Purchased annuities, other than retirement annuities, etc
(1)
Notwithstanding section 3(2)(c), where payment of an annuity to which this section applies is made, that portion of the payment which represents the capital element thereof, as ascertained under subsection (2) of this section, shall not be deemed to be income. (2)
For the purpose of this section –
(a) an annuity includes an amount payable on a periodic basis, whether payable at intervals longer or shorter than a year;
(b) the portion of each payment of an annuity to which this section applies which represents the capital element thereof shall be that proportion of each payment which the consideration or purchase price for the contract bears to the total payments –
- (i) to be made under the contract, in the case of a contract for a term of years certain; or
- (ii) expected at the date of the contract to be made under the contract, in the case of a contract under which the continuation of the payments depends in whole or in part upon the survival of an individual;
(c) where the continuation of payments depends in whole or in part upon the survival of an individual –
- (i) if a table of mortality has been used as the basis for determining the consideration or purchase price for the contract, that table shall be used in computing the payments expected to be made under the contract, calculations being based upon complete expectation of life;
- (ii) if no table of mortality has been used as the basis for determining the consideration or purchase price for the contract, such table of mortality as the Commissioner considers appropriate to the case shall be used in computing the payments expected to be made under the contract, calculations being based on complete expectation of life;
- (iii) the age of that individual at the date of the contract shall be determined by subtracting the calendar year of his birth from the calendar year in which that date falls;
(d) where the continuation of payments depends upon the survival of an individual and where, in the event of the death of that individual before those payments aggregate a stated sum, the contract provides that the unpaid balance of the stated sum shall be paid either in a lump sum or by installments, then the contract shall be deemed for the purpose of determining the expected term thereof to provide for the continuance of payments thereunder for a minimum term certain equal to the nearest complete number of years required to complete the payment of the stated sum;
(e) where the payments commence on the expiry of a term of years or on the death of an individual, the consideration or purchase price for the contract shall be taken to be –
- (i) the lump sum, if any, which the individual entitled to those payments is entitled to receive in lieu thereof; or
- (ii) if there is no lump sum, the sum ascertainable from the contract as the present value of the annuity at the date those payments commence; or
- (iii) if there is no such sum, the present value of those payments computed as at the date the payments commence on the basis of a rate of interest of four per cent per annum and, where the payments depend upon the survival of an individual, the probabilities of survival of that individual shall be computed according to the table of mortality referred to in paragraph (c).
(3)
This section shall apply to annuities, whenever purchased or commencing, payable under a contract but shall not apply – - (a) to an annuity payable under a registered annuity contract or a registered trust scheme; or
- (b) to an annuity purchased under a direction in a will, or purchased to provide for an annuity payable under a will or settlement out of income of property disposed of by that will or settlement; or
- (c) to an annuity purchased under a pension scheme or pension fund; or
- (d) to an annuity purchased by a person in recognition of the services or past services of another person.
22A- Deduction in respect of contributions to registered pension or provident funds.
