Legislation
The Barbados Income Tax Act has a provision that deals with a person who is resident but not domiciled.
True or false?
True - s.17
17. In calculating the assessable income for an income year of a resident person who during the income year is not domiciled in Barbados, the following amounts and no others shall be included, that is to say...
Name the three categories of who can be taxed.
Resident
Domicile
Source
What two words are used to describe expenditure that can be deductible in TT & Jamaica but NOT Barbados?
Wholly and Exclusively
In which case did the purchase of endowment policies on other people's lives amount to a trade?
Smith-Barry v Cordy
Name the different methods of tax planning.
Tax evasion
Sham
Tax avoidance
Tax mitigation
What percentage is deductible for entertainment in TT and what section is this in?
s.10(1)(d) - 75%
Which case, which involved renting a house and shooting rights, established that you can be resident in two countries?
Cooper v Cadwalader
s.10(1)(a) of the TT Act includes the word 'necessarily' for what type of expenses in relation to what type of income?
Type of expenses - travelling or keeping or maintaining transport
Type of income - employment or office
In which case did 'turning over a mill' amount to a trade, and why?
Pickford v Quirke - because there were 4 transactions i.e frequency of similar transactions.
Explain the difference between tax avoidance and tax mitigation.
Tax avoidance - artificial transaction (see s.67(1) TT Act)
Tax Mitigation - using the methods in the statute such as delaying income and claiming deductions.
Under s.5(a) of the Barbados Income Tax Act, there are two criteria for deeming someone resident in an income year. What are the critera?
(a) a person shall be deemed to be resident in Barbados in an income year if that person
(i) spends in the aggregate more than 182 days in Barbados in that income year or
(ii) is ordinarily resident in Barbados in the relevant income year
With use of leg and case law, explain how a person who is resident is always ordinarily resident, but a person who is ordinarily resident is not necessarily resident.
Resident - No def in TT & Jca, s.85(5) Bdos - def - more than 182 days or is ordinarily res
Cases: Re Young, Cooper v Cadwalader, Levene v CIR, CIR v Lysaght
Ordinarily Resident - No def in TT & Jca, s.85(6) Barbados - person has a permanent home in Bdos and given notice that he intends to reside for at least two consecutive years.Cases: Miesegas v CIR, Barnet LBC v Shah, Grace v HMRC
Resident = permanent dwelling, regular hair of life, settled or usual abode, living for a considerable period of time whereas ordinarily resident = shorter term, voluntary adoption of abode
Why was the taxpayer not able to claim the cost of the law exams in Lupton v Potts?
The duties of the taxpayer under the articles did not necessarily require the incurring of the expenses. In part, this is because becoming a solicitor was of benefit to the taxpayer himself and not exclusively for the performance of his duties under the articles.
Explain the concept of 'circumstances for realisation'.
This looks at why and how an asset was disposed of to determine whether trade actually occurred.
Taylor v Good - The taxpayer was not liable to pay tax on the money earned from the sale of the property because he was not a property developer and had no initial intention of selling it. At the time of purchase, there was a chance he would live on the site.
What is the consequence of tax avoidance as identified in Seramco v ITC?
Where a transaction falls within the category of being artificial or fictitious, the transaction can be disregarded as if it never occurred from the perspective of the tax authority. However, obligations and liabilities between the parties remain intact.
What are the steps under s.67 of the TT Act?
Transaction
Artificial
Can be disregarded
Timpson's Executors v Yerbury and Carter v Sharon were both 1936 cases decided within 3 months of each other. Explain the outcomes of the cases and argue whether the outcomes were justified or not.
Timpson's - Timpson was entitled to the money until the cheques were cashed by her children in the UK
Carter v Sharon - gift considered completed abroad and therefore not remitted
Why were travel expenses deductible in Horton v Young but not in Newsom v Robertson?
In Horton the home was a base of operations for the contractor; in Newsom it was ordinary commuting for the barrister.
Genuine commercial transaction that did not meet the nature of trade criteria because of the limited scope of the deal to advantage his own companies meant he was able to extract profits and mitigate tax.
What was the relevance of the taxpayer's residence in Hong Kong in the case of IRC v Willoughby in assessing taxation?
The taxpayer was not ordinarily resident in the UK when he purchased the bond so income from the bond did not fall within the scope of the legislation. This was tax mitigation rather than tax avoidance.
Name all provisions of the legislation in TT that address the two prongs of deductibility.
S.10 – Computation of Income generally
S.10A – Promotional expenses
S.11 – Allowances in certain cases
S.11A – Computation of wear and tear allowances
S.11B – Allowances on buildings and structures
S.12 – Deductions not allowed
Explain how tax is payable by people who are not ordinarily resident or not domiciled in a country. Do you think this should be the case?
Taxing at Source
s.5(2) TT - tax payable on amount received in TT
s.16(1) Bdos - income derived in Barbados shall be included
s.27(1) Jca - be chargeable with income tax only on such income as is received in this island
Explain how the assessment of 'expenditure of a revenue nature' in assessing deductibility led to different results in Heather v PE Consulting Group and Mawsley Machinery v Robinson.
Both cases involved scheme to buy shares from major shareholder (founder, MD).
Heather - purchase would benefit employees
Mawsley - purchase would benefit the MD
Termination payments may be income or capital, yet, they are frequently treated as deductible. Explain the lack of symmetry in the assessment of termination payments as income versus expenditure, and when a termination payment might NOT be deductible.
Income/capital - it depends on whether person was compensated for failure to earn future income (capital - Heywood) or the money is a replacement for future income (Dale v De Soissons)
Deductible expenditure - allowed where the person is terminated to remove an obstacle to business e.g. Mitchell v BW Noble - company got rid of director. BG Lithographic ivv IRC - company got rid of its MD.
TP might NOT be deductible where if there is no intention to trade in the future.
Explain the shift from the Duke of Westminster principle to the Ramsay principle of tax planning.
DW - very broad approach that allowed fictitious arrangements to count as mitigation
Ramsay - fictitious arrangements can be set aside where there is no purpose other than tax avoidance