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      Tumisang Orebonye: Overcoming Against Adversity to Reach for the Stars

      ‘Winning The CAF Super Cup Is A Dream Come True’ – Orebonye

      BAA Needs Over P3m For World Champs

      Botswana’s Sporting Future in Jeopardy: School Sports Suspension Threatens Athletic Excellence

      No House For Tebogo Despite Astral Performance in Budapest

      “No Pressure for Tebogo at Diamond League Finals”

      BOKA Aims to Host Two Prestigious International Karate Competitions

      BOKA Aims to Host Two Prestigious International Karate Competitions

      FM Botswana 2022 conference: transformation towards a greener FM 

      StanChart CEO Underscores Role of UB Marathon in Boosting Botswana’s Sports Tourism

      No House For Tebogo Despite Astral Performance in Budapest

      No House For Tebogo Despite Astral Performance in Budapest

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      Home Columns Tax & Your Pockets

      Rental losses can’t be offset against salary

      Income tax is generally levied on income that is generated or deemed to be generated from a source in Botswana. Accordingly, taxpayers who receive income from multiple revenue streams originating from the same source are generally assessable for tax on the resultant of the consolidated revenue. Conversely, this might imply that a tax loss from one stream may lower any tax payable from the other. However, such is contrary to an employee concurrently generating income from both a business venture as well as employment remuneration. Keep on reading and understand why a business loss cannot be offset against salary, particularly for taxpayers who are employees whilst they also operate a rental enterprise. In this article, words importing the masculine shall be deemed to include the feminine. The basics In some instances, some employees own multiple residential properties such that they establish a rental business by letting out other properties which they do not utilise. Such circumstances are generally common to owner-managed entities wherein the owner receives a salary from his or her company whilst also enjoying a secondary income from a rental enterprise. Basically, the income tax law provides that in order to determine the tax liability of an employee who also earns income from a business enterprise, the taxable income from all sources of income should be consolidated. In this respect, it might seem plausible to apply the same principle when an individual incurs a tax loss from his or her rental business. Consequently, this would ultimately lower any arising tax obligations. However, in as much as such practise may seem justifiable it is not consistent with the requirements of the law. As a matter of fact, and law, rental tax losses can’t be offset against employees’ emoluments. Let us now have a look at what is prescribed by the law. The law The Income Tax Act provides that the deduction of a tax loss incurred during the operation of a business such as rental of premises is restricted and can only be utilised against income from a business and not a salary. In verbatim, the Act provides that, ‘any assessed loss determined by the Commissioner General as incurred by any person in relation to any tax year shall be deducted in ascertaining the chargeable income of such person from a business for a subsequent tax year.’ From the above citation, it is axiomatic that the scope within which a tax loss can be deductible is ring-fenced to ‘income from a business.’ Therefore, it is without question that the avowed income on which a business loss can be offset against is strictly that emanating from a business activity of the same person. Tax loss As alluded to above, the same losses prohibited to offset against salary can be used to reduce future taxable income of the same person. Technically, the loss becomes an allowable deduction in subsequent years specifically for business operations of the taxpayer. However, the deduction of tax losses is limited to 5 years from the tax year of establishment. In other words, a loss established in 2022 will fall off in 2027 if it is not absorbed by taxable income generated in between the said years. Conclusion It is also key to note that individuals under employment who also run a profitable rental enterprise are liable to tax on the combined revenue. However, any tax loss incurred from the rental business, or any other enterprise is deductible only from business income in subsequent years. By the way, the laws which previously allowed for utilisation of farming losses against salaries were long abolished. Well folks, we hope that was insightful. As us the two Yours Truly say goodbye, remember to pay to Caesar what belongs to him. If you want to join our free Tax WhatsApp group or to consult or to know about our 9 Tax e-books, please send us a text on the cell number below.

      mm by Jonathan Hore & Gavin Mashiri Jonathan Hore & Gavin Mashiri
      April 20, 2022
      in Tax & Your Pockets
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      Rental losses can’t be offset against salary
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      Income tax is generally levied on income that is generated or deemed to be generated from a source in Botswana. Accordingly, taxpayers who receive income from multiple revenue streams originating from the same source are generally assessable for tax on the resultant of the consolidated revenue. Conversely, this might imply that a tax loss from one stream may lower any tax payable from the other. However, such is contrary to an employee concurrently generating income from both a business venture as well as employment remuneration. Keep on reading and understand why a business loss cannot be offset against salary, particularly for taxpayers who are employees whilst they also operate a rental enterprise. In this article, words importing the masculine shall be deemed to include the feminine.

      The basics

      In some instances, some employees own multiple residential properties such that they establish a rental business by letting out other properties which they do not utilise. Such circumstances are generally common to owner-managed entities wherein the owner receives a salary from his or her company whilst also enjoying a secondary income from a rental enterprise. Basically, the income tax law provides that in order to determine the tax liability of an employee who also earns income from a business enterprise, the taxable income from all sources of income should be consolidated. In this respect, it might seem plausible to apply the same principle when an individual incurs a tax loss from his or her rental business. Consequently, this would ultimately lower any arising tax obligations. However, in as much as such practise may seem justifiable it is not consistent with the requirements of the law. As a matter of fact, and law, rental tax losses can’t be offset against employees’ emoluments. Let us now have a look at what is prescribed by the law.

      The law

      The Income Tax Act provides that the deduction of a tax loss incurred during the operation of a business such as rental of premises is restricted and can only be utilised against income from a business and not a salary. In verbatim, the Act provides that, ‘any assessed loss determined by the Commissioner General as incurred by any person in relation to any tax year shall be deducted in ascertaining the chargeable income of such person from a business for a subsequent tax year.’ From the above citation, it is axiomatic that the scope within which a tax loss can be deductible is ring-fenced to ‘income from a business.’ Therefore, it is without question that the avowed income on which a business loss can be offset against is strictly that emanating from a business activity of the same person.

      Tax loss

      As alluded to above, the same losses prohibited to offset against salary can be used to reduce future taxable income of the same person. Technically, the loss becomes an allowable deduction in subsequent years specifically for business operations of the taxpayer. However, the deduction of tax losses is limited to 5 years from the tax year of establishment. In other words, a loss established in 2022 will fall off in 2027 if it is not absorbed by taxable income generated in between the said years.

      Conclusion

      It is also key to note that individuals under employment who also run a profitable rental enterprise are liable to tax on the combined revenue. However, any tax loss incurred from the rental business, or any other enterprise is deductible only from business income in subsequent years. By the way, the laws which previously allowed for utilisation of farming losses against salaries were long abolished.

      Well folks, we hope that was insightful. As us the two Yours Truly say goodbye, remember to pay to Caesar what belongs to him. If you want to join our free Tax WhatsApp group or to consult or to know about our 9 Tax e-books, please send us a text on the cell number below.

      Tags: Income taxresidential properties

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