(1)
Notwithstanding section 16(2)(d) and (e), the deduction in respect of contributions of an employee in a year shall be limited to the lesser of - - (a) the sum of the contributions made by the employee to registered funds in the year, or
- (b) thirty per cent of the employee's pensionable income in the year; or
- (c)
two hundred and forty thousand shillings*three hundred and sixty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member,twenty thousand shillings*thirty thousand shillings per month of service) ; (TLAA 2024 wef 27th December, 2024 S8*)
(2)
Notwithstanding section 16(2)(d) and (e), the deduction in respect of the contributions made by an employer in a year under defined contribution provisions of registered funds shall be limited to the sum of deductible contributions of the employer in the year under defined contribution provisions of registered funds on behalf of members of the funds:
Provided that, in respect of each member, the sum of the deductible contributions of an employer in a year under the defined contribution provisions of registered funds on behalf of a member of a registered fund means the amount by which the lesser of -
- (a) the sum of the contributions in the year made by the employer on behalf of the member under defined contribution provisions of registered funds. including contributions made out of surplus funds as required under section 22(6)) and by the member to registered funds of the employer; or
- (b) thirty per cent of the member’s pensionable income from the employer; or
- (c)
two hundred and forty thousand shillings*three hundred and sixty thousand shillings (or, where contributions are made to registered funds of the employer in respect of a part year of service of the member,twenty thousand shillings*thirty thousand shillings per month of service), exceeds the deductible contributions made by the member in the year to registered funds of the employer under subsection (1). (TLAA 2024 wef 27th December, 2024 S8*)
(3)
Notwithstanding section 16(2)(d) and (e), the deduction in respect of the contributions made by an employer in a year under defined benefit provisions of registered funds shall be limited to the amount by which the lesser of - - (a) the sum of the contributions made by the employer and by the employees in the year to registered funds in respect of members of the defined benefit registered funds of the employer; or
- (b) thirty per cent of the sum of the pensionable incomes from the employer in the year of members of defined benefit registered funds of the employer; or
- (c)
two hundred and forty thousand shillings*three hundred and sixty thousand shillings times the number of full-year members of defined benefit registered funds of the employer; exceeds the sum of – - (i) the deductible contributions made in the year to registered funds of the employer by members of registered funds of the employer under subsection (1); and
- (ii) the amounts deducted by the employer for the year for contributions made under defined contribution provisions of registered funds under subsection (2) in respect of the members of the defined benefit registered funds. (TLAA 2024 wef 27th December, 2024 S8*)
(4)
In determining the deductible amounts that can be made to registered funds by employees and by employers, subsection (1) shall be applied before subsection (2) and subsection (2) shall be applied before subsection (3). (5)
Pension funds in respect of an employee may be transferred to another registered fund or registered individual retirement fund and not be treated as a withdrawal under section 3(2)(c) – - (a) where an employee retires or terminates his employment with an employer and joins the services of another employer and requests funds to be transferred from the former employer's registered fund to the new employer's registered fund; or
- (b) where an employer establishes a new registered fund and transfers the existing pension rights of an employee to that new registered fund; or
- (c) where an employee terminates his employment with an employer and requests funds, which would otherwise be withdrawn or commuted as a lump sum, to be transferred to a registered individual retirement fund; or
- (d)where an employee and the employer agree mutually to transfer funds relating to the existing retirement benefits right of that employee from one registered fund of the employer to another registered fund of that employer provided that the trust deeds of both registered funds allow such a transfer; or
- (e) where an individual beneficiary directs that all funds in a registered individual retirement fund be transferred directly to another such fund;
(6)
Where a defined contribution registered fund is determined by an audit to have surplus funds, such funds shall be allocated to the accounts of members in lieu of contributions by an employer in each subsequent year until the surplus is exhausted. (7)
Where a registered fund is wound up, any surplus funds therein shall be deemed to be the funds of the employer and shall be immediately withdrawn by the employer unless the trust deed in respect of such registered fund specifies the contrary.(8)
For the purposes of this section, contributions made to the National Social Security Fund shall be deemed to be contributions made to a defined contribution registered pension fund.
22B - Deductions in respect of registered individual retirement funds
(1)
An individual who is not a member of a registered fund or a public pension scheme at any time in a year of income commencing on or after the 1st January, 1994 shall be eligible to contribute to a registered individual retirement fund up to the amount deductible under subsection (2).(2)
Notwithstanding the provisions of section 16(2)(d) and (e), the deduction in respect of contributions of an individual to a registered individual retirement fund in a year shall be limited to the lesser of –- (a) the sum of the contributions made by the individual or by the employer of the individual on his behalf on or before the 31st of December of the year; or
- (b) twenty percent of pensionable income of the individual in that year; or
- (c)
two hundred and forty thousand shillings*three hundred and sixty thousand shillings (or, where the contributions are made on behalf of the individual by his employer in respect of part of a year of service of the individual,twenty thousand shillings*thirty thousand shillings per month of service) reduced by the amount of the contributions made by the individual or by an employer on behalf of the individual to the National Social Security Fund in that year. (TLAA 2024 wef 27th December, 2024 S9*)
(3)
All funds maintained by an individual in a registered individual retirement fund shall be held in one account with a qualified institution.
