ZICA T5 - Taxation

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ALEXANDRIN
A WONANI

Alexandrina
owns a
cottage,
which she
lets out,

furnished at
an annual
rent of
K12million,
payable mo
nthly in
advance. Du
ring 2005/06

she incurs
the followin
gExpenditur
e:
May 2005
K

Replacem
ent of wi

ndows (n
ote 1) 3,
000,000
June 2005

Insurance for
year from 5 J
uly (previous

year K500, 0
00) 700,000
November
2005

D r a i n c
l e a r a n
c e 4 5 0
, 0 0 0

December
2005

Motor Mower
1,000,000
May 2006

Redecoration
(work compl
eted on 31.3.

2006) 480,0
00
Additional
Information
a)

Windows we
re replaced
with
new VVPC d

ouble-glazed
units. It
isestimated
that the imp
rovement el
ement in the
expenditure

wasK600,00
0.
b)

The tenant
had vacated
the property
during June
2001 without

havingpaid
the rent due
for
June. Alexan
drina was
unable to
trace
thedefaultin

g tenant, but
managed to
let the
property to
new tenants
from1
st

July 2006.
Required

Compute th
e taxable Re
ntal Income
assuming Al
exandrina cl
aims full cap
italallowance
s on the

motor
mower.
T5
Taxation Amen
dment Act
2006/07
30
ANSWER

Computation
of Taxable
Income
KK

R e n t
(
A n n u a l
G r o s s )

1 2 , 0 0 0
, 0 0 0
Less: Allowable
Expenses

Wear & Tear

Allowance on
motor
mower 2 5
% x 1 , 0

0 0 , 0 0 0
2 5 0 , 0 0 0
Bad debt
June 20
01 Rent
1,000,00
0 Window R
epairs (3,00

0,000 600
,000) 2,400,
000Insuran
ce (3/12 x
500,000 +
9/12 x 700,
000) 650,0
00D r a i n

c l e a r a
n c e 4 5
0 , 0 0 0 R
e d e c o
r a t i o n
4 8 0 , 0
0 0 --------------

(5,230,000)--------------Taxable
Rental
Income
6,770,000

---------------Bad debts:

Specific bad
debts are
allowable. If
a tenant
leaves
without
paying
theoutstandi

ng rent, it
becomes a
specific bad
debt and
hence
allowable as
adeduction
for tax

purposes. Th
erefore:
K12,000,000
/12 =
K1,000,000
per month.I
mprovement
expenditure

of K600,000
is not allowa
ble as a ded
uction for
taxpurposes.
Expenditure
on motor
mower is

capital
expenditure,
and does
not qualify
as
anallowable
deduction,
but the

expenditure
does in fact
qualify to
Rank for
Wear
andTear
Allowance on

Plant and
Machinery.
**************
**************
**************
**************
**************
**

T5
Taxation Amen
dment Act
2006/07
30
T5
Taxation Amen
dment Act
2006/07

32
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