Real Estate - Property Matters by Afra Raymond
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Taxing thoughts on property – Part 3
Taxation of rental income

Published Thursday 8th April, 2004

A view of the proposed Port-of-Spain waterfront development
A view of the proposed Port-of-Spain waterfront development. Photo: Brian Ng Fatt

We intended to discuss the stamp duty in this column but there have been some delays in getting the relevant information from the BIR.

This week we will discuss the taxation of property income and the effects of this regime. When we think of the number of people who rent their homes and the speed with which good properties are sold, it is also clear that there is a growing interest in acquiring property for rental as an investment.

Once again, due to the lack of any official statistics, we have no clear idea of how many people here rent their homes and what rents are being paid.

In fact, with the absence of these basic items of information, it is difficult to imagine how the BIR can assess the accuracy of the returns filed by property owners.

Of course, it is difficult to be certain, but it seems that a number of our most successful property investors do not declare income received from rent.

The rental income seems to be regarded as a “lagniappe” and it is the rare investor who will pay tax on this.

Income is one of the main sources of wealth targeted for taxation since it is one enjoyed by almost everyone.

It is therefore natural that income taxes will receive the intense attention of tax specialists who are paid to find ways of minimising their clients’ tax liability.

There are a number of “tax-efficient” means of arranging the affairs of a wealthy person; indeed, it is settled law that the taxpayer has the right to seek to reduce their exposure to tax.

However, is it right to simply fail to declare a source of income in order to cheat the taxman? Rental income in this country is a healthy stream of money and a significant number of the people making the false claims are well-off.

When one considers the consistently high levels of claims placed on the nation’s resources by its ambitious citizens and the level of tax evasion, it is clear the freeness and something for nothing mentality we so love to complain about is very widespread. Everything is really everything here!

Some key points which arise on the issue of income tax on property are:

Landlord v Tenant — There is a fundamental difference in the viewpoint of landlords and tenants and it is extremely unlikely that tenants would willingly collude with landlords to conceal income.

We can therefore expect co-operation from tenants if an effort was made to gather proper records of rents.

Collections v Tax rates — It is popular fun here to admire the “smartman” and it is a deeply-bred part of our nature to be a little suspicious of the intentions of the State. It is little wonder that when one hears of someone successful who is paying too little tax, the common reaction is one of quiet admiration.

The point we should consider is that, despite the amusing anecdotes, the proper enforcement of our tax laws would offer the possibility of a life with lower tax rates.

If the collections net were widened to include more of the missing income, it would be possible to ease the tax burden for everyone.

The role of the BIR — Just last week in this very section of the business press we read impressive plans to merge the BIR and the Customs and Excise Division and their new office complex to be erected downtown by UDECOTT.

These are impressive aspirations, which would tend to align us with some emerging trends in public administration and of course we are pleased to see new life being breathed into our capital city.

I think we are entitled to ask whether this is yet another “mega-project” with little in the way of real progress.

Can we really expect to see a re-invigorated Revenue Service with proper linking of data and improved levels of collections?

Residential property — There are a growing number of expatriate professionals living in our country who have their housing paid for by their firm and this provides a good income for a particular group of local investors.

These rents would count as deductible expenses and ought to be found in the tax returns of the tenant firms.

Non-residential property — The State rents a significant number of office buildings and there is therefore no need to search for the evidence in these cases; do the landlords declare the correct income in their tax returns?

In the case of private landlords, a bit more homework is needed since the tenants will have filed their own tax returns with the rent as a deductible expense.  

Next, we will be examining the stamp duty.

Afra Raymond - Property Matters

Rental income in this country is a healthy stream of money and a significant number of the people making the false claims are well-off.