5 PROVEN Ways to REDUCE your tax liability

 

Great Accounting Advice from http://www.RobinsonAccountants.com

Tax planning and preparation is a year round affair but it takes on an even greater significance the closer it gets to the end of the year of assessment. Below are 5 ways you can lower your tax liability: 

• Pay your taxes on time. This may sound like a basic suggestion, however it is amazing how many persons and companies fail to do so.
  • If your General Consumption Tax (GCT) payment is 1 day late, you will incur a penalty of 30% of the sum payable subject to a minimum amount. Persons and Companies who have been late find out they carry a large liability for tax due to a late payment of GCT.
  • Statutory liabilities are due and payable by the 14th day of the following month. If this is not paid on time you will incur a penalty.
  • Non filing of income tax returns carries a penalty and makes a taxpayer subject to the possibility of a tax assessment.
• Tax payers who pay PAYE (Pay as You Earn) taxes must report any additional income on an I T zero 1 (IT01) form or the soon to be implemented S zero 4 (S04) form. For example, many professionals such as Doctors or Lawyers open private practices in addition to their regular employment. If the expenses for this additional practice exceeds the income received during the year being assessed, this can result in a tax refund. In addition, assets purchased for this additional private practice may be subject to capital allowances and this will decrease the amount payable for taxes.
• Persons may own property and choose to rent their property in addition to their regular employment. If rental income has not been collected during the year of assessment it should not be declared as income. However, expenses such as rates and utilities, maintenance, and mortgage interest can be declared as expenses and this can reduce the amount of tax owed.
• A possible way you can increase your income is to invest on the Jamaica Stock Exchange (JSE). Section 12(v) of the Income Tax Act clearly states that if you are not a dealer, and your gains are less than 50% of your other sources of income, your gains on the JSE are exempt from taxation.
• Employ a good accountant. A good accountant will save you money through tax advice and planning because they will understand the nature of your business and the details of taxation.

 

Remember tax planning includes different aspects and it is an important element of operating a profitable and sustainable business. A good accountant will help you navigate all the difficulties so that you pay no more than you owe.

 

Contact us : Robinson_Associates@CWJamaica.com for more information and to get started now on SAVING!

Tel: 876-984-2542

Tax Information Update

Taxpayers who supply goods and services to Government Agencies are required to add three steps to the processing of their General Consumption Tax (GCT) returns. The steps are:

1. Fill out details of withholding tax certificates on Table 1, based on Form 5 or a withholding Tax Certificate from a Government Agency or Department;

2. Summarize Table 1 and place the result in Box 23A of the revised Form 4A;

3. E-file the completed new GCT Form 4A.

Table 1 is an addition to the revised Form 4A. If the taxpayer has been e-filing then step 3 will not be new.

The taxpayer can imprudently avoid the steps by not taking credit for the GCT output tax charged or by not providing goods and services to Government Entities. By not taking credit for the goods supplied the taxpayer will pay over the output tax in their GCT returns. By not supplying Government entities a source of income flow is avoided.

Filing returns using the internet allows the revenue system to track the credit built up in the system by comparing the tax certificate number on the GCT returns with the records uploaded to the system. The government will also be able to follow the paying of the output tax by the relevant Department and the credit in the system. Notably, this tracking or following would be cumbersome in the present legacy system at the Tax Office. E-filing therefore facilitates Government collection process.

From time to time we are informed of Government Agencies who owe millions for various tax types particularly those related to payroll deductions. It seems therefore that the new system seeks to prevent evasion by Entities that may feel they can circumnavigate output tax when it is charged. The Government is improving its accounting system, but how does this improvement make it easier for taxpayers to pay their tax liabilities?

The jury is still deliberating this issue.

Understanding Income Tax

Think of it – employees earning below the taxable threshold level of $507,312 annually in 2014

only pay 2¼% tax on their taxable income. This tax is after deductions of national insurance and

This is termed education tax. In 2015 the threshold level will be $557, 232. The other

deductions paid by the employee are National Insurance (NI) and National Housing Trust (NHT)

and these are benefits to the employees. NI is paid back as pension upon retirement or in cases

of disability or invalidity NHT is refundable after 7 years with interest. NHT also entitles the

contributors to benefits from the pooled funds.

