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6. Input tax deduction rules
2023 Laws not yet authenticated through a Commencement Order

Revised Laws of Saint Lucia (2023)

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6.   Input tax deduction rules

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    6.1   Period in which an input tax deduction is claimed.—A taxable person deducts input tax in the tax period in which the tax on a domestic acquisition is payable. For example, if an invoice issued on 28 January is received on 5 February, and tax is payable by the recipient when the invoice is issued, the taxable person claims the input tax deduction in the tax period that includes 28 January.

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    6.2   Commencement or termination of a taxable activity.—Activity involved in commencing or terminating a taxable activity is considered to be related to taxable activity under section 6(3) of the Act. The costs incurred to begin or terminate a taxable activity therefore are costs taken into account in calculating the allowable input tax deductions under section 30 of the Act.

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    6.3   Input tax deductions on vehicles carrying goods.—In accordance with section 31(1)(a) of the Act denies a deduction for input tax on the acquisition of a passenger vehicle, unless the person acquires the vehicle for purposes of that person's business of dealing in, or hiring, such vehicles. “Passenger vehicles,” according to section 31(7) of the Act, include motorcars and other motor vehicles principally designed to transport people. This disallowance rule does not apply to a commercial truck, a double cab truck designed to carry goods, a pickup truck, or other vehicle used exclusively for the transport of goods. If a passenger vehicle acquired by a person in the business of dealing in, or hiring passenger vehicles, is provided by that person directly or indirectly for the benefit of an owner, officer or employee, the person is denied an input tax deduction on the acquisition of the vehicle to the extent of the tax on the portion of the passenger vehicle used by or for the benefit of such individual, or the person (while owning the vehicle) is deemed to have changed the use of the vehicle under section 4(6) of the Act. For example, if an employee of a car rental company will use for personal purposes a newly-acquired motor car usually rented to customers, the car rental company is denied an input tax deduction on the acquisition of the car for the portion of the tax on the rental car to be used for such purposes. The same rule applies if the car rental company permits a related person who does not work for the company to use a car usually rented to customers.

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    6.4   Input tax deductions on entertainment.—For purposes of section 31(1)(b) of the Act, an input tax deduction is not allowed for tax paid on the purchase or import by a taxable person of goods or services for the purpose of entertainment. “Entertainment” is defined in section 31(7) of the Act as provision of food, beverages, tobacco, accommodation, amusement, recreation, or other hospitality. Entertainment includes restaurant meals for executives, employees, or customers, the rental of a lodge, the charge for satellite or cable television services, and the charge for food at a retreat for employees. Under section 31(1)(b)(i) of the Act, the disallowance rule does not apply to purchases of “entertainment” by a registered person engaged in the business of selling “entertainment” (such as a restaurant or disco) if the purchases are used directly in the supply of taxable entertainment in the ordinary course of business.

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    6.5   Input tax deductions on membership in a sporting, social, or recreational club, association, or society.—Section 31(1)(c) of the Act denies a deduction for input tax on fees or subscriptions for membership in a club, association, or society of a sporting, social or recreational nature. While not an exhaustive list, the disallowance rule applies to input tax on a membership in a hunting, drinking, dining, smoking, or similar establishment.

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    6.6   Input tax allocation rules.—Under section 31(2)(a) and (b) of the Act, the input tax on acquisitions directly allocable to the making of taxable supplies is deductible in full, and the input tax on acquisitions directly allocable to the making of exempt supplies is disallowed in full. Input tax on acquisitions used in making both taxable and exempt supplies (dual-purpose acquisitions) must be allocated between them in accordance with the formula A x B/C (section 31(2)(c)) ; that is, allocated in proportion to total taxable sales during the current tax period divided by total supplies in that period. For example, if during the month of August, the input tax not directly allocable to either taxable or exempt supplies is $10,000, the total taxable supplies in August are $6,000,000 and the total supplies in August are $10,000,000 the input tax allocable to taxable supplies under this formula (and therefore deductible for August) is $10,000 x 6,000,/10,000, or $6,000.

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    6.7   De minimis rule.—If a taxable person's ratio of taxable supplies to total supplies under the formula A x B/ C in section 31(2)(c) of the Act is more than 0.90, under section 31(3) of the Act, the taxable person may deduct the entire input tax on dual-purpose acquisitions used to make both taxable and exempt supplies. In other words, if more than 90 percent of total supplies are taxable supplies, the ratio in section 31(2)(c) of the Act is deemed to be 100%, and all input tax on the dual-purpose acquisitions is deductible.

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    6.8   Allocation rule for financial institutions.—Section 31(4) of the Act provides that a bank or other financial institution making both taxable and exempt applies in a tax period can deduct, under section 31(2) of the Act, only the input tax on acquisitions that are directly allocable to the making of taxable supplies. There is no deductible input tax under the formula in section 31(2)(c) of the Act on dual-purpose acquisitions used in making both taxable and exempt supplies.

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