Generally, Yes.

The Income Tax Act (“ITA”) provides that income tax is to be paid in respect of profits and gains in respect of:

• Dividends
• Interest (see Section 31A of the ITA)
• Distributions
• Investments in Money Market Funds

What if my investment scheme operates from outside Jamaica?

The ITA provides that taxes are payable on a person’s profits or gains derived from the Island or elsewhere and whether received in the Island or not. (ITA, s. 5(1)(b))

Since the overseas investment house is not required to withhold tax or make a return to the Jamaican Revenue, the burden rests on the taxpayer to declare the income and pay the applicable tax.

What about Double Taxation Treaties?

• Double Taxation Treaties generally do not waive tax.
• They establish which of two countries that might have a right to tax the same income should do so;
• They will sometimes specify a rate of tax to be applied in those circumstances; and
• They will allow for tax paid in one country to be credited in the other country.
• Jamaica has no Double Taxation Treaty with Turks & Caicos Islands, which is not a member of CARICOM.

How will the T.A.A.D. know if I have an investment in an Alternative Investment Scheme?

The TAAD has very broad powers of investigation.  Under the ITA, the Commissioner can:

• Raise an estimated assessment of the tax payable by an individual, which is conclusive unless a formal objection is made.
• Require the assessed person to produce books and other documents in his control relating to income in Alternative Investment Schemes
• Summon any third party to give evidence on oath in respect of the estimated assessment

The Taxpayer has a right to object to the estimated assessment but the burden of proving that the assessment is erroneous rests with the Taxpayer. (ITA s.75 (4A).

Wouldn’t my Alternative Investment Scheme be precluded from divulging my private account information?

• Unregistered investment schemes are probably unlikely to be able to rely on the confidentiality provisions of the Financial Institutions Act as a defence to disclosure.
• Even if they could rely on the Financial Institutions Act, a summons from the Commissioner of the T.A.A.D. would fall within the Fourth Schedule as circumstances in which information on customers’ accounts may be disclosed.
• There is also case-law that establishes that where the Revenue invokes its statutory power to demand information from third parties, the duty of confidentiality owed to the client is overridden.

Who else could be required to divulge information to the T.A.A.D?

• Your accountant
• Your bank
• Your attorney-at-law (in limited cases)

In the New Zealand case of Inland Revenue Commissioner v West-Walker [1954] NZLR 191 it was held that a solicitor was entitled to decline to furnish information or produce documents sought by the Revenue on the basis of attorney/ client privilege. 

One should note, though, the well established exception that information relevant to a crime to be committed is not protected by privilege. 

What are the chances that the T.A.A.D. would assess me?

Perhaps not as remote as you might think.

In the litigation involving Olint Corp. Ltd, Olint was ordered to furnish the Registrar of the Court with a list of club members to be kept confidential until the case is finally determined.  If Olint loses, the list is to be released to the FSC, ostensibly so that it may determine whether Olint complied with the FSC’s cease and desist order prohibiting it from taking new members. On January 16, 2008, the Supreme Court made a similar order in respect of Cash Plus Limited.

A receiver has now been appointed (most likely with the usual indemnities) and he might have little interest in preserving the confidentiality of the list of investors, who would also be creditors.  In fact, he may wish to call a meeting of all creditors.


How can the Government claim these Schemes are illegal and still claim I should pay tax on the income they generate? Isn’t the tax then “Proceeds of Crime”?

• The ITA imposes tax on income earned from investments.  It didn’t say anything about legal investments only.
• Some of the world’s most renowned criminals were convicted for tax evasion rather than the crimes that produced the income.

Wouldn’t I only have to pay tax when I take out my money?

Not necessarily.

• Interest or accretions on an investment of cash are not easily treatable as unrealised gains. Unrealised losses and gains are made in respect of assets of a capital nature, such as real property and stock, in which the real financial return will not be known until the asset is disposed of.
• The general principle is that tax on interest is payable once the person becomes unconditionally entitled to withdraw the interest earned.
• Under the ITA, a Prescribed Person is liable to withhold tax as soon as interest is credited to an investor.

Define Interest

“Interest” includes any profit or gain accruing to an investor –

1. by way of any premium, income from participating instruments or other sum paid or credited to that investor in respect of a deposit or loan or use of the investor’s funds for a period of time whether or not arising from a discount allowed to the investor;
2. on the sale or redemption in whole or in part of any bonds, certificates of deposit, debentures, notes or repurchase agreements or reverse re-purchase agreements;
3. who, having a right to receive the amount or part thereof stated in a bond, certificate of deposit, debenture, note or other instrument issued to him

              or to any other person –  

1. disposes of that right or part thereof; or
2. except where its is a right to receive interest, exercises that right, prior to the maturity of the instrument.
3. in respect of an investment in financial derivatives;
4. in respect of an investment in the money market fund, managed fund or commercial paper.

Who is a Prescribed Person?

A Prescribed Person includes any issuer of “commercial paper” which has the following definition in the Income Tax Act:

“Commercial paper” means securities comprising or evidencing a debt obligation, including promissory notes, whether or not secured or guaranteed but does not include obligations arising out of the sale of goods or services…

What are “Securities”?

The term is not comprehensively defined in the ITA, and the definition in the Securities Act doesn’t fit well within the ITA because of what it excludes. It’s safe to assume, though, that if something is a security for the purposes of the Securities Act, it will be a security for the purposes of the Income Tax Act.

In the Olint Case Mrs. Justice Norma McIntosh, in concluding that Olint issued and dealt in securities, said:

I agree with the Respondent’s Counsel that when the Appellants encourage persons to enter into profit making enterprise and issue a document evidencing the fact that the person is part of the profit sharing agreement, they are dealing in certificates of participation in a profit sharing agreement that is not reflected by the statements provided when the money is invested.

What considerations would the Court have in assessing whether one ought to pay tax on the income?

The Courts of other countries have placed great weight in these considerations:

• Whether the scheme was illegal, or if fraud was involved.
• Whether the income was trading income to the person involved or investment income.
• Whether, and if so how soon after the income was earned the scheme went into bankruptcy.
• The contractual relationship between the investor and the scheme
• The representations made to the investor and the reliance placed on it by the investor
• Public policy considerations regarding tax evasion
• Overall equity

Each case must be decided on its own facts.

What are the penalties for not paying income tax?

Penalties include:

• Fines of up to triple the amount of tax owed
• Interest on the unpaid tax
• Distraining against land
• Imprisonment

So what can I do?

• Speak to a tax professional before you file your next tax return.
• Your tax professional can assist with structuring your investments in the most tax-efficient way permissible under law.
• Most importantly, if you can’t take the heat – stay out of the kitchen.