Small Business Person

Small Business Person

A small business owner is the owner of a business that's considered small in terms of its work force, sales volume or organizational structure.

The term small business person includes the sole trader, proprietor, self-employed individual, and partners within a partnership.

Small businesses are privately owned corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation.

Initial Contact With The Inland Revenue Division

Registration - The small businessperson including the partners in a partnership and the partnership should register for the following at the Registration Unit of the Inland Revenue Division:

BIR Number (Individual)

• Submit a copy of the Certificate of Registration from the Registrar General (if a Trade Name is registered) and a completed application form.

  An Income Tax file number and an Individual Income Tax (IIT) Account number will be assigned after the taxpayer is interviewed and provides all pertinent data. The Income Tax file number, unique to the taxpayer, will be issued to him once and should be quoted in all communications with the Inland Revenue Division. This number is also used when making payments in respect of quarterly instalment of Tax, Business Levy and Health Surcharge for the small businessperson.

BIR Number (Partnership)

• Where the business is to be conducted as a partnership, the partnership is also required to have a BIR file number and a Green Fund Levy account, which can be obtained by submitting the completed application form, a copy of the Certificate of Registration and a list of the names, addresses and file numbers of all partners. (Each partner is required to have a BIR file number. If any of the partners does not have a file number, then the procedure for an Individual above applies.)

PAYE Number

• If you are going to employ staff, you are also required to have a PAYE Account No. Where possible this number should be applied for at the same time as the BIR number. This number is to be used when remitting deductions made in respect of PAYE and Health Surcharge from the salary/wages of your employees. This number is different from the sole proprietor’s Board of Inland Revenue file number (this number will be preceded by the letters PYE).

  NOTE: All employees MUST have a BIR Number

  .

VAT Number

• Where the gross annual income/sales of the business exceeds $500,000, the person must register for Value Added Tax (VAT).

  More details: Value Added Tax.

Definitions

“Total Income” means the aggregate amount of income under Section 5 of the Income Tax Act before allowing any deductions other than those under Section 10, 11, and 16 of the Income Tax (In Aid of Industry) Act.

“Allowable Deductions” means any deduction allowed in accordance with the Income Tax Act in determining a person’s chargeable income.

“Chargeable Income” means the aggregate amount of the income of any person from the sources specified in section 5, remaining after allowing the appropriate deductions and exemptions under the Income Tax Act Chapter 75:01.

“Employer” means any person paying emoluments whether on his own account or on behalf of another person to an employee, and shall be deemed to include any person paying emoluments whether on his own account or on behalf of another person, to the holder of an office. In relation to an employee or officer, “employer” means the person from whom the employee or officer receives his remuneration.

“Employee” means any person, not being the holder of an office, in receipt of emoluments.

“Emoluments” means all salary, wages, bonus, overtime, remuneration, perquisites, including value of board or lodging, stipend, commission or other amounts for services, directors fees, retiring allowances or pensions, arising or accruing in or derived from or received in Trinidad and Tobago and which are assessable to income tax, Strong>but shall not include any salary or share of profits arising from a trade, profession or vocation carried on by any person either by himself or in partnership with any other person.

“Trade” includes a business, and every trade, manufacture, adventure or concern in the nature of a trade or business.

Business Records

The Income Tax Act [Section 116(1)] requires every person engaged in any trade, business, profession or vocation to keep proper records and books of accounts, including records of annual inventory (stock).

These records must be kept-

• in the English Language
• at the place of business or at the residence of the proprietor
• in T&T currency (TTD)
• in such a form that provides necessary information that enables the Board to determine the correct tax liability.

If a proprietor finds it necessary to keep his records at a place other than his business place or residence, he must apply to the Board of Inland Revenue for prior approval. The Board will not give approval for the records and books of accounts of a business to be kept in any country other than Trinidad and Tobago.

Where a person fails to keep adequate records, the Board may require him to keep such books and accounts and records which it may specify and that person is required to comply.

Required Records for each financial Period

1. Purchases Book

   Used to record all purchases (stock) for the business.

2. Sales Book

   Used to record all business sales on a daily basis.

3. Record of Expenses

   Used to record details of all business expenses (other than purchases) incurred.

   N.B. Expenses, which relate to the proprietor’s private affairs, must not be charged against the profits of the business [See Business Expenses].

   Example: If rent is paid by a proprietor for a property, which he uses both for operating a business and as his private residence, only that portion of the rent applicable to the business venture is deductible as an allowable expense for income tax purposes.

   No deduction shall be allowed from the income, in respect of rental payments incurred for the purposes of the production of income unless information relating to such payments and to the payee is furnished to the Board in a form approved by the Board. The relevant schedule on the Tax return must also be completed. Examples of other expenses that may have both private and business use include Telephone, Electricity and Motor Vehicle Operating Expenses.

4. Stock Sheets

   An inventory of items of stock on hand may be prepared periodically during the year, but must be prepared at the end of the financial period.

