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INCOME TAX ACT.

 

ARRANGEMENT OF SECTIONS

   Section

 

PART I
PRELIMINARY.

 

   1.   Application of the Act.

 

   2.   Interpretation.

 

   3.   Associate.

 

PART II
IMPOSITION OF TAX.

 

   4.   Income tax imposed.

 

   5.   Rental tax imposed.

 

Rates of tax.

 

   6.   Rates of tax for individuals.

 

   7.   Rate of income tax for companies.

 

   8.   Rate of income tax for trustees and retirement funds.

 

PART III
RESIDENTS AND NONRESIDENTS.

 

   9.   Resident individual.

 

   10.   Resident company.

 

   11.   Resident trust.

 

   12.   Resident partnership.

 

   13.   Resident retirement fund.

 

   14.   Nonresident person.

 

PART IV
CHARGEABLE INCOME.

 

   15.   Chargeable income.

 

   16.   Chargeable income arising from insurance business.

 

Gross income.

 

   17.   Gross income.

 

   18.   Business income.

 

   19.   Employment income.

 

   20.   Property income.

 

Exempt income.

 

   21.   Exempt income.

 

Deductions.

 

   22.   Expenses of deriving income.

 

   23.   Meal, refreshment and entertainment expenditure.

 

   24.   Bad debts.

 

   25.   Interest.

 

   26.   Repairs and minor capital equipment.

 

   27.   Depreciable assets.

 

   28.   Initial allowance.

 

   29.   Industrial buildings.

 

   30.   Start-up costs.

 

   31.   Costs of intangible assets.

 

   32.   Scientific research expenditure.

 

   33.   Training expenditure.

 

   34.   Charitable donations.

 

   35.   Farming.

 

   36.   Mineral exploration expenditures.

 

   37.   Apportionment of deductions.

 

   38.   Carry forward losses.

 

PART V
TAX ACCOUNTING PRINCIPLES.

 

   39.   Substituted year of income.

 

   40.   Method of accounting.

 

   41.   Cash-basis taxpayer.

 

   42.   Accrual-basis taxpayer.

 

   43.   Prepayments.

 

   44.   Claim of right.

 

   45.   Long-term contracts.

 

   46.   Trading stock.

 

   47.   Debt obligations with discount or premium.

 

   48.   Foreign currency debt gains and losses.

 

PART VI
GAINS AND LOSSES ON DISPOSAL OF ASSETS.

 

   49.   Application of Part VI.

 

   50.   Gains and losses on disposal of assets.

 

   51.   Disposals.

 

   52.   Cost base.

 

   53.   Special rules for consideration received.

 

   54.   Nonrecognition of gain or loss.

 

PART VII
MISCELLANEOUS RULES FOR DETERMINING CHARGEABLE INCOME

 

   55.   Income of joint owners.

 

   56.   Valuation.

 

   56A.   Other methods of allocating costs and revenue.

 

   57.   Currency conversion.

 

   58.   Indirect payments and benefits.

 

   59.   Finance leases.

 

   60.   Exclusion of doctrine of mutuality.

 

   61.   Compensation receipts.

 

   62.   Recouped expenditure.

 

PART VIII
PERSONS ASSESSABLE.

 

Taxation of individuals.

 

   63.   Taxation of individuals.

 

   64.   Income splitting.

 

Taxation of partnerships and partners.

 

   65.   Principles of taxation for partnerships.

 

   66.   Calculation of partnership income or loss.

 

   67.   Taxation of partners.

 

   68.   Formation, reconstitution or dissolution of a partnership.

 

   69.   Cost base of partner's interest.

 

Taxation of trusts and beneficiaries.

 

   70.   Interpretation of provisions relating to taxation of trusts and beneficiaries.

 

   71.   Principles of taxation for trusts.

 

   72.   Taxation of trustees and beneficiaries.

 

   73.   Taxation of estates of deceased persons.

 

Taxation of companies and shareholders.

 

   74.   Principles of taxation for companies.

 

   75.   Change in control of companies.

 

   76.   Dividend stripping.

 

   77.   Rollover relief.

 

PART IX
INTERNATIONAL TAXATION.

 

   78.   Interpretation.

 

   79.   Source of income.

 

   80.   Foreign employment income.

 

   81.   Foreign tax credit.

 

   82.   Taxation of branch profits.

 

   83.   Tax on international payments.

 

   84.   Tax on payments to nonresident public entertainers or sports persons.

 

   85.   Tax on payments to nonresident contractors or professionals.

 

   86.   Taxation of nonresidents providing shipping, air transport or telecommunications services in Uganda.

 

   87.   General provisions relating to taxes imposed under sections 83, 84, 85 and 86.

 

   88.   International agreements.

 

   89.   Thin capitalisation.

 

PART IXA
SPECIAL PROVISIONS FOR THE TAXATION OF PETROLEUM OPERATIONS

 

   89A.   Interpretation.

 

   89B.   Taxation of contractors and subcontractors.

 

   89C.   Limitation on deduction.

 

   89D.   [Repealed].

 

   89E.   Decommissioning costs reserve and decommissioning expenditure.

 

   89F.   Allowable contract expenditures.

 

   89G.   Transfer of interest in a petroleum agreement.

 

   89H.   Withholding tax.

 

   89I.   Accounting principles.

 

   89J.   Allocation of costs and expenses.

 

   89K.   [Repealed].

 

   89KA.   Valuation and measurement of petroleum.

 

   89L-89M.   [Repealed].

 

   89MA.   Application of Parts XI, XIV, XV and XVI.

 

   89N.   [Repealed].

 

   89O.   Returns.

 

   89OA.   Application of sections 95, 96 and 97

 

   89P.   Collection and recovery.

 

   89Q.   [Repealed].

 

   89QA.   Failure to furnish returns.

 

   89QB.   Making false or misleading statements.

 

   89QC.   Application of sections 143 to 155.

 

   89QD.   Right of Commissioner to execute mandate.

 

PART X
ANTIAVOIDANCE.

 

   90.   Transactions between associates.

 

   91.   Recharacterisation of income and deductions.

 

PART XI
PROCEDURE RELATING TO INCOME TAX.

 

Returns.

 

   92.   Furnishing of return of income.

 

   93.   Cases where return of income not required.

 

   94.   Extension of time to furnish a return of income.

 

Assessments.

 

   95.   Assessments.

 

   96.   Self-assessment.

 

   97.   Additional assessments.

 

   98.   General provisions in relation to assessments.

 

Objections and appeals.

 

   99.   Objection to assessment.

 

   100.   Appeal to the High Court or a tax tribunal.

 

   101.   Appeal to the Court of Appeal.

 

   102.   Burden of proof.

 

Collection and recovery of tax.

 

   103.   Due date for payment of tax.

 

   104.   Tax as a debt due to the Government of Uganda.

 

   105.   Collection of tax from persons leaving Uganda permanently.

 

   106.   Recovery of tax from person owing money to the taxpayer.

 

   107.   Collection of tax by distraint.

 

   108.   Recovery from agent of nonresident.

 

   109.   Duties of receivers.

 

   110.   Security on property for unpaid tax.

 

Provisional tax.

 

   111.   Payment of provisional tax.

 

   112.   Estimated tax payable.

 

Refund of tax.

 

   113.   Refunds.

 

PART XII
PROCEDURE RELATING TO RENTAL TAX.

