Inland Revenue Division Trinidad House

St. Vincent Street PORT OF SPAIN

TEXT PREPARED BY INLAND REVENUE 2012

Know Your Income Tax

YOUR TAX DOLLAR$

TRINIDAD AND TOBAGO

(i)

MISSION

STATEMENT

To Promote and Foster Voluntary Compliance with the Tax Laws and Regulations by: Providing quality customer service and education Improving our employees’ welfare, knowledge, skills and attitudes Applying the Tax Laws effectively and efficiently with fairness and integrity within an atmosphere of mutual respect.

Inland Revenue Division

‘Changing the way we interact with people’

visit us at our website

www.ird.gov.tt

Telephone: 623-2981 ext. 321, 431, 432

Fax: 624-3903

(ii)

Ministry of Finance

Inland Revenue Division

This booklet serves as a guide to the Employer and

in no way is intended to be a substitute for the Tax

Laws and PAYE Regulations of Trinidad & Tobago.

It briefly outlines the rights and responsibilities of

the employer.

(iii)

CONTENTS

Page

Introduction … … … … … … 1

Definitions … … … … … … … 1 Chargeable Income … … … … … 1 Employee … … … … … … 1 Employer … … … … … … 1 Emoluments … … … … … … 1 Allowable Deductions … … … … 1 Office … … … … … … … 1 Total Income … … … … … … 2

Board of Inland Revenue File Number … … … 2

Non-Resident Individual … … … … … 2

Responsibilities of the Employee … … … … 3 Submit TD 1 Form to Employer … … … … 3 Submit TD 1 Form for BIR Approval … … 3 Submit BIR File No. to Employer … … … 3

Responsibilities of Employer … … … … … 4 Deduct Taxes from Emoluments … … … … 4 Remit Taxes to B.I.R. … … … … 4 Issue Pay slips … … … … … 4 Submit PAYE/Health Surcharge Monthly Return … … 4 Issue TD.4 Certificates … … … … … 4 Keep Records … … … … … … 5

Responsibilities of BIR … … … … … 5

Declaration of Emoluments, Deductions and Allowances … 5 Tax Declaration Form (TD 1 Form) … … … … 5 Approval by the BIR … … … … … 6 When is BIR Approval not required … … … … 6

(iv) Tax Deductions and Allowances … … … … 7 Personal Allowance … … … … … 7 Tertiary Education Expenses … … … … 7 Allowance for First-time Home Owners … … … 7 Contributions to Approved Pension Fund/Scheme Deferred Annuity Plans & NIS … … … … 7 Alimony/ Maintenance Payments … … … … 8 Deed of Covenant … … … … … 8 Tax Credit … … … … … … 8

Guidelines for Approval of TD 1 Form … … … 9

How to compute P.A.Y.E. … … … … … 11 Retirement or Death … … … … … 12 Use of Tax Deduction and Calculations … … … 12

Benefits-In-Kind … … … … … … 13 TD4 Certificates … … … … … … 14 Completion of TD 4 Certificates … … … … 15 Specimen of TD 4 Certificate … … … 16 Completion/Issuance of IT 76 Certificate and Summary Forms … … … … … … 17

Health Surcharge … … … … … … 17

Garnishee Order … … … … … … 18

Monthly Return … … … … … 19

Specimen of Return … … … … … … 20

Payment and Accounting for Tax … … … … 21 Acceptance of Payments by the Bank … … 21 Accounting for Tax deducted and Keeping Records … … … … … … … 22

(v) Severance Pay and Computation … … … … 22 Redundancy … … … … … … 23 Retirement Severance Benefit … … … … 23 Severance – Ill Health … … … … … 23 Calculations … … … … … … 25 Ex Gratia payments … … … … … 27 Retirement Benefit Payments – Public Sector … … 27 Contract Gratuity … … … … … … 28

2006 – 2011 Tax Rates … … … … … 29

Penalties under the Income Tax Act … … … … 30

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INTRODUCTION

The Pay-As-You-Earn System (PAYE) was introduced in Trinidad and Tobago in 1958. The legislation relating to its operation is contained in the Income Tax Act, Chap. 75:01, and the Income Tax (Employment Regulations 1957 (Act 77/57) as amended by Income Tax Act 13/68; Government Notice 76/76 and the Income Tax (Employment) (Amendment) Regulations, 1989, the system entrusted responsibility on the employee, employer and the Board of Inland Revenue. P.A.Y.E. is not a method of assessment of Income Tax. It is the system by which tax is withheld from emolument Income (The PAYE System). Therefore it is necessary for the employee to submit a TD 1 Form to the employer. (see TD 1 Form on pg. 3).