   The stock on hand that has been counted should be valued on the basis of lower of cost or net realisable value.

   The method of stock valuation should be consistent, as the value of closing stock will become the figure for opening stock in the succeeding year. If the method of valuation is changed at any time during the accounting period, the Board will require both opening and closing stocks to be valued on the new basis.

5. Wages and Salaries Book

   A record of salaries and wages paid to employees, including casual workers, must be kept. Where salary is paid in cash, the employees should certify in a salary record book or pay sheet that they received the emoluments stated. A record of Income Tax, Health Surcharge and NIS deductions must be kept.

   Employers are also required to keep on file TD1 Forms/Certificates of Approval submitted by all their employees. These should show all allowable (approved) deductions.

   Proprietor’s salary: Salary paid to a sole proprietor is not allowed as a deduction for income tax purposes. Where the proprietor of a business makes such a deduction, the amount will be added back to the net profit.

   Spouse’s salary: Salary paid to one’s spouse who is employed in the business is an allowable expense, provided that the amount paid is reasonable for the type of duty performed.

6. Debtors and Creditors Ledgers

   Ledgers which show transactions with debtors and creditors.

7. Assets Register

   Record of all assets owned by the business. This will show

   1. in the case of acquisitions - a description of the asset, serial number etc. and the date and cost of acquisition;
   2. in the case of disposals - the date of disposal and proceeds of disposal.

   The information in this register will be useful in computing Wear and Tear at the end of each income year.

   Where plant and machinery or a building used exclusively to house such plant and machinery is acquired on or after 1/1/95, the asset is required to be placed into one of the four classes, A, B, C, or, D in accordance with the 7th schedule and Wear and Tear is to be computed on the value of the assets in the pool at the rate applicable to that class.

   With effect from January 01, 2006 assets acquired prior to 1995 must be placed into a class specified in Schedule Seven and the relevant percentage rate must be applied to the written down value to date to determine the Wear and Tear Allowance on such assets.

   With effect from January 01, 2006 and subject to section 11B wear & tear allowance is allowed at the rate of 10 % on the reducing balance of the capital expenditure incurred in the construction of or improvement to a building/structure completed on or after 1/1/95 and used in a trade, business, profession or vocation for the production of the income.

Income

Types of Income

There are two types of income-

1. Emolument – See “Definitions” above.
2. Non – Emolument Income – This is derived from trade or business. It includes profits from trade/business, professional practice; royalties, rents dividends, short-term capital gains etc. See section 5 of the Income Tax Act.

The Small Businessperson is generally charged tax each year on his non-emolument income subject to the provisions of the Income Tax Act.

The person who receives both Non- Emolument and Emolument Income may be required to pay tax on both types of income.

Where the Non – Emolument income exceeds 25% of the total income, the person is required to pay quarterly instalments on such income.

The Small Business Person must include the income received from all sources on his annual income tax return.

Rents

Unless an exemption from income tax has been granted for rental income by the Minister responsible for Housing, the income from rents, premiums and other profits from the letting of property is taxable.

Where approval of the Minister responsible for housing has been granted, the exemption as to rents shall apply only where the monthly rental income in respect of-

1. an unfurnished letting is $750 or less;
2. an unfurnished letting, in connection with which services are provided, is $825 or less;
3. a furnished letting is $900 or less;
4. a furnished letting, in connection with which services are provided, is $975 or less.

The exemption with respect to the above-mentioned rents is void where the monthly rental exceeds the above-mentioned levels in any month of the year whether payable to the owner or to any other person.

“Furnished Letting,” means a house rented with furniture consisting of a stove, a refrigerator, and bed and living and dining room furniture.

“Service” includes any utility for which the landlord pays the supplier of that utility.

Where the income from the property is exempt under the Housing Act, a Certificate of Exemption must be submitted with each Income Tax Return filed.

The Ministry of Housing determines the validity of applications for exemption and issues the Certificate of Exemption.

Where such a certificate has been issued, the taxpayer is still entitled to deduct the related expenses even though the rent received for the property will not be brought into charge for income tax purposes.

Dividends

From 1995 dividends other than preference dividends paid by a resident company (listed and unlisted) to a resident individual are exempt from tax. Preference dividends, however, continue to be subject to the 15% tax at source. The remainder is deemed not to be income to the individual for tax purposes.

With effect from January 1, 2004 interest payable on dividend to a resident individual is exempt from tax.

Capital Gains

Any gain, which accrues on the disposal of certain assets within twelve (12) months of acquisition, is taxable and should be declared in the Income Tax Return using the relevant schedule.

Adequate records on the date of acquisition and purchase price, together with the date of disposal and selling price, should be kept.

Assets, which are chargeable to Short Term Capital Gains Tax, are all forms of property whether situated in Trinidad and Tobago or not.

These include:

1. Options, debts and incorporeal generally;
2. Any form of property created by the person who is disposing of it, such as goodwill, patents and copyrights;
3. Any currency other than the currency of Trinidad and Tobago.