 

   114.   Rental tax.

 

PART XIII
WITHHOLDING OF TAX AT THE SOURCE.

 

   115.   Interpretation of Part XIII.

 

   116.   Withholding of tax by employers.

 

   117.   Payment of interest to resident persons.

 

   118.   Payment of dividends to resident shareholders.

 

   118A.   Withholding tax from professional fees.

 

   118B.   Withholding of tax by the purchaser of an Asset.

 

   119.   Payment for goods and services.

 

   120.   International payments.

 

   121.   Nonresident services contract.

 

   122.   Withholding as a final tax.

 

   123.   Payment of tax withheld.

 

   124.   Failure to withhold tax.

 

   125.   Tax credit certificates.

 

   126.   Record of payments and tax withheld.

 

   127.   Priority of tax withheld.

 

   128.   Adjustment on assessment and withholding agent's indemnity.

 

PART XIV
RECORDS AND INFORMATION COLLECTION.

 

   129.   Accounts and records.

 

   130.   Business information returns.

 

   131.   Access to books, records and computers.

 

   132.   Notice to obtain information or evidence.

 

   133.   Books and records not in the English language.

 

Tax clearance certificate.

 

   134.   Tax clearance certificate.

 

Tax identification number.

 

   135.   Taxpayer Identification Number.

 

PART XV
OFFENCES AND PENALTIES.

 

Interest.

 

   136.   Interest on unpaid tax.

 

Offences and penalties.

 

   137.   Failure to furnish a return.

 

   138.   Failure to comply with recovery provision.

 

   139.   Failure to maintain proper records.

 

   140.   Failure to comply with obligations under the Act.

 

   141.   Improper use of tax identification number.

 

   142.   Making false or misleading statements.

 

   143.   Obstructing an officer of the authority.

 

   144.   Aiding and abetting.

 

   145.   Offences by and relating to officers and persons employed to carry out this Act; penalties.

 

   146.   Offences by companies.

 

   147.   Officer may appear on behalf of the commissioner.

 

   148.   Compounding offences.

 

   149.   Place of trial.

 

   150.   Tax charged to be paid notwithstanding prosecution.

 

Penal tax.

 

   151.   Penal tax for failure to furnish a return of income.

 

   152.   Penal tax in relation to records.

 

   153.   Penal tax in relation to false or misleading statements.

 

   154.   Penal tax for understating provisional tax estimates.

 

   155.   Recovery of penal tax.

 

PART XVI
ADMINISTRATION.

 

   156.   Delegation.

 

   157.   Official secrecy.

 

Forms and notices.

 

   158.   Forms and notices; authentication of documents.

 

   158A.   Use of information technology.

 

   158B.   Cancellation of registration.

 

   158C.   Offences.

 

   159.   Service of notices and other documents.

 

Rulings.

 

   160.   Practice notes.

 

   161.   Private rulings.

 

Remission of tax.

 

   162.   Remission of tax.

 

PART XVII
MISCELLANEOUS.

 

   163.   Interpretation of Part XVII.

 

   164.   Regulations.

 

   165.   Amendment of monetary amounts and Schedules.

 

   166.   Transitional.

 

 

 

      First Schedule   Listed institutions.

 

      Second Schedule   Small business taxpayers tax rates.

 

      Third Schedule   Rates of tax.

 

      Fourth Schedule   Chargeable income arising from short-term insurance business.

 

      Fifth Schedule   Valuation of benefits.

 

      Sixth Schedule   Depreciation rates and vehicle depreciation ceiling.

 

      Seventh Schedule   Currency point.

 

      Eighth Schedule   Classification, Definition and Allocation of Costs and Expenditures.

 

 

 

CHAPTER 340
INCOME TAX ACT.

 

Commencement: 1 July, 1997.

   An Act to consolidate and amend the law relating to income tax and for other connected purposes.

 

PART I
PRELIMINARY.

 

1.   Application of the Act.

   This Act applies to years of income commencing on or after 1st"> July, 1997.

 

2.   Interpretation.

   In this Act, unless the context otherwise requires—

 

   (a)   "amateur sporting association" means an association whose sole or main object is to foster or control any athletic sport or game and whose members consist only of amateur sports persons or affiliated associations, the members of which consist only of amateur sports persons;

 

   (b)   "approved" means approved by the Minister under regulations made under section 164;

 

   (c)   "assessed loss" has the meaning in section 38;

 

   (d)   "assessment" means—

 

      (i)   the ascertainment of the chargeable income of, and the amount of tax payable on it by, a taxpayer for a year of income under this Act, including a deemed assessment under section 96;

 

      (ii)   the ascertainment of the rental income of, and the amount of tax payable on it by, an individual for a year of income under this Act;

 

      (iii)   the ascertainment of the amount of penal tax payable by a person under this Act; or

 

      (iv)   any decision of the commissioner which, under this Act, is subject to objection and appeal;

 

   (e)   " associate" has the meaning in section 3;

 

   (f)   "building society" means a building society registered under the Building Societies Act;

 

   (g)   "business" includes any trade, profession, vocation or adventure in the nature of trade, but does not include employment;

 

   (h)   "business asset" means an asset which is used or held ready for use in a business, and includes any asset held for sale in a business and any asset of a partnership or company;

 

   (i)   "business debt" means—

 

      (i)   in the case of a debtor—

 

         (A)   a debt obligation, the proceeds of which are used to acquire a business asset or to incur an expense of a business;

 

         (B)   a debt obligation arising, as a result of being given time to pay, on the acquisition of a business asset or the incurring of an expense of a business; or

 

         (C)   any debt obligation of a partnership or company; or

 

      (ii)   in the case of a creditor, any debt obligation owed to the creditor that was entered into or arose in the course of the creditor's business;

 

   (j)   "business income" has the meaning in section 18;

 

   (k)   "chargeable income" has the meaning in section 15;

 

   (l)   "chargeable trust income" has the meaning in section 70;

 

   ()   "collective investment scheme" has the meaning assigned to it by section 3 of the Collective Investment Schemes Act, 2003;

 

   (m)   "commissioner" means the Commissioner General appointed under the Uganda Revenue Authority Act;

 

   (n)   "company" means a body of persons corporate or unincorporate, whether created or recognised under the law in force in Uganda or elsewhere, and a unit trust, but does not include any other trust or a partnership;

 

   (o)   "cost base", in relation to an asset, has the meaning in section 52;

 

   (p)   "court" means a court of competent jurisdiction;

 

   (q)   "currency point" represents the amount in Uganda shillings prescribed in the Seventh Schedule;

 

   (r)   "debenture" includes any debenture stock, mortgage, mortgage stock, loan, loan stock or any similar instrument acknowledging indebtedness, whether secured or unsecured;

 

   (s)   "debt obligation" means an obligation to make a repayment of money to another person, including accounts payable and the obligations arising under promissory notes, bills of exchange and bonds;

 

   (t)   "dependent", in relation to a member of a retirement fund, means a spouse of the member, any child, including an adopted child, of the member who is under the age of 18 years or any other relative of the member who the commissioner is satisfied relies on the member for support;

 

   (u)   "depreciable asset" means any plant or machinery, or any implement, utensil or similar article, which is wholly or partly used, or held ready for use, by a person in the production of income included in gross income and which is likely to lose value because of wear and tear, or obsolescence;

 

