IT 6
Partnerships, trusts, cooperatives and other persons
1Scope and legal basis
The Income Tax Act charges 'persons', but it does not tax every kind of person in the same way. A partnership computes its income as if it were a person (section 4) but is not itself taxed: each partner is assessed on their share. A trust or the estate of a deceased person is taxed on the trustee or executor, with the Finance Act 2026 clarifying that trust income is deemed the trustee's and that dividends and interest already taxed at source are not taxed again on distribution. Cooperative societies are taxed under section 19A on income after deducting bonuses and dividends paid to members (with a limit) and, for savings and credit cooperatives (SACCOs), on a narrower base. Members' clubs and trade associations are taxed on income from non-members only, or elect to be taxed on all income. Charities and other bodies in the First Schedule are exempt on qualifying income. Insurance companies have their own computation in section 19. Each regime is a favourite for a specific examination scenario.
2Key definitions
3Charge, computation and rates
Partnerships
- Compute the partnership's adjusted profit exactly as for a sole trader (IT 3), adding back partners' salaries, interest on capital and drawings charged in the accounts, since these are appropriations not expenses. Capital allowances are deducted at partnership level.
- Allocate: each partner's share is their salary, plus interest on capital, plus their profit-sharing ratio of the balance. A change of partners mid-year splits the year into periods on a time basis unless the agreement provides otherwise.
- Each partner includes their share in their own return as business income, adds employment, rental and other income, and pays tax at the individual rates with personal relief. A corporate partner pays 30% on its share. A limited liability partnership is taxed the same way.
- A partnership loss is allocated to the partners in the same way and is each partner's business loss, carried forward against their future share of the same business within the five-year limit.
- The partnership files a partnership return (IT2P) on iTax with the accounts and the allocation; the partners file individual returns by 30 June. Withholding tax deducted from partnership receipts is credited to the partners in their profit ratio.
Otieno and Wambui, trading as OW Consultants, year to 31 December 2026
Net profit per accounts KES 6,000,000 after charging partners' salaries (Otieno 1,200,000; Wambui 900,000), interest on capital (Otieno 300,000; Wambui 200,000), depreciation 400,000 and a general provision 100,000. Capital allowances agreed at 350,000. Profits shared 3:2.
Adjusted profit: 6,000,000 + 2,100,000 (salaries) + 500,000 (interest) + 400,000 + 100,000 - 350,000 = KES 8,750,000.
Allocation: Otieno: salary 1,200,000 + interest 300,000 + 3/5 × (8,750,000 - 2,600,000) = 3,690,000 = 5,190,000. Wambui: 900,000 + 200,000 + 2/5 × 6,150,000 = 2,460,000 = 3,560,000. Total 8,750,000.
Each partner is taxed on their allocation at the graduated rates (10% to 35% on the annual bands) with personal relief of KES 28,800, plus any other income, less any withholding tax credited on the firm's fees (5% on professional fees, split 3:2).
Trusts and estates
- The trustee computes the trust's income by source (rent, business, investment) and is taxed at 30% (a trust is taxed at the corporate rate on income not distributed); income distributed to a beneficiary in the year is deducted and taxed on the beneficiary at their own rate, with the trustee accounting for withholding tax on distributions where required.
- From the Finance Act 2026, income of the trust is deemed income of the trustee, and dividends and interest that suffered final withholding tax at the trust are exempt in the beneficiary's hands, removing the double charge that arose before.
- Exemptions: the principal sum of a registered family trust and property transferred into one (capital gains tax and stamp duty) remain exempt; income of a trust for a person with a disability or of a registered retirement benefits scheme is exempt under the First Schedule; the income of a unit trust or collective investment scheme registered with the Capital Markets Authority is exempt at the scheme level.
- A deceased estate is assessed on the executor at the individual rates without personal relief for income after death; a beneficiary is taxed on income of the estate paid to them. Capital gains on transfer of property to a beneficiary on death are exempt (transfer by way of inheritance).
Cooperatives, clubs, charities and insurers
| Person | Taxable base | Rate and notes |
|---|---|---|
| Cooperative society (other than a SACCO) | Total income less bonuses and dividends paid to members, subject to the section 19A ceiling | 30% on the balance; withholding tax on dividends to members at 5% |
| SACCO | Interest and other income from non-members, investment income, and 50% of rental income; interest and dividends paid to members are outside the charge | 30%; members' interest on deposits taxed by withholding at 5% as a final tax |
| Members' club or association | Income from non-members and investment income, where members provide at least 75% of gross receipts; otherwise all income | 30%; an election to be taxed as trading brings subscriptions in and expenses out |
| Charity with an exemption certificate | Exempt on donations, grants and investment income applied to charitable purposes; business income taxable unless within the purpose or carried on by beneficiaries | Exemption certificate valid five years; donors get a deduction for donations under section 15(2)(w) |
| Insurance company (general) | Gross premiums less claims paid and outstanding (per the Insurance Regulatory Authority reserve rules), reinsurance, commissions and management expenses, plus investment income | 30%; the Finance Act 2026 substituted 'statutory fund' for 'life insurance fund' in the section 19 wording |
| Insurance company (life) | Investment income of the life fund less management expenses attributable to it, plus the surplus transferred to shareholders; policyholder returns are not taxed as the company's income | 30% |
| Retirement benefits scheme registered with the RBA | Investment income exempt; the scheme pays no tax | Benefits taxed on the member under the pension rules (IT 12) |
| National and county governments, parastatals in the First Schedule | Exempt on their own income; commercial state corporations are taxed as companies | The exemption is by listing, not by nature |
4Compliance: returns, payment and penalties
A partnership files the partnership return with its accounts and the allocation by 30 June following the calendar year, and each partner files an individual return by 30 June and pays instalment tax on their own estimated liability; the partnership itself has no tax to pay but is the withholding agent for PAYE, WHT and VAT and must issue eTIMS invoices. A trustee registers the trust for a PIN, files a return within six months of the year end, pays instalment tax at the corporate dates and withholds tax on distributions where required; a family trust registered under the Trustees (Perpetual Succession) Act keeps its registration current to retain the surviving exemptions. A cooperative files as a company and withholds 5% on members' dividends and interest; a charity applies for and renews its exemption certificate and files an annual return of income even where all of it is exempt, and loses the exemption if income is applied outside its objects or it trades outside its purpose. Late filing and payment penalties are those for companies (KES 20,000 or 5%) or individuals (KES 2,000 or 5%) as the case may be, plus 1% a month interest.
5Examinable focus
What KASNEB tests
The partnership computation and allocation, including a change in profit-sharing ratio or admission of a partner mid-year, is a staple; set out the adjusted profit, then a columnar allocation of salaries, interest and the balance, then each partner's total income and tax. Trusts and estates come as short parts on who is taxed and the 2026 double-taxation fix. Cooperatives and SACCOs appear in Advanced Taxation with the section 19A deduction and the SACCO's narrow base; charities and clubs as theory on the conditions for exemption and the 75% members' test. Insurance company computations are rarer but distinctive: general business (premiums less claims and reserves) versus life business (investment income of the fund).