Assume Secha Trading Share Company has a business building which has 100 equal size rooms each to be let out at Br 5,000 per month. During tax year 2020, 30 rooms were vacant for 6 months. The share company incurred the following expenses during the tax year: maintenance expense of Br 50,000; land and building tax of Br 10,000; advertising expense of Br 21,000; annual land lease costof Br 100,000; other deductible expenses of Br 65,000. The building was constructed at Br 12,000,000 and it is not fully depreciated during tax year 2010.

Question

Required: Compute A. The amount of gross rental income for the tax year ending June 30, 2010 B. The taxable rental income for the tax year C. The amount of rental income tax for the tax year

Answer 1

To calculate the gross rental income, taxable rental income, and rental income tax for the Secha Trading Share Company, let’s proceed step by step.

A. Gross Rental Income

1. Total rooms: 100

2. Monthly rent per room: Br 5,000

3. Total potential income per month:

   \[ \text{Total income per month} = 100 , \text{rooms} \times Br , 5,000 = Br , 500,000 \]

4. Annual potential income (12 months):

   \[ \text{Total annual income} = Br , 500,000 \times 12 = Br , 6,000,000 \]

5. Vacant rooms: 30 rooms for 6 months.

   • Rooms occupied:

   \[ \text{Occupied rooms} = 100 - 30 = 70 , \text{rooms} \]

   • Monthly income from occupied rooms:

   \[ \text{Income per month from occupied rooms} = 70 , \text{rooms} \times Br , 5,000 = Br , 350,000 \]

   • Annual income from occupied rooms (6 months occupied):

   \[ \text{Total annual income from occupied rooms} = Br , 350,000 \times 6 = Br , 2,100,000 \]

Gross Rental Income: Br 2,100,000

B. Taxable Rental Income

To calculate the taxable rental income, we need to subtract the deductible expenses from the gross rental income.

1. Deductible Expenses:

   • Maintenance expense: Br 50,000
   • Land and building tax: Br 10,000
   • Advertising expense: Br 21,000
   • Annual land lease cost: Br 100,000
   • Other deductible expenses: Br 65,000

   \[ \text{Total deductible expenses} = Br , 50,000 + Br , 10,000 + Br , 21,000 + Br , 100,000 + Br , 65,000 \] \[ \text{Total deductible expenses} = Br , 246,000 \]

2. Taxable Rental Income:

   \[ \text{Taxable rental income} = \text{Gross rental income} - \text{Total deductible expenses} \] \[ \text{Taxable rental income} = Br , 2,100,000 - Br , 246,000 = Br , 1,854,000 \]

C. Rental Income Tax

Assuming a general tax rate for rental income is applied (for example, 30% as a hypothetical rate), we can compute the rental income tax.

1. Rental Income Tax:

   \[ \text{Rental income tax} = \text{Taxable rental income} \times \text{Tax rate} \] \[ \text{Rental income tax} = Br , 1,854,000 \times 0.30 = Br , 556,200 \]

Summary of Results:

• A. Gross Rental Income: Br 2,100,000
• B. Taxable Rental Income: Br 1,854,000
• C. Rental Income Tax: Br 556,200 (assuming a 30% tax rate)

Please verify the tax rate applicable for rental income as it may vary based on local regulations.