   (v)   "disposal" has the meaning in section 51;

 

   (w)   "dividend" includes—

 

      (i)   where a company issues debentures or redeemable preference shares to a shareholder—

 

         (A)   in respect of which the shareholder gave no consideration, an amount equal to the greater of the nominal or redeemable value of the debentures or shares; or

 

         (B)   in respect of which the shareholder gave consideration which is less than the greater of the nominal or redeemable value, an amount equal to the excess;

 

      (ii)   any distribution upon redemption or cancellation of a share, or made in the course of liquidation, in excess of the nominal value of the share redeemed, cancelled or subject to liquidation;

 

      (iii)   in the case of a partial return of capital, any payment made in excess of the amount by which the nominal value of the shares was reduced;

 

      (iv)   in the case of a reconstruction of a company, any payment made in respect of the shares in the company in excess of the nominal value of the shares before the reconstruction; or

 

      (v)   the amount of any loan, the amount of any payment for an asset or services, the value of any asset or services provided, or the amount of any debt obligation released, by a company to, or in favour of, a shareholder of the company or an associate of a shareholder to the extent to which the transaction is, in substance, a distribution of profits;

 

      (vi)   the issue of bonus shares to shareholders. However bonus shares shall only be taxable upon disposal,

but does not include a distribution made by a building society;

 

   (x)   "employee" means an individual engaged in employment;

 

   (y)   "employer" means a person who employs or remunerates an employee;

 

   (z)   "employment" means—

 

      (i)   the position of an individual in the employment of another person;

 

      (ii)   a directorship of a company;

 

      (iii)   a position entitling the holder to a fixed or ascertainable remuneration; or

 

      (iv)   the holding or acting in any public office;

 

   (aa)   "employment income" has the meaning in section 19;

 

   (bb)   "exempt organisation" means any company, institution or irrevocable trust—

 

      (i)   which is—

 

      (A)   an amateur sporting association;

 

      (B)   a religious, charitable or educational institution of a public character; or

 

      (C)   a trade union, an employees association, an association of employers registered under any law of Uganda or an association established for the purpose of promoting farming, mining, tourism, manufacturing or commerce and industry in Uganda; and

 

      (ii)   which has been issued with a written ruling by the commissioner currently in force stating that it is an exempt organisation; and

 

      (iii)   none of the income or assets of which confers, or may confer, a private benefit on any person;

 

   (cc)   "farming" means pastoral, agricultural, plantation, horticultural or other similar operations;

 

   (dd)   "financial institution" means any person carrying on the business of receiving funds from the public or from members through the acceptance of money deposits repayable upon demand, after a fixed period, or after notice, or any similar operation through the sale or placement of bonds, certificates, notes or other securities, and the use of such funds either in whole or part for loans, investments or any other operation authorised either by law or by customary banking practices, for the account and at the risk of the person doing such business;

 

   (ee)   "foreign-source income" means any income which is not derived from sources in Uganda;

 

   (ff)   "gross income" has the meaning in section 17;

 

   (gg)   "gross turnover", in relation to a resident taxpayer, for a year of income, means—

 

      (i)   the amount shown in the recognised accounts of the taxpayer as the gross proceeds derived in carrying on a business or businesses during the year of income, including the gross proceeds arising from the disposal of trading stock, without deduction for expenditures or losses incurred in deriving that amount; and

 

      (ii)   the amount, if any, shown in the recognised accounts of the taxpayer as the amount by which the sum of the gains derived by the taxpayer during the year of income from the disposal of business assets, other than trading stock, exceeds the losses incurred by the taxpayer during the year in respect of the disposal of such assets;

 

   (hh)   "incapacitated person" means a resident individual adjudged under a law in Uganda to be in a state of unsoundness of mind;

 

   (ii)   "incapacitated person's trust" means a trust established for the benefit of an incapacitated person;

 

   (jj)   "industrial building" means any building which is wholly or partly used, or held ready for use, by a person in—

 

      (i)   manufacturing operations;

 

      (ii)   research and development into improved or new methods of manufacture;

 

      (iii)   mining operations;

 

      (iv)   an approved hotel business; or

 

      (v)   an approved hospital;

 

   (kk)   "interest" includes—

 

      (i)   any payment, including a discount or premium, made under a debt obligation which is not a return of capital;

 

      (ii)   any swap or other payments functionally equivalent to interest;

 

      (iii)   any commitment, guarantee, or service fee paid in respect of a debt obligation or swap agreement; or

 

      (iv)   a distribution by a building society;

 

   (ll)   "life insurance business" has the meaning in section 16(3);

 

   (mm)   "listed institution" means an institution listed in the First Schedule to this Act;

 

   (nn)   "local authority" means any public body established under a law of Uganda and having control over the expenditure of revenue derived from rates or taxes imposed by law upon the residents of the areas for which that body is established;

 

   (oo)   "local council" has the same meaning as in the Local Governments Act;

 

   (pp)   "manufacturing" means the substantial transformation of tangible movable property, including power generation and water supply;

 

   (qq)   "mineral" has the same meaning as in the Mining Act;

 

   (rr)   "mining operations" includes every method or process by which any mineral is won from the soil or from any substance or constituent of the soil;

 

   (ss)   "Minister" means the Minister responsible for finance;

 

   (tt)   "natural resource payment" means—

 

      (i)   a payment, including a premium or like payment, made as consideration for the right to take minerals or a living or nonliving resource from the land; or

 

      (ii)   a payment calculated in whole or in part by reference to the quantity or value of minerals or a living or nonliving resource taken from the land;

 

   (uu)   "nominal value", in relation to a share or debenture, means the paid-up amount of the share or face value of the debenture, including any premium paid in respect of the share or debenture;

 

   (vv)   "nonresident person" has the meaning in section 14;

 

   (ww)   "partnership" means an association of persons carrying on business for joint profit;

 

   (xx)   "payment" includes any amount paid or payable in cash or kind, and any other means of conferring value or benefit on a person;

 

   (yy)   "person" includes an individual, a partnership, a trust, a company, a retirement fund, a government, a political subdivision of a government and a listed institution;

 

   (zz)   "petroleum agreement" means an agreement for the grant of a licence for petroleum exploration, development and production between the Government and a contractor;

 

   (aaa)   "property income" has the meaning in section 20;

 

   (bbb)   "provisional taxpayer" means a person liable for provisional tax under section 111;

 

   (ccc)   "relative", in relation to an individual, means—

 

      (i)   an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or

 

      (ii)   a spouse of the individual or of any person specified in subparagraph (i) of this paragraph;

 

   (ddd)   "rent" means any payment, including a premium or like amount, made as consideration for the use or occupation of, or the right to use or occupy, land or buildings;

 

   (eee)   "rental income", in relation to an individual for a year of income, means the total amount of rent derived by the individual for the year of income from the lease of immovable property in Uganda by the individual with the deduction of any expenditures and losses incurred by the individual in respect of the property;

 

   (fff)   "resident company" has the meaning in section 10;

 

   (ggg)   "resident individual" has the meaning in section 9;

 

   (hhh)   "resident partnership" has the meaning in section 12;

 

   (iii)   "resident person" means a resident individual, resident company, resident partnership, resident trust, resident retirement fund, the Government of Uganda or a political subdivision of the Government of Uganda;

 

   (jjj)   "resident retirement fund" has the meaning in section 13;

