UNIVERSITY COLLEGE OF THE CARIBBEAN

COURSE CODE AND NAME: ACT 205 – TAXATION THEORY AND PRACTICE
LECTURE TITLE: JAMAICAN TAXATION
LECTURE NUMBER: 3/UNIT 3

Class, welcome to our third lesson in Taxation Theory and Practice. This lesson’s primary focus
is on emoluments. We will be looking specifically on the following:
 Contract of Service and Contract for service
 Statutory Deductions Computation
o NIS
o NHT
o Education tax
o Income tax
o Heart contribution
 Allowable expenses and deductions
o meal allowance
o uniform allowance
o motor vehicle
o housing allowance
o telephone allowance
o credit card use
o pension contributions
o charitable gifts/donations

 Pay slips, deduction sheets, Returns

The primary learning resource for this topic is the prescribed text:
The prescribed text: Mendes, M., McLean, R. A. and Wynter, C. (2013). Essentials of Jamaican
Taxation (4th ed), chapters 3 & 4.
This will be augmented with information taken from the TAJ website:
https://www.jamaicatax.gov.jm/employer-s-guide
https://www.jamaicatax.gov.jm/income-tax2

Before we begin, let us look at the learning objectives for this topic.

Learning Objectives:
At the end of this lesson, you should be able to:

1. Distinguish between employment and self-employment and its implications.

2. Apply the basic laws and practice regarding computation of tax liability.
3. Apply the treatment of allowable expenses and deductions.

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4. Record the calculation of statutory deductions using appropriate documentation. The term
‘emoluments’ is a commonly used one; what do you think it means?

What are Emoluments?

When we talk about emoluments we are referring to the salary and other benefits earned by an
individual who is employed. According to section 2 (1) of the Income Tax Act (ITA)
emoluments include the following:
 all salaries, fees, wages;
 all provisions or payments in respect of living or other accommodation, entertainment,
utilities, domestic or other services;
 all other benefits, perquisites and facilities whatsoever;
 all sums paid to any person by an employer in respect of expenses whether reimbursable or
not;
 all annuities, pensions, superannuation or other allowances payable in respect of past services
and including lump sums paid in commutation or in lieu of a pension or other periodical
superannuation payment; and
 any payment of money or other valuable consideration made to the holder or past holder of
office or employment related to the termination of that employment.

Section 5 of the ITA deals with the charging of income tax to employed individuals. According
to section 5 (1), “income tax shall be payable by every person at the rate(s) specified for each
year of assessment in respect of all income, profit or gains respectively described hereunder”.
Under section 5 (1) (c) reference is being made to all emoluments. This section also states that all
emoluments, whether in the form of monies paid, benefits or kind arising or accruing to any
person or any member of the family or household by reason of his office of employment at
profit, including the full cost of providing the benefit or kind (such as rent, uniform, or laundry
allowances) are subject to income tax”.

Before we can determine the tax liability of an employed individual we first need to determine
what constitutes the emoluments.

List of items included in emoluments:

 Salaries, wages, overtime, bonuses, commission, honoraria
 Cash allowances
 Pay - in respect of sickness or absence from work
 Statutory Sick Pay
 Statutory Maternity Pay
 Tips paid in addition to normal pay
 Payment of travelling from home to an employee’s normal place of work
 Entertainment allowance for domestic purposes
 Uniform and laundry allowance paid to employees not in the exempt group
 Non-business amounts expended on a credit/debit card given to an employee
 Amounts paid to directors or employees for their domestic private expenses (school fees,
groceries etc.)
 Value of private use of motor cars given to employees
 Benefits on concessionary loans

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  Contract of service payments in relation to individuals and service companies
 Accommodation provided by employer

The following allowances are not included in the list of emoluments

 Material Allowance up to $72,000 per annum for Teachers in educational institutions,
(however effective April 1, 2001, the teachers in public educational institutions have opted to
receive the equivalent amount as part of their salaries and taxed accordingly)
 Lump sum paid out of the Consolidated Fund
 Meal Allowances paid outside of normal working hours
 Uniform and Laundry Allowances (if employees are in the exempt group not exceeding $5739
p.a. and $3395 p.a. respectively.
 Gratuity of up to $29,104 (July – Dec ’09 $74,768) (prior to July1, 2009 $250,000) paid to
certain employees in the tourist industry, provided that the emoluments of the employee do not
exceed $500,000).
 Rental of telephone and official calls where it is necessary for an employer to place a
telephone in an employee’s home because of the nature of the job
 Expenses wholly and exclusively incurred to acquire the emoluments

Now that we have established what an emolument is, we now have to determine who is an
employed individual. This will also assist in determining whether or not tax should be deducted
at source.

