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Rental Tax information from KRA
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Bachuma Gate
#1 Posted : Saturday, July 14, 2012 11:01:07 AM
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Here is the clarification about this income tax. It should clear all the confusion that was there earlier.

http://www.kra.go.ke/ind...a-rental-income-taxation
DOH
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chiaroscuro
#2 Posted : Sunday, July 15, 2012 11:39:44 PM
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That's good and clear.... except it doesn't explain how to determine the installments; i.e., how do you arrive at the 150k indicated in example 1, step g?
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Chaka
#3 Posted : Monday, July 16, 2012 11:51:15 AM
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Joined: 2/16/2007
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Point 5,
Why are they charging 30% on rental income from the estate of a deceased landlord?
Also can someone explain this statement
"Principal Loan repayment is a capital item and not an allowable deduction"
If it is not allowable then this will discourage
investing in rental houses?
If I use my own funds to put up rental houses,do I still pay tax even though I have not recovered the initial cash investment?
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african coloner
#4 Posted : Monday, July 16, 2012 3:31:30 PM
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Joined: 10/8/2010
Posts: 446
Location: london
[quote=Bachuma Gate]Here is the clarification about this income tax. It should clear all the confusion that was there earlier.

http://www.kra.go.ke/ind...-rental-income-taxation[/quote]

i think 150k per year is too low to tax, they should do it monthly like everone else, properties business is expensive which is also a source of employment
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Ali Baba
#5 Posted : Monday, July 16, 2012 5:18:13 PM
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afrikaan coloner:>>Not everyone pays tax monthly.Monthly tax is for miserable people who earn a salary.People who earn profits pay per year...
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Bachuma Gate
#6 Posted : Monday, July 16, 2012 7:37:59 PM
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Joined: 3/26/2012
Posts: 280
Chaka wrote:
Point 5,
Why are they charging 30% on rental income from the estate of a deceased landlord?
Also can someone explain this statement
"Principal Loan repayment is a capital item and not an allowable deduction"
If it is not allowable then this will discourage
investing in rental houses?
If I use my own funds to put up rental houses,do I still pay tax even though I have not recovered the initial cash investment?


What you can deduct is interest on the loan. However you can not deduct principal repayment. This is the payment you make to reduce your mortgage.

Example : If you invest your own money to start an industry, you cannot deduct the capital invested. You will be charged tax on the profits you make. The tax is not on the mortgage but NET profit from this investment. (ie RENT INCOME after deductions)

I also agree that a deceased person's estate should be treated like an individual and therefore enjoy the graduated tax. Otherwise then you just arrange for the properties to be transferred to your spouse or children upon your death to avoid the 30%.
DOH
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Bachuma Gate
#7 Posted : Monday, July 16, 2012 7:40:46 PM
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Joined: 3/26/2012
Posts: 280
chiaroscuro wrote:
That's good and clear.... except it doesn't explain how to determine the installments; i.e., how do you arrive at the 150k indicated in example 1, step g?


You can seek clarification from the contacts provided. From my little knowledge, I believe KRA will be satisfied if by the end of the tax period you have paid all that is due.
DOH
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chiaroscuro
#8 Posted : Monday, July 16, 2012 9:19:22 PM
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Joined: 2/2/2012
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Location: Nairobi
african coloner wrote:
[quote=Bachuma Gate]Here is the clarification about this income tax. It should clear all the confusion that was there earlier.

http://www.kra.go.ke/ind...-rental-income-taxation[/quote]

i think 150k per year is too low to tax, they should do it monthly like everone else, properties business is expensive which is also a source of employment


@Bachuma; have you read the link properly?

The 150k is paid QUARTERLY by a person who has been used in the example. It is NOT for ALL landlords.

Secondly, it is installment tax; the total tax for the full year is over 700k - see step f.

Finally; only employed persons pay their tax monthly - PAYE. The rest of us [and we are the greater majority!] pay installment taxes quarterly, and then top-up the difference at the end of the financial year after doing our annual accounts.
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chiaroscuro
#9 Posted : Monday, July 16, 2012 9:30:33 PM
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Location: Nairobi
Chaka wrote:
Point 5,
Why are they charging 30% on rental income from the estate of a deceased landlord?
Also can someone explain this statement
"Principal Loan repayment is a capital item and not an allowable deduction"
If it is not allowable then this will discourage
investing in rental houses?
If I use my own funds to put up rental houses,do I still pay tax even though I have not recovered the initial cash investment?


Ans 1: Because the income no longer belongs to an individual person, but to an estate which is a corporate entity in the eyes of the law.

Ans 2: You seem to misunderstand the meaning of profit. If you buy a brand new house and pay for it in cash outright and rent it out, then you start earning a profit immediately! This is simply the rent collected minus any costs incurred in maintaining the house (repairs, and provision of services). You pay tax on this profit.

However, if you sell the house to another person at a higher price than you bought it, then your profit is Selling price minus buying price; minus other transaction costs [eg legal fees]. But in this case, you could argue that the difference is a capital gain [because you did nothing to the house apart from hold it and then sell it]....and this would be tax-free.

Ans 3: Yes; if you buy a house cash and start renting it, you start paying tax immediately as explained above
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chiaroscuro
#10 Posted : Monday, July 16, 2012 9:33:46 PM
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Joined: 2/2/2012
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chiaroscuro wrote:
That's good and clear.... except it doesn't explain how to determine the installments; i.e., how do you arrive at the 150k indicated in example 1, step g?


Let me clarify this question: In my understanding, installment tax is paid if the tax due in the preceding year was higher than 40k.

The formula applied is: previous year's total tax plus 10%. This is then divided by four to arrive at the quarterly installment tax. So; how does one get the 150k given in the example?
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