Taxation of Passive income

Question 1

What is passive income?

Answer 1

Passive income is money earned from investments or assets without active involvement, such as rental income, interest, royalties, patents, and dividends.

Question 2

How is rental income taxed?

Answer 2

Rental income is taxable in the year it is receivable and is usually received net of withholding tax, with the withheld amount deductible from the tax liability.

Question 3

What percentage is typically withheld from rental income for tax purposes?

Answer 3

15% is typically withheld as withholding tax from rental income.

Question 4

What are examples of deductible expenses for rental income?

Answer 4

Deductible expenses include rates, insurance, rent (if subletting), and repairs, as long as they are not capital in nature and are wholly, exclusively, and necessarily incurred in generating rental income.

Question 5

Is interest income taxable?

Answer 5

Yes, interest income is taxable in the year it is receivable, though certain types of interest are exempt from tax.

Question 6

Provide at least four types of interest that are exempt from tax.

Answer 6

1) Interest up to K10,000 per annum from a bank or building society, 2) Interest on government-issued stocks, bonds, and promissory notes, 3) Interest on certain investment accounts with the new building society, 4) Interest on public loans specified as exempt by the government.

Question 7

Are there any deductible expenses for interest income?

Answer 7

No, there are no deductible expenses for interest income.

Question 8

How is dividend income taxed?

Answer 8

Dividend income is subject to a 10% withholding tax, which is considered final and cannot be offset against other income tax liabilities.