Tax on rental income with mortgage interest

Last week we dealt with questions on rental income and its deductions. The taxpayer also wanted to know whether he is allowed to let the rental be taxed in the hands of the wife. We found that all deduction that relate to the generation of rental income are allowed as deductions, including interest on the mortgage.

We also learnt that where expenses exceed the income, the loss is still supposed to be declared. It may be netted off against other business incomes on carried forward for future utilisation. On the question of whether the wife can take over the rental source for tax purposes, we don’t see any problem with it especially where the husband has been paying tax on it for quite some time.

The house belongs to both of them and they may choose to declare the rent 50% each on alternating basis. This week’s question goes like; “Hie Ceci. I am working for a company that has entered into an agreement with another resident company for a merger. They have applied to BURS and an approval has been granted. I was just wondering how we are going to deal with it for tax purposes.

The other concern is that each of the companies continued to receive invoices from suppliers in their original names and we are wondering what will happen at the end. Should they be included in the merged accounts or excluded? Hoping to hear from you.” BN Our Response A merger is a business combination where two companies agree to trade as one, like the umbrella kind of operation.

They lose their original names and take on a new name. As a result of this strategic move, assets and properties of the individual companies are transferred to the new business. In tax terms and also accounting terms this transfer constitutes a disposal. The question above seeks to ascertain whether there will be tax implications from such disposals.

The 10th schedule of the Income Tax Act says such disposals may not be taxable especially where it is done in a manner that ensured that none of the parties to the merger benefits at the expense of other parties, i.e. the beneficial ownership of the shares of the merging companies remains unchanged after such merger.

Then the assets are deemed to be transferred at a price that does not exceed its cost. This means that such transfer would be deemed to have made no taxable profit. On the other question of invoices, as long as there is proof that the invoices were issued after approval date, then they should be taken into account in preparing the financial statement of the merged companies.

We are grateful to have been of service to you. Please feel free to send more questions and comments to This email address is being protected from spambots. You need JavaScript enabled to view it., and This email address is being protected from spambots. You need JavaScript enabled to view it.. [This column first appeared on 6th April 2012]

Last modified on Wednesday, 31 July 2013 16:21

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