Definitions “Allowable Deductions” means any deduction allowed in accordance with the Income Tax Act in determining a person’s chargeable income. “Chargeable Income” for the purpose of a person, whose sole source of income is from an office or employment, means the total emoluments of the person for the year of income less the appropriate deductions and exemptions granted under the Income Tax Act. “Employee” means any person, not being the holder of an office, in receipt of emoluments. “Employer” means any person paying emoluments whether on his own account or on behalf of another person to an employee, and shall be deemed to include any person paying emoluments whether on his own account or on behalf of another person, to the holder of an office. In relation to an employee or officer, “employer” means the person from whom the employee or officer receives his remuneration. “Emoluments” means all salary, wages, bonus, overtime, remuneration, perquisites, includes value of board or lodging, stipend, commission or other amounts for services, directors fees, retiring allowances or pensions, arising or accruing in or derived from or received in Trinidad and Tobago and which are assessable to income tax, but shall not include any salary or share of profits arising from a trade, profession or vocation carried on by any person wither by himself or in partnership with any other person.

“Office” means a position not being an employment or place, entitling the holder thereof to a fixed or ascertainable stipend or remuneration and includes the office of a Minister of Government, the Office of a member of the Senate or the House of

2 Representatives of Trinidad and Tobago, a member of the municipal or Regional Corporation and any other office, the holder of which is elected by a popular vote or is elected or appointed in a representative capacity and also includes the position of a company director. N.B. Although the holder of an office is not an employee, the holder of an office is subject to Tax under the PAYE System. “Total Income” means the aggregate amount of income under Section 5 of the Income Tax Act before allowing any deductions other than those under Section 10, 11, 16 and Income Tax Act (In Aid of Industry) Act.

Board of Inland Revenue File Number Every employee or office holder is required to furnish his employer with his Board of Inland Revenue File Number and the employer must record this number on the certificate (TD. 4 Certificate) he issues to the employee by the last day of February of the year following the year of income. According to Section 119 of the Income Tax Act, any person who –

(a) Being an employee or an officer and who, with the intent to deceive, furnishes his employer under section 76B of the Income Tax Act Ch. 75:01 with a Board of Inland Revenue File Number which is not his own.

(b) Being an employer, and who knowingly or recklessly records under

section 76B of the Income Tax Act Ch. 75:01, a Board of Inland Revenue File Number of an employee or officer which is different from the number furnished by that employee or officer.

is guilty of an offence, and in addition to any penalty provided is liable on summary conviction to a fine of fifty thousand dollars ($50,000) and to imprisonment for three years.

Non-Resident Individual An individual under 60 years, who is non-resident in Trinidad & Tobago and is in receipt of emolument income arising in Trinidad & Tobago, is subject to tax under the PAYE System. Such an individual is not eligible for any deductions/tax credit including the Personal Allowance.

3 Therefore the total amount of income earned in Trinidad and Tobago is taxable whether or not it is received here. Where the non-resident individual is 60 years and over and receives income which accrues or derived in Trinidad and Tobago, the person is entitled to a personal allowance. The allowance was introduced in 2004 at $40,000 and increased to $60,000 in 2006.

Responsibilities of the Employee

1) Submit TD 1 Form to the Employer

To ensure the correct amount of PAYE is deducted from emolument income, each employee must submit a TD 1 Form to his employer –

The day on which he/she takes up employment

Within seven (7) days of a change in allowable deductions When required to do so by the Board of Inland Revenue

2) Submit TD 1 Form for Board of Inland Revenue Approval

It is the responsibility of the employee to ensure that the Board of Inland Revenue approves his/her TD 1 Form, where necessary.

