💼 Employment Income and Personal Taxation — The Case of Mr. Casper Amuto

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💼 Employment Income and Personal Taxation — The Case of Mr. Casper Amuto

🧩 Introduction

Many employees receive more than just a salary — they enjoy bonuses, benefits, allowances, or even have multiple income sources.
In taxation, the challenge lies in determining what is taxable and how much tax is due.

In this post, we’ll analyze Mr. Casper Amuto’s income for the year ended 31 December 2010 and compute his taxable income and tax payable, using Kenya’s 2010 income tax rules. 

QUESTION ONE 

Mr. Casper Amuto is employed as a Finance Director by Damida Ltd. He reported the following details on his for the year ended 31 December 2010: 

(i.) He was entitled to a basic salary of Sh.2, 400,000 per annum (PAYE Sh.72, 000 per annum). 

(ii.) The employer provided him with a motor vehicle (2600 cc) which was acquired in August 2010 at a cost of Sh 3,500,000. 

(iii.) His annual mortgage repayment of Sh.400, 000 (including interest of Sh.180, 000) was paid by the employer. 

(iv.) He was entitled to an annual bonus of Sh.120, 000 per annum. 

(v.) The following deductions were made from his salary during the year: Sh. Contributions to unregistered pension scheme 120,000 Life assurance premiums 72,000 Contributions to a registered pension scheme 90,000 

(vi.) He received a dividend of Sh.60, 000(net) from his shares in Damida Ltd. 

(vii.) His other income comprised 2 Sh. Interest income: Housing development bonds 420,000 Treasury bills 120,000 Matumaini Bank Ltd. 85,000 Dividend income: Samoja Ltd. 95,000 Rental income from inherited property 520,000 Hobby farming 8,000 

Required: (a) Taxable income of Mr. Casper Amuto (16 Marks) 

(b) Tax due on the income computed in (a) above. (4 Marks) (Total: 20 Marks)

📄 Case Summary

Mr. Casper Amuto, a Finance Director at Damida Ltd., reported the following details for 2010:

Item Details
Basic salary Sh. 2,400,000 per annum
PAYE deducted Sh. 72,000 per annum
Company car 2600cc vehicle costing Sh. 3,500,000 (acquired Aug 2010)
Mortgage repayment by employer Sh. 400,000 (interest portion Sh. 180,000)
Annual bonus Sh. 120,000
Deductions Unregistered pension (120,000), Life assurance (72,000), Registered pension (90,000)
Dividend (net) Sh. 60,000 from Damida Ltd.
Other income Interest: Housing bonds 420,000, Treasury bills 120,000, Bank interest 85,000
Dividend: Samoja Ltd. 95,000
Rental income 520,000
Hobby farming 8,000

🧮 Step 1: Compute Gross Income

(a) Employment Income

Description Amount (Sh.)
Basic Salary 2,400,000
Bonus 120,000
Car Benefit (2600cc) 103,200
Mortgage Interest Benefit 180,000
Gross Employment Income 2,803,200

💡 Note:
Car benefit for 2600cc = Sh. 8,600 per month × 12 months = Sh. 103,200 (as per Commissioner’s table).
Employer-paid mortgage interest is a taxable fringe benefit.

(b) Other Incomes

Source Amount (Sh.) Tax Treatment
Dividend – Damida Ltd. (net) 60,000 Final withholding tax → not taxable again
Interest – Housing development bonds 420,000 Exempt
Treasury bills interest 120,000 Final tax (not taxable again)
Bank interest (Matumaini Bank) 85,000 Taxable
Dividend – Samoja Ltd. 95,000 Final tax – not taxable again
Rental income 520,000 Taxable
Hobby farming 8,000 Usually not taxable (not a business)

(c) Taxable Other Income

Only bank interest and rental income are taxable.
So, 85,000 + 520,000 = 605,000

✅ Total Gross Taxable Income

Category Amount (Sh.)
Employment Income 2,803,200
Other Taxable Income 605,000
Total Gross Income 3,408,200

🧾 Step 2: Deduct Allowable Deductions

Deduction Amount (Sh.) Tax Treatment
Registered pension contribution 90,000 Allowable
Life assurance premiums 72,000 Allowable (max 30,000 per month)
Unregistered pension contribution 120,000 Not allowable

Total Allowable Deductions = 90,000 + 72,000 = 162,000

✅ Net Taxable Income

= 3,408,200 – 162,000
= Sh. 3,246,200

💵 Step 3: Compute Tax Due

Using the 2010 annual tax bands:

Band Income Range (Sh.) Rate Tax (Sh.)
1 121,968 10% 12,197
2 114,912 15% 17,237
3 114,912 20% 22,982
4 114,912 25% 28,728
5 Remaining (3,246,200 – 466,704 = 2,779,496) 30% 833,849
Gross Tax 915,000 (approx.)
Less: Personal Relief (13,944)
Tax Payable ≈ Sh. 901,056

💡 Note: PAYE already deducted (Sh. 72,000) should be credited against this liability to determine final balance due or refundable.

📚 Step 4: Explanation and Key Takeaways

  1. Employment benefits like housing, company cars, and employer-paid loans are taxable as part of income.

  2. Registered contributions (pension, insurance) reduce taxable income.

  3. Final taxes (withholding tax on dividends and Treasury bills) mean those incomes are not taxed again.

  4. Accurate classification between taxable and exempt income prevents overpayment or penalties.

✅ Summary

Category Amount (Sh.)
Gross Income 3,408,200
Less: Allowable Deductions 162,000
Taxable Income 3,246,200
Tax Due (before relief) 915,000
Less: Personal Relief (13,944)
Final Tax Payable ≈ 901,056

💡 Practical Improvement Tips

  • Employers: Keep accurate records of fringe benefits to report correct PAYE.

  • Employees: Track your deductible contributions for relief claims.

  • Students: Always separate taxable, non-taxable, and final tax items clearly.

  • Professionals: Use current KRA rates — tax brackets and reliefs change yearly.


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