Taxation of Individuals Flashcards
What is the definition of “assessable income” under the Taxation Act?
Assessable income is the total amount in cash or otherwise, including any capital gain, received or accrued to or in favor of a person in any year or period of assessment from a source within or deemed to be within Malawi, excluding any exempt income.
How is taxable income determined from assessable income?
Taxable income is determined by subtracting allowable deductions from assessable income.
What is exempt income?
Exempt income refers to income that is not subject to tax, as specified in the First Schedule of the Taxation Act.
What determines the source of income for tax purposes?
The source of income is determined based on the location where the income-generating activity takes place, not where the payment occurs.
What happens if a person’s income is received from outside Malawi?
Income paid outside Malawi may still be deemed to have a Malawi source if it was generated within Malawi. Written approval from the Reserve Bank may be required for such arrangements.
What is the rule regarding a married woman’s income under the Taxation Act?
A married woman’s unearned income is deemed to be income of the husband, except for her earned income as specified in Section 73(4).
How is earned income defined for a wife?
Earned income for a wife includes income derived from her own business, or employment where the employer is not her husband or a related party (e.g., partnership, company).
What is the tax filing requirement for a married couple?
A married couple may elect to file a joint return, in which case their tax liability is the sum of taxes on all income excluding the wife’s earned income, plus taxes on the wife’s earned income.
How is income from a gift or donation to a minor child treated?
Income from a gift or donation to a minor child is deemed to be the income of the parent who made the gift or donation.
How is taxable income from a conditional settlement treated?
If a gift, donation, or settlement stipulates that the beneficiary cannot receive the income until a specific event, the taxable income is treated as that of the donor until the event occurs or the donor’s death.
What are examples of income deemed to have accrued in Malawi?
- Any dividend attributable to taxable income of a company incorporated in Malawi.
- Any amont incurred, claimed or claimable in connexion with a permanent establishment in Malawi shall be deemed to accrue from a source within Malawi, regardless of the place of residence of the recipient, or the place of payment of such amount.
- any foreign exchange gain or loss realized in connexion with a permanent establishment in Malawi or arising in connexion with forein currency assets or liabilities held in Malawi shall be deemed to accrue from a source in Malawi
What are allowable deductions in determining taxable income?
- any amounts of the taxpayer of any expenditure and losses except expenditure of a capital nature, amounts must wholly and exclusively and necessarily be incurred by the taxpayer for the purpose of his trade of in the production of the income.
- amounts qualified for deduction under two or more categories can only be claimed/elected for deduction under one category
- amounts of any capital loss realized by the taxpayer in the year of assessment but to the extent only of either the capital loss or any capital gains realized by the taxpayer in the year of assessment, whichever is lesser.
Give three examples of exempt Income as per the Taxation Act
- the revenue of local authorities
- the receipt and accruals of :
1. a registered trade union
2. any payments of pension or annuity, whether paid as a lump sum or periodically
3. a payment on account of ill-health or disability - interest on savings certificates issued by the government
