Understanding Taxes for Your Small Business (part 2)

Your FAQs Answered – Corporation Tax

Welcome back, my small business comrades! In our last discourse, we addressed the frequently asked questions relating to income tax.  This time, I want to address the frequently asked tax questions pertinent to small businesses that are incorporated as a limited liability. I shall also answer those questions relating to the Green Fund Levy Tax.

Let’s dive into part two of the article.

As a small business owner, does corporation tax apply to me?

Answer: If your business is incorporated and acknowledged as a separate legal entity, corporation tax applies to you. This designation means that your company is distinct from a sole proprietorship, indicating that it possesses its legal identity, independent of its owners.

 What is the corporation tax rate?

Answer: The standard corporation tax rate stands at 30%. However, this rate might vary based on the category of the company you are affiliated with. For instance, an ordinary company may have a different rate compared to entities in sectors such as banking, life insurance, or petroleum.

During what period is corporation tax calculated? Is it January to December, like the tax period for salaried persons?

Answer: Corporation tax is not necessarily calculated on a January-to-December basis like the tax period for salaried individuals. The calculation period for corporation tax typically aligns with the company's fiscal year-end. This fiscal year-end can vary from one company to another, offering flexibility in determining the specific time frame for calculating and settling corporation tax obligations.

 Although my small business is incorporated, can I offset my company losses against future profits?

Answer: Yes, many of the provisions of the Income Tax Act apply to a company. As an incorporated small business, you are allowed the carry-forward of losses. This means you can offset losses incurred in one financial period against future profits.

 If my small business incurred a loss, is corporation tax still applicable?

Answer: No, in the event of a loss, your business won't be subject to corporation tax. Instead, the losses will be carried forward, and your business may be required to pay the business levy—a tax charged at a rate of 0.06% on your company’s gross sales and receipts.

 Is the tax number for my business the same as the one I use for my income tax?

Answer: No, upon incorporation, all companies are required to register with the Board of Inland Revenue (BIR) to obtain a unique company BIR number. This number is distinct from any personal identification used by the owner, director, or management of the company.

 What are the reporting obligations for corporation tax compliance?

Answer: Your company has specific reporting obligations to meet corporation tax compliance. These include quarterly tax payments due at the end of each quarter (March, June, September, and December). It's crucial to settle all balances by April 30th following the fiscal period to avoid a 20% interest accruing from the due date. Additionally, your company is required to file a Corporation Tax Return. Note: there is a penalty of $1,000 for every 6 months or part thereof for late filing of the Corporation Tax Return.

 Is the Corporation Tax Return the same as the Annual Return?

Answer: No, the Corporation Tax Return and the Annual Return are separate filings. The Corporation Tax Return focuses on your company's financial profits, chargeable profits, tax liability, and payments made, ensuring compliance with tax regulations. On the other hand, the Annual Return is a broader document that provides an overall update on your company's structure, directors, shareholders, etc. It's essential to fulfill both requirements separately to meet regulatory obligations.

 Are the costs incurred to repair my small business place of operation allowable?

Answer:  Once the expenses are wholly and exclusively incurred for the business it is allowable. Keep in mind though, there is a distinction between operational and capital expenses, especially for repairs. Because of this, repair expenses are closely scrutinized by the Board of Inland Revenue (BIR). To enhance the legitimacy of these expenses, it's advisable to prepare and submit a detailed schedule of all the costs incurred for the repairs. This transparency provides additional information to the BIR, increasing the likelihood of the expenses being recognized as legitimate.

 I understand that donations are considered an allowable tax expense, is that true?

Answer: Only covenanted donations are allowable for tax purposes. To claim the deduction, the recipients of your charitable initiatives must possess a stamp deed or another agreement indicating their covenant rights. Additionally, there is a maximum limit a company can claim in any given year of income which is fifteen percent of the company’s total income for that year.

 What is the green fund levy?

Answer: The green fund levy is charged at a rate of 0.03% on the gross sales or receipts of all companies conducting business in Trinidad and Tobago and is applicable regardless of whether your company is in a profit or loss position. There is no tax offset and no company, except those benefitting from a tax holiday is exempted from paying the green fund levy. Like the business levy, the green fund levy is due at the end of each quarter.

 How can my small business qualify for a tax holiday?

Answer: Small and Medium Enterprises (SMEs) that are newly listed on the Trinidad and Tobago Stock Exchange are eligible for a tax holiday. This exemption, in the first instance, relieves the company from its obligation to pay corporation tax, business levy, and green fund levy for the initial five years after becoming publicly listed. This benefit specifically applies to SMEs that have transitioned to public status and does not extend to private SME businesses.

That’s it, folks!!

“Just as small streams form mighty rivers; knowledge builds powerful enterprises. Persevere in learning, like leaves swaying in the spring breeze, and you will ultimately flourish and succeed." - Melissa Cobham

Exploring the intricacies of taxes might seem like navigating a complex maze, but breaking down your frequently asked questions is my way of shining a light on the path. Taxes can indeed be burdensome, especially for small businesses. My objective was to address your FAQs to provide clarity and position you in a better place for managing your small business finances.

Don’t be discouraged.

The views reflected in this newsletter are those of the author and do not necessarily reflect those of Aegis Business Solutions, its partners, or any affiliated companies.

If you found value in this article, consider sharing it with fellow entrepreneurs who might benefit from these insights. Your feedback is invaluable, so feel free to reach out with suggestions for future topics you'd like me to explore. My next article will share information that will guide you on what you should consider before engaging the services of an accountant. Stay tuned!

Here's to your ongoing success! I look forward to our next chat. 😊

Cheers