Assets that are exempt include:

1. Currency other than Trinidad and Tobago currency where acquired for personal expenditure abroad by the taxpayer or his family or dependents (including expenditure on the provisions or maintenance of any residence outside Trinidad and Tobago).
2. Sums obtained by way of compensation or damages for any wrong or injury suffered by an individual in his profession or vocation.
3. Winnings received from betting lawfully carried on under or by virtue of the provisions of the Gambling and Betting Act, 1973 including pool betting and lotteries or games with prizes.
4. Gains accruing on the disposal of an asset by an individual or a company, which, under the provisions of the Income Tax Act or of the Corporation Tax Act, is exempt from tax.
5. Gains accruing on the disposal of any security in Trinidad and Tobago.
6. Gains accruing on the disposal of –
   1. Private motor cars;
   2. (b) Household goods;
   3. Owner-occupied houses disposed of for $5,000 or under.

   In computing the Capital Gains, which can arise on the disposal of an asset, allowable deductions include:

   1. Cost price (money or money’s worth) of the asset, together with other expenses incidental to the acquisition, including legal fees, stamp duty, advertising or the amount incurred in providing the assets;

   2. Any expenditure wholly and exclusively incurred in enhancing the value of the assets, provided that such improvements are evident and effective at the time of disposal (maintenance expenses are not allowable deductions);

   3. Any expense incurred in establishing, preserving or defending his title to, or to a right over, the asset;

   4. Costs wholly and exclusively incurred on the disposal of an asset, e.g. legal fees and agent’s fees. Losses under this head should also be declared by completion of the relevant schedule of the Income Tax Return. Such losses may be set off against capital gains in the same year of income. Any excess of losses over gains is not deductible from other sources, but may be carried forward to be set off against capital gains in subsequent years.

Business Expenses

A Small Business Person is allowed business expenses as a deduction in order to calculate his chargeable profit/income. Business expenses are the expenses incurred in the production of the income of the business.

The personal and private expenses of the Small Business Person are not allowed in determining the chargeable profit/income of the business.

Business Expenses may include, but are not limited to, the undermentioned:

• Accounting Charges
• Licences
• Advertising
• Management Charges
• Travelling Expenses
• Bad Debts
• Rents Paid
• Interest, Bank Charges
• Electricity
• Stationery/Postage
• ¹ Entertainment
• Wages & Salaries
• WASA Rates
• Wear & Tear
• Insurance Premiums
• Motor Vehicle operating Expenses
• Telephone

¹ 75% of these expenses are allowed

It should be noted that part of the expense may be allowed where a portion of the expense pertained to business use.

Rental

Where a person carries on a business at his place of residence and incurs an expense for rent, he is entitled to claim a business expense for rent in the ratio of the use of the property comparing business to residential.

Expenditure on repairs is only allowed where the repairs undertaken pertains to the area used for business purposes.

Wear & Tear

Wear & Tear is allowed as a Business Expense. It allows the individual to write off the cost of the asset over its life cycle. The rates accepted are outlined.

NB. The wear and tear allowance will not be granted unless the Board is satisfied that Land and Building taxes have been paid for that year.

The Seventh Schedule is reproduced for your guidance.

(Sec. 11A of the I.T.A.)

Seventh Schedule

Balancing Charge/Allowance

Calculations

Whenever an asset on which “Wear and Tear” has been allowed during the course of its usage, is sold or disposed of at a price above or below the written-down value, a balancing charge or allowance, as the case may be, arises.

Effective 1/1/98 Balancing Allowances shall not be made until there are no assets left in the pool. Balancing Charges shall not be made until the value in the pool results in a credit balance.

Acquisitions

In computing Wear and Tear Allowances, the value of acquisition of plant or machinery in a year of income shall be added to the written down value of the plant and machinery in the pool.

Disposal

Where disposals are made during a year of income, the value of the plant and machinery disposed of shall be deducted from the written down value of the plant and machinery however:

1. in the event of a sale, the amount deducted shall be the proceeds of the sale of the plant and machinery or
2. in event of loss or destruction of plant or machinery, the amount deducted shall be the money received by way of insurance or compensation.

Private Use of Asset

Where the asset is used for both business and private purposes, the pool must be debited with the cost of the asset equivalent to its business use. Where an asset is disposed of, the pool shall be credited with the same percentage being applied to the proceeds of disposal up to the original cost of the asset.

Where assets are brought to the business from private use, the value to be applied will be the market value.

If an asset from the business is appropriated for private use, the amount (credited) deducted from the pool will be the market value.

In the case of any other event resulting in the cessation of interest in any plant/machinery, the amount to be deducted from the pool shall be the market value of the said item.

In no circumstances shall the amount credited to the pool exceed the original cost of the said Plant and Machinery.