What the above says is that employees must now become vigilant in demanding that their

contributions along with the matching portions be paid promptly to the Inland Revenue.

Employers are required by law (Section 26 of the Second Schedule of The Income Tax Act) to

pay all deductions within 14 days of the income tax month. The onus of making returns is on the employer and the matching portions of 3% for NHT and

2.5% for NI are the responsibility of the employer. The employer must also pay 3% for Human

Employment and Resource Training (HEART) under certain circumstances and 3.5% for

Education Tax.

Education Tax

We have discussed the concept of employment for service and employment of service before.

You could look at the issue as one of independent contractor (employment for service) and

employee (employment of service). The acid test is that someone is an independent contractor

if the person providing compensation has the right to control or direct only the result of the

work and not what will be done and how it will be done. If however, the person paying has the

right to not only control or direct the result of the work, but also what will be done and how it

will be done, then the person supplying the service is an employee. We have examined a number of small business entities and have concluded that the

receptionists in an accountant’s office is an employee but the accountant who travels from

business to business to ply her trade, while her receptionist carries out certain function at her

office is not an employee of those businesses where she plies her trade. Neither is the plumber

who corrects plumbing issues at different businesses? However if the plumber works for a

Maintenance Firm and is paid wages by that firm such a plumber is an employee despite the

fact that the plumber travels from place to place to do work on behalf of the Maintenance Firm.

 

Many business persons who have employees as well as independent contractors do not

understand the rules for preparing a tax return. Some business persons prefer to use their time

to concentrate on their core business so they contact an independent tax preparer like A&N

Robinson & Associates or the Tax Office to prepare their tax returns. Soon all persons will be

required to file a tax return therefore whether you are an independent contractor or an

employee, the cards presage that you too will soon be filing a tax return.

A business person cannot decide to convert his/her staff to independent contractors without

first contemplating the general rule posited above. For if the TAJ (Tax Administration Jamaica)

rules that a contract of service ostensibly with an employee exists, instead of a contract for

service presumably with an independent contractor, the business person will become liable for

all statutory deductions associated with a contract of service or an employee status.

 

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New Tax Administration Initiative

TAJ TO IMPLEMENT THIRD PARTY INFORMATION PROVISIONS

Tax Administration Jamaica (TAJ) is set to implement third party information provisions of the Revenue Administration Act of 2013 on a phased basis. As a result, beginning in the new financial year (starting April 2014) businesses in selected sectors will be required to submit information details relating to their depositors, independent contractors, suppliers and business customers.

A report on your business customers means that you have sold goods and or services which became expense in others’ businesses. The trick then is for those persons to recover their expenses and make a profit. It is the profit that then becomes taxable. If you operate a business you must be registered for taxation.

All exchange of money for goods or services must be tracked

 

Reporting these transactions signals that you have purchased goods for resale from persons conducting businesses. Such persons should be registered for tax including General Consumption Tax (GCT) if sales are above the threshold. The goods you purchased are expenses to you and income to the suppliers.

Independent contractors and those persons who moonlight must pay tax on the additional income that they earn. Independent contractors and moonlighters are expense items in the businesses that pay these expenses. These expenses are allowable for reducing income and so the persons receiving the payments would have earned taxable income.

The “Money Laundering Act” is a Government Regulation that makes Money Laundering a Crime

Deposits in deposit-taking institution may be earnings from income not yet taxed, residual or after tax income, holding of values in a fiduciary relationship, capital gains on the disposal of assets, gains on the stock exchange, winnings in a game of chance operation , loans and so on. In all these cases, taxpayers are required to show proof of the source of the deposit even though this may have been done so when the deposits were made under The Money Laundering Act.

Not all deposits are taxable income so keeping record of your deposit is a good way of remembering and declaring your taxable income.

The Income Tax Act and decided cases can guide you in the treatment of your income for taxes. The compliant taxpayer should not be daunted by the above.

A&N Robinson and Associates can guide you through the process of preparing your tax returns. Contact us through the contact form below

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