3) Submit BIR File Number to Employer

Each employee must give his/her Board of Inland Revenue (BIR) file number to the employer.

Where the employee does not have a file number, an application for one must be completed using the application for BIR Number form together with a copy of a valid ID and a job letter or TD 4 Certificate (or completed return).

These are submitted for processing at the Registration Unit, Queen Street, Port of Spain. This can be done through the employer or individually.

N.B. Each employee should ensure that –

(a) He obtains a TD 4 certificate (original and duplicate) from his employer on or before the last day of February following the year of income.

(b) The correct amount of tax is deducted from his/her salary/wages.

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Responsibilities of the Employer 1) Deduct taxes from emoluments The employer has the responsibility to deduct taxes from the emoluments

(salary, wages, etc.) of his employees in accordance with the P.A.Y.E. Regulations each time a payment is made – weekly/fortnightly/monthly. The employer should ensure that he receives a TD1 Form from the employee to accurately determine the amount of tax to be deducted.

2) Remit taxes to Board of Inland Revenue The total amount of taxes deducted from the emoluments of employees must be

remitted to the Board of Inland Revenue using the PAYE/Health Surcharge Monthly Return on or before the 15th day of the month following the month in which the deductions were made (eg. Deductions made in January must be remitted by the 15th February).

An employer who fails to deduct and remit the amount deducted from his employees, after the statutory date will be liable to –

(i) *A penalty of 25% of the deduction or $40.00 whichever is greater and interest on both the amount deducted and the penalty at the rate of 20% per annum from the due date to the date of payment.

(ii) A fine of thirty thousand dollars ($30,000.00) or imprisonment for two

(2) years or both, upon summary conviction. * The 25% penalty came into effect from 1/1/2008 and is not to be treated retroactively.

3) Issue Payslip The PAYE Regulations require the employer to give a statement of emoluments paid and the taxes deducted for each pay period (payslips).

4) Submit a PAYE Monthly Return The employer is required to submit the monthly return when remitting the taxes

deducted.

5) Issue TD. 4 Certificates At the end of the year during which tax was deducted (including Health Surcharge), but no later than the last day of February of the following year, the employer must:

(i) Issue the original and one (1) copy of the TD.4 Certificate to each employee showing total emoluments paid during the year and the total tax and other amounts deducted;

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(ii) Forward to the Board of Inland Revenue one (1) copy (triplicate) of the TD. 4 Certificate of each employee and TD. 4 Summary (original & duplicate) showing the total emolument paid and the total tax deducted during the year. The relevant forms may be obtained from the Board of Inland Revenue (P.A.Y.E. Section).

(iii) Keep for his records a copy of the TD. 4 Certificate (quadruplicate) of

each employee and a copy of the TD. 4 Summary. 6) To keep records of employees’ earnings

The employer must keep records of employees’ earnings and tax deducted therefrom, and makes them available for inspection by the Board, (Penalty applicable for non-compliance $15,000 and/or 2 years imprisonment).

The Responsibilities of the BIR

(i) To provide Tax Deduction Tables and Instructions for ensuring correct

deduction of taxes. (ii) To provide literature and guidelines to ensure the proper administering of

the system. (iii) To offer assistance whenever necessary or requested.

Declaration of Emoluments – Deductions and Allowances

Tax Declaration Form (TD 1 Form) A TD 1 Form is a form that is designed solely for the purpose of making the appropriate deduction of tax from emoluments. The Form requires the taxpayer’s Board of Inland Revenue file number, Electoral Identification Card number and signature. All source of income are declared and claims for tax deductions are made on this form. Since the information is necessary for the correct amount of tax to be deducted, each employee, on taking up employment, MUST submit a Tax Declaration 1 Form to his employer –

(a) On the date of commencement of his employment;

(b) Within seven (7) days, if there is a change in his tax deductions/allowances;

(c) When required to do so by the Board of Inland Revenue.