Who is an Employed Individual?

A very simple answer that would be given to this question is that an employee is an individual
who receives compensation from another individual or organisation for work done. There are
situations, however, where the response to this question is not as straight forward as there are
individuals who are receiving compensation for work done but they are not considered
employees. Persons may enter into contracts of varying kinds in order to render services. These
include:
 Contract of Service
 Contract for Service
 Contract for Personal Service

Contract of Service vs. Contract for Services

When engaging a worker a distinction must be made as to the kind of contract the worker enters
into. Usually the worker may enter into a contract of service or a contract for service.

Contract of Service
A Contract of Service relates to an employee/employer relationship. This means that the
employer has full control over what the employee does. The ‘employee’ is employed under a
Contract of Service and is subject to the supervision, control and direction of the employer in
respect of the way in which the work is to be done. Once it has been determined that the contract
is one of Contract of Service it means therefore that the emoluments paid to the employee is
subjected to all statutory deductions. The employer is also responsible for submitting his/her
contributions.

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Under a Contract of Service the employee is obligated to provide services to the employer. The
following conditions are usually met in an employee/employer relationship:
 The individual (employee) is subject to the supervision, direction and control of another
person.
 The employee has a significant position within the organisation e.g. manager, administrative
assistant, accounting clerk, etc.
 The employee is not conducting business on his own account.
 The contract entered into between the employee and the employer is legally binding
exclusive of service agreement.
 All resources required to carry out the work are provided by the employer.
 The employee is paid a fixed salary and is reimbursed of all expenses by the employer.
 The employee receives vacation leave and any other staff related benefits.
 The employee is required to file regular, oral or written, status reports with the employer.

Contract for Services

A Contract for Services usually relates to a self-employed person or independent contractor. This
individual, therefore, is responsible for filing his/her own tax returns under the self-assessment
system. The following criteria are used to identify an individual who has been contracted under a
Contract for Services:
 Not subjected to the control, supervision and direction of another individual
 Does not hold an integral position within the organisation
 Conducts business on his/her own account
 Has the right to provide services to more than one individual at the same time ensuring
separate contracts between him/her and the different individuals
 Provides all resources required for the job
 Is paid a fixed amount for work done instead of regular, periodic payments
 Assumes his/her own financial risk and is responsible for his/her own investment and
management.
The following table sums up the distinction between the two types of contracts.
CRITERIA CONTRACT OF SERVICE CONTRACT FOR SERVICES
Employer directs where, how,
when work is to be done and
Supervision, direction and Provider of service can work in
supervises it; determines the
control his own time
times when the provider of
service is to be available
No specified notice period
Termination of service Specified notice period required
established
Operates own business, makes
management decisions, provides
Independence
own equipment, provides own
-
staff to assist with work
Risks his own or borrowed
Does not risk own capital in the capital, takes financial decisions,
Financial risks and rewards
work to be undertaken bears any loss and takes any
profit

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Decided Cases:
 Ian Louie vs. The Queen (Canada)
This case was used to determine the status of the worker as a contractor of service or
contractor for service.
Employees of a company operated by Ian Louie (the sole shareholder) also worked in a
franchised cafeteria, run also by Mr. Louie. For the work done in the cafeteria, they were
paid minimum wages. They were granted permission to sell their own products in the
cafeteria. No income tax was paid to Revenue Canada on the wages paid to the workers in
the cafeteria by Louie. He was assessed for the unpaid tax as well as interest and penalty for
failure to pay income tax. The argument put forth by Louie is that when working in the
cafeteria, the workers are contractors for services and not employees and as such were
responsible for their own taxes. The Revenue court, after applying the features for contractor
of service and contractors for services concluded that the workers were under the control of
Louie, he supplied all equipment and tools, and there was no risk of loss to the workers. As
such it was determined that they were employees (contractors of service) and as such Tudor
(the company) was responsible for the tax payable on their wages.

