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 cost of 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
The amount of gross rental income for the tax year ending June 30, 2010
The taxable rental income for the tax year
The amount of rental income tax for the tax year

Answer 1

To compute the gross rental income, taxable rental income, and rental income tax for Secha Trading Share Company, we need to follow these steps:

1. Calculate Gross Rental Income:

The total income from renting out the rooms can be calculated as follows:

1. Total number of rooms = 100
2. Room rental per month = Br 5,000

Total potential gross income per month: \[ \text{Total Gross Income per Month} = \text{Total number of rooms} \times \text{Room rental per month} = 100 \times 5,000 = Br 500,000 \]

Total potential gross income for the year (12 months): \[ \text{Total Gross Income per Year} = 500,000 \times 12 = Br 6,000,000 \]

Vacancies:

• 30 rooms were vacant for 6 months.
• Gross income lost due to vacancies:

Monthly Gross income lost from vacant rooms: \[ \text{Vacant Rooms Gross Income per Month} = \text{Vacant Rooms} \times \text{Room rental per month} = 30 \times 5,000 = Br 150,000 \]

Total Gross income lost for 6 months: \[ \text{Total Loss from Vacancies} = 150,000 \times 6 = Br 900,000 \]

Effective gross rental income for the year: \[ \text{Gross Rental Income} = \text{Total Gross Income} - \text{Total Loss from Vacancies} = 6,000,000 - 900,000 = Br 5,100,000 \]

2. Calculate Taxable Rental Income:

Total Expenses:

1. Maintenance Expense: Br 50,000
2. Land and Building Tax: Br 10,000
3. Advertising Expense: Br 21,000
4. Annual Land Lease Cost: Br 100,000
5. Other Deductible Expenses: Br 65,000

Total Expenses Calculation: \[ \text{Total Expenses} = 50,000 + 10,000 + 21,000 + 100,000 + 65,000 = Br 246,000 \]

Taxable Rental Income = Gross Rental Income - Total Expenses: \[ \text{Taxable Rental Income} = 5,100,000 - 246,000 = Br 4,854,000 \]

3. Calculate Rental Income Tax:

Assuming the tax rate for rental income is 30% (standard corporate tax rate used in some jurisdictions, please adjust if the rate is different):

Rental Income Tax Calculation: \[ \text{Rental Income Tax} = \text{Taxable Rental Income} \times \text{Tax Rate} = 4,854,000 \times 0.30 = Br 1,456,200 \]

Summary of Results:

1. Gross Rental Income for the tax year: Br 5,100,000
2. Taxable Rental Income for the tax year: Br 4,854,000
3. Amount of Rental Income Tax for the tax year: Br 1,456,200

Please adjust any of the computations if there are specific local regulations or tax rates that I may not be aware of!