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Where an employee has more than one employment or in receipt of both pension and salary or wages, details of each source of emolument income must be stated separately on the same form. In such case, the Board of Inland Revenue must approve the TD. 1 Form. (The Board would advise each employer separately to the tax to be deducted)

Approval by the Board of Inland Revenue Where an employee has any or all of the following claims for deductions, he/she is required to present a TD 1 Form for the Board approval:

(i) Tertiary Education Expenses (relates to institutions situated outside of T&T except Public Regional Institution)

(ii) First Time Home Ownership (homes acquired with effect from January 01, 2011)

(iii) Contributions/Premiums paid towards –

an Approved Pension Fund/Deferred Annuity Plan

(iv) Alimony/Maintenance payments (v) Venture Capital Tax Credit

Where an employee fails to submit a Tax Declaration (TD 1 Form), the employer may deduct taxes without allowing any deductions. The effect of this is that the tax deducted will be in excess of the amount which would normally have been deducted if a declaration form had been filed. This method of deducting tax should also be used where –

(i) Overtime is paid to an employee and his/her tax deduction was already applied to determine tax on the salary.

(ii) A bonus is paid to an ex-employee. (iii) Emoluments are paid to a non-resident individual who is 60 years and

under. When Is The Board of Inland Revenue Not Required To Approve a TD 1 Form? Where a person has the following deductions only, the Board does not require the TD 1 Form to be approved – Personal Allowance, NIS and Company’s Approved Pension Fund/Scheme.

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Tax Deductions/Allowances To determine the chargeable income that would be subject to tax, a resident individual is entitled to the following allowances, deductions and tax credits:

1. Personal Allowance A Personal Allowance of sixty thousand dollars ($60,000) – with effect from 2006.

2. Tertiary Education Expenses

(a) Reasonable expenses incurred in respect of tertiary education by the taxpayer for self, spouse or child/children of both spouses at an institution situated outside of T&T except a public regional institution. These expenses include – Tuition, Exam Fees, Books, 1 return airfare, Accommodation, etc. This claim is limited $60,000 and may be claimed in such proportion as may be determined by both spouses. ($18,000 up to 2007).

3. Allowance for First Time Home Owners

An individual who acquires a home for the first time with effect from January 1, 2011, by way of purchase or construction, is allowed a deduction of up to $18,000, on the cost of this home, for the first five (5) years of acquisition. Where ownership is shared, the aggregate amount allowed is $18,000.

4. Contributions (a) Contributions to an Approved Pension Fund Plan/Scheme.

Contributions made under the Retiring Allowances(Legislative Services) Act.

(b) Premiums paid under – An Approved Deferred Annuity Plan TISP (Republic Bank) Future Cash (RBTT Bank) SAFE (Scotia Bank) Retirement Provider (FCB)

(c) N.I.S. 70% of the annual contributions made in accordance with the National Insurance Act. Where a taxpayer contributes to the Widows and Orphan Fund (this is usually the male appointed Public Servant) deduction allowed is 100% of this contribution and 70% of the difference between this contribution and the N.I.S. deduction.

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Total deduction in respect of item 4(a)(b) & (c) is limited to $30,000 (with effect from 2009).

5. Alimony/Maintenance Payments This is a payment made to a spouse or former spouse under a Deed of Separation or Court Order. This deduction shall not be allowed unless the spouse or former spouse in receipt for such alimony/maintenance is chargeable to tax under the Income Tax Act Ch. 75:01.

6. Deed of Covenant. (With effect from January 01, 2011) Payments made to a charity under a deed of covenant in favour of

- a sporting body of persons as defined in Section 6(2) of the

Corporation Tax Act and approved by the President in writing;

- an ecclesiastical, charitable or educational institution of public

character approved by the President in writing;

- the Children’s Life Fund established under the Children’s Life Fund act 2010.

This claim is equal to the amount donated but limited to 15% of total annual income.

(Not to be included on TD1 Form).

7. Tax Credits

Venture Capital The Venture Capital Tax Credit is equivalent to 25% of the investment in any Venture Capital Company. The tax credit is offset against the tax on chargeable income thereby reducing the tax liability. Where this tax credit exceeds the tax on chargeable, the excess tax credit may be carried forward to the following year(s), until it is exhausted.

CNG Kit and Cylinder (with effect from 1/1/2011) A tax credit equal to 25% of cost of CNG Kit and Cylinder purchased and installed in his motor vehicle. This credit is limited to $10,000.