 Ashenheim vs. Commissioner of Income Tax (1970)

This case was used to establish whether a contract of service (employed) or a contract for
service (self-employed) was in existence. Here the taxpayer who was an ambassador with
the government was claiming to be self-employed. Held – he was an employee of the
GOJ. He operated under the ‘direction and control’ of someone which made him an
employee of that body.

 Nethermere (St. Neots) vs. Gardiner and Another

Mrs. Gardiner was one of a number of outworkers engaged by a company, Nethermere
(St Neots) Ltd, which manufactured trousers and also employed full-time staff in its
factory. These outworkers were part-time and sewed trouser flaps and pockets using
machines provided by the company. There were no fixed hours and they were paid
according to the work that they did and were not obliged to accept any particular quantity
of work.
Mrs. Gardiner had previously worked in the factory as an employee up to 1976. In 1979
she began to do home work at first using her own machine but after a month or so the
company supplied a machine. In general work was delivered to her and collected twice a
day or daily. Mrs. Gardiner worked all remaining 15 weeks of the 1979/80 financial year
and worked all but 5 weeks of the next two years. Following a dispute over holiday pay,
the arrangement with the homeowners was terminated. They applied to the Industrial
Tribunal claiming that they were unfairly dismissed.
The preliminary question on appeal was whether the ladies were "employees" under a
"contract of employment" and therefore entitled to unfair dismissal rights under s 153 of
the Employment Protection (Consolidation) Act 1978 (now s 94 Employment Rights Act
1996). The Industrial Tribunal held that there was a contract of employment (service),
applying the test of whether the ladies could be said to be in business "on their own
account". The Employment Appeal Tribunal (EAT) dismissed the employer's appeal on
this point, finding in favour of the ladies. The employer appealed again.

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 Decision
The EAT dismissed the appeal holding that whether a person worked under a contract of
service or a contract for services was a question of law and not of fact. Since the
particular circumstances of the case supported their view that they were not in business
for themselves, the Industrial Tribunal had correctly concluded that the applicants were
employed under contracts of service. The Court of Appeal in upholding the decision of
the Industrial Tribunal decided that it could not interfere with the Tribunal’s decision
because it had not misdirected itself in law or reached a perverse decision.

Treatment of Emoluments
Connected Persons
According to section 5(1)(c) of the ITA, “all emoluments arising or accruing to any person (or
any member of his family or household) by reason of his office or employment of profit” are
liable to income tax. Section 2(2) of the Act defines a connected person as a person’s family or
household which includes his/her spouse, children and their spouses, his/her parents, servants
dependents and guests.
Basically the section states that an individual cannot avoid paying taxes by arranging for his/her
emoluments or parts of his/her emoluments to be paid to a member of his household.

Residents and Non-Residents

Under the ITA:
 an employee who is a resident in the island and is employed outside of the island is liable
to income tax in Jamaica on the emoluments earned. For example in the case of an
individual who travels overseas for work.
 Where the individual/employee does not reside in the island and is employed outside
Jamaica but the gains or profits in respect of the employment are derived from Jamaica
whether or not it was received in Jamaica, is liable to income tax (for example, where a
Jamaican entity has a branch in another country and has an employee who resides in that
country). If the salary of the employee is being paid from the head office in Jamaica, then
that individual is liable for tax in Jamaica.

Allowances
Remember that, aside from the basic pay, some employees’ emolument is made up of
allowances. How are these allowances treated for taxation purposes? Let us examine them
individually.

Meal Allowance- Meal allowance in respect of work done outside of the normal working hours
(i.e. overtime) is excluded from taxation.
 When an employer provides actual food, it is not taxable.
 When an employer gives a ticket that is exchanged for lunch, if it has no set value; it is not
taxable. However, if the ticket has a set value, it is taxable whether the employer provides the
meal, or the ticket is cashed elsewhere.
 When the employer includes money in the salary package as lunch allowance, it is taxable.
 If the meal allowance is for both lunch and supper, only the lunch allowance is taxable.

