Sunday 14th November, 2004


Know exemptions, allowances, credits

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Money Matters
with Raziah Ahmed

Recent 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 tax deductions/payments.

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, viz.

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 sportsman/sports events.

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 year’s 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 of investment.

* Personal allowance of $25,000, or if over age 60, the allowance is $40,000.

* 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.

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