CH3:ACCOUNTING FOR RENTAL INCOME

TAX
 Rental Income
 Rental income is the income derived by a person from rental of a
building.

 Building :
-- Empty building (Only the building)
-- Furnished building (Building with facilities)

 The building may be let out for various legal purposes such as for
residential, office use, storage, factory use, shop, hall, lecture
halls, restaurant, hotel, super market, gymnasium etc.
 RENTAL INCOME TAX

 Rental income tax is an income tax charged, imposed and

collected by the government on taxable income derived
from rental of building(s).

 Income arising from rental of building is chargeable to

rental income tax.

 Rentalincome tax is payable on annual basis at the end

of each tax year.
 CONT…
 Rental income tax used to assess and calculate like
followings:
S/N Income from Rent of Buildings Rate
1 30% of rent income Tax Exempt
2 70% Remaining of the rent income ---------
3 The first 30,000 S.L.SH or $9 12%
4 More than that 18%

 30% of gross rental income is for maintenance, and it is tax

exempt.

 30,000/= the next will be charged on 12%.

 30,001/= more than that 18%.

 EXAMPLE
 Mr Ahmed is a landlord with steady tenant. He earned rental
income from his houses below for the year ended 31st December,
2014 as follows:

Location Monthly Rental Income

26 June District $200
Ga’an Libah District 250
Ahmed Dhagah 200

Required:
a) Compute Ahmed’s rental income for the year ended .
b) Compute rental income tax liability.
 SOLUTION
a) Ahmed’s Rental Income:
26 June District …………… ($200 x 12) = $2,400
Ga’an libah District …………… (250 x 12) = 3,000
Ahmed Dhagah District ………...(200 x 12) = 2,400
Total Income ……………………......... $7,800
b) Rental Income Tax Liability Tax
Gross Rental Income …………...........$7,800
Less: Exemption (30% x7800) ............ 2,340
$5460
For the first $9 (12%) ……………… 9 …… $1.08
For the remaining (%18) ………….. $5,451 … 981.18
Total tax liability ……………………………… $982.26
 ASSIGNMENT

 Mr Ali is a landlord with steady tenant. He earned rental income

from his houses below for the year ended 31st December, 2014 as
follows:

Location Monthly Rental Income

26 June District $300
Ga’an Libah District 350
Ahmed Dhagah District 200

Kodbur District 400

Required:
a) Compute Ali’s rental income for the year ended .
b) Compute rental income tax liability.
 CONT………
Example
Mrs. Amina is a landlord who rents his house to a tenant. As the
contract states the landlord receives $1000 as rental income from
the tenant per month as rent.
Required:
a) Calculate the rental income received by the landlord per annum.
b) Calculate the rental income tax payable by the landlord.
Note:
 Rate = 10% (Flat rate)
 No tax exempt.

Solution
a) Rental income per annum = Rental income per month x 12
= $1,000 x 12 = $12,000
b) Rental income tax payable = Rental income x 10%
= $12,000 x 10% = $1,200
 PENALTY
 Penalty or fine is charged in the case of delay payment of rental income
tax.

 Landlords are allowed to pay their rental income tax liability within the
first four months of the year.

 If the time goes beyond that four months, penalty will be charged upon
the tax liability suppose to pay within the deadline.

There are periods of penalty calculation and they are:

1) In between 1st May and August 31st , penalty will be rental income tax
liability divided by 6.

2) In between 1st September and December 31st , penalty will be rental

income tax liability divided by 4.
 EXAMPLE
 A landlord has received as rental income $3,000 for the year 2013 and failed
to pay the rental income tax within the first four months. He brought his tax
return to the tax bureau 20/08/2014.
 Required :

a) Calculate the landlord’s rental income tax liability.

b) Calculate the accrued penalty due to delay payment.
c) Total payment of the landlord.
Note:
 Rate = 10% (Flat rate)

Solution
a) Landlord’s R/Income T/ Liability = Net Income x Tax Rate
= $3,000 x10% = $300
b) Penalty = Tax Liability/6 = $300/6 = $50
c) Total amount to be paid= Tax liability+ Penalty
= $300 +$50 = $350
 ASSIGNMENT
A landlord has received as rental income $42,00 for the year
2013 and failed to pay the rental income tax within the first
four months. He brought his tax return to the tax bureau
10/09/2014.
 Required :

a) Calculate the landlord’s rental income tax liability.

b) Calculate the accrued penalty due to delay payment.
c) Total payment of the landlord.
 Note:

Rate = 10% (Flat rate)

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