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Uniform and Laundry Allowances
The taxing of uniform and laundry allowances became effective on January 1, 1995. However,
there are certain categories of employees who are exempt. There are also limitations placed on
the tax-free uniform allowance. They are as follows:
Limits of exemption are –
o Uniform allowance $5,739 per annum
o Laundry allowance $3,395 per annum

Any allowance in respect of the provision of uniform for workers who fall in the specified
categories outlined by the Commissioner and who are required to wear a uniform is exempt from
tax. The allowance should not exceed $5,739 per annum for uniform and $3,395 for laundry.
Examples of these workers include persons in the medical field - nurses and doctors.

N. B. See page 39 of the 3rd edition or page 47 of the 4th edition of the text for the list of
employees who are entitled to uniform and laundry allowances.

Effective August 1, 2009 where employees are provided with uniforms by their employers, the
benefit must be calculated as follows:

 An employee in the exempt category and uniform provided by employer.

An employee receives uniform allowance of $15,000 annually. Calculate the amount on
which tax will be charged.

Cost of uniform allowance to employer $15,000

Exempt amount 5,739
Excess amount (benefit to employee) $ 9,261

Taxation on benefit: 25% x $9,261 = $2,315.25

The employee is entitled to $9,261 – 2,315.25 = $6,945.75 in laundry allowance.

 Where an employee does not fall in the exempt category, the calculation is as
follows:

Cost of Uniform: $15,000.00

Tax on benefit $15,000.00 x 25%
$ 3,500.00
Housing Allowance
Where an employer provides housing allowance/benefit to its employee, the following is applied:
 Rent to an unconnected person. Where cash payments are made whether to a third-party
such as a landlord or an agent or to the employee (or a person connected to the employee)
the total amount paid for the allowance is subject to income tax at 25%.
N. B. the landlord or agent is referred to as an unconnected person.

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 Example
Marci earns an annual salary of $1,500,000. She also receives an annual rent allowance
of $800,000 which is paid directly to her landlord. Ignoring all other statutory deductions,
calculate Marci’s tax liability.

Solution
Basic pay $1,500,000
Rent allowance 800,000
Total emolument $2,300,000

Income tax liability = 25% x $2,300,000 = $575,000

 Where the employer is the landlord for the accommodation the value of the
accommodation shall be determined to be the market value of the said accommodation.
Example
A teacher resides in a cottage on the school compound. The cottage is fully maintained by
the school. The teacher pays no rent from the basic salary earned. The amount for which
the cottage could be rented for on the open market is determined and this amount is added
to the teacher’s emolument as housing allowance. The teacher is then required to pay
income tax at 25% on the total emolument.
 Where the employee is provided with accommodation on the same premises where the
employment takes place or resides elsewhere and it can be established that it is necessary
for the employee to have that accommodation for the exercise of his employment; the
employee shall be taxed on an amount not exceeding thirty percent (30%) of his gross
emoluments excluding the cost/value of the accommodation.
Example

John, a member of the Jamaica Defence Force, is required to live in the accommodation
provided by the JDF. His residence is located at the JDF camp. He receives a basic pay of
$150,000 monthly. The value of his living accommodation is appraised at $80,000 per
month. Calculate his taxable housing benefit.

Salary $150,000
Housing $ 80,000

Taxable benefit $150,000 x 30% = $45,000

The $45,000 are emoluments and as such are subjected to PAYE and other statutory
deductions.

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  Where the employee occupies premises owned or operated by any exempt body as
defined in Section 12(h) of the Income Tax Act; the income tax is computed on thirty
percent (30%) of the gross emoluments excluding the cost/value of the accommodation.
An exempt body, according to S. 12(h) of the Act is “any corporation or association
organised and operated exclusively for religious, charitable, scientific or educational
purposes”. UWI and UTECH Jamaica are exempt bodies.

Example
Similar to example given above for JDF soldier

 Where accommodation is provided to the employee by connected persons (a member of the

employee’s household which includes spouse, children and their spouses, parents, servants,
dependents and guests) the full value of the accommodation will be taxed.