Promotional Expenses

Effective 1/1/94 individuals involved in Trade/Business who have incurred promotional expenses which were wholly and exclusively expended in order to promote the expansion of existing foreign markets for the export of goods produced in Trinidad and Tobago and shipped in commercial quantities, are entitled to a deduction equivalent to 150% of the promotional expenses actually expended. This also applies to goods and agricultural produce manufactured or produced in T&T.

A person entitled to this deduction is not allowed another deduction under Section 10 (Profit and Loss Account) in respect of the same promotional expenses.

Promotional Expenses allowable are those incurred in respect of goods produced in Trinidad and Tobago. They are in respect of: -

• advertising in foreign markets;
• providing promotional literature for overseas distribution;
• the participation in trade fairs, trade missions and similar promotional activities;
• overseas travel for the purposes of conducting promotional activities;
• providing free samples and technical information on products;
• inviting buyers to Trinidad and Tobago;
• the recruitment of specialist sales personnel, operating in foreign market for a maximum of two years.
• conducting foreign market surveys.

This deduction does not apply to –

• expenses incurred in petroleum operations;
• expenses incurred in the export or the expanding of the export of services specified in 10A (1)(a) of the Income Tax Act or goods and agricultural produce manufactured or produce to the following countries –
  • Antigua,
  • Barbados,
  • Belize,
  • Dominica,
  • Grenada,
  • Guyana,
  • Jamaica,
  • Montserrat,
  • St. Lucia,
  • St. Vincent,
  • St. Kitts-Nevis.

Deduction As A Resident Individual

In addition to the business expenses, the Small Business Person is entitled to all other allowable deductions of the resident individual. These include deductions for:

• Personal Allowance
• Approved Pension Contribution/Approved Annuity Premium
• Alimony/Maintenance Payment
• First Time Home Owner Allowance
• Tertiary Education Expenses
• Covenanted Donations
• There are also some Tax Credits
  • Venture capital
  • CNG Kit and Cylinder
  • Solar Water Heating Equipment
  • Purchase of Tax Free Savings bonds

Computation Of Chargeable Profits

In calculating the chargeable profits, a small businessperson is entitled to deduct all expenses wholly and exclusively incurred in the production of that income, from his total income/sales.

All expenses claimed must be supported by proof of the expenditure such as bills, receipts and invoices. Expenses that relate to the proprietor’s private use MUST NOT be charged against the profits of the business.

Example – Calculation of Chargeable Profit

$194,000Chargeable Income/Profits As calculated by taxpayer$ 6,000<tr.$79,000

* This is the treatment where the proprietor deducted a salary paid to himself and also claimed 100% of entertainment expenses. N.B. Entertainment expense is limited to 75%.

Taxes

The Small Businessperson is required to pay his taxes to the Board of Inland Revenue in quarterly instalments each year. The types of taxes paid by the small businessperson are-

• Income Tax
• Business Levy
• Health Surcharge
• Green Fund Levy (Partnerships)

Late payment of all taxes will attract interest at the rate of 20% per annum from the due date to the date of payment.

Income Tax

This tax is charged on the chargeable profits of the business. It is calculated after allowing for Tax Deductions and Credit (if applicable) for the relevant income year.

The basis of calculating the estimated amount payable in the current year is:

• apply the tax rate to the chargeable income/profits of the previous year then divide it into four.

  Previous year chargeable income/profits x rate of tax
  4

This amount is to be paid quarterly on or before –

• March 31
• June 30
• September 30
• December 31

in each year of income.

Example: Calculation of quarterly instalment (2020)

The amount of $12,688 is payable on or before March 31, June 30, September 30 and December 31, 2020.

However, where the estimated chargeable income for a year of income exceeds or is likely to exceed the chargeable income of the preceding year of income, a person shall make quarterly payments on the basis of the estimated income of the current year.

If, by the end of the fourth quarter, instalments paid are less than the tax liability disclosed in the tax return, interest shall be charged on the difference between:

1. The tax liability on the chargeable income of the previous year of income plus 80% of the increase in the tax liability of the current year on the previous year of income; and
2. The total amount paid by the end of the fourth quarter.

Where a taxpayer is of the opinion that his business will produce an estimated chargeable income less than the chargeable income of the previous year, he may apply to the Board of Inland Revenue for a revision of his estimated chargeable income and the amount of tax he is required to pay by quarterly instalments.

Example: Calculation of Instalment for increased chargeable profit

NB: The outstanding 20% of increase is due by April 30 of the next year. Interest will accrue on short payment or non-payment of tax from the due date to date of payment at the rate of 20% per annum.

Tax Payment On Both Non-Emolument And Emolument Income

An individual, who is in receipt of both non-emolument income, (such as gains or profits from the operation of a trade or business, including income from partnerships or from the practice of a profession,) and emolument income (i.e. salary, wages, pensions, etc.), is required to pay tax by quarterly instalments, where the non-emolument income is more than 25 per cent of the total income.

Example 2020

NB: Non-emolument income is more than 25% of total income.

If we assume that the taxpayer was accurately charged to tax on his emolument income, the PAYE would be $15,375.

