Caterers Wholesale is owned and managed by Serena Willie. For the year to December 31st, 2021, Serena
Question:
Caterer’s Wholesale is owned and managed by Serena Willie. For the year to December 31st, 2021, Serena showed the following results for the entity’s operations:
Gross Profit 415,000,000
Expenses:
Depreciation 50,000,000
Legal expenses 24,000,000
Donations 1,000,000
Bad debts 19,000,000
Wages and Salaries 100,000,000
Travel 10,000,000
Miscellaneous expenses 90,000,000
Advertising 20,000,000
Loss on disposal 1,000,000
Utilities 10,000,000 (325,000,000)
Profit before taxes 90,000,000
Notes:
i. Legal expenses comprise $12,000,000 for debt recovery, $8,000,000 to assist in the purchase of a machine on January 1, 2021 and the remainder incurred to defend an income tax case. Serena was unsuccessful in her defence.
ii. All the amounts donated were related to registered charities on the approved charitable list, except for $200,000, which was donated to the Yout’ Dem Club in her community. This is not a registered charity.
iii. Included in the bad debts is an estimate of $15,000,000 for Provision for Bad debts and the remainder is a specific debt for Vika Azeranko.
iv. Travel includes $7,000,000 incurred to negotiate new business agreements. The remainder relates to airline tickets for family vacation and pocket money for Suzie and Cutie, Serena’s daughters.
v. Advertising relates to the construction of a new billboard. Construction was completed on
January 1, 2021. Similar billboards are allowed 20% annually by Tax Administration. Jamaica.
vi. The Loss on Disposal was for a Truck which was sold during the year for $ 1,000,000 with a written down value of $2,000,000. This amount has been included in the Capital allowances in (vii) below.
vii. Capital allowance for the year is as follows:
Initial Allowances $8,000,000
Annual Allowances $7,000,000
Balancing allowances $5,000,000
viii. Miscellaneous expense includes premiums of $100,000 monthly for the owner (Guardian insurance). The owner’s husband is the beneficiary of the policy.
ix. The amount for wages and salaries includes $10 million paid to the owner’s husband for accounting services rendered when the effective market rate for the same service was only $3 million; Serena also takes a Salary of 12million.
x. Serena paid rent, electricity and water charges for the year of $4,800,000, $4,500,000 and $700,000 respectively. It was further ascertained that only 80% of the charges relate to the business. The remainder is attributed to her home that is located above the business premises. All amounts were paid in cash during the year of assessment.
Required:
(1) Calculate and set out the Income Tax payable for the year 2021, with detailed supporting notes, assumptions and explanations.
(2) Complete the relevant tax forms (the tax forms are available from the Jamaican taxation portal) including the estimated tax form.