/BLD/PD
4. MUHINDA FRED 17/U/5972/BLD/PD
5. NANGIRA STELLA MARIS 17/U/082/BLD/GV
6. ABAHO ABAN 17/U/074/BLD/GV
7. WEPUKHULU BRUHANE 17/U/6016/BLE/PE
8. MIGADDE EMMANUEL 17/U/5995/BLE/PE
SEMAKULA

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Rental income
According to Section 2(ccc) of ITA Cap 340, Rent means any payment, including a premium or
like amount made as a consideration for the use or occupation of or the right to use or occupy,
land or buildings.
According to Section 2(ddd) of ITA Cap 340, Rental income means the total amount of rent
derived from the individual for the year of income from the lease of immovable property in
Uganda by the individual with the deduction of any expenditure and losses incurred by the
individual in respect of the property.
Section 2 (d) (ii) of the ITA Cap 340 of Uganda defines assessment as the ascertainment of the
rental income of, and the amount of tax payable on it by an individual for a year of income.
According to Section 5 of the ITA cap 340, a tax shall be charged for each year of income and
imposed on every person who has rental income for the year of income.
Definition of terms used in rental income assessment
Year of Income.
According to section 2(zzz) Cap 340, this means the period of twelve months ending on 30 th
June, and includes a substituted year of income in the transitional year of income.
Tax liability
This refers to the amount of money the tax payer is expected to pay in a given time period.
Company
Section 2 (n) of the ITA Cap 340 of Uganda defines a company as a body of persons corporate or
unincorporated, whether created or recognized under the law in force in Uganda or elsewhere,
and as a unit trust, but does not include any other trust or a partnership.
Person
According to Section 2 (yy) of the ITA Cap 340 of Uganda, a person includes an individual, a
partnership, a trust, a company, a retirement fund, a government, a political subdivision of a
government and a listed institution.
Partnership
According to Section 2 (ww) of the ITA Cap 340 of Uganda, a partnership means an association
of persons carrying on business for joint profit.
Landlord or Landlady.

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According to URA, this is any person who lets out a movable property to another person (tenant)
for a consideration. A person (landlord or land lady) may take the form of:
 An individual e.g Mathew Etyma
 A Cooperate body e.g properties Uganda ltd
 Government e.g Luwero local government
 Institution e.g Kyambogo University, Uganda Women’s Effort to Save Orphans.
 Listed institution e.g International potato centre
 A company
Tennant.
According to URA, this is a person who occupies another person’s property on commercial
terms and pays a consideration.

Exempt organisation
According to Section 2 (bb)(i) A or B of the ITA Cap 340 of Uganda, exempt organisation
means any company, institution, or irrevocable trust which is an amateur sporting association or
a religious, charitable or educational institution of a public character.
Retirement fund
According to Section 2 (III) of the ITA Cap 340 of Uganda, a retirement fund means a pension
or provident fund established as a permanent fund maintained solely for either provision of
benefits for members of the fund in the event of retirement or the provision of benefits for
dependants of members in the event of the death of the member or both of the purposes.
Trustee
According to Section 2 (www) (i) of the ITA Cap 340 of Uganda, a trustee includes any person
appointed or constituted as such by act of the parties, by will, by order or declaration of any
court, or by operation of the law.
Chargeable Income
According to Section 15 of the ITA Cap 340 of Uganda, the chargeable income of a person for a
year of income is the gross income of the person for the year less total deductions allowed under
this Act for the year.
Bad debt

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Section 24 (3)(a)(i)of the ITA Cap 340 of Uganda defines a bad debt as a debt claim in respect of
which the person has taken all reasonable steps to pursue payment and which the person
reasonably believes will not be satisfied.
Charitable Donations
According to Section 34(i) of the ITA Cap 340 of Uganda, a person is allowed a deduction for a
gift made during a year of income to an organization within Section 2(bb)(i)(A) or (B) of the
definition of exempt organization.
Assement of rental income.
The taxation of rental income is provided for under section 5 of the ITA Cap 340 and is charged
for each year of income and is imposed on every person who has rental income for the
year of income.
Rental Income Tax treatment of Individual rental income
The rental income received by an individual is separately subjected to tax to the effect that:
a) Such rental income shall not be included in the gross income of the individual for any
year of income.
b) Expenditure and losses incurred by the individual in the production of the rental income
shall be allowed a deduction at a flat rate of 20% of the gross amount (section 22(1) (c).
It does not matter whether the expenditure and losses are less or more than 20%. Strictly
speaking, no other deductions should be made by an individual in respect of the
expenditure incurred in deriving income included in gross rental income for the year.
c) The tax payable by a resident individual in respect of rental income shall not be reduced
by any tax credits allowed to the individual under the ITA.
d) The individual is allowed a threshold of shs. 2,820,000 before charging rental income to
tax.
e) The rate applicable is 20% of the amount in excess of the shs. 2,820,000 (see section 6(2)
and part VI of the Third Schedule).
f) Rental income of a resident individual includes rental income collected from properties
outside Uganda.
g) Rental income of a non-resident is subject to 15% withholding tax on gross amount (see
part IV of the Third Schedule).