 

   (kkk)   "resident taxpayer" means a taxpayer who is a resident person;

 

   (lll)   "resident trust" has the meaning in section 11;

 

   (mmm)   "retirement fund" means a pension or provident fund established as a permanent fund maintained solely for either or both of the following purposes—

 

      (i)   the provision of benefits for members of the fund in the event of retirement; or

 

      (ii)   the provision of benefits for dependents of members in the event of the death of the member;

 

   (nnn)   "royalty" means—

 

      (i)   any payment, including a premium or like amount, made as consideration for—

 

      (A)   the use of, or right to use, any patent, design, trademark or copyright, or any model, pattern, plan, formula or process, or any property or right of a similar nature;

 

      (B)   the use of, or right to use—

 

         (I)   any motion picture film;

 

         (II)   any video or audio material, whether stored on film, tape, disk or other medium, for use in connection with television or radio broadcasting; or

 

         (III)   any sound recording or advertising matter connected with material referred to in subparagraph (i)(B)(I) or (II) of this paragraph;

 

      (C)   the use of, or the right to use, or the receipt of, or right to receive, any video or audio material transmitted by satellite, cable, optic fibre or similar technology for use in connection with television, internet or radio broadcasting;

 

      (D)   the imparting of, or undertaking to impart, any scientific, technical, industrial or commercial knowledge or information;

 

      (E)   the use of, or right to use, any tangible movable property;

 

      (F)   the rendering of, or the undertaking to render, assistance ancillary to a matter referred to in subparagraph (i) (A) to (E) of this paragraph; or

 

      (G)   a total or partial forbearance with respect to a matter referred to in subparagraphs (A) to (F); or

 

      (ii)   any gain on the disposal of any right or property referred to in subparagraph (i) of this paragraph;

 

   (ooo)   "substituted year of income" has the meaning in section 39;

 

   (ppp)   "swap agreement" means an arrangement between a person who has incurred a debt obligation with a floating interest rate and a person who has incurred a debt obligation with a fixed interest rate under which the persons agree to exchange their interest obligations;

 

   (qqq)   "swap payment" means a payment made under a swap agreement;

 

   (rrr)   "tax" means any tax imposed under this Act;

 

   (sss)   "tax-exempt employer" means an employer whose income is exempt from tax;

 

   (ttt)   "taxpayer" means any person who derives an amount subject to tax under this Act and includes—

 

      (i)   any person who incurs an assessed loss for a year of income; or

 

      (ii)   for the purposes of any provision relating to a return, any person required by this Act to furnish such a return;

 

   (uuu)   "trading stock" includes anything produced, manufactured, purchased or otherwise acquired for manufacture, sale or exchange, as well as consumable stores;

 

   (vvv)   "transitional year of income" has the meaning in section 39;

 

   (www)   "trust" means any arrangement affecting property in relation to which there is a trustee;

 

   (xxx)   "trustee" includes—

 

      (i)   any person appointed or constituted as such by act of the parties, by will, by order or declaration of any court or by operation of the law;

 

      (ii)   an executor, administrator, tutor or curator;

 

      (iii)   a liquidator or judicial manager;

 

      (iv)   any person having the administration or control of property subject to a trust;

 

      (v)   any person acting in a fiduciary capacity;

 

      (vi)   any person having, either in a private or official capacity, the possession, direction, control or management of any property of a person under a legal disability;

 

      (vii)   any person who manages assets under a private foundation or other similar arrangement;

 

   (yyy)   "underlying ownership", in relation to a person other than an individual, means an interest held in, or over, the person directly or indirectly through interposed companies, partnerships or trusts by an individual or by a person not ultimately owned by individuals;

 

   (zzz)   "unit trust" means a unit trust registered or required to be registered as Parliament may by law prescribe; and

 

   (aaaa)   "year of income" means the period of 12 months ending on the 30th"> June, and includes a substituted year of income and a transitional year of income.

 

3.   Associate.

   (1) For the purposes of this Act, where any person, not being an employee, acts in accordance with the directions, requests, suggestions or wishes of another person whether or not they are in a business relationship and whether those directions, requests, suggestions or wishes are communicated to the first-mentioned person, both persons are treated as associates of each other.

   (2) Without limiting the generality of subsection (1), the following are treated as an associate of a person—

 

   (a)   a relative of the person, unless the commissioner is satisfied that neither person acts in accordance with the directions, requests, suggestions or wishes of the other person;

 

   (b)   a partner of the person, unless the commissioner is satisfied that neither person acts in accordance with the directions, requests, suggestions or wishes of the other person;

 

   (c)   a partnership in which the person is a partner where the person, either alone or together with an associate or associates under another application of this section, controls 50 percent or more of the rights to income or capital of the partnership;

 

   (d)   the trustee of a trust under which the person, or an associate under another application of this section, benefits or may benefit;

 

   (e)   a company in which the person, either alone or together with an associate or associates under another application of this section, controls 50 percent or more of the voting power in the company either directly or through one or more interposed companies, partnerships or trusts;

 

   (f)   where the person is a partnership, a partner in the partnership who, either alone or together with an associate or associates under another application of this section, controls 50 percent or more of the rights to income or capital of the partnership;

 

   (g)   where the person is the trustee of a trust, any other person who benefits or may benefit under the trust; or

 

   (h)   where the person is a company—

 

      (i)   a person who, either alone or together with an associate or associates under another application of this section, controls 50 percent or more of the voting power in the company, either directly or through one or more interposed companies, partnerships or trusts; or

 

      (ii)   another company in which the person referred to in subparagraph (i) of this paragraph, either alone or together with an associate or associates under another application of this section, controls 50 percent or more of the voting power in that other company, either directly or through one or more interposed companies, partnerships or trusts.

 

PART II
IMPOSITION OF TAX.

 

4.   Income tax imposed.

   (1) Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each year of income and is imposed on every person who has chargeable income for the year of income.

   (2) Subject to subsections (4) and (5), the income tax payable by a taxpayer for a year of income is calculated by applying the relevant rates of tax determined under this Act to the chargeable income of the taxpayer for the year of income and from the resulting amount are subtracted any tax credits allowed to the taxpayer for the year of income.

   (3) Where a taxpayer is allowed more than one tax credit for a year of income, the credits shall be applied in the following order—

 

   (a)   the foreign tax credit allowed under section 81; then

 

   (b)   the tax credit allowed under section 128; then

 

   (c)   the tax credit allowed under section 111(8).

   (4) Where subject to subsection (6a) the gross income of a taxpayer for a year of income consists exclusively of employment income derived from a single employer from which tax has been withheld as required under section 116, the income tax payable by the taxpayer for the year of income is the amount equal to the sum of the amounts required to be withheld from such income under section 116.

   (5) Subject to subsection (7), where the gross turnover of a resident taxpayer for a year of income derived from carrying on a business or businesses is less than 50 million shillings, the income tax payable by the taxpayer for the year of income shall be determined in accordance with the Second Schedule to this Act, unless the taxpayer elects by notice in writing to the commissioner for subsection (2) to apply; and—

 

   (a)   the tax shall be a final tax on the business income of the taxpayer;

 

   (b)   no deductions shall be allowed under this Act for expenditures or losses incurred in the production of the business income; and

 

   (c)   no tax credits allowed under this Act shall be used to reduce the tax payable on the business income of the taxpayer, except as provided in the Second Schedule to this Act.

