Question

Name of course: Principles of caribbean tax and tax management

Capital Allowance

Stephen Marsh operates a successful paint distributor business. The accounts for his business in 2017 showed a profit of $5,450,000 after charging:

• $380,000 depreciation of building, equipment, and furniture;
• $880,000 for salary to his wife Audrey who supervises the office;
• $350,000 to his 18-year-old son Paul, and $1,200,000 to himself
• $120,000 being $78,000 bad debts written off and $42,000 doubtful debts representing 2% of year-end receivables balance.

At year-end December 2016, Stephen Marsh's business assets consist of:

a) Equipment at cost $200,000 (WDV $132,500; A.A. 11.25% SL)

b) Furniture and fixtures at cost of $480,000 (WDV $192,000; A.A. 11.25% SL)

c) A pickup truck purchased in 2014 for $500,000; (WDV $312,500; A.A. 12.5% SL)

d) A non-residential building, acquired in 2010 for $5 million (WDV 3.5 m; A.A 2.5%)

e) There were no acquisitions or disposals of assets in 2017

The Commissioner has determined that the salaries paid to Audrey and Paul are commensurate with their respective responsibilities.

(i) Prepare a summary of Stephen's capital allowances for year-end 2017

(ii) Advise Stephen of his income tax liability for the year of assessment 2017 (1 mark)

(iii) Audrey's only income is her salary from the shop. What is her tax liability for 2013?   

Answer 1

1-CAPITAL ALLOWANCES means the practice of allowing a company to get tax relief on tangible capital exp. by allowing it to be expensed against its annual pretax income.

It replaces the disallowed depreciation charges in the adjustment of profits, giving tax relief against trading profits in respect of expenditure incurred on the cost of qualifing plant and machinery.

calculation of capital /balancing allowances;

equipment furniture&fix pickup truck Building

A.A RATE @ 11.25% 11.25% 12.5% 2.5%

QUALIFING EXPENDITURE 200000 480000 500000 5000000

Annual allowances 22500 54000 62500 NIL

WDV as ON   132500 192000 312500   3500000

±acquistion/ disposal 0 0 0 0

Balancing allowances    110000 138000 250000 3500000

There is no capital allowances on Building

  

2- TAX LIABILITY CALCULATION;

PROFIT 54 50 000

+DEPRECIATION 380000

-WIFES SALARY 880000

-SONS SALARY 350000

TAXABLE INCOME 4600 000

NOTE;

Please calculate the tax libaility as per ur tax provisions. ie- ur tax rates as applicable

3-If assesees only income is his salary income then tax will be calculated , on that particular income.

and that income would be considered as the taxable income. ie- 1200000 dollar

Please calculate the tax liability by considering above taxable income. as im a indian , im not aware about the oarticular tax rate so plz kindly calculate. hope u understand