The quarterly installment to be paid

• = Profit from non-emolument income x 25%
• = $65,000 @ 25% - $16,250

Amount payable by quarterly instalments $16,250 ÷ 4 = $4,062.50

NOTE: The difference in the tax liability and the quarterly instalment would have been deducted by the employer via the PAYE System.

Business Levy

Business Levy is a tax on the gross sales/receipt of a person, other than emolument income, in excess of $360,000 effective January 2019.

Gross Sales/Receipt incorporates all income received in the ordinary course of business activities before allowing any deductions for business expenses.

The rate of Business Levy is 0.6% of the gross sales/receipts for each quarter of the current year of income.

The Business Levy is due and payable on a quarterly basis on or before:

• March 31
• June 30
• September 30
• December 31

in each year of income.

Interest on short payment of Business Levy

Where there is a short fall in payments of Business Levy, interest shall be charged on the difference between 90% of the Business Levy liability and the amount actually paid for each quarter.

For late payment of Business Levy, interest will be calculated at 20% per annum from the date following the end of the quarter when the Levy liability became due, to the date of payment.

Exemptions from Business Levy - Individuals

• The Gross Sales or Receipts of a person which are exempt from income tax under any Act.
• The income of a person whose emolument income exceeds 75% of his total income.
• The Gross Sales or Receipts of a person, whose Gross Sales or Receipts in the preceding year of income do not exceed $360,000, unless there are reasonable grounds to believe that the gross sales or receipts in that particular year will exceed that sum.
• The gross sales or receipts of the business of a person up to three (3) years from the date of commencement of business.

Computation Of Business Levy

All persons liable to make Business Levy payments are required to compute both their Income Tax and Business Levy Liabilities.

A person is entitled to a

Tax Credit against his Business Levy Liability

for a year of income,

of any payment made

in respect of

Income Tax Liability

for that year of income up to a

maximum of his Business Levy Liability

.

To calculate the Business Levy, the Gross Sales or Receipts figures to be used are the current ones; estimation is to be used only for the last few days, (1 – 3 days) of the quarter. When an estimation is made for any period in a quarter and it is subsequently determined that the actual sales or receipts are more than the previously estimated figures, the difference of the Business Levy liability must be paid no later than the last day of the quarter following the quarter in which the estimation was made.

Partnerships

With respect to a partnership, the Individual Partner’s Share of the Gross Sales/Receipts must exceed $360,000 to be liable for Business Levy.

NB: The partners are liable to this tax, not the partnership.

Green Fund Levy

Green Fund Levy is also a tax to be paid on the gross sales/receipts of any

company/partnership

carrying on business in Trinidad and Tobago whether or not such business is exempt from Business Levy.

This rate of the Green Fund Levy tax is 0.3% of gross receipts/sales.

The Sole Trader does not pay Green Fund Levy, however the organization of the Partnership is liable to this Levy. Green Fund Levy is paid using the Partnership BIR File number.

It is due and payable to the Board of Inland Revenue on a quarterly basis on or before:

• March 31
• June 30
• September 30
• December 31

in each year of income.

In ascertaining the gross sales or receipts of a quarter an estimate of the sales for the last 1-3 days of the quarter may be required.

Where estimation is made and the actual sales of that quarter exceed the estimated figure, the short payment must be paid by the end of the quarter immediately following that quarter in which the sales or receipts were estimated.

Interest on short payments or late payments

Where a partnership, which is liable to the quarterly payment of the Green Fund Levy, pays less than 90% of its liability at the end of the quarter; interest is charged at the rate of 20% per annum on the difference between the 90% of the liability and the amount paid.

This interest shall accrue from day following the end of the quarter in which the liability occurred to the date of payment.

Overpayment of the Green Fund Levy

Where the Board of Inland Revenue is satisfied that a partnership has overpaid the levy in any quarter, the partnership is entitled to a refund of the excess tax paid.

However, instead of making a refund, the Board may otherwise choose to apply the excess tax against any future liability and notify the partnership accordingly.

NOTE:

1. The Green Fund Levy shall be under the care and management of the Board of Inland Revenue.
2. “Company” means an incorporated body, unincorporated association and includes a partnership. The partnership must therefore pay this levy using the partnership BIR Number.

Health Surcharge

Health Surcharge shall be charged and is payable –

1. by every employed person who pays or is liable to pay contributions under the National Insurance Act; and,
2. by individuals other than employed persons who are liable to furnish a return of income.

The following are exempt from the Health Surcharge provision –

1. individuals under the age of 16 years;
2. persons who have attained the age of 60 years;
3. persons whose only source of income is from pension.

The rates at which the Surcharge payable are –

1. Employed persons whose monthly emoluments are more than $469.99 per month or weekly emoluments more than $109.00 - $8.25 per week. All other employed persons - $4.80 per week.
2. Individuals, other than employed persons, whose total income for the year averages more than $469.99 per month - $8.25 per week. All other individuals - $4.80 per week.