   (6) An election under subsection (5) must be lodged with the commissioner by the due date for the taxpayer's return for the year of income to which it relates.

   (6a) Subsection (4) shall not apply to a taxpayer for a tax year if the employment income of that taxpayer for that year includes an amount under section 19(1)(h).

   (7) Subsection (5) does not apply to a resident taxpayer who is in the business of providing medical, dental, architectural, engineering, accounting, legal or other professional services, public entertainment services, public utility services or construction services.

 

5.   Rental tax imposed.

   (1) Subject to and in accordance with this Act, a tax shall be charged for each year of income and is imposed on every individual who has rental income for the year of income.

   (2) The tax payable by an individual under this section for a year of income is calculated by applying the relevant rates of tax determined under section 6(2) to the rental income derived by the individual for the year.

   (3) The tax imposed under this section on an individual is separate from the tax imposed under section 5 and—

 

   (a)   the rent derived by an individual shall not be included in the gross income subject to tax under this Act of the individual for any year of income;

 

   (b)   expenditures and losses incurred by the individual in the production of rent shall be allowed as a deduction under this Act for any year of income only as provided in paragraph (c) of subsection (1) of section 23;

 

   (c)   ...

   (4) In this section, "year of income" means the period of 12 months ending on 30th"> June.

 

Rates of tax.

 

6.   Rates of tax for individuals.

   (1) The chargeable income of an individual for a year of income is charged to income tax at the rates prescribed in Part I of the Third Schedule to this Act.

   (2) The rental income of a resident individual for a year of income is charged to rental tax at the rate prescribed in Part VI of the Third Schedule.

 

7.   Rate of income tax for companies.

   The chargeable income of a company for a year of income is charged to income tax at the rate prescribed in Part II of the Third Schedule to this Act.

 

8.   Rate of income tax for trustees and retirement funds.

   (1) Subject to subsections (2) and (3), a trustee of a trust is charged to tax at the rate prescribed in Part III of the Third Schedule to this Act on the chargeable trust income of the trust for a year of income.

   (2) A trustee of a trust being the estate of a deceased taxpayer who, at the date of death, was a resident individual is charged to tax on the chargeable trust income of the trust at the rates prescribed in Part I of the Third Schedule to this Act for—

 

   (a)   the year of income in which death occurred; and

 

   (b)   the following year of income.

   (3) A trustee of an incapacitated person's trust is charged to tax at the rates prescribed in Part I of the Third Schedule to this Act on the chargeable trust income of the trust for a year of income.

   (4) The chargeable income of a retirement fund for a year of income is charged to tax at the rate prescribed in Part III of the Third Schedule to this Act.

 

PART III
RESIDENTS AND NONRESIDENTS.

 

9.   Resident individual.

   (1) Subject to subsections (2) and (3), an individual is a resident individual for a year of income if that individual—

 

   (a)   has a permanent home in Uganda;

 

   (b)   is present in Uganda—

 

      (i)   for a period of, or periods amounting in aggregate to, 183 days or more in any twelve-month period that commences or ends during the year of income; or

 

      (ii)   during the year of income and in each of the two preceding years of income for periods averaging more than 122 days in each such year of income; or

 

   (c)   is an employee or official of the Government of Uganda posted abroad during the year of income.

   (2) An individual who is a resident individual under subsection (1) for a year of income, in this section referred to as the "current year of income", but who was not a resident individual for the preceding year of income is treated as a resident individual in the current year of income only for the period commencing on the day on which the individual was first present in Uganda.

   (3) An individual who is a resident individual for the current year of income but who is not a resident individual for the following year of income is treated as a resident individual in the current year of income only for the period ending on the last day on which the individual was present in Uganda.

 

10.   Resident company.

   A company is a resident company for a year of income if it—

 

   (a)   is incorporated or formed under the laws of Uganda;

 

   (b)   has its management and control exercised in Uganda at any time during the year of income; or

 

   (c)   undertakes the majority of its operations in Uganda during the year of income.

 

11.   Resident trust.

   A trust is a resident trust for a year of income if—

 

   (a)   the trust was established in Uganda;

 

   (b)   at any time during the year of income, a trustee of the trust was a resident person; or

 

   (c)   the trust has its management and control exercised in Uganda at any time during the year of income.

 

12.   Resident partnership.

   A partnership is a resident partnership for a year of income if, at any time during that year, a partner in the partnership was a resident person.

 

13.   Resident retirement fund.

   A retirement fund is a resident retirement fund for a year of income if it—

 

   (a)   is organised under the laws of Uganda;

 

   (b)   is operated for the principal purpose of providing retirement benefits to resident individuals; or

 

   (c)   has its management and control exercised in Uganda at any time during the year of income.

 

14.   Nonresident person.

   (1) Subject to subsection (2), a person is a nonresident person for a year of income if the person is not a resident person for that year.

   (2) Where section 9(2) or (3) applies, an individual is a nonresident person for that part of the year of income in which the individual is not a resident individual.

 

PART IV
CHARGEABLE INCOME.

 

15.   Chargeable income.

   Subject to section 16, the chargeable income of a person for a year of income is the gross income of the person for the year less total deductions allowed under this Act for the year.

 

16.   Chargeable income arising from insurance business.

   (1) The chargeable income of a person for a year of income arising from the carrying on of a short-term insurance business is determined in accordance with the Fourth Schedule to this Act.

   (2) Where a person to whom subsection (1) applies derives income charged to tax other than income arising from the carrying on of a short-term insurance business for a year of income, the chargeable income determined under subsection (1) is added to that other income for the purposes of determining the person's total chargeable income for the year of income.

   (3) In this section—

 

   (a)   "insurance business" means the business of, or in relation to the issue of, or the undertaking of liability under, life policies, or to make good or indemnify the insured against any loss or damage, including liability to pay damages or compensation contingent upon the happening of a specified event;

 

   (b)   "life insurance business" means business of any of the following classes—

 

      (i)   effecting, carrying out and issuing policies on human life or contracts to pay annuities on human life;

 

      (ii)   effecting, carrying out and issuing contracts of insurance against the risk of the person insured sustaining injury or dying as the result of an accident or of an accident of a specific class, or becoming incapacitated in consequence of disease or of diseases of specified classes, being contracts that are expressed to be in effect for a period of not less than five years or without limit of time and either are not expressed to be terminable by the insurer before the expiry of five years from taking effect or are expressed to be so terminable before the expiry of such period only in special circumstances specified in the contract; or

 

      (iii)   effecting, carrying out and issuing of insurance whether effected by the issue of policies, bonds, endowment certificates or otherwise, whereby, in return for one or more premiums paid to the insurer, an amount or series of amounts is to become payable to the insurer in the future, not being such contracts as fall within subparagraph (i) or (ii) of this paragraph; and

 

   (c)   "short-term insurance business" means any insurance business which is not a life insurance business.

 

Gross income.

 

17.   Gross income.

   (1) Subject to this Act, the gross income of a person for a year of income is the total amount of—

 

   (a)   business income;

 

   (b)   employment income; and

 

   (c)   property income,

derived during the year by the person, other than income exempt from tax.

   (2) For the purposes of subsection (1)—

 

   (a)   the gross income of a resident person includes income derived from all geographical sources; and

 

   (b)   the gross income of a nonresident person includes only income derived from sources in Uganda.

