Bringing clarity to travel and motor vehicle tax relief
The question of whether a travelling allowance is taxable comes up so often that the time has come to address it.
The Jamaican Government has been so effective at closing off breathing space for tax relief and non-taxable allowances to employees that many now see motor vehicle and travelling allowance as the last tax-relief breadfruit that has been roasted into oblivion.
A benefit is sometimes offered to an employee in the form of a car or cash allowance. That is to say, a company car can be made available for a reduced salary with an agreement to make payments for gasolene use for private and business travel. Alternatively, cash may be given in lieu of a car, in the form of an 'upkeep and mileage allowance'.
The question that is common is whether Tax Administration (TAJ) should consent for these allowances to be paid as a precondition to receiving them tax-free. Although this is not altogether necessary, it gives no cause for rejoicing.
The law provides that expenses, which are a requirement of the duties of the business or employment, are allowable as a tax deduction. In like manner, where an employee is required to travel in the performance of his duties and spends from his own pocket, he is to be properly reimbursed for these travelling expenses. This is absolute for 'genuine travelling officers' such as sales agents. But what about those of us who only use vehicles occasionally on duty?
Any cash payment made to the employee is part of emoluments or salary. This means the employee would have to file a tax return and claim a deduction for business mileage.
This, however, would be cumbersome, untidy and subject to abuse. The employee could end up making claims for 'ordinary commuting' between home and permanent workplace, and these are contentious issues. In addition, the view is that most of these payments are not bona fide for motoring in the performance of duties but part of salary artificially dressed up as reimbursements.
REALITY OF THE
There is a widespread view that working from home should be encouraged, partly for environmental reasons; and let us say a situation arises where the employee may have substantive duties, which cannot reasonably be done only in the office. It is essential for him to work from home some of the time or he starts working from home and then travels to the office. He could stay at home and communicate via online video conferencing such as Skype.
It should be unobjectionable that where an employee's home is a workplace and that person travels 'between workplaces', he is engaging in business travel, and this should permit a payment for the cost of travel from home to other workplaces.
Would TAJ rather he takes a cab, bus or just walk to a public library?
A taxi fare may also not be necessary because he could have travelled by requesting a ride from the neighbour. No travelling is payable then because he never incurred any expense. Speaking about walking, some employees are required to travel but do not own a motor vehicle. They use public transport instead. In that case, a commuted or walk-foot allowance can be paid.
TAJ takes the view that if the employee is entitled to receive or deduct travelling expenses between his home and his other place of work, plainly that would open the door wide for abuse and tax evasion.
For this reason TAJ formulated a special dispensation, which appears to have become a policy position. By application and approval, an amount can be paid as a tax-free allowance to the employee, whether he is a genuine travelling officer or someone from the management team that travels occasionally.
However, two conditions must be satisfied: first, that the employee's duties should require him to travel, that is, motoring must be an objective but not necessarily a substantive part of the employment and his duties; second, the employee should own or have access to his own vehicle. No consideration will be given to the type and cost of the vehicle as these are matters of personal choice and are irrelevant.
It should be noted that the two positions when an employee is entitled to compensation for the use of his vehicle and the TAJ's requirement to approve this compensation are complementary and not contradictory of each other.
Everald Dewar is senior taxation manager at BDO Chartered Accountants in Kingston.