TAXES ON RENTAL INCOME

Vol 1 Issue 4 FY 2022-2023

What is Rental income?

This is the total amount of money earned by a person from renting out of immovable property (land and or buildings) for the year of income in Uganda with the deduction of any expenditure incurred in respect of the property

Who is a Landlord or Landlady?

This is any person who rents out immovable property to another person (the Tenant) in exchange for money.

Who is considered a Landlord or Landlady?

A person (landlord or landlady) may take the form of:

• An individual e.g Mathew Etima
• A Company e.g RORA Ltd
• A corporate body e.g. Properties (U) Ltd.
• Government e.g Luwero District Administration
• An institution e.g Makerere University, UWESO
• A listed institution e.g African Development Bank

Who is a tenant?

This is the person who occupies another person’s property in exchange for money.

Please Note Taxation of Rental Income is provided for under Section 5 of the Income Tax Act. Rental income is taxed separately from any other income.

How do I calculate tax on rental income?

Use the following steps to calculate taxes on rental income

For Individuals

Step I: Determine the total amount of rental income (R) from all sources of the individual in a year;

Step II: Subtract the threshold of Ugx 2,820,000

Note: No other subtractions are allowed

Therefore, R – 2, 820, 000 = Chargeable income

Step III: Determine rental income tax at 12%

Rental tax payable = 12% x chargeable income

 

For Partnerships (Charged on individual partners according to their share on rental income as shown in the partnership deed)

Step I: Determine the total amount of rental income (R) from all sources of the individual partners in a year;

Step II: Subtract the threshold of Ugx 2,820,000

Note: No other subtractions are allowed

R – 2, 820, 0000 = Chargeable income

Step III: Determine rental income tax at 12% and allocate according to the ratio of each partner.

For Companies, Trustees and retirement fund

Step I: Determine the total amount of rental income (R) from all sources of the company in a year

Step II: Subtract up to 50% of the total amount of rental income as allowance for what is spent on rental property and losses.  R-50%R = Chargeable income

Please Note: what is spent on rental property must be shown to Uganda Revenue Authority with evidence e.g. receipts, payroll for employees etc.

Step III: Determine rental income tax at 30%

Tax payable = 30% x chargeable income

EXAMPLES

1. Individuals

Scenario: If total rent collected in a year is Shs.6,000,000, Amount spent on the property include: security guard (2,000,000), cleaning services (800,000), repairs (500,000) and interest on mortgage is 800,000, calculate the rental tax payable

Step I: Determine the total rent collected from all sources of the individual =Shs.6, 000,000

Step II: Deduct the threshold of Ugx 2,820,000

= 6,000,000 – 2,820,000

Note: No other subtractions are allowed

Chargeable income = 3,180,000

Step III: Calculate rental income tax at 12%

= 12/100 x 3,180,000

Rental tax payable

= Ugx 381,600

1. Partnerships

Using the calculation above, if Amos and Robert were in a partnership and their stake is in a ratio of 2:3 respectively, then;

Partner Amos

= 2/5 x 381,600

= Ugx 152,640

Partner Robert

= 3/5 x 381, 600

= Ugx 228,960

Therefore, Partner Amos will pay Ugx 152,640 while Robert will pay Ugx 228,960

Companies

Scenario I: If a company earns Ugx 30 million out of which Ugx. 15 million was from rental property, Expenses include cleaning services (3,000,000), security guard (4,000,000) and repairs (4,000,000),

Rental tax is calculated as follows

Step I: Determine total rent in a year from all sources of the company

= Shs.15, 000,000

Step II: Subtract up to 50% of the total rental income in a year as allowance for what was spent on rental property and losses.

Total expenses

=3,000,000+4,000,000+4,000,000 =11,000,000

However; Allowable expenses = 50% X15, 000,000 =7,500,000

Chargeable rental income =15,000,000 – 7,500,000 =7,500,000

Step III: Calculate rental income tax at 30%

= 30/100 x 7,500,000

Rental tax payable = Ugx 2,250,000

What are my obligations as a taxpayer?

• Complete a return of Rental Income for a year of income with supporting agreements where available or rental receipts given to tenant (s) after making payments 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, EVERY YEAR 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

Am I entitled 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 only be offset against rental tax liability since the source is taxed separately.

 

 

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