- March 4, 2022 at 3:19 pm #649723mszdeeMember
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Full Tax Co. is incorporated and tax resident in Barbados. The audited financial statements for
Full Tax Co. for year-end December 31, 2021, show an accounting profit after tax of $5,500,000 after charging the following:
• Depreciation $1,500,000
• Tax $500,000
• Property Tax $900,000
• 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
1. Property Tax of $600,000 was paid for the property on which the company’s factory is located; $200,000 for the office premises and $100,000 for the director’s home.
2. The insurance was paid for the factory and office premises.
3. The bad debt expense includes a general provision of $10,000 and a specific provision of $30,000.
4. The company paid interim ordinarily dividends totaling $100,000.
5. Repairs and Maintenance include $500,000 for removing the office ceramic floor tiles and replacing them with wooden flooring.
6. Included in the company’s total assessable income is exempt income of $50,000. $16,500 relates to expenses incurred in earning this exempt income.
7. Legal fees include:
– $40,0000 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.
– $15,000 000 in respect of recovery of commercial debts for One-Third Tax Co. The company was not reimbursed 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
10. There was an increase in wages of $1,000,000 which qualifies for Employment Tax Credit (all other conditions to qualify for this credit was met).
11. The tax rates for general business in Barbados applies.
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 years tax losses as follows:
2013 – $30,000
2015 – $50,000
2020 – $40,000
A. Calculate the Corporation Tax Liability of Full Tax Co. for Y/A: 2021. Using the Barbados Income Tax Act or any other relevant document explain the treatment of the items included or omitted from the income tax computation. ( 8 marks)
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