Solar Water Heating System (with effect from 1/1/2011) A credit equal to 25% of cost of solar water heating system equipment purchased for household use. This credit is limited to $10,000. NB: All tax credits are offset against the tax on chargeable income.

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Guidelines to be followed when submitting a TD 1 Form for Approval

With effect from January 2009 when a TD1 Form is approved by the Board of Inland Revenue, a Certificate of Approval for PAYE Tax Deductions is issued to the employer.

The certificate shows:

An approval letter will be issued to the employer identifying – - The Employer’s name, address and PAYE Account Number - The Employee’s name and BIR# - The Employee’s Total Allowances and Credits - The Expiration date of the TD1 Form - The Board of Inland Revenue Stamp - Date and Signature of an IRD Officer

Complete one (1) TD1 Form and submit to the Inland Revenue Division for approval together with the following documents for the relevant claims-

1. Tertiary Education Expenses

- Copy of letter of acceptance from the Educational Institution showing the course and duration of studies,

- Proof of payment of expenses, - Statement showing all expenses claimed.

2. First-Time Home Owner

- Letter from Financial Institution confirming first time acquisition, date of acquisition and address of property.

- Completion certificate if property was constructed. - Lands and Buildings Tax Receipt. - Sworn affidavit, if property was built without mortgage.

3. Approved Pension Fund/Plan/Schemes - Salary deductions slip for the most recent pay period, identifying pension

contribution.

4. (i) Approved Deferred Annuity - Policy Statement showing that the policy is in force and paid up to date. - Where the Board approved the policy, the following words must be

marked on the statement – „THIS PLAN IS APPROVED BY THE BOARD OF INLAND REVENUE‟

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(ii) Tax Incentive Savings Plan (T.I.S.P.) - Republic Bank

Royal Future Cash - RBTT

Scotia Assured Future Earnings (S.A.F.E.) - Scotia Bank

Retirement Provider - FCB - Receipt showing payments made in previous year. - Where the Board approved the policy, the following words must be

marked on the statement – „THIS PLAN IS APPROVED BY THE BOARD OF INLAND REVENUE‟

5. Alimony/Maintenance - Original Copy of Court Order, Decree or Registered Deed of

Separation. (The Income Tax File Number of the recipient is also required).

- Copy of receipt of payments made in previous year.

For Common-Law Relationships – - Copy of receipt of payments made in previous year. - Sworn affidavit stating that the union, which produced the

child/children, was a common-law relationship established under the Co-habitational Relationship Act.

6. Venture Capital Tax Credit - Certificate from the Venture Capital Company showing investment

made.

7. Income from two or more sources

Where the taxpayer has income from two or more sources, he must submit a TD 1 Form to the Board for approval together with pay slips of salaries paid to date for the current year. A TD 1 A (directive) will be issued to the respective employers, advising of the amount of tax to be deducted from each source of income for the current year.

THE BOARD OF INLAND REVENUE MAY REQUEST ADDITIONAL

INFORMATION OR DOCUMENTS, IF CONSIDERED NECESSARY,

TO EFFECT THE APPROVAL OF THE TD 1 FORM. Where there is doubt concerning any claim or the procedure to be followed, please call the following Sections for clarification:

Taxpayer Services Telephone Number 623-2981 Ext. 201/204/520 or Taxpayer Relations Section Telephone Number 623-2981 Ext. 321, 323-6

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How to Compute P.A.Y.E Under the Income Tax (Employment) Regulations every employer shall deduct tax from the payment of emoluments to any employee or holder of an office. Taxable emoluments are those arising or accruing in or derived from or received in Trinidad and Tobago. In accordance with the PAYE Regulations, the employer is required to make deductions from salary or wages. Only the Board has the authority to reduce or amend the tax deductions of an employee in the case of a dispute.

The Board will determine the amount to be deducted in the following cases: (a) Where payment is made at other than regular weekly, fortnightly, monthly or

annual intervals, e.g. persons paid on a commission basis only; (b) In the case of casual or seasonal workers, where tax was deducted using to the

Tax Deduction Tables for the six(6) months during which they were employed and therefore the total tax would far exceed their liability calculated on an annual basis;

(c) Where the Board decides that the class of employee or nature of the emolument is such that it makes the application of the Tax Deduction Tables impracticable;

(d) In the case of an employee with more than one employment.