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Rental Income Tax treatment of a company’s rental income
Expenditures and losses incurred by a company in the production of rent shall be allowed a
deduction for the year of income
The rate of tax applicable to companies other than mining companies for the purpose of rental
income is 30% as prescribed in part II of the Third schedules and section 7(2) of the Income Tax
Act
Rental Income Tax Assessment where the person is a trustee of trust or retirement fund
Expenditures and losses incurred by a person as trustee of trust in the production of rent shall be
allowed a deduction for the year of income
The rate of tax applicable is 30% of the rental income for the year of income under section 8(5)
as prescribed in part III of the Third schedule of the Income Tax Act.
Rental Income Tax Assessment where the person is a partnership
Expenditures and losses incurred by a partnership in the production of rent shall be allowed a
deduction of 20% for the year of income only as provided for in section 22(1)(c).
The rate applicable is 20% of the rental income derived by the partnership for the year of income
in excess of hs. 2,820,000 under section 6(2) and part VI of the Third schedule of Income Tax
Act.

IMPORTANT STEPS
1. For Individuals;

Step I: Determine the total annual gross rents from all sources of the individual; say R;

Step II: Deduct 20 percent allowance for costs i.e R – 20%, therefore, R = 80%R

Step III: Deduct threshold (Shs.2, 820,000) i.e. 80%R – 2,820,000

Step IV: Determine income tax at 20% i.e 20% (80%R – 2,820,000).

2. For Partnerships(Assessed on individual partners according to their respective sharing

rates)

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Step I: Determine the total annual gross rents of individual partners; say R;
Step II: Deduct 20 percent allowance for costs i.e. R – 20%, therefore R=80%R
Step III: Deduct threshold (Shs.2, 820,000) i.e. 80%R – 2,820,000)
Step IV: Determine income tax at 20% i.e. 20% (80%R – 2,820,000).
Tax payable each partner in proportion to their partnership stake in the company

ILLUSTRATIONS: (3 Scenarios)
Scenario 1: Gross rents not exceeding Shs. 2,820,000 per annum:
Tax is NIL since gross rent does not exceed threshold.

Scenario 2: Gross rents say, Shs. 3,000,000 per annum;

Allow 20% costs, therefore 3,000,000 – 600,000
Net Rents = 2,400,000 since net rent DOES NOT exceed threshold, tax is NIL.
Scenario 3: Gross rents say, Shs.4, 000,000 per annum.
Step I:
Allow 20% Costs
4,000,000 - 20/100 x 4,000,000
= 4,000,000 - 800,000
Net rents = 3,200,000.
Step II:
Allow Threshold:
3,200,000 - 2,820,000
Net chargeable rent = 380,000 (in excess of threshold)

Step III:
Calculate tax at 20%
20/100 x 380,000
Rental Income Tax = 76,000
NB: An individual whose Gross or Net rent per annum Does Not Exceed the threshold pays NIL
Rental Income Tax.

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3. For Companies, Trustees and retirement funds;
Step I: Determine the total annual gross rents from all sources of the company; say R;
Step II: Deduct all expenses incurred in the production of the rental income i.e R - total expenses
call them E, therefore R = (R-E)
Step III: Determine income tax at 30% i.e 30% (R -E).
ILLUSTRATION
If the company earns Ugx. 30 million out of which Ugx. 15 million was from rental property and
the expenses attributed to rental income are Ugx 3 million for the year, the rental tax is
calculated as follows;
Rental tax = 30% (total rental income - expenses attributed to rental income)
Rental tax = 30% (15,000,000 – 3,000,000)
Rental tax = 30% X12, 000,000
Rental tax = UGX 3,600,000

