Mr James worked for Cosmo Limited, a company in the Horticultural Sector. As the manager on a five-year contract commencing on January 1, 2017. His contractual salary per annum was Sh. 800,000/=. The contract provided for Compensations in case of contract termination before its expiry of Sh.3,000,000/= The contract was terminated on January 1, 2020, and he received the compensation on that date. On January 3, 2020, he secured an employment with KCB Limited. The following Information is relevant for his year of Income to 31 December 2020.

His basic salary was Sh. 90,000/= per month (PAYE 12,000)

He was entitled to reimbursement of medical expenses incurred on self and family subject to a maximum of 10% of basic pay. He spent Sh.135,000 on medical cost for the year. The medical scheme covers senior Management only.

He obtained a mortgage from Housing Finance Company on July 1, 2020. for Sh. 3,500,000/= at an interest rate of 10% per annum to purchase a residential house. The House was furnished by his employer at accost of Sh. 60,000/= an alarm system was also installed in the house by the employer at a cost of Sh. 10,000/=

He was sponsored for a seminar on banking by the employer at a cost of Sh. 120,000/= and 5% of this was for private entertainment He received 1000 ordinary shares of Chase Bank as performance bonus on 31 December 2020. Each of these shares had a par value of Sh. 10/- but at the time of their Issue to Mr James their market price was Sh.8/=

On September 1, 2020. he obtained a Sh. 600, 000/= loan from his employer. The Interest payable on this loan was at 2% per annum.

He contributes 5% of his basic pay to a registered Pension Scheme while the employer contributes an equal amount for him.

He employed a night watchman on august 1, 2020 at a salary of Sh.3,000= per month. KCB bank pays half of this salary.

He received a gross dividend of sh. 8000/=from Alite Limited on 31 October 2020.

During the year he paid a total of Sh. 35,000/= as fees for his children studying in public schools

He won a defamation case against a local newspaper and was awarded sh. 300,000/= the amount was paid on November 15th. 2020

His other incomes (or losses) for the year ended 31 December 2020 included Net Income from rent Sh, 1,000,000/- profit from retail business Sh.320,000/= and loss from farming business of Sh. 600,000/=

Required

a) Compute The Fringe Benefit tax payable. Assume a prescribed interest rate of 12% (6 marks)

b) Compute the total taxable Income for Mr James for the year ended December 2020. (14 marks)

c) Compute the tax payable on the taxable Income in b above (5 marks)

Answer rating: 100% (QA)

aFringe Benefit Tax Payable 3000000 x 015 450000 The amount of Fringe Benefit Tax payable would be 450000 This is calculated by taking the amount of c... View the full answer