The Christmas holidays are here and you are wondering what to give your staff in the Yuletide season. You think of a bonus but don't know if a bonus attracts tax. You called 1888-TAX-HELP and was advised that anything given to an employee is taxable as a benefit under PAYE. You called another department to get a second opinion as persons in different departments are known to hold contradictory views simultaneous about the same issue. No such luck, this news is bound to make one unwell. At Christmas, what is needed is a wellness consultant to prevent you from getting toxic - I mean 'tax sick'. In helping to spread the Christmas cheer, the writer will now act as a 'tax-wellness' consultant, but we must first start by examining the legal provision on the subject.
Since 2012, "emoluments" paid to an employee have been defined to include "monies paid, benefit, or kind" and is taxed on the employee at "the full cost of providing the benefit or kind".
Monies paid is not restricted or limited to cash. It could include cheques or credit transfers but includes perquisites or profits. The word perquisites 'involves anything that can be turned into money', whereas anything that cannot be turned into money is a benefit. "Monies paid" encompassed the cash equivalent of benefits in kind.
Therefore, a benefit in kind cannot be paid, but not all benefits in kind involve a payment. In essence, if you were to give the employees J$15,000 bonus this is a cash benefit, while if instead a 10-pound ham is given, this is a benefit in kind. The common factor is that most of these items are regarded as pseudo-cash, and is subject to income tax as if they were cash. However, the term 'benefit or kind' as used in the law may lead one into thinking that tax is due on the kindness of an employer but not so as gifts are never taxable as they are not earned.
From the East
There is a basic distinction between a gift given to one employee and 'gifts' given to a whole class of employees. A gift made to an individual in appreciation of his personal qualities or achievements, for example, a wedding gift or testimonial, is a genuine gift and is not taxable. This includes where it is made by a third party to the employee for his personal qualities. The third party may well be a supplier or customer. However, tips are usually taxable. The gift should not just be a different label being placed on a benefit - such as giving all employees a loan which is not taxable and then forgiving the debt later. This would be taxable in the month of forgiveness.
Not all payment received by the employee will be a benefit. Benefit that can be taxed must be something that the employee receives as a reward for his services. There will only be a requirement to deduct income tax from a payment where the employee had a legal entitlement to the actual payment as this is the unvarnished meaning of the word 'emoluments'. Normally an employee cannot sue for a 'bonus' as there is no pre-existing legal entitlement to the money. Nevertheless, that a bonus is discretionary by the very fact that it is paid to everyone even if meant to be a Christmas gift it is a taxable perk.
Don't Try This at Home
It is said that most employees were infected with the chikungunya virus while at work. If an employer should now make a payment to compensate these employees for loss or to relieve physical stress and mental anguish this is not a 'benefit or kind' and is not taxable. Winnings are not benefits. Why not carry out a Christmas raffle, allow everyone to participate and ensure that everyone wins a prize? Alternatively, throw a Christmas lottery or gaming competition. Everyone purchase a ticket and draw lots from a bag to win a gift voucher.
Where the benefit is provided to the staff as a whole these are not taxable, for example, staff outings: although a benefit, it cannot be quantified to an individual and dividing the cost equally between them will not work either. Maybe you should just throw a staff party where everyone eat, drink and be merry.
As the late Ethlyn Norton-Coke would say, taxing a bonus is like taking the 'mas' out of Christmas. Have a very merry Christmas.
n Everald Dewar is
senior taxation manager
at BDO Chartered Accountants in Kingston.