Tax should not be deducted from emoluments in the following cases:

(a) Where persons who are exempt from tax receive the emolument income,

(b) Where the emoluments are pensions earned outside Trinidad and Tobago,

(c) Where a resident individual or non resident individual 60 years and over is in receipt of total annual income of $60,000 annually and under, ie –

Weekly - $1154.00 Fortnightly - $2308.00 Monthly - $5000.00

(d) Where the emoluments are paid outside of Trinidad and Tobago to an employee outside of Trinidad and Tobago;

(e) Where the payment is made in respect of domestic services performed in a

residence where the employer sleeps or eats when in Trinidad and Tobago.

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In all other cases the employer will use the information on the Tax Declaration Form (TD. 1) submitted by the employee together with the Income Tax Deduction Tables or the stipulation made by the Board of Inland Revenue to determine the amount of tax to be deducted at each pay period.

Where a taxpayer works for short or irregular periods, the employer has to be much more vigilant in ensuring that the correct PAYE deducted. In such circumstances, to avoid under deductions of tax, the employer should consult with the Board of Inland Revenue.

The Board of Inland Revenue’s approval is also necessary where an employee takes up employment late in any income year and would not earn in excess of $60,000, but the employer is uncertain as to whether there is other employment income.

EMPLOYERS MUST NOT ACCEPT ANY INSTRUCTIONS FROM

EMPLOYEES TO REDUCE OR CEASE THE DEDUCTION OF TAX FROM

THEIR INCOME.

Retirement or Death When an employee retires and a pension is paid, tax must be deducted in accordance with the PAYE Regulations. Retirees who receive other income, in addition to their pension, must include such income on a TD 1 Form to be approved by the Board to determine the correct amount of tax to be paid from each source of income.

When an employee dies, tax is to be deducted from the emoluments due to the deceased person, as if he was alive.

When an employer dies or there is a change in employer, the person assuming control of the business must continue to deduct taxes from the employees.

Use of tax deductions (on TD 1 Form) and calculation of Tax To determine the tax deducted from an employee’s income, the employer must consider the deductions on the TD 1 Form (approved where necessary) that the employee would have submitted.

The formula is as follows – Total Annual Income – Total Deductions = Chargeable Income Chargeable Income x Tax Rate = Tax on Chargeable Income (tax liability) Tax Liability * Pay Periods = Tax per pay period

* Weekly paid employees – Divide annual tax by 52

* F/nightly paid employees – Divide annual tax by 26

* Monthly paid employees – Divide annual tax by 12

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Examples

(a) Weekly paid wages and benefits - = $ 1,500.00 Annual emolument $1,500 x 52 = $ 78,000.00

Deduct Total deductions (as shown on TD 1 Form) = $ 61,933.00 Chargeable Income $78,000 - $61,933 = $ 16,067.00

Tax liability = $16,067 x 25% = $ 4,016.75 Weekly tax = $4, 016.75 52 = $77.25 (b) Fortnightly paid wages and benefits = $ 4,000.00 Annual emoluments - $4,000 x 26 = $ 104,000.00

Deduct Total deductions (as shown on TD 1Approval) = $ 65,000.00 Chargeable Income - $104,000 - $65,000 = $ 39,000.00

Tax liability = $39,000 x 25% = $ 9750.00 Fortnightly tax = $9750 26 = $375.00 (c) Monthly paid salary and benefits = $ 11,500.00 Annual emoluments - $11,500 x 12 = $ 138,000.00 Deduct Total deductions (as shown on TD1Approval) = $ 90,000.00 Chargeable Income - $138,000 - $90,000 = $ 48,000.00 Tax liability = $48,000 x 25% = $ 12,000.00 Monthly tax = $12,000

12 = $1,000.00

Benefits-In-Kind

The provision of Sections 133-141of the Income Tax Act state that where a company pays expenses on behalf of its directors/employees or grants allowances or benefits to any such director/employee, the amount paid or granted shall be treated as a perquisite (BIK) of the office/employment and included as income of the director/employee. (See our Booklet – Expenses, Allowances and BIK for more information).

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