   (3) Unless this Act provides otherwise, Part V, which deals with tax accounting principles, applies in determining when an amount is derived for the purposes of this Act.

 

18.   Business income.

   (1) Business income means any income derived by a person in carrying on a business and includes the following amounts, whether of a revenue or capital nature—

 

   (a)   the amount of any gain, as determined under Part VI which deals with gains and losses on disposal of assets, derived by a person on the disposal of a business asset, or on the satisfaction or cancellation of a business debt, whether or not the asset or debt was on revenue or capital account;

 

   (b)   any amount derived by a person as consideration for accepting a restriction on the person's capacity to carry on business;

 

   (c)   the gross proceeds derived by a person from the disposal of trading stock;

 

   (d)   any amount included in the business income of the person under any other section of this Act;

 

   (e)   the value of any gifts derived by a person in the course of, or by virtue of, a past, present or prospective business relationship;

 

   (f)   the interest derived by a person in respect of trade receivables or by a person engaged in the business of banking or money lending; and

 

   (g)   rent derived by a person whose business is wholly or mainly the holding or letting of property.

   (2) An amount included in business income under subsection (1)(f) or (g) retains its character as interest or rent for the purposes of any section of this Act referring to such income.

   (3) Where, as a result of any concession granted by, or a compromise made with, a taxpayer's creditors in the course of an insolvency, the taxpayer derives a gain on the cancellation of a business debt, section 38(3) applies in lieu of including the gain in the business income of the taxpayer under subsection (1).

   (4) In this section, "business asset" does not include trading stock or a depreciable asset.

 

19.   Employment income.

   (1) Subject to this section, employment income means any income derived by an employee from any employment and includes the following amounts, whether of a revenue or capital nature—

 

   (a)   any wages, salary, leave pay, payment in lieu of leave, overtime pay, fees, commission, gratuity, bonus or the amount of any travelling, entertainment, utilities, cost of living, housing, medical or other allowance;

 

   (b)   the value of any benefit granted;

 

   (c)   the amount of any discharge or reimbursement by an employer of expenditure incurred by an employee, other than expenditure incurred by an employee on behalf of the employer which serves the proper business purposes of the employer;

 

   (d)   any amount derived as compensation for the termination of any contract of employment, whether or not provision is made in the contract for the payment of such compensation, or any amount derived which is in commutation of amounts due under any contract of employment;

 

   (e)   any amount paid by a tax-exempt employer as a premium for insurance on the life of the employee and which insurance is for the benefit of the employee or any of his or her dependents;

 

   (f)   any amount derived as consideration for the employee's agreement to any conditions of employment or to any changes in his or her conditions of employment;

 

   (g)   any contribution or similar payment by the employer made to a retirement fund for the benefit of the employee or any of his or her dependants.

 

   (h)   the amount of any gain derived by an employee on disposal of a right or option to acquire shares under an employee share acquisition scheme.

   (2) Notwithstanding subsection (1), the employment income of an employee does not include—

 

   (a)   the cost incurred by the employer of any passage to or from Uganda in respect of the employee's appointment or termination of employment where the employee—

 

      (i)   was recruited or engaged outside Uganda;

 

      (ii)   is in Uganda solely for the purpose of serving the employer; and

 

      (iii)   is not a citizen of Uganda; or

 

   (b)   any reimbursement or discharge of the employee's medical expenses;

 

   (c)   except where subsection (1)(e) applies, any amount paid as a premium for insurance on the life of the employee and which insurance is for the benefit of the employee or any of his or her dependents;

 

   (d)   any allowance given for, and which does not exceed the cost actually or likely to be incurred, or a reimbursement or discharge of expenditure incurred by the employee on—

 

      (i)   accommodation and travel expenses; or

 

      (ii)   meals and refreshment,

while undertaking travel in the course of performing duties of employment.

 

   (e)   the value of any meal or refreshment provided by the employer to the employee in premises operated by or on behalf of the employer solely for the benefit of employees and which is available to all full-time employees on equal terms;

 

   (f)   any benefit granted by the employer to the employee during a month, where the total value of the benefits provided by the employer to the employee for the month is less than 10,000 shillings; or

 

   (g)   any contribution or similar payment made to a retirement fund for the benefit of the employee or any of his or her dependents;

 

   (h)   the value of a right or option to acquire shares granted to an employee under an employee share acquisition scheme.

   (3) For the purposes of this section, the value of any benefit is determined in accordance with the Fifth Schedule to this Act.

   (4) Where the amount to which subsection (1)(d) applies is paid by an employer to an employee who has been in the employment of the employer for 10 years or more, the amount included in employment income is calculated according to the following formula—

 

A x 75% where A is the total amount derived by the employee to which subsection (1)(d) applies.

   (5) For the purposes of subsection (2), a director of a company is only a full-time employee of the company if the director—

 

   (a)   is required to devote substantially the whole of his or her time to the service of the company in a managerial or technical capacity; and

 

   (b)   does not have an interest of more than 5 percent in the underlying ownership of the company.

   (6) For the purposes of this section, an amount or benefit is derived in respect of employment if it—

 

   (a)   is provided by an employer or by a third party under an arrangement with the employer or an associate of the employer;

 

   (b)   is provided to an employee or to an associate of an employee; and

 

   (c)   is provided in respect of past, present or prospective employment.

   (7) An amount excluded from the employment income of an employee under subsection (2) or (4) is exempt income of the employee.

   (8) In this section—

 

   (a)   "employee share acquisition scheme" means an agreement or arrangement under which—

 

      (i)   a company is required to issue shares in the company to employees of the company or of an associated company; or

 

      (ii)   a company is required to issue shares to a trustee of a trust and under the trust deed the trustee is required to transfer the shares to employees of the company or of an associated company; and

 

   (b)   "medical expenses" includes a premium or other amount paid for medical insurance.

 

20.   Property income.

   (1) Property income means—

 

   (a)   any dividends, interest, annuity, natural resource payments, rents, royalties and any other payment derived by a person from the provision, use or exploitation of property;

 

   (b)   the value of any gifts derived by a person in connection with the provision, use or exploitation of property;

 

   (c)   the total amount of any contributions made to a retirement fund during a year of income by a tax-exempt employer; and

 

   (d)   any other income derived by a person,

but does not include any amount which is business, employment or exempt income.

   (2) An amount included in property income under subsection (1)(a) retains its character as dividends, interest, annuity, natural resource payment, rent or royalties for the purposes of any section of the Act referring to such income.

 

Exempt income.

 

21.   Exempt income.

   (1) The following amounts are exempt from tax—

 

   (a)   the income of a listed institution;

 

   (b)   the income of any organisation or person entitled to privileges under the Diplomatic Privileges Act to the extent provided in the regulations and orders made under that Act;

 

   (c)   the official employment income derived by a person in the public service of the government of a foreign country if—

 

      (i)   the person is either a nonresident person or is a resident individual solely by reason of performing such service;

 

      (ii)   the income is payable from the public funds of that country; and

 

      (iii)   the income is subject to tax in that country;

 

   (d)   any allowance payable outside Uganda to a person working in a Ugandan foreign mission;

 

   (e)   the income of any local authority;

 

   (f)   the income of an exempt organisation, other than—

 

      (i)   property income, except rent received by an exempt organisation in respect of immovable property and the rent is used by the lessor exclusively for the activities of the organisation specified in paragraph (bb)(i) of the definition of "exempt organisation" in section 2; or

 

      (ii)   business income that is not related to the function constituting the basis for the organisation's existence;

 

   (g)   any education grant which the commissioner is satisfied has been made bona fide to enable or assist the recipient to study at a recognised educational or research institution;

 

   (h)   any amount derived by way of alimony or allowance under any judicial order or written agreement of separation;

 

   (i)   ...

