Tax myths Ja­maican en­trepreneurs should avoid

Jamaica Gleaner - - BUSINESS - Serika Ster­ling Serika Ster­ling is a tax ac­coun­tant and managing di­rec­tor of Se­nior Ac­count­ing Ser­vices. stster­ling@sasjm.com I

YOU MAY have heard them from your busi­ness as­so­ciates, dis­cussed them at the of­fice or ar­gued over them with your rel­a­tives and friends – tax myths – but how do they get started in the first place?

It may be dif­fi­cult to say, but our tax sys­tem, which can be quite con­fus­ing, is def­i­nitely a con­trib­u­tor.

Re­gard­less of how the myths start, some of these no­tions are clearly false, hav­ing been dis­proved by ex­perts, and, in some cases, are clearly con­trary to our tax leg­is­la­tion and thus should not be a ba­sis on which you make your tax de­ci­sions.

Be­low are five of the most com­mon Ja­maican tax myths and the truth about each of them.

Myth 1: The busi­ness/ com­pany will not have a tax li­a­bil­ity if it is mak­ing a loss.

One could see how this im­pres­sion is formed. No profit equals no tax, right? This, how­ever, is not so clear-cut, and here are two rea­sons.

First, an en­tity’s ac­count­ing profit is not nec­es­sar­ily iden­ti­cal to its tax profit. This is be­cause the ac­count­ing stan­dards al­low for cer­tain ex­penses and val­u­a­tion meth­ods that are not al­lowed un­der our lo­cal tax leg­is­la­tion. For ex­am­ple, in­ter­est owed is a le­git­i­mate ex­pense for ac­count­ing pur­poses, how­ever, only in­ter­est paid is al­lowed for tax pur­poses. As a re­sult, you may have an ac­count­ing loss, but re­moval of this ex­pense may re­sult in a tax profit.

Sec­ond, there are a num­ber of taxes that are payable re­gard­less of prof­its and/or even in­come. These in­clude the min­i­mum busi­ness tax (MBT), gen­eral con­sump­tion tax (GCT), pay­roll taxes, and as­sets tax. Note that some of these taxes may come back to you in the form of tax cred­its, for ex­am­ple, the MBT you pay can be writ­ten off against your in­come tax li­a­bil­ity for the year. Here is where it ac­tu­ally pays to be com­pli­ant.

Myth 2: As a busi­ness owner, all my per­sonal ex­penses are tax de­ductible.

This might eas­ily be the most bla­tant false­hood on the list, how­ever, a sur­pris­ingly large num­ber of en­trepreneurs be­lieve this to be true.

Ex­penses such as your chil­dren’s tu­ition fee, res­i­den­tial mort­gage, va­ca­tion, etc, are not al­low­able de­duc­tions, for tax pur­poses. Our Ja­maican tax leg­is­la­tion only al­lows ex­penses wholly and ex­clu­sively in­curred in earn­ing the in­come of the busi­ness, with a few al­lowances made for cer­tain non-busi­ness ex­penses, such as char­i­ta­ble do­na­tions made to an ap­proved en­tity.

Where ex­penses that serve both a busi­ness and per­sonal pur­pose are un­avoid­ably com­min­gled, a tax de­duc­tion is only al­lowed for the por­tion of the ex­pense that re­lates to the busi­ness. For ex­am­ple, ex­penses re­lated to a home of­fice must be ap­por­tioned to the busi­ness on a rea­son­able ba­sis, such as square footage.

Myth 3: I only pay over GCT to the tax au­thor­i­ties when I col­lect it.

This is only ac­cept­able if the reg­is­tered tax­payer sat­is­fies cer­tain cri­te­ria and has been granted ap­proval by Tax Ad­min­is­tra­tion Ja­maica (TAJ), to ac­count for GCT on a cash ba­sis.

All other reg­is­tered tax­pay­ers — that is, those earn­ing more than $3 mil­lion per year in rev­enue from their tax­able ac­tiv­ity — are ex­pected to charge GCT, file monthly GCT re­turns, and pay over the amount due for the pe­riod being re­ported on, whether or not you have col­lected the GCT.

Seems a bit un­fair? Not to worry, the GCT Act grants re­course for per­sons who are un­able to col­lect the GCT charged within a rea­son­able time.

Myth 4: I can’t win if I dis­agree with the tax au­thor­i­ties.

It may ap­pear that TAJ al­ways wins, but this could not be more fur­ther from the truth.

Our tax leg­is­la­tion is there to pro­vide guid­ance in most taxre­lated mat­ters. If you dis­agree with a de­ci­sion made by TAJ, you have the right to chal­lenge that de­ci­sion. Whether on the bases of pro­vi­sions in the tax leg­is­la­tion or de­ci­sion made at com­mon law, that is, de­ci­sions handed down in pre­vi­ous court cases.

It is best to con­sult with a tax pro­fes­sional, in these sit­u­a­tions, who can ad­vise you of your op­tions and pro­vide guid­ance. You may not win in all cases. How­ever, there are enough prior cases to show that it is pos­si­ble to chal­lenge TAJ and have the courts rule in your favour.

Myth 5: All ac­coun­tants are tax ex­perts.

Just be­cause some­one is a cer­ti­fied ac­coun­tant (CPA, ACCA or CA) it does not mean he or she is a tax ex­pert. It may sur­prise you to know that the CPA and ACCA cur­ric­ula do not cover Ja­maican tax. Fur­ther­more, tax laws and reg­u­la­tions are con­tin­u­ously changed and up­dated, mak­ing it hard for ac­coun­tants, with­out di­rect ex­pe­ri­ence in the tax-prepa­ra­tion field, to keep up on tax laws. You should, there­fore, en­sure that the per­son who pre­pares your taxes has ver­i­fi­able tax ex­pe­ri­ence.

It is re­ally no sur­prise that there are so many tax myths. Fall­ing for any of these myths can have se­ri­ous fi­nan­cial con­se­quences for you. Ev­ery tax­payer is ul­ti­mately re­spon­si­ble for the ac­cu­racy of their tax fil­ings, whether or not it was pre­pared by an ac­coun­tant. As such, en­sure that your tax de­ci­sions are made on facts, not myths.

A tax col­lec­torate at Cross Roads, Kingston.

GUEST COLUM­NIST

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