An individual, other than an employed person, shall pay Health Surcharge to the Inland Revenue Division, on or before –

• March 31
• June 30
• September 30
• December 31

Unpaid amounts at the due dates shall attract interest at the rate of 20% per annum.

OTHER TAXES

Withholding Tax

This tax is deductible at source and is imposed on non-resident individuals and companies in respect of:

1. distributions, e.g. dividends from a Company;
2. any payment arising in Trinidad and Tobago where the recipient is not engaged in Trade or Business in Trinidad and Tobago, e.g. Interest, Royalties.

The law requires any person or company making any payment or distribution to a non-resident person or company to deduct and pay Withholding Tax to the Board of Inland Revenue within 30 days, in respect of the sum paid.

‘Payment’ means a payment without any deductions whatsoever, other than a distribution with respect to –

1. interest, discounts, annuities or other annual or periodic sums
2. rentals
3. royalties
4. management charges or charges for the provision of personal services and technical and managerial skills
5. premiums (other than premiums paid to insurance companies and contributions to pension funds and schemes), commissions, fees and licences.

Rates of Withholding Tax w.e.f. 01.01.08

The rates of Withholding Tax shall be –

1. on any distribution made – 10 per cent; but where such distribution is made to a parent Company, the rate shall be 5 per cent;
2. on any payment made to a person other than a company – 15 per cent;
3. on any payment made to a company – 15 per cent;

but where there is a Double Taxation Agreement in force or where an Order is made under section 96 of the Income Tax Act, (under which the President may vary the rate of Withholding Tax), the Withholding Tax shall be such lesser rate as may be therein provided.

Relief in Cases of Double Taxation

When Trinidad and Tobago concludes a double taxation treaty with the Government of any country, the President makes an Order and the arrangements specified in the Order shall, notwithstanding anything in any written law, have effect in relation to income tax.

Trinidad and Tobago has negotiated the following Double Taxation Treaties:

NOTE: A distribution is:

1. any dividend paid by a Company including a Capital Dividend. It extends to a dividend paid by a Company out of a realised capital surplus;
2. any other distribution of the assets of a company (whether in cash or otherwise) in respect of shares of the Company, except so much as represents the repayment of share capital, or is equal in amount or value to any new consideration given on the distribution.

Withholding Tax must be deducted (without deductions for expenses) from the gross income received in respect of Rentals, Royalties, Management Charges for the provision of personal services and technical and managerial skills, premiums (other than premiums paid to Insurance Companies and Contributions to pension funds and schemes), other annual or periodic payments, interest on any debt, mortgage or other security and such other payments as may from time to time be prescribed.

Hotel Accommodation Tax

Definitions

• “Hotel” means a building or group of buildings occupied together, comprising not less than six bedrooms for the purpose of providing hotel accommodation for reward.
• “Hotel Accommodation” means sleeping accommodation and services and facilities ancillary thereto provided in a hotel for its guests, not being persons resident in the hotel under a contract of service.
• “Hotel Operator” means a person who, either by himself or through an agent or servant carries on the trade or business of operating a hotel.
• Tax Authority - The Tax Authority shall be the Board of Inland Revenue which, in respect of the collection and recovery of the tax, shall have all the powers as it has in relation to Income Tax under the Income Tax Act, Act No.5 of 1995.

A tax called an Hotel Accommodation Tax shall be charged on the proceeds of the letting of hotel accommodation by an hotel operator at the rate of ten per cent (10%) of the proceeds of such letting, and collected by an hotel operator.

Hotel Accommodation Tax is payable notwithstanding that the hotel is an approved hotel for the purposes of the Hotel Development Act, or is otherwise exempt from any other taxes, charges, impositions or levies by virtue of any other written law.

The room tax shall be charged on the full amount of the proceeds of the letting without any other deduction or allowance than is authorized or allowed.

The hotel operator is accountable to the Tax Authority for the tax and shall pay the tax on or before the last day of the month following that in which the tax is collected.

Where the hotel operator fails to remit the tax, the hotel operator is liable for the payment of the amount of the tax due, in addition to interest on such amount at the rate of fifteen per cent per annum from the due date.

Monthly Hotel Accommodation Tax Returns are mailed to the Hotel Operators. This is to be completed and submitted to the Board of Inland Revenue on or before the fifteenth day of the next succeeding month (The payment of the tax and the submission of the return is normally done simultaneously). The top portion is retained by the BIR and the bottom portion is stamped and returned to the taxpayer.

Specimen Of Monthly Return

Final Statements Used For Filing Income Tax Return

At the end of the trading year, final statements of accounts must be prepared in order to determine the profits or losses from the business.

This statement together with the Income Tax Return (FORM 400 ITR) must be submitted to the Board of Inland Revenue on or before April 30.

Taxpayers who derive income from trade, business or profession must complete the appropriate schedules on the Tax Return Form.

Trading, Profit & Loss Statement: This is the result of the trading, business or professional activity during the year.

