with Raziah Ahmed
press releases by the Board of Inland Revenue have established
that there are concerns about the interpretations in use about
what constitutes an employer/employee relationship. This stems
from attempts to tighten the collections of taxes by the BIR,
and seems to target those who have contracts of
employment, as opposed to those who are unambiguous employees.
These concerns are founded in an interesting concept in tax
law: the economic benefit doctrine.
Economic benefit doctrines treat with uncovering hidden income
that is subject to tax, and derives from the definition of
income in the Income Tax Act. Those who frame the laws, and
those who get the legalisation passed in Parliament, are also
those who amend and pass the laws. In fact, amendments to
tax laws occur each year, more or less. So the legislators
can easily alter the definitions of income!
The economic benefit doctrine allows for the interpretation
of income as virtually anything that could be construed as
an economic or financial payment to the receiver, be he on
contract or otherwise.
If an employee/employer relationship can be proven to exist,
all such payments or benefits, constructively received by
the individual or entity, ought to be subject to PAYE or corporate
If an employer treats a contractor with rewards and personalised
advertisements, these can be deemed to be evidence of a relationship
that is other than contractual, unless the contract document
bears certain terms for service.
Be that as it may, tax collectors have their work to do and
we have ours! The onus is upon us to know exemptions, allowances
or credits we can claim. There are a few new claims of note,
1. If you purchased or constructed a first house
after January 1, 2003, you may claim a deduction of $10,000
for each of the first five years.
2. If your holdings of credit union or co-op society shares
reflect a net increase of up to $10,000 in the income year
you may claim a tax deduction on the increase.
3. A deduction of 200 per cent of all remuneration paid under
registered apprenticeship programmes is allowed to persons
engaged in trade, or hiring of individuals aged 16 to 24 years,
for a maximum of six months.
4. Up to one million dollars can be claimed for sponsoring
And a reminder of other windows of opportunity:
* Deduction for tertiary education to a maximum of $18,000
per taxpayer annually (inclusive of claims for mortgage interest),
for reasonable expenses is allowed. The course must be of
at least one academic years duration and result in a
certificate, diploma or degree.
* Alimony/maintenance in respect of a Court order: 100 per
cent of payments.
* Investment in an approved hotel/tourism plan: 25 per cent
* Personal allowance of $25,000, or if over age 60, the allowance
* Annuity contribution, together with NIS: up to $12,000.
The claim for owner occupied residential mortgage loan interest
payments, of $18,000 per owner, needs reiteration. This claim
is married to the tertiary education claim, and cannot exceed
$18,000 in total, per taxpayer.
It is almost as though, these assets, are not desirable goals,
to which all must be encouraged in the bid for developed nation
status. Otherwise the message may be, get the house early
in marriage, so by the time the children achieve university
entrance, you can qualify for the education claim, since you
cannot have both together. After all, what is good economics
about, if not to provision the household?
Raziah Ahmed is a registered financial consultant.