Reference no: EM133412656
Principles of Caribbean Tax and Tax Management
Question 1
Full Tax Co. is incorporated and a tax resident in Barbados. The audited financial statements for Full Tax Co. for year-end December 31, 2022, shows an accounting profit after tax of $5,500,000 after charging the following:
Depreciation $1,500,000`
Tax for the year $500,000
Property Tax $1,000,000
Interest expense $15,000
Preference dividends of $40,000
Legal fees $1,110,000
Insurance of $750,000
Bad debts $40,000
Foreign Travel $20,000
Repairs and Maintenance $1,500,000
General expenses $600,000
Other Information
Property Tax of $600,000 was paid for the property on which the company's factory is located; $300,000 for the office premises and $100,000 for the director's home.
The insurance was paid for the factory and office premises.
The bad debt expense includes a general provision of $10,000 and a specific provision of $30,000.
The company paid interim ordinarily dividends totalling $100,000.
Repairs and Maintenance include for $500,000 removing the office ceramic floor titles and replacing it with wooden flooring.
Included in the company's total assessable income is an exempt income of $50,000. $16,500 relates to expenses incurred in earning this exempt income.
Legal fees include:
$400,000 in respect of recovery of commercial debts for Full Tax Co.
$10,000 in respect of recovery of commercial debts for Half Tax Co. The company was reimbursed this amount.
$15,000 in respect of recovery of commercial debts for One-Third Tax Co. The company was not reimbursed for this amount.
$50,000 relating to the purchase of new subsidiary
$400,000 to increase the share capital of the company
8. General expenses include $72,000 for the school fees of the director's son.
9. The capital allowances have been calculated at $130,550. Based on the items included in the fixed asset schedule.
10. There was an increase in wages of $1,000,000 which qualifies for the Employment Tax Credit (all other conditions to qualify for this credit were met).
12. Assume capital allowance rate of 5 % p. A for building/ leasehold improvements.
13. All amounts are in Barbadian currency.
14. As at the 31 December 2020, the company has prior year's tax losses as follows:
2013 - $300,000
2015 - $5,000,000
2020 - $4,000,000
Tax losses can be carried forward for a maximum of 7 years and is restricted to 50% of the tax income in the current year.
Required
A. Explain the difference between tax reliefs and tax credits. Giving two examples for each that may be found in Jamaica, Trinidad and Tobago or Barbados.
B. How would you classify the tax system in Barbados? State your reason
C. Calculate the Corporation Tax Payable of Full Tax Co. for Y/A: 20212. Using the Barbados Income Tax Act or any other relevant document explains the treatment of the items included or omitted from the income tax computation.
Question 2
PTI Inc., located in a country which has a capital gains tax, conducted the following transactions:
Purchased a building in February 2018 for $26,000,000. In March 2019, the company spent $2, 800,000 to install solar panels for electricity in the building. The building was sold for $40,000,000 in 2021. The annual maintenance cost was $500,000. The cost of advertising the sale of the building and the legal fees amounted to $1,200,000.
A motor vehicle was purchased for $5 million on January 1, 2018. The vehicle was sold in 2021 for $4.5 million.
Bought an antique painting for $3.5 million in 2019. The painting was sold in 2021 for 1 million.
Purchased a government bond for $5,000,000.
The company is entitled to an Annual Exemption of $500,000.
Capital losses as of 1 January 2021 were $3,500,000.
Required:
Calculate the capital gains tax in 2021, assuming a capital gains tax of 20%.