INCOME TAX FOR INDIVIDUALS OPERATING A BUSINESS
As an individual operating a small business and/or earning an income from trade or rent, one of your obligations is to pay your fair share of taxes — no more, no less. As a guide, below are answers to some of the frequently asked questions from individuals operating small businesses.
IF I OPERATE A SMALL BUSINESS DO I NEED TO FILE INCOME TAX RETURNS?
Yes. As an individual whether you are self-employed, a partner in a business or you are employed and earn additional income from other sources you should file an Income Tax Return (IT01) for last year (2010). In addition to a final return, you should also file a Declaration of Estimated Income & Tax Payable Return (IT07) for 2011 to the Commissioner of Inland Revenue by March 15. You can download the Income Tax return forms online at www.jamaicatax.gov.jm or collect them at any of the twenty-nine (29) Tax Offices across the island.
In addition to paying whatever taxes are due for last year (2010) by March 15, estimated tax calculated based on your estimated income is to be paid quarterly on March 15, June 15, September 15 and December 15.
HOW DO I KNOW IF THE INCOME FROM MY BUSINESS IS TAXABLE?
Once you operate any sort of business and you earn an income it is taxable. You may earn income from profits or earnings from business, trade, profession, vocation, rent, interest and farming. Examples of persons who should file annual income tax returns and pay the relevant tax include, among others:
-- Landlords (including residential)
-- Sports men/women
-- Part-time Workers
-- Taxi or bus operators
-- Bar operators
-- Graphic Artists
-- Interior Decorators
DO I PAY TAX ON ALL I EARN?
No. To calculate the amount of income on which you should pay tax, subtract your genuine business expenses from your gross earnings. Remember that your private and domestic expenses such as your personal utility bills, school fees and grocery bills are not allowed. The cost for your fixed assets such as freezers, computers, furniture and equipment are also not allowed. However, the law allows you to recover the cost over time by claiming capital allowances at predetermined rates on fixed assets used in your business. The rates applicable to each type of asset are shown on our website. It should be noted also that losses from your business can be set off against income received. Any loss suffered may be carried forward indefinitely until it is fully utilised.
IS THERE A SIMPLE WAY TO CALCULATE MY NET PROFIT?
Yes there is. If the gross income from your business is less than or equal to $3,000,000 ($3m) you may use a Schedule 1 — Details of Trading form to guide you to calculate your net profit. This form will help you to set out all the possible income and expenses from your business. Once you put in all the figures and do your calculation you will arrive at your net profit. We recommend that you use the form available on the website www.jamaicatax.gov.jm, as this will allow you to type in the information, which can then be printed.
HOW DO I CALCULATE HOW MUCH TAX TO PAY?
The income tax rate for individuals is 25 per cent. However for the year 2010, individuals earning above $5million annually will be charged an increased rate of Income Tax as indicated below:
Taxable Income Marginal Rate
$5,000,001.00 - $10,000,000.00 27.5%
$10,000,001 and above 35%
However, every individual resident in Jamaica is allowed an annual threshold or nil rate of tax on the first $441,168 earned for 2010. This means that if your net profit or earnings is less than the threshold you would not pay any tax. Please note however that you would still need to file an income tax return. Pensioners and persons 65 years and over are further entitled to a pension exemption of $80,000 and a golden age exemption of$80,000 for 2010. If you are both a pensioner and over 65 years, both exemptions totalling $160,000 are allowed.
For example the 2010 tax liability for a sixty-six year old shopkeeper, who is not a pensioner, is as follows:
Total Gross Income $1,200,000
Less business expenses $ 620,000
Net profit $ 580,000
Less exemption (over 65) $ 80,000
Statutory income $ 500,000
Less nil rate $ 441,168
Taxable income $ 58,832
Tax @ 25% $ 14,708
Additionally, in computing your projected income and tax payable for the year 2011, you should use the income tax threshold which remains at $441,168. In respect of pensioners and persons aged 65 and over, those exemptions remain at $80,000, in each case for 2011.
WHERE SHOULD I FILE MY TAX RETURNS?
You may file your income tax returns at the Tax Office nearest to you. It is recommended that you do not wait until the last day to submit your tax return as the Tax Offices are usually very crowded at this time and it would therefore take a longer time for you to be processed. Alternately, if your are just submitting your return and/or you are paying by cheque, you may use the electronic drop boxes available at the King Street, Cross Roads, Constant Spring, Mandeville, Montego Bay or Spanish Town Tax Offices. You also have the option of filing and paying online using the Tax Portal
at www.jamaicatax.gov.jm. However you must first register to use our online filing option.
WHERE CAN I GET ADDITIONAL INFORMATION?
For additional information you may call the Tax Administration Customer Care Centre at 1-888-TAX-HELP (1-888-829-4357), contact your local Tax Office, or log on to the website www.jamaicatax.gov.jm. You may also get details of a free Special Taxpayer
Service Programme currently being hosted by the Tax Administration at several locations across the island, to help individuals and small business operators to prepare their Income Tax returns.
This is Part 2 of a special series which will run up to the March 15 due date for the filing of income tax returns.