WORKED EXAMPLES
Example 1
Muhinda is a primary teacher with some rentals around Mbarara. He earned rental income from
her houses below for the year ended 31st December, 2010 as follows:
Location Monthly rent (Shs.) Monthly maintenance
Expenditure (Shs.)
Plot 50, Katti 400,000 86,000
Plot 72, Kashari 700,000 75,000
Plot 160, Bubaale 500,000 60,000
You are required to compute Muhinda’s rental income tax for the year ended 31 st December,
2010.
Solution
Muhinda’s taxable rental income
Plot 50, Katti (400,000*12) = 4,800,000
Plot 72, Kashari (700,000*12) = 8,400,000
Plot 160, Bubaale (500,000*12) = 6,000,000
= 19,200,000

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Rental income tax liability
Gross rental income 19,200,000
Less (20% * 19,200,000) 15,360,000
Less Threshold 2,820,000 12,540,000 (net chargeable rental)
Tax at 20% shs.2, 508,000

Example 2
(a) Ms. Akwi, a consultant valuer, has the following residential houses hired out to
various tenants:
Location Monthly rent received (Shs.)
Mutungo 500,000
Wakaliga 400,000
Kawempe 600,000
Namugongo 800,000
It was established that 20% of the rental incomes were used for repairs and maintenance.
Required: Compute Akwi’s rental income tax for the year.

Solution:
Annual gross rental income
Mutungo (500,000*12) 6,000,000
Wakaliga (400,000*12) 4,800,000
Kawempe (600,000*12) 7,200,000
Namugongo (800,000*12) 9,600,000

Annual rental income tax

Gross rental income 27,600,000
Less: (20% * 27,600,000) 22,080,000
Less Threshold 19,260,000(Chargeable income)
Tax at 20% shs. 3,852,000

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 (b) Assuming the above properties were owned by CPS, a limited liability company;
compute its income tax payable for the year of income.
Solution:
Gross rental income 27,600,000
Less repairs and maintenance (20%*27,600,000) 22,080,000
Chargeable income 22,080,000
Tax at 30% shs.6,624,000

Example 3
Abaho & Sons Ltd owns the following residential properties and their respective rental
incomes;
Location Zone 1 (shs.) Zone 2(shs.)
Matugga 16,000,000 19,000,000
Nsambya 35,000,000 44,000,000
Najjera 72,000,000 26,000,000
Nansana 57,000,000 30,000,000

Additional information;
i. Security expenses 20,000,000
ii. Minor repair expenses 13,000,000
iii. Wages and salaries 15,000,000
iv. Water expenses 24,000,000
v. On further scrutiny it was established that actually 45% of the above security expenses
were paid by the tenants as stated in the tenancy deeds/agreements.
vi. The company suffered bad debts amounting to shs.40, 000,000 and made donations to
Ssanyu Babies home worth Shs. 45,000,000.
Required;
Compute the company’s tax liability at the end of the year.
Annual gross rental income
Matugga (16,000,000 + 19,000,000) 35,000,000

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Nsambya (35,000,000 + 44,000,000) 79,000,000
Najjera (72,000,000 + 26,000,000) 98,000,000
Nansana (57,000,000 + 30,000,000) 87,000,000
Gross rental income 299,000,000
Less expenditures
Security (less 45%) 11,000,000
Minor repairs 13,000,000
Wages and salaries 15,000,000
Water expenses 24,000,000
Total 63,000,000
Chargeable income 236,000,000
5% (Chargeable Income) 11,800,000
Net Chargeable income 224,200,000

Tax at 30% Shs 67,260,000

Point to Note:
According to ITA of Uganda Cap 340 Section 34(1), A person is allowed deduction for a gift
made during the year of income to an organization within Section 2(bb)(i)(A) or (B) of the
definition of “exempt organisation”. And from the above question the donation fully falls under
this section and therefore Section 34(3) was applied to get the deduction.
According to ITA of Uganda Cap 340 Section 34(3), The amount of deduction allowed under
subsection (1) for every year of income shall not exceed 5% of the person’s chargeable income,
calculated before taking into account the deduction under this section.
According to ITA of Uganda Cap 340 Section 24(2), the bad debts to be allowable deduction
must be specific according to what is mentioned in the subsection. From the question, the
information provided on the bad debts was not specific as in subsection (2) and where therefore
ignored.

