A case of JK Country Homes Limited v URA.
Across the globe, shareholder loans have long been a convenient way for investors to support their companies. In their simplest form, these are advances of money by a shareholder to the company, often structured like debt but without the bureaucratic hurdles of bank financing. For small businesses and family-owned firms, shareholder loans can mean the difference between expansion and stagnation, since banks may hesitate to lend against risky ventures. In many jurisdictions, tax laws recognize these loans as legitimate business finance, provided the transaction is transparent, well-documented, and consistent with the company’s governance rules.
In Uganda, however, the treatment of shareholder loans has been an area of both opportunity and abuse. While the Income Tax Act allows businesses to deduct expenses “wholly and exclusively incurred in the production of income,” the Uganda Revenue Authority (URA) has, in practice, demanded strict proof. Without clear documentation, loan agreements, board resolutions, and records of repayment, URA tends to classify such loans as personal injections by owners rather than genuine corporate obligations. The courts and the Tax Appeals Tribunal have, in past cases, echoed this caution, reminding businesses that the corporate veil cannot be casually lifted to cover personal financial dealings.
This history frames the recent case of JK Country Homes Limited v URA, decided on 15 August 2025, which has now reignited the debate. At issue was whether a shareholder’s personal loan, used to finance property that generated rental income, could be deducted by the company as an allowable expense. Mr. Omiat John, a shareholder in JK Country Homes, had borrowed from Stanbic Bank in his personal name to develop real estate. The company claimed the interest and related costs as deductions in computing its rental income. The authority disallowed the loan and related expenses, reasoning that the borrowing had been obtained in Omiat’s personal capacity, not in the name of the applicant company. On that basis, URA raised an income tax assessment against JK Country Homes.
The company pushed back. It argued that URA had wrongly applied and interpreted the 2022 amendment to the Income Tax Act (ITA), misapplying a rental regime meant for individuals to a corporate entity. According to the applicant, “all expenses incurred in the production of rental income by a non-individual are deductible without any capping.” Evidence of the loan, its purpose, and the ongoing repayment obligations was provided as proof.
But URA countered with a sharp legal distinction. It maintained that the loan had been obtained in Omiat’s personal capacity, not as a corporate obligation. Without board resolutions, shareholder agreements, or corporate undertakings showing the company had assumed liability or reimbursed Omiat, URA insisted the expenses could not be considered deductible.
The Tribunal’s ruling left no ambiguity. On the question of timing, it clarified that the 2022 ITA amendment could not be applied retroactively to an audit period already closed. “The correct provision for determining the allowable expenses is the one repealed by the 2022 amendment,” the ruling stated. But when it came to ownership of the loan, the tribunal was categorical: “There is nothing in the agreement that suggests that Omiat John borrowed on behalf of the applicant.”
In a decisive reaffirmation of corporate law, TAT underscored the enduring relevance of the Salomon v. Salomon principle:
“A company is distinct from its shareholders and directors.” Without evidence that JK Country Homes had formally taken on the loan, the tribunal concluded that URA had acted correctly in disallowing the expenses.
Beyond the loan itself, the tribunal also addressed another critical point, the difference between personal or domestic expenses and those incurred “in the actual production of rental income.” URA demonstrated that several expenses claimed by JK Country Homes, including facilitation, condolence fees, and medical costs, were in fact personal in nature. These, TAT ruled, could not be allowed. In its words: “Expenses claimed for rental income purposes must be directly related to production of the rental income.”
The implications of this ruling extend far beyond a single company. For businesses in the real estate and rental sector, the decision provides a sobering checklist. Documentation is king: without board resolutions, agreements, or financial records, loans taken by directors or shareholders in their personal names cannot be treated as company loans. The corporate veil stands strong: shareholders cannot casually merge personal financial activities with those of the company for tax benefits. Timing matters: tax provisions cannot be retroactively applied; the law in force during the audit period controls. And most importantly, the line between private and business expenses will be closely scrutinized.
Tax practitioners were quick to draw lessons. One senior accountant commented, “This ruling is a wake-up call for companies to strengthen corporate governance. It’s not enough for a shareholder to spend money and later expect the company to treat it as its own. The documentation trail must be iron-clad.” Another analyst emphasized the broader tax policy implications. The tribunal is sending a message that tax deductibility will be strictly tied to a proven business purpose. This reduces room for abuse and protects the integrity of the tax base.
The lessons are clear to taxpayers that loans intended for business purposes must be applied for, documented, and serviced in the company’s name, not that of an individual shareholder. Companies must maintain strong internal controls, with board resolutions and agreements reflecting corporate decisions to assume obligations. And directors must carefully separate personal from company expenses, avoiding blurred lines that invite disallowances and assessments.
The JK Country Homes case stands as a cautionary tale. In the tribunal’s own words: “The admission and evidence of the loan and mortgage in Omiat’s personal capacity show that the property and rental income belong to an individual and not the company.”
For Uganda’s business community, the message is unmistakable: compliance is not only about paying taxes, but about discipline in corporate identity, transparency in documentation, and a razor-sharp focus on income-producing activity. As URA sharpens its audit tools and tribunals uphold strict standards, companies that fail to separate the pockets of shareholders from those of the corporation may soon find themselves, like JK Country Homes, at the wrong end of a tax assessment.
The writer is a Chartered Accountant and a Chartered Tax Advisor.