 

   (j)   the value of any property acquired by gift, bequest, devise or inheritance that is not included in business, employment or property income;

 

   (k)   any capital gain that is not included in business income, other than gains on the sale of shares in a private limited liability company;

 

   (l)   employment income derived by an individual to the extent provided for in a technical assistance agreement where—

 

      (i)   the individual is a nonresident or a resident solely for the purpose of performing duties under the agreement; and

 

      (ii)   the Minister has concurred in writing with the tax provisions in the agreement;

 

   (m)   foreign-source income derived by—

 

      (i)   a short-term resident of Uganda;

 

      (ii)   a person to whom paragraph (c) or (l) of this subsection applies; or

 

      (iii)   a member of the immediate family of a person referred to in subparagraph (i) or (ii) of this paragraph;

 

   (n)   a pension;

 

   (o)   a lump sum payment made by a resident retirement fund to a member of the fund or a dependent of a member of the fund;

 

   (p)   the proceeds of a life insurance policy paid by a person carrying on a life insurance business; or

 

   (q)   the official employment income of a person employed in the Uganda Peoples' Defence Forces, the Uganda Police Force, or the Uganda Prisons Service, the External Security Organisation, the Internal Security Organisation, other than a person employed in a civil capacity;

 

   (r)   the income of the Government of the Republic of Uganda and the Government of any other country;

 

   (s)   the income of the Bank of Uganda;

 

   (t)   income of a collective investment scheme to the extent of which the income is distributed to participants in the collective investment scheme;

 

   (u)   interest earned by a financial institution on a loan granted to any person for the purpose of farming, forestry, fish farming, bee keeping, animal and poultry husbandry or similar operations.

 

   (v)   the income of an investor compensation fund established under section 81 of the Capital Markets Act;

 

   (w)   the income of an investor compensation fund established under section 81 of the Capital Markets Act;

 

   (x)   the income of a person derived from the operation of aircraft in domestic and international traffic or the leasing of aircraft;

 

   (y)   the income of a person derived from the exportation of finished consumer and capital goods for a period of 10 years where the person—

 

      (i)   in the case of a new investment, applies in writing to the Commissioner to be issued with a certificate of exemption at the beginning of his or her investment; or

 

      (ii)   in the case of an existing investment, applies for a certificate, from the Commissioner which is effective from 1st"> July, 2007, and the person—

 

         (aa)   exports at least 80 percent of his or her production of goods;

 

         (ab)   has fulfilled such conditions as may be prescribed by regulations made by the Minister; and

 

         (ac)   has been issued with a certificate of exemption prescribed by the Commissioner;

 

   (z)   the income of a person for a year of income derived from agro-processing where—

 

      (i)   the person on an associate of the person has not previously carried on agro-processing of a similar or related agricultural product in Uganda;

 

      (ii)   upon commencement of agro-processing in Ugandam the person applies in writing to the Commissioner for a certificate of exemption which the Commissioner may issue within 60 days of receiving the application;

 

      (iii)   the person invests in plant and machinery that has not previously been used in Uganda by any person in agro-processing to process agricultural products for final consumption;

 

      (iv)   the person processes agricultural products grown or produced in Uganda;

 

      (v)   the person regularly files returns as required under this Act;

 

      (vi)   the person regularly fulfils all obligations under this Act relating to that person's investment; and

 

      (vii)   the person has been issued with a certificate of exemption for that year of income by the Commissioner.

 

   (za)   For avoidance of doubt, a certificate of exemption issued under subsection (1)(z)(ii) shall be valid for one year and may be renewed annually.

 

   (aa)   business income derived by a person from managing or running an educational institution;

 

   (ab)   an award received by a sportsperson as a reward for winning or participating in a sports competition.

   (2) In this section—

 

   (a)   "short-term resident" means a resident individual, other than a citizen of Uganda, present in Uganda for a period or periods not exceeding two years; and

 

   (b)   "technical assistance agreement" means a grant agreement between the Government of Uganda and a foreign government or a listed institution for the provision of technical assistance to Uganda.

 

   (c)   "agro processing" in relation to agricultural products of pastoral, agricultural, or other farming operations, means an industrial or manufacturing process that substantially transforms or converts raw agricultural produce in order to convert the produce into a different chemical or physical state and includes the activities that take place between slaughter or harvest of the raw product in order to change it or preserve it.

 

Deductions.

 

22.   Expenses of deriving income.

   (1) Subject to this Act, for the purposes of ascertaining the chargeable income of a person for a year of income, there shall be allowed as a deduction—

 

   (a)   all expenditures and losses incurred by the person during the year of income to the extent to which the expenditures or losses were incurred in the production of income included in gross income;

 

   (b)   the amount of any loss as determined under Part VI, which deals with gains and losses on the disposal of assets, incurred by the person on the disposal of a business asset during the year of income, whether or not the asset was on revenue or capital account; and

 

   (c)   in the case of rental income, 20 percent of the rental income as expenditures and losses incurred by the individual in the production of such income;

 

   (d)   local service tax paid by an individual;

 

   (e)   two percent of income tax payable under this Act by private employers who prove to Uganda Revenue Authority that five percent of their employees on full time basis are persons with disabilities.

 

   (f)   section 17 of the Persons with Disabilities Act is repealed.

   (2) Except as otherwise provided in this Act, no deduction is allowed for—

 

   (a)   any expenditure or loss incurred by a person to the extent to which it is of a domestic or private nature;

 

   (b)   subject to subsection (1), any expenditure or loss of a capital nature, or any amount included in the cost base of an asset;

 

   (c)   any expenditure or loss which is recoverable under any insurance, contract or indemnity;

 

   (d)   income tax payable in Uganda or a foreign country;

 

   (e)   any income carried to a reserve fund or capitalised in any way;

 

   (f)   the cost of a gift made directly or indirectly to an individual where the gift is not included in the individual's gross income;

 

   (g)   ...

 

   (h)   any fine or similar penalty paid to any government or a political subdivision of a government for breach of any law or subsidiary legislation;

 

   (i)   a contribution or similar payment made to a retirement fund by the employee either for the benefit of the employee or for the benefit of any other person;

 

   (j)   a premium or similar payment made to a person carrying on a life insurance business on the life of the person making the premium or on the life of some other person;

 

   (k)   the amount of a pension paid to any person; or

 

   (l)   any alimony or allowance paid under any judicial order or written agreement of separation.

   (3) In this section, expenditure of a domestic or private nature incurred by a person includes—

 

   (a)   the cost incurred in the maintenance of the person and the person's family or residence;

 

   (b)   the cost of commuting between the person's residence and work;

 

   (c)   the cost of clothing worn to work, except clothing which is not suitable for wearing outside of work; and

 

   (d)   the cost of education of the person not directly relevant to the person's employment or business, and the cost of education leading to a degree, whether or not it is directly relevant to the person's employment or business.