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Example 4.
Mr. Migadde is a landlord with steady tenants earning rental income from his houses located in
different parts of Uganda. His monthly rental income and expenditure during the year ended
31/12/2019 are as follows;
Town Monthly rent (Shs.) Monthly Expenditure (Shs.)
Wakiso 12,000,000 400,000
Kumi 9,000,000 500,000
Mbale 10,400,000 540,000

Additional information;
i. A house in Kumi was not occupied for the three months of February, March and April
during the year.
ii. Mr. Migadde made a donation to St. Luke Church to care for the needy amounting to
UGX. 200,000p.m
Required;
(a) Compute rental income tax for the year ended 31/12/2019
(b) Assuming, Mr. Migadde was a company called Heavens Co. Ltd, compute the amount of
tax that would be payable for the year ended 31/12/2019.
Solution;
a)
Annual gross rental income
Wakiso (12,000,000*12) 144,000,000
Kumi (9,000,000*9) ` 81,000,000
Mbale (10,400,000*12) 124,800,000
Total 349,800,000
Annual rental income tax
Gross rental income 349,800,000
Less: Qualifying deduction (20% * 349, 800,000) 279,840,000
Less threshold (2,820,000) 277,020,000
Chargeable income 277,020,000
Tax at 20% Shs.55,404,000

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b)
Gross rental income 349,800,000
Less expenditures
Wakiso (400,000*12) 4,800,000
Kumi (500,000*12) 6,000,000
Mbale (540,000*12) 6,480,000
17,280,000
Donation (200,000*12) 2,400,000
Total 19,680,000
Chargeable income 330,120,000
Tax at 30% Shs.99,036,000

Note: (i) The donation is 200,000*12 = 2,400,000

(ii) Comparing the donation with Section 34(3) of the Income Tax Act 2017 of
Uganda, the donation is less than 5% of the chargeable income.

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Example 5;
Musoke is a landlord who has owned properties for the last five years and not intending to
dispose them off in the foreseeable future. He earned rental income from his house below for the
year ended 31st/12/2016 as follows:
Location Monthly rent Monthly expenditure
Plot 65 Luzira 5,300,000 320,000
Plot 71 Kisasi 10,200,000 360,000
Plot 10 Gayaza 7,200,000 630,000
Additional information:
a) The house in Luzira was not occupied for the months of June and July 2013
b) For the house in Gayaza, he evicted tenants three times during the year and each time it would
take him a full month to acquire a new one
c) It is estimated that 60% of the debtors are bad
d) Musoke made a donation to two donations; one to his local church building project and
another to Ssanyu babies home
Required
i) Compute Musoke’s rental income for the year ended 31st/12/2016
ii) If the landlord in (i) above was MUZUKULU investments ltd, comment as to whether it
would make any difference on tax payable and if so, compute the tax that would be payable for
the year ended 31st/12/2016.
Solution
Plot 65 Luzira 5,300,000*12 63,600,000
Plot 71 Kisasi 10,200,000*12 122, 400,000
Plot 10 Gayaza 7,200,000*9 64,800,000
Gross Rental Income 250,800,000

Less allowable deductions (20%) 200,640,000

Less threshold (2,820,000) 197,820,000

Net Chargeable Income 197,820,000

Tax at 20% 39,564,000

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ii)
If the landlord was MUZUKULU investments ltd, there will be a difference on the tax payable.
According to the income taxation act cap 340, third schedule part ii, the tax rate for the
companies except for mining companies is 30% of the chargeable income.
Computations.
Gross Rental income =250,800,000
Expenditures
Plot 65 Luzira 320,000*12 3,840,000
Plot 71 Kisasi 360,000*12 4,320,000
Plot 10 Gayaza630,000*12 7,560,000
TOTAL 15,720,000
Donation 5% *(250,800,000-15,720,000) 11,754,000

Total expenditures 27,474,000

Chargeable income 223,326,000
Tax at 30% 66,997,800

TAXPAYER’S OBLIGATION
• Complete a return of Rental Income for a year of income with supporting agreements where
available or rental receipts issued to tenants(s) during the year.
• Declare ALL your sources of rental income in FULL for a given year of income. The year of
income is from 1st July to 30th June or a Substituted year.
• Submit (furnish) the return, ANNUALLY to Uganda Revenue Authority, through your Local
Revenue office, within six months after the end of the relevant year of income.
• Pay the rental income tax by the appropriate due date.

ENTITLEMENT TO TAX CREDIT

The taxpayer is entitled to a tax credit in respect of any rental tax paid provisionally or in
advance during the year of Income. This however can be offset against rental tax liability since
the source is taxed separately

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References.
Income Tax Act 2018 of Uganda Cap 340 as amended.
Uganda Revenue Authority,2011; A guide to Taxation in Uganda.
Vol.2 Issue 3 F/Y: 2015/16; Taxation of Rental Income; A publication of Uganda Revenue
Authority

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