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Everald Dewar | The positive side of taxation at Christmas

Published:Sunday | December 18, 2016 | 12:00 AM

Caesar Augustus, the first Roman emperor, was given the name Gaius Octavianus Torrenus at birth.

He was adopted by his great uncle, Julius Caesar. Julius Caesar did not have an heir, and so he decided to bring someone into his family who he could trust, and that person was Gaius.

The Senate later gave Gaius an honorary title, the 'Revered One', or Augustus in Latin. His official name was, therefore, Gaius Julius Caesar Augustus.

Caesar Augustus, who also was called saviour, wanted to know how many subjects he had and decided that this was best done by taking a census by taxation.

He was going to save the people by taxing them, and the positive that came out of this was that this census caused Jesus, the Christ, to be born in the right place that first Christmas night. We will take this no further.

 

PARTY VS BONUS

 

It's the festive season, and despite the cash flow crunch, the directors of Company A have decided that all staff are going to have a fabulous time and lift their Christmas spirit.

The venue is booked and, in fact, the button has been pushed all the way as management is also paying for the staff to bring their partners along as well - no expenses spared.

Some cynical employee may say to give them the money as a bonus, and might even boycott the event. They would also be very upset if, having received the preferred bonus, they found that it was taxed.

The same question is always asked at this time of year: Is a Christmas bonus is taxable, or how can I pay a tax-free amount to my employees?

Special premiums, including a bonus, are at times paid to specific workers, sometimes as part of union agreements in certain industries on a gratuitous basis. They are intended to ensure that work proceeds smoothly, without interruption, and must never be confused with end-of-year or Christmas bonuses that are just traditional and normally paid by the employer.

As this was not part of the normal pay package, in the past, it was the practice not to otherwise tax this bonus.

However, the law was essentially amended to make such payments taxable under any circumstance.

Therefore, nothing has changed since last Christmas. Bonuses still remain taxable. Does this mean that Christmas givings are taxable in whatever shape or form?

 

CASH OR KIND

 

A cash bonus is treated the same as a 10-pound ham given to the staff as the ham is a benefit in kind and subject to tax.

However, 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. Christmas gifts fall into the same category and are never taxable. Notwithstanding, a distinction must be drawn where something is given to a whole class of employees at Christmas as this may be salary disguised as gifts.

Free giveaways to a number of different employees at a function such as snacks, food, and drink, are perhaps better than giving a cash bonus.

The negative side is that the law does not consider entertaining staff as an allowable tax deduction.

I know readers think this is dreadful, but there is an exception to this rule. If the purpose for the employee being in attendance is for him or her to act as host - meaning it's just incidental to entertaining the non-staff member - this is deductible.

In our party scenario, let's assume we move the goalpost a little and charge our non-staff guest $500 per head to attend the function. Then, we may be able to get a GCT deduction as well.

Also, hospitality provided for staff as opposed to entertaining employees - classed as staff welfare - is distinctive.

Perhaps the $1.5 million tax-free threshold could be seen as a Christmas 'gift' given by Caesar (the government). So far, the threshold has been increased from $592,800 to $796,536.

So that no one is left feeling that the Government is Ebenezer Scrooge, the increased threshold is granted to all individuals once they are residents in Jamaica and in employment that is to say those who employed themselves (self-employed/independent) as well as those who are dependent (employees).

Anyone who earns a salary below the threshold during this year will get a tax refund of the tax paid up to July. Some employers, because of their cash flow situation, have deferred paying those refunds until December - providing a bonanza at Christmas.

Come April 1, 2017, the threshold will again move to $1.5 million. Perhaps one can call that an extra 'Easter bonus'.

- Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston. everald.dewar@bdo.com.jm