Tax USA Assignment 3
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Week03_Articles8-19.pptxTaxable Activity and Tax Exempt Incomes; Deductions and Losses
Article 8: Income subject to Tax
Taxable income is the gross income including all revenues, profits, and gains of any type and of any form of payment resulted from carrying out an activity minus exempted income
Income Tax Law Articles 8 to 19
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Article 9: Gains and losses on disposal of assets.
The gain or loss from the disposal of an asset is the difference between the compensation received and its cost base
No gain or loss on disposal of a depreciable asset is taken into account other than what is stated in Article 17 of this Law.
Income Tax Law Articles 8 to 19
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Article 9: Gains and losses on disposal of assets.
(c) In determining taxable income, a natural person may not take into account gain or loss on disposal of an asset that is not for use in the activity
(d) The cost base of an asset purchased, produced, manufactured, or constructed by the taxpayer is the amount paid or incurred by the taxpayer in cash or in kind in the process of acquiring the asset.
Income Tax Law Articles 8 to 19
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Article 9: Gains and losses on disposal of assets.
(e) Where a taxpayer disposes of part of an asset, the cost base is apportioned between the part retained and the part disposed of in accordance with their market value at the time of purchase
(f) Expenses incurred to alter or improve a non-depreciable asset are added to the cost base of the asset.
Income Tax Law Articles 8 to 19
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Article 9: Gains and losses on disposal of assets.
(g) The compensation value for disposal of an asset against assets in kind is based on the market value of those assets in kind, including exemption from debt on the asset
(h) Where a taxpayer disposes of an asset by gift or inheritance, the disposer is treated as having received compensation equal to the market value at the time of disposal (unless paragraph (i) applies.
Income Tax Law Articles 8 to 19
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Article 9: Gains and losses on disposal of assets.
(i) If an asset disposed of is encumbered by debt exceeding its market value, the taxpayer disposing of the asset is treated as having received compensation equal to the value of the debt
(j) In determining tax base, no gain or loss is taken into account on an involuntary disposal of an asset, to the extent that the compensation value is used to purchase of the same kind of asset within one year of the disposal.
Income Tax Law Articles 8 to 19
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Article 9: Gains and losses on disposal of assets.
(k) The cost base of a replacement asset described in (j) is determined with reference to the cost base of the replaced asset
(l) Where an asset owned by a taxpayer is converted to personal use or ceases to be used in the generation of income, the taxpayer is deemed to have disposed of the asset for its market value, with the recognition of the gain but not the loss.
Income Tax Law Articles 8 to 19
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Article 10: Exempt Income
The following types of income are exempt from income tax;
Capital gains realized from the disposal of securities traded in the Stock Market in the Kingdom in accordance with restrictions specified in the regulations
Gains resulting from disposal of property other than assets used in the activity.
Income Tax Law Articles 8 to 19
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Article 11: Donations
In determining the tax base of each taxpayer, a deduction is allowed for donations paid during the taxable year to public agencies or philanthropic societies licensed in the Kingdom which are non profit organizations and are allowed to receive these donations.
Income Tax Law Articles 8 to 19
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Article 12: Expenses related to earning income
All regular and necessary expenses of earning taxable income, paid or accrued, incurred by the taxpayer during the taxable year are deductible in determining the tax base, with the exception of outlays of a capital nature and expenses according to Article 13 of this law.
Income Tax Law Articles 8 to 19
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Article 13: Non Deductible Expenses
No deduction is allowed for the following;
Expenses not connected with the earning of taxable income
Any amounts paid to a shareholder, partner or any of their relatives, which constitute salaries, wages, awards or the like, or which do not satisfy the conditions for transactions among independent parties
Income Tax Law Articles 8 to 19
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Article 13: Non Deductible Expenses
No deduction is allowed for the following;
Recreation expenses
Expenses of a natural person for personal consumption
Income tax paid in the Kingdom or another country
Fines and financial penalties paid or payable to any party in the Kingdom
Bribes or similar amounts considered a criminal offense.
Income Tax Law Articles 8 to 19
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Article 14: Bad Debts
A taxpayer my deduct bad debts arising from the sales of goods or services that have bee previously declared as taxable income of the taxpayer
A bad debt may be deducted when stricken off the taxpayer’s books, when there is suitable evidence proving the impossibility of collecting it as specified in the regulations
Income Tax Law Articles 8 to 19
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Article 15: Reserves and Allocations
No reserves or allocations may be deducted except allocations of doubtful debts for banks
The regulations shall determine the rules and restrictions specifying such allocations
Income Tax Law Articles 8 to 19
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Article 16: Research and Development Expenses
Research and development expenses connected with the earning of taxable income my be deducted
Expenses for the purchase of land or equipment used for research and development may not be deducted
Such equipment shall be subject to depreciation under Article 17 of this Law
Income Tax Law Articles 8 to 19
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Article 17: Depreciation
Depreciation is explained in Article 17 paragraphs (a) through (l)
Terms and classifications are detailed in the Article to provide extensive guidance
Income Tax Law Articles 8 to 19
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Article 18: Expenses of Asset Repair and Improvement
Expenses incurred by the taxpayer for the repair or improvement of depreciable assets in each group may be deducted
The amount of expenses deductible in accordance with paragraph (a) for each year shall not exceed 4% of the balance of the value of the group at the end of that year
The amount exceeding the limit in paragraph (b) will be added to the balance of the value of the group
Income Tax Law Articles 8 to 19
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Article 19: Expenses for Geological Surveying and Preliminary Work for the Extraction of Natural Resources
Expenses of this Article are deducted in the form of amortization at the depreciation rates determined in paragraph (b) of Article 17
This Article also applies to expenses of intangible assets incurred by the taxpayer
Income Tax Law Articles 8 to 19
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