“Time is running out: file outstanding income tax returns by March 15. We would rather see you sooner… than later.” The Tax Administration department has been conducting a very visible media campaign to remind people that it’s time to pay income tax. We can’t say we haven’t been warned!

Who exactly is being targeted in this tax compliance drive? According to the Tax Administration’s website, www.jamaicatax.gov.jm, income tax is to be paid by all individuals and companies, at the specified rates, on all income or profits earned or received. Some persons, such as pensioners, non-residents and the disabled are entitled to specific tax exemptions.

Most employees pay income tax through the Pay As You Earn (PAYE) system, where taxes are deducted at source from salaries. If you’re a salaried worker with additional income, or if you’re a self-employed person who earned more than J$193,440 in 2007, then you must pay income tax on:

• Profits or gains from a business
• Interest on savings & other investments
• Dividends received from shares in privately listed companies

If you haven’t paid a thought to your tax obligations throughout the year, you might be slightly worried about what to do, with just three weeks to go before ‘T-Day.’ To clarify the process of filing tax returns, Your Money spoke to Robert Parkes, partner in an accounting and tax advisory firm, Henry Parkes and Partners.

YM:   What’s the first step in figuring out your tax obligations?

RP:      You should seek professional advice from an accountant or the tax advisory section of the Tax Administration department, to help you properly compute your liability and ensure that you don’t leave out important information. Businesses with more complex accounting needs should hire an accountant.

YM:   What kind of information will you need to provide?

RP: You must present records relating to your income, such as bank statements and sales invoices. Proof of your expenses such as utility bills, purchase invoices and rent receipts are also needed. If you don’t have all your documents, an accountant can use incomplete record techniques to calculate your income and expenses.

YM:   Can you claim for all your expenses?

RP: No. Expenses that qualify are reasonable expenses incurred in generating the business, not your personal expenses. If you work from home, only a portion of household costs such as rent and utilities are allowable. Purchases of fixed assets such as furniture, computers and appliances are not considered expenses, but you can receive specific capital allowances at prescribed rates.

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YM:   What is done with all this information?

RP: The accountant will use your records to prepare an income and expenditure statement, and then calculate your tax liability taking account of relevant tax allowances. The next step is to complete the appropriate tax return form for your operation – there are different ones for self-employed, companies and partnerships. These forms are available at the Tax Administration’s website or any tax collectorate. Then take the completed form and your tax payment to the tax office where you will receive a receipt.

YM:   What if you made a loss in your business?

RP: If your business expenses are greater than your income, then your tax liability is nil. However, you are still required to file a return, and your losses can be set off indefinitely against future profits. Even if you have a company that is not involved in any activity, you still need to file returns.

YM: Do you only have to think about income tax once per year?

RP: No. The amount of tax paid for the previous year of assessment is used to estimate tax liability for the following year. These estimates must be paid quarterly by the 15th of March, June, September and December. For example if you paid J$10,000 tax in 2006, you’re required to file quarterly estimated returns of J$2,500 in 2007. The annual tax computation for the current year will include a reduction for estimated tax already paid.

YM:    What if you haven’t paid taxes for years?

RP: The tax department has many local and international resources to acquire information on your activities, and they can assess your lifestyle and possessions in order to estimate your true income. It’s best to consult with an accountant to compute your tax liability, as you would be subject to late filing penalties plus interest on tax that should have been paid, from the date it was due until the date it is paid.

YM:   Do you have to pay tax on returns from ‘alternative’ investments?

RP: The Tax Administration has publicly stated that returns from these investments are subject to income tax. Given the implications for penalties and interest, you should speak to an accountant to get advice on your tax obligations.

The Tax Administration is currently hosting taxpayer assistance sessions across the island, for small business operators and self-employed persons to get help in completing their income tax returns. You can call 1-888-Tax-Help for more information.