Taking a look at the Urban Renewal (Tax Relief) Act

Gina Phillipps Black
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The Urban Renewal (Tax Relief) Act, passed in 1995, established a framework of tax incentives available to those investing in the development and restoration of areas "suffering from blight or urban decay" and declared by the Minister to be a special development area ("SDA"). The tax relief available under the Act operates during the incentive period for the relevant SDA.  So, by way of example, the incentive period in respect of the Downtown Kingston Special Development Area is ten (10) years commencing on September 1, 2005.

Relief is available to individuals or organizations declared to be approved developers that undertake improvement work in a SDA or approved organizations issuing or underwriting urban renewal bonds. Urban renewal bonds under the Act are bonds issued by an approved organization for the sole purpose of providing funds to carry out improvement works in a SDA.  These bonds bear interest at a rate to be determined by the Minister and otherwise be subject to such terms and conditions as the Minister may approve.

Special relief is also available for an approved developer in respect of improvement works to a national monument in lieu of relief that may otherwise be available under the Jamaica National Heritage Trust Act.

The Urban Renewal (Tax Relief) Regulations sets out the form of application for designation as an approved developer. The application for designation as an approved developer must outline the nature of the proposed improvement work, which should include the construction or improvement of buildings in a SDA or the purchase of a building in a SDA for the purpose of improvement. An application fee equal to 0.25% of the quantity surveyor's estimate of capital expenditure in respect of the improvements works, but capped at $10,000.00 is also payable.

Designation as an approved developer will not exempt any developer from any requirements for subdivision, planning or other approval that would otherwise be required to carryout the improvement works in the SDA.

The tax relief under the Act includes:

  • accelerated tax credits for capital expenditure relating to improvement works in a SDA subject to certain limitations;
  • relief from stamp duty and transfer tax on the acquisition of land by approved developer (and on transfers by the approved developer in certain circumstances);
  • relief from income tax on rental income (unless the landlord and tenant are connected persons within the meaning of the Income Tax Act);
  • relief from income tax on interest income paid to a person investing in an Urban Renewal Bond;
  • tax deductions for lessees of improved property of up to 200% of the amount of rent paid (provided the lessee is not "connected" to the landlord and the Commissioner of Taxpayer Audit and Assessment is satisfied that the rent is a reasonable commercial rent; and
  • relief from stamp duty, transfer tax, and registration or recording fee on the transfer of an Urban Renewal Bond.

The Act imposes certain obligations on approved developers and approved organizations. An approved developer is required to include particulars of expenditure on improvement works during the year of assessment in his income tax return and a certificate of costs to date approved by a registered certified quantity surveyor, architect or engineer must also accompany the return. Separate accounts are to be kept with respect to improved property forming part of a SDA during the incentive period in connection with a lease of improved property and any loans made or interest received.

An approved organization must keep a register of bond holders which must contain the particulars of all bond holders and other prescribed information. An officer of an approved organization is under an obligation not to disclose to any person other than the Chairman of an approved organization (or his deputy) the name of any purchaser or holder of a bond or the amounts paid or repaid in respect of such bonds. An approved organization is also required to furnish a copy of the register to the Bank of Jamaica every six (6) months.

The Minister may revoke any order declaring a person an approved developer if he is satisfied that the approved developer has failed to comply with any term or condition on which the approval was granted. Before revoking the order the Minister shall give an approved developer an opportunity to explain the circumstances of the failure to comply. Any revocation by the Minister will not affect any entitlement to income tax relief under the Act that may have accrued prior to the date of the revocation. It is interesting to note that the relevant section speaks only preservation of any income tax relief but not any of the other relief available under the Act.

Generally, areas designated under urban renewal schemes such as that existing under the Urban Renewal (Tax Relief) Act are characterised by high levels of unemployment and welfare dependency. The schemes impose a significant cost on the government in terms of tax revenue foregone in the hope of stimulating economic activity through property development and job creation with benefits for local businesses in the hope for improved social and economic structures in these areas to tackle issues of crime, the lack or absence of amenities and other social services. The Act provides us with a means of achieving these goals. Many have already taken advantage. Others should take a closer look. 

Gina Phillipps Black is a Partner at Myers, Fletcher & Gordon. She is a member of the firm's Commercial Department and heads the firm's Compliance sub-department.  Gina may be contacted via gina.black@mfg.com.jm or via www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.