Balance Sheet: This is the financial position of the business at the end of the financial year or accounting terminal date approved by the Board of Inland Revenue.

Loss Relief

Where the amount of a loss incurred in a year of income from any trade, business, profession or vocation carried on by any person either solely or in partnership is such that it cannot be wholly set-off against his income from other sources for the same year, it shall, to the extent to which it is not allowed against his income from other sources for the same year, be carried forward and set-off against what would otherwise have been his chargeable income for succeeding years.

However, no loss incurred by a person in any year of income from any of the following:

1. Farming, agriculture, forestry, fishing or other primary activity;
2. The operation of mines or the exploitation of natural or mineral resources.
3. Any other trade or business.

shall be set off in that year or any succeeding year against:

1. Gains or profits from the practice of any profession or vocation or management charges for the provision of personal services and technical and managerial skills;
2. Gains or profits from any employment or office including pension, emoluments and any contribution of the employee paid by the employer on behalf of the employee, to an approved fund or scheme.

Who Should File

In accordance with the Income Tax Act, Chapter 75:01 the following persons are required to furnish an Income Tax Return:

1. every person liable to pay tax under this Act;
2. every partnership;
3. every person who in that or any previous year of income has made a loss which he may be entitled to claims as a deduction in the current year of income or any subsequent year of income;
4. every person who derives any income from any source irrespective of the amount of such income; and
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5. every person who derives any income which would be charged to tax under this Act but for the provisions of any other written law exempts such income from the charge to tax.

NOTE: The Small Business Person MUST file an Income Tax Return.

Partnerships

Where a business is jointly owned, the precedent partner will be held responsible for filing the income tax returns of the partnership.

The precedent partner is the one who, of the partners resident in Trinidad and Tobago –

1. is the first named in the partnership agreement; or
2. where there is no agreement, is named singly or first in the usual name of the firm;
3. is the first named active partner where the partner whose name appears first is not an active partner.

Each partner must report in his personal Income Tax Return, his share of the income received from the partnership, and attach a copy of the statement of accounts of the

partnership.

Paye System

The PAYE System is the method used to deduct taxes from employees’ salaries/wages. The Income Tax Act and the PAYE Regulations govern the PAYE System.

Requirements

Where the Small Businessperson employs workers in the business, he has the responsibility of administering the PAYE System of tax deductions in respect of these employees.

Each employer must register his business with the Registration Unit of the Inland Revenue Division for the purposes of being assigned a PAYE File Number as is required by the PAYE Regulations (see page1). This number is to be used when remitting Income Tax and Health Surcharge withheld from employees’ salaries to the Board.

SEE PAYE BOOKLET FOR FURTHER INSTRUCTIONS

The Income Tax Audit

The Income Tax Audit is conducted by the Board to verify the information submitted in an Income Tax Return.

Selection of an Income Tax Return for an Audit does not necessarily mean that the information is viewed as false or that claims will be disallowed. The Board, however, is

charged with the responsibility for collecting the correct tax payable by each taxpayer and must maintain a system to monitor taxpayer information relating to income and

expenses.

If, during the course of an audit, the auditor realizes that a taxpayer has neglected to include valid claims, this will be drawn to the taxpayer’s attention and the necessary adjustment will be made to the taxpayer’s benefit.

When his return is selected for audit, the taxpayer is informed of the date and time of the audit. Where the date and time appointed by the Board is inconvenient, the taxpayer may request a change.

An Audit may be conducted at the offices of the Inland Revenue Division or at the Taxpayer’s place of business. The Board will determine the type of audit to be conducted andinform the taxpayer of the information which must be made available to the auditor.

Objection Of Assessment

The Income Tax Act requires the Board of Inland Revenue to make an assessment on every person who is liable to tax after such a person delivers a tax return to the Board.

If a person disputes the assessment made, he may apply to the Board by a notice of objection, in writing, to review/revise the assessment, stating the grounds for such request.

The request for the objection must be done within 15 days from the date of service of the assessment in the case of residents and 45 days for non-residents.

The Board may accept a notice of objection outside of the time limit if it is satisfied that there is a reasonable excuse for making the application late.

In reconsidering the assessment, the Board has the right to request additional information from the person disputing the assessment and to inform the person in writing of the

results of its reconsideration.

If a person refuses to supply the Board with the additional information requested by the auditor, the Board may deem the original assessment to be final and conclusive.

Where the Board fails to determine an objection made within 24 months after the service of the notice of objection, the objection shall be deemed to have been determined in the favour of the person who disputed the assessment.

Penalties Under The Income Tax Act Ch. 75:01

There are three categories under the Income Tax Act, Ch. 75:01:

1. Administrative Penalties
2. Specific Offences
3. General Penalty

1. Administrative … non compliance with requirements of the Act or Regulations

2. Specific Offences… on summary conviction in respect of particulars offences committed under the Act.

3. General Penalty…. Imposed on summary conviction – failure to fulfil requirements of the Act.

Administrative

Sec. 76 S.S. (6) Failure to furnish a return of income for the year of income 1987 and subsequent years. Any person who fails, neglects or refuses to furnish a return of income for the year of income 1987 and subsequent years after six (6) months from the time required to file the return, shall thereafter in addition to any other penalty provided under this Act, be liable to a penalty of $100, for every six (6) months or part thereof during which such failure, neglect, or refusal continues.

