Case 2 In October 2019 Sheldon Anthony was considering setting up a business in either Trinidad & Tobago or Jamaica.

Income Statement Projection for 2020 is as follows: USD Income

Sales 100,000

Interest Income 1,500

Dividend Income 5,500

Expenses Depreciation 20,000

Interest Expenses (1) 7,000

Repairs & Maintenance 1,500

Legal & professional fees (2) 8,000

Salaries 30,000 Bad debts (3) 3,000

Other Expenses (4) 20,000

Notes

1. All Interest was paid and as such there was no accrued interest at year end

2. Professional fees consist of:

Audit and accountancy fees $3,600

Legal fees re collection of bad debts $2,000

Cost of setting up business in the selected location $900

Architects fee for designing a new Warehouse which was not used $1,500

3. The Bad debts represents a debt which is outstanding for 180 days.

4. Other expenses include $1,000 for expenses paid for another company owned by Sheldon and $600 for fines and penalties.

The following assets were acquired in 2020:

Asset Cost $

1 Honda Motor car purchased in March 2020 38,000

Equipment 50,000

Computes 4,000

Office Building 72,000

5. Based on your research the capital allowance rates in Trinidad & Tobago are calculated on the reducing balance and the rates are as follows:

- Building and improvements 10% - Motor vehicles - 30% - Equipment and Computer equipment 33.33%

6. The Capital Allowance Rate Sheet for Jamaica is attached.

7. Estimated Tax of $700 was paid to the relevant Tax Authority.

8. Assume Exchange Rates: J$ 140: 1 USD and TT$ 6 :1 USD

9. Corporation Tax Rate in Jamaica is 25%.

The Corporation Tax rate in Trinidad is 25% on the first TTD 1 million of chargeable income, and 30% on chargeable income in excess of TTD 1 million.

Required

a. Assuming the projection represents actual amounts, calculate the Corporation Tax payable/ refundable for 2020 if the business operates in Jamaica or Trinidad. (10 marks). Calculation should be for only one country.

b. What would be the difference in capital allowance for 2021 if the company operates in Trinidad and Tobago compared to operating in Jamaica. (6 marks)

c. Advise Sheldon on circumstances in which obtaining capital allowances on the reducing balance basis is more beneficial. (2 marks)

d. Sheldon would like to know whether he should consider payroll taxes and sales taxes. If he should, he would like to know the applicable rates, thresholds, registration and reporting requirements. Advise Sheldon on these requirements if he were to operate in Jamaica or Trinidad & Tobago. (5 marks) (answer for one country only)

e. Identify 2 documents that must accompany the Corporation Tax return when it is filed. (2 marks)

Table 1:Capital Allowance Rates CATEGORY INITIAL ALLOWANCE PERIOD RATE ANNUAL ALLOWANCE RATE 1. BUILDINGS Industrial buildings Non-industrial buildings 20% 0% See below See be- low Annual allowance- All Commercial Buildings: (*) Buildings & structures primarily constructed of concrete, steel brick, stone cement or similar materials 25 years 10 years 10% (0) Buildings & structures primarily constructed of other inorganic materials such as galvanized iron, corrugated metal or similar analerin (c) Benildings & structures primarily constructed of wood or other organic materials 8 years 12.5% 8 years 12.5% 5 years 20% 2. PLANT & MACHINERY (a) Machinery directly used in the production of primary products 25% or in the manufacture or automated packaging of goods (6) Automatic data processing equipment calculators, cash regis- 25% ters and other equipment falling within (Tariff Headings 84.70 and $4.71) as well as parts/accessories therear (c) Equipment faling within Tanit Headings $1.69.8.72 as wel0% as parts/accessories thereof. (d) Telephones and other equipment falling within Tanit Heading 85.17 as well as parts and accessories thereof (e) Other plant & machinery 0% 5 years 20% 3 years 12.396 8 years 12.5% 3. MOTOR VEHICLES a) Private motor vented on a cap US$35.000 () Trade vehicle (c) Rent-a-car Tour bus/PPV taxi 5 years 5 years 20% 20% 5 years 20% Intangibles (a) Scientific research and development (5) Intellectual Property Rights a. Cost less than USG 000 Cost greater than US$10,000 20% Approx. 7.14% 5 years 14 years Table 1:Capital Allowance Rates CATEGORY INITIAL ALLOWANCE PERIOD RATE ANNUAL ALLOWANCE RATE 1. BUILDINGS Industrial buildings Non-industrial buildings 20% 0% See below See be- low Annual allowance- All Commercial Buildings: (*) Buildings & structures primarily constructed of concrete, steel brick, stone cement or similar materials 25 years 10 years 10% (0) Buildings & structures primarily constructed of other inorganic materials such as galvanized iron, corrugated metal or similar analerin (c) Benildings & structures primarily constructed of wood or other organic materials 8 years 12.5% 8 years 12.5% 5 years 20% 2. PLANT & MACHINERY (a) Machinery directly used in the production of primary products 25% or in the manufacture or automated packaging of goods (6) Automatic data processing equipment calculators, cash regis- 25% ters and other equipment falling within (Tariff Headings 84.70 and $4.71) as well as parts/accessories therear (c) Equipment faling within Tanit Headings $1.69.8.72 as wel0% as parts/accessories thereof. (d) Telephones and other equipment falling within Tanit Heading 85.17 as well as parts and accessories thereof (e) Other plant & machinery 0% 5 years 20% 3 years 12.396 8 years 12.5% 3. MOTOR VEHICLES a) Private motor vented on a cap US$35.000 () Trade vehicle (c) Rent-a-car Tour bus/PPV taxi 5 years 5 years 20% 20% 5 years 20% Intangibles (a) Scientific research and development (5) Intellectual Property Rights a. Cost less than USG 000 Cost greater than US$10,000 20% Approx. 7.14% 5 years 14 years