Jamaica's Tax Administration (TAJ) recently published a tax bulletin containing a Technical Advisory dated 28 April 2022 on the Tax Implications Advance Payments/Receipts. The technical advisory clarifies the concept of "earned income" and "income arising or accruing to a person" and, in particular, the TAJ's policy on the accepted income tax treatment for advanced rent. The advisory concerns a 15-year lease agreement, the terms of which stipulated that the 15th year rent was to be paid upon possession of the leased premises. Given that the Income Tax Act (ITA) is silent on exactly when advanced income received should be taxed, the issues considered in the advisory are:

• At what point should expenses paid in advance be subject to income tax?
• When should a person be assessed for income tax on income received? - Is it in the year that the income is received? or - Is it in the year when the income is earned?

In this respect, two proposed treatments are considered:

1. Rental (income, profits, or gains) should be recognized and taxed as income in the year of assessment in which it is received; or
2. Rental (income, profits, or gains) should be recognized when earned and therefore taxed in that year of assessment, for example, in the case of the aforementioned lease agreement, in the fifteenth year of occupying the leased premises.

In the technical advisory, the TAJ finds that the second treatment is correct, concluding that in circumstances where the terms of an agreement stipulate that an advance payment is to be made in addition to the current year expense, that advance payment (income, profits, or gains) being received up front is to be recognized by the recipient when earned and taxed in the year of assessment in which it is earned in accordance with the provisions of section 5 of the ITA, which provides that income tax shall be payable for each year of assessment in respect of all income, profits, or gains arising or accruing.

Although the ITA does not specifically address the issue, the TAJ is confident in placing reliance on the provisions of section 5 of the ITA. Therefore, notwithstanding that the profits and gains may be received in a particular year of assessment, the income should only be taxed when earned. Further, it is noted that where the legislation is silent and the TAJ does not issue an instructive technical advisory or practice note, the method prescribed by the appropriate International Financial Reporting Standard (IFRS) is to be adopted.