Registered home Ownership savings Plan.
13of 1995 s.84
(1) A depositor shall in any year of income commencing on or after 1 st January, 1996 be eligible to deposit funds with a registered home ownership savings plan up to the amount deductible under subsection (2).
Tax Laws (Amendment) Act 2018 Effective 1st July 2018
(2) Notwithstanding the provisions of section 16(2)(d), deduction shall be allowed in respect of the funds of a depositor under a registered home ownership savings plan in the qualifying year and the subsequent nine years of income, subject to a maximum of forty eight ninety-six thousand shillings per year of income or four eight thousand shillings in respect of each month.
Finance Act 2006 Effective 1 January 2007
Provided that for any year of income commencing on or after the 1st January 2007, any interest income earned by a depositor on deposits of up to a maximum of three million shillings shall be exempt from tax.
Finance Act 2007 Effective 15 June 07
(3) All deposits made under a registered home ownership savings plan shall be held in an account
with an approved institution in trust for the depositor.
Finance Act 2007 Effective 15 June 07 , Finance Act 2019 Effective 1st January 2020
(4) Deposits in a registered home ownership savings plan shall be invested in accordance with the prudential guidelines issued by the Central Bank.
Finance Act 2019 Effective 1st January 2020
Deposits in a registered home ownership savings plan shall be invested in accordance with prudential guidelines issued by the Central Bank or investment guidelines or regulations issued by the Capital Markets Authority;
(5) A depositor may with the prior written approval of the Commissioner transfer his deposits from one approved institution to another, which operates a registered home ownership savings plan.
(6) A transfer made under subsection (5) shall not be considered as a withdrawal under section 3(2)(c).
(7) A registered home ownership savings plan shall be operated in such a manner as may be prescribed.
Cap 488 Cap 487 Cap 489
(8) For the purposes of this section and section 8 -
"approved institution" means a bank or financial institution registered under the Banking Act, an insurance company licensed under the Insurance Act or a building society registered under the Building Societies Act;
Finance Act 2019 Effective 1st January 2020
“approved institution” means a bank or financial institution registered under the Banking Act (Cap.488), an insurance company licensed under the Insurance Act (Cap. 487), a building society registered under the Building Societies Act (Cap.489), or a fund manager or investment bank registered under the Capital Markets Act (Cap.485A).
"depositor" means an individual who has attained the age of eighteen years and does not directly or indirectly or through his spouse, child, corporation, registered business name, or any other way own an interest in a permanent house, and is not and has not previously been a depositor under a registered home ownership savings plan;
"permanent house" means a residential house that a financial institution would accept as collateral for a mortgage, and includes any part or potion of a building, used or constructed, adapted or designed to be used for human habitation as a separate tenancy for one family only, whether detached, semi-detached or separated by party walls or floors from adjoining buildings or part or portion of such building, together with such outbuildings as are reasonably required to be used or enjoyed therewith;
Cap 485A Finance Act 2007 Effective 15 June 07 Deleted
"qualifying assets" means any securities within the meaning of the Capital Markets Authority Act and includes time deposits, treasury bills or such other assets as may be prescribed;
"qualifying year" means the year in which the depositor first makes deposits under a registered home ownership savings plan.
"depositor" means an individual who has attained the age of eighteen years and does not directly or indirectly or through his spouse, child, corporation, registered business name, or any other way own an interest in a permanent house, and is not and has not previously been a depositor under a registered home ownership savings plan;
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