   (4) Unless this Act provides otherwise, Part V, which deals with tax accounting principles, applies for the purposes of determining when an expenditure or loss is incurred for the purposes of this Act.

   (5) In this section, "business asset" does not include trading stock or a depreciable asset.

   (6) ...

 

23.   Meal, refreshment and entertainment expenditure.

   A deduction is allowed for expenditure incurred by a person in providing meals, refreshment or entertainment in the production of income included in gross income, but only where—

 

   (a)   the value of the meals, refreshment or entertainment is included in the employment income of an employee under section 19(1)(b) or is excluded from employment income by section 19(2)(d) or (e); or

 

   (b)   the person's business includes the provision of meals, refreshment or entertainment and the persons to whom the meals, refreshment or entertainment have been provided have paid an arm's-length consideration for them.

 

24.   Bad debts.

   (1) Subject to subsection (2), a person is allowed a deduction for the amount of a bad debt written off in the person's accounts during the year of income.

   (2) A deduction for a bad debt is only allowed—

 

   (a)   if the amount of the debt claim was included in the person's gross income in any year of income; or

 

   (b)   if the amount of the debt claim was in respect of money lent in the ordinary course of a business carried on by a financial institution in the production of income included in gross income;

 

   (c)   if the amount of the debt claim was in respect of a loan granted to any person by a financial institution for the purpose of farming, forestry, fish farming, bee keeping, animal and poultry husbandry or similar operations.

   (3) In this section—

 

   (a)   "bad debt" means—

 

      (i)   a debt claim in respect of which the person has taken all reasonable steps to pursue payment and which the person reasonably believes will not be satisfied; and

 

      (ii)   in relation to a financial institution, a debt in respect of which a loss reserve held against presently identified losses or potential losses, and which is therefore not available to meet losses which subsequently materialise, has been made; and

 

   (b)   "debt claim" means a right to receive a repayment of money from another person, including deposits with financial institutions, accounts receivable, promissory notes, bills of exchange and bonds.

 

25.   Interest.

   (1) Subject to this Act, a person is allowed a deduction for interest incurred during the year of income in respect of a debt obligation to the extent that the debt obligation has been incurred by the person in the production of income included in gross income.

   (2) In this section, "debt obligation" includes an obligation to make a swap payment arising under a swap agreement and shares in a building society.

 

26.   Repairs and minor capital equipment.

   (1) A person is allowed a deduction for expenditure incurred during the year of income for the repair of property occupied or used by the person in the production of income included in gross income.

   (2) A person is allowed a deduction for expenditure incurred during the year of income in acquiring a depreciable asset with a cost base of less than 50 currency points.

   (3) Subsection (2) only applies to a depreciable asset if the asset normally functions in its own right and is not an individual item which forms part of a set.

 

27.   Depreciable assets.

   (1) A person is allowed a deduction for the depreciation of the person's depreciable assets, other than an asset to which section 26(2) applies, during the year of income as calculated in accordance with this section.

   (2) Depreciable assets are classified into four classes as set out in Part I of the Sixth Schedule to this Act with depreciation rates applicable for each class as specified in that Part.

   (3) A person's depreciable assets shall be placed into separate pools for each class of asset, and the depreciation deduction for each pool is calculated according to the following formula—

A x B

   where—

A is the written-down value of the pool at the end of the year of income; and
B is the depreciation rate applicable to the pool.

   (4) The written-down value of a pool at the end of a year of income is the total of—

 

   (a)   the written-down value of the pool at the end of the preceding year of income after allowing for the deduction under subsection (3) for that year; and

 

   (b)   the cost base of assets added to the pool during the year of income,

reduced, but not below zero, by the consideration received from the disposal of assets in the pool during the year of income.

   (5) Where the amount of consideration received by a person from the disposal during a year of income of any asset or assets in a pool exceeds the written-down value of the pool at the end of the year of income disregarding that amount, the excess is included in the business income of the person for that year.

   (6) If the written down value of a pool at the end of the year of income, after allowing for the deduction under subsection (3), is less than 50 currency points, a deduction shall be allowed for the amount of that written down value.

   (7) Where all the assets in a pool are disposed of before the end of a year of income, a deduction is allowed for the amount of the written-down value of the pool as at the end of that year.

   (8) Where a person has incurred nondeductible expenditures in more than one year of income in respect of a depreciable asset, this section applies as if the expenditures incurred in different years of income were incurred for the acquisition of separate assets of the same class.

   (9) The cost base of a depreciable asset is added to a pool in the year of income in which the asset is placed in service.

   (10) Where a depreciable asset is only partly used during a year of income in the production of income included in gross income, the depreciation deduction allowed under this section in relation to the asset shall be proportionately reduced.

   (11) For the purposes of subsection (4)(b), the cost base of a road vehicle, other than a commercial vehicle, is not to exceed the amount set out in Part II of the Sixth Schedule.

   (12) Where the cost base of a road vehicle for the purposes of subsection (4)(b) is limited under subsection (11), the person is treated as having acquired two assets—

 

   (a)   a depreciable asset being a road vehicle with a cost base equal to the amount set out in Part II to the Sixth Schedule to this Act; and

 

   (b)   a business asset that is not a depreciable asset with a cost base equal to the difference between the cost base of the asset not taking into account subsection (11), in this section referred to as the "actual cost base", and the amount set out in Part II of the Sixth Schedule.

   (13) Where a road vehicle to which subsection (12) applies is disposed of, the person is treated as having disposed of each of the assets specified under that subsection, and the consideration received on disposal is apportioned between the two assets based on the ratio of the cost base of each asset as determined under that subsection to the actual cost base of the asset.

   (14) In calculating the amount of any gain or loss arising on disposal of an asset specified in subsection (12)(b), the cost base of the asset as determined under that paragraph is reduced by the depreciation deductions which would have been allowed to the person if the asset—

 

   (a)   was a depreciable asset being a road vehicle; and

 

   (b)   the asset was the only asset in the pool.

   (15) In this section, "commercial vehicle" means—

 

   (a)   a road vehicle designed to carry loads of more than half a tonne or more than 13 passengers; or

 

   (b)   a vehicle used in a transportation or vehicle rental business.

 

28.   Initial allowance.

   (1) A person who places an item of eligible property into service for the first time during the year of income is allowed a deduction for that year of an amount equal to—

 

   (a)   where the asset is placed in service outside an area prescribed in Part IV of the Sixth Schedule to this Act, 75 percent of the cost base of the property at the time it is placed in service; or

 

   (b)   in any other case, 50 percent of the cost base of the property at the time it is placed in service.

   (2) The cost base of an asset to which subsection (1) applies is reduced by the amount of the deduction allowed under that subsection for the purposes of section 27(4)(b).

   (3) In this section, "item of eligible property" means plant and machinery wholly used in the production of income included in gross income but does not include—

 

   (a)   goods and passenger transport vehicles;

 

   (b)   appliances of a kind ordinarily used for household purposes; or

 

   (c)   office or household furniture, fixtures and fittings.

 

29.   Industrial buildings.

   (1) Subject to this section, where a person has incurred capital expenditure in any year of income on the construction of an industrial building and the building is used by the person during the year of income in the production of income included in gross income, the person is allowed a deduction for the depreciation of the building during the year of income as calculated according to the following formula—

A x B x C/D

where—

A is the depreciation rate applicable to

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