Question One Sole Trader Taxation

Caterers Wholesale is owned and managed by Serena Willie. For the year to December 31^st, 2021, Serena showed the following results for the entitys operations:

Gross Profit 415,000,000

Expenses:

Depreciation 50,000,000

Legal expenses 24,000,000

Donations 1,000,000

Bad debts 19,000,000

Wages and Salaries 100,000,000

Travel 10,000,000

Miscellaneous expenses 90,000,000

Advertising 20,000,000

Loss on disposal 1,000,000

Utilities 10,000,000 (325,000,000)

Profit before taxes 90,000,000

Notes:

1. Legal expenses comprise $12,000,000 for debt recovery, $8,000,000 to assist in the purchase of a machine on January 1, 2021 and the remainder incurred to defend an income tax case. Serena was unsuccessful in her defence.

2. All the amounts donated were related to registered charities on the approved charitable list, except for $200,000, which was donated to the Yout Dem Club in her community. This is not a registered charity.

3. Included in the bad debts is an estimate of $15,000,000 for Provision for Bad debts and the remainder is a specific debt for Vika Azeranko.

4. Travel includes $7,000,000 incurred to negotiate new business agreements. The remainder relates to airline tickets for family vacation and pocket money for Suzie and Cutie, Serenas daughters.

5. Advertising relates to the construction of a new billboard. Construction was completed on

January 1, 2021. Similar billboards are allowed 20% annually by Tax Administration. Jamaica.

6. The Loss on Disposal was for a Truck which was sold during the year for $ 1,000,000 with a written down value of $2,000,000. This amount has been included in the Capital allowances in (vii) below.

7. Capital allowance for the year is as follows:

Initial Allowances $8,000,000

Annual Allowances $7,000,000

Balancing allowances $5,000,000

8. Miscellaneous expense includes premiums of $100,000 monthly for the owner (Guardian insurance). The owners husband is the beneficiary of the policy.

9. The amount for wages and salaries includes $10 million paid to the owners husband for accounting services rendered when the effective market rate for the same service was only $3 million; Serena also takes a Salary of 12million.

10. Serena paid rent, electricity and water charges for the year of $4,800,000, $4,500,000 and $700,000 respectively. It was further ascertained that only 80% of the charges relate to the business. The remainder is attributed to her home that is located above the business premises. All amounts were paid in cash during the year of assessment.

Required:

1. Calculate and set out the Income Tax payable for the year 2021, with detailed supporting notes, assumptions and explanations. (50%)