Sec. 76 S.S.(7) Failure to furnish a return for any year of income preceding the year of income 1987. Any person who has not furnished a return of income for any year of income preceding the year of income 1987 and fails, neglects or refuses to furnish any such return on or before October 31, 1988 shall in addition to any other penalty provided in this Act, be liable to a penalty of $100, in respect of any such return for every six (6) months or part thereof during which such failure, neglect or refusal continues.

Sec. 83(4) Filing an incorrect Income Tax Return. Additional tax not exceeding the amount assessed by the Board provided that the taxpayer proves that the omission or incorrectness of the return was not due to fraud, covin, act or contrivance, or gross or wilful neglect.

Sec 83(5) Neglect or refusal to file a return. Additional tax equal to three (3) times the normal tax (unless the taxpayer can prove that neglect or refusal was not without a reasonable cause).

Sec. 99(4) Failure to remit the P.A.Y.E. deducted will result in a penalty of 25% or $40.00 whichever is greater.

Specific Offences

Sec. 98(2) Failure to file a tax declaration. Any person who fails to file a declaration is liable on summary conviction to a fine of $10 000.

Sec. 99(7) Failure to deliver account of certificate of tax deducted or withheld. Any person, who fails to deliver an account or certificate to any person from whose emoluments the tax was deducted or withheld or to the Board for the purpose of accountability, is guilty of an offence and is liable on summary conviction to a fine of $75, for every day during which such failure continues.

Sec. 118(6) Any person (officer who divulges confidential information with regard to any manufacturing process or trade secret obtained during the compliance of the provisions of Section 118 re “Powers of Entry for certain purposes” is liable to a fine of $15 000 or to imprisonment for twelve (12) months.

Sec. 118 (7) Interference with anyone doing anything he is authorised to do under the Income Tax Act. Any person who hinders, molests or interferes with anyone doing anything he is authorised to do under the Income Tax Act, is guilty of an offence and liable on summary conviction to a fine of $15,000 and to imprisonment for two (2) years.

Sec 119 Offence in respect of fraud. Any person who knowingly or recklessly makes false or deceptive statements or representations in a return, is guilty of an offence, and in addition to any penalty otherwise provided is liable on summary conviction to a fine of two hundred and fifty thousand dollars $250,000 and to imprisonment for three (3) years.

General Penalty

Sec. 121 Any person guilty of an offence under this Act is liable on summary conviction to a fine of thirty thousand dollars $30,000. or to imprisonment for two years or both.

Sec. 76(5) A person is guilty of an offence in each of the under-mentioned sections: (i) Any person who fails, refuses or neglects to file a return.

Sec. 77(2) (ii) Any person who, after being required by the Board to make a return, fails or neglects to do so within the specific time, whether or not he is liable to tax;

Sec. 97(2) (iii) Any person who fails to furnish the Board with a schedule of income within a specified time;

Sec. 97(4) (iv) Any person who, without lawful excuse, refuses or neglects to attend or give evidence or to produce books or other documents or who wilfully gives false evidence; and

Sec.117(5) (v) Any person who –

(a) Fails to give to the Board any information as required by this section; or

(b) Fails to produce for the inspection of the Board any records which he may be required by the Board to produce.

Other Measures

In addition to the general penalty and administrative penalty on the failure to remit P.A.Y.E. deducted, interest is charged at the rate of twenty per cent (20%) per annum on the amount outstanding plus the penalty from the day which he was required to make the payment to the day of payment.

Sec.103(1) Late payment of Income Tax outstanding at April 30. Interest is charged on Income Tax outstanding at April 30, from May 1 to the day of payment at the rate of twenty per cent (20%) per annum.

Sec.103(2) Late payment of Tax by Quarterly Instalment. In addition to the interest payable under subsection (1) where any person being required by this Act to pay a part of instalment of tax has failed to pay all or any part thereof as required, he shall on payment of the amount he failed to pay, pay interest of twenty per cent (20%) a year from the day which he was required to make the payment or the beginning of the period in respect of which he becomes liable to pay interest thereon under subsection (1) whichever is earlier.

Section 79 Section 79 of the Act is amended by deleting subsection (3B) and substituting the following subsection:

3B. Where a person to whom subsection 3A applies had paid quarterly instalments which amount to less than the tax liability disclosed in the return of the year of income, such person shall, with effect from 1st January, 1992, pay interest under section 103 on the difference between –

(a) the tax liability on the chargeable income of the previous year of income plus eighty percent (80%) of the increase in the tax liability of the current year on the previous year of income; and

(b) the total amount paid by the end of the fourth quarter.