1.0. DEFINITIONS

Business includes any trade, profession, vocation or adventure in the nature of trade but does not include employment.

Business income is any income derived by a person in carrying on a business in a year of income.

 It is also income arising from transactions and activity in the regular course of the taxpayer’s trade or business and includes income from tangible and intangible property if the acquisition, management and disposition of the property constitute integral parts of the taxpayer’s regular trade or business.
Section 18(1) of the Income Tax Act provides that business income includes the following amounts whether of a revenue or capital nature:-

• Gains on the disposal of business assets or on the satisfaction or cancellation of a business debt, whether or not the asset or debt was on revenue or capital account
• Payments for  business restrictive  covenants
• Proceeds from the disposal of trading stock
• Business income under any section of the Income Tax Act
• The value of gifts derived in respect of a person’s past, present or future business relationship
• Interest derived in respect of trade receivables or in a banking business or money lending
• Rent from a business that is wholly or mainly the holding or letting of property

A business asset in this section does not include trading stock or a depreciable asset.
Non-Business income is all income other than business income. Principal types may include dividends, interest, rents/royalties and capital gains.

2.0. TYPES OF BUSINESS

Normally a business is organised as a sole proprietorship, partnership, or corporation.

• A sole proprietorship is the simplest form of business organisation. It has no existence apart from its owner. Business debts are personal debts of the owner. As a sole proprietor, you file annual income tax returns to report the profit or loss from your business. Third schedule part I is used to compute income tax.
• A partnership is an unincorporated business organization that is the result of two or more persons joining together to carry on a trade or business. Each person contributes a combination of money, property, labor, or skills, and each expects to share in the profits and losses. A partnership's income and expenses are generally reported on an annual income tax return. No income tax is paid by the partnership itself. Each partner receives a form, which generally allocates the income and expenses among the partners according to the terms of the partnership agreement.
• A corporation, for tax purposes, generally includes a business formed under the Company’s Act that refers to it as a corporation or body corporate. The owners of a corporation are the shareholders. The tax on a corporation’s income is computed at 30% of its net profits for the year as provided under part II (I) of the Third Schedule of the Income Tax Act Cap 340.

DISCLAIMER: This Information is strictly for purposes of guidance to our clientele and is subject to change on amendment of tax legislations & any other regulations that govern tax administration.