Travelling Allowances
Employee uses own motor vehicle

1. Sales Persons
Sales persons who receive a commission as emoluments may be entitled to a determined tax-
free travelling allowance. For this benefit to be received, the sales person is required to fill
out the PO 1 and Schedule 3 form and submit to TAJ Refunds Unit (located on East Street)
along with a copy of his pay slip. The Commissioner General will then, based on the
projected earning, determine the tax-free rate in addition to the income tax threshold. This
will be communicated to the employer for use in applying to the employee’s income before
any tax is deducted.

N. B. This has a one year limit and as such the application has to be made annually.

2. Other Employees Who Use Own Vehicles for Job Related Purposes
If the employee is a legitimate travelling officer, the employer may pay a travelling
allowance. However, application should be made to Tax Administration for allowance for
wear and tear and travelling in respect of the motor vehicle. This allowance is non-taxable.
The employer must prove to the Commissioner General that the employees are using the
vehicles for the purpose of the job. The application to the Commissioner by the employer
should state the following:
 The position of the employee(s)
 The salary attached to the position
 The areas travelled
 Purpose of travel
 Estimated amount of travelling to be paid.

If the employee is not a travelling officer, the full allowance is taxable.

The amount for travelling allowance for public sector employees is set by the Commissioner.
Currently, travelling officers who own their vehicles receive $975,720 p.a. and $40 per km for

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mileage travelled in excess of 200 km per month. Those receiving full upkeep are entitled to
$514,500.00 p.a. and $40 per km for mileage travelled in excess of 200 km per month. For the
commuted upkeep, (this is for travelling officers who do not own a motor vehicle), their upkeep
is $343,248.

Motor Vehicle Benefit

Motor Vehicles Provided By Employer
Where motor vehicle is provided by the employer, the taxable benefit is determined by the
following:
 Age of the vehicle
 Original cost of the vehicle
 Level of private usage

Annual Taxable Benefit on Motor Vehicle Provided by the Employer

Age of Motor Vehicle

Original Cost of
(a) Under 5 years (b) 5 years or more
Usage During Year
Motor Vehicle
Over 50% Over 50%
Up to 50% Up to 50%
($) Private Use ($) private Use ($)
Private Use ($) Private Use ($)
Up to 300,000 40,000.00 48,000.00 30,000.000 36,000.00
Over 300,000 -
50,000.00 60,000.00 40,000.00 48,000.00
700,000
Over 700,000-
75,000.00 80,000.00 60,000.00 65,000.00
1,000,000
Over 1,000,000 -
90,000.00 100,000.00 72,000.00 80,000.00
1,500,000
Over 1,500,000 120,000.00 140,000.00 98,000.00 100,000.00
Example: Original cost of motor vehicle over $700,000 - $1,000,000 under 5 years old and up
to 50% private use.

Taxable benefit on motor vehicle $75,000.00

Tax thereon 25% per annum $18,500.00

Travelling to and from Work

Individuals are typically able to claim a tax deduction for work-related travel expenses.
However, according to established case law:
 The general rule is that travel between home and work is private travel and expenditure on
such travel is not an allowable deduction as such; expenditure is expenditure of a private or
domestic nature.
 Travelling from work to home is not tax deductible.
 Travel on the job from one place of employment to another in the same job, or from one
business place to another as part of the job is tax deductible.

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 Travel at the end of one job to a separate job is not tax deductible.

Related Case: Commissioner of Inland Revenue vs. Payne

This case was used to challenge the first 2 items above

Mr. Payne was a pilot, employed full time by an airline. He also owned a farm on which he
worked part-time and lived with his family. To get to the airport from the farm he travelled by
bus, car and in cases of emergency, by plane. He made claim to the airline for the travelling
expenses to be treated as allowable deductions for tax purposes. Expenses incurred in getting to
and from work were usually not allowed. This claim was denied by the Commissioner of Inland
Revenue. When he appealed to the Tax Tribunal, Mr. Payne lost. He then appealed to the Federal
Court of Australia which ruled in his favour. This ruling was then appealed by the CIR to the
High Court of Australia which ruled in favour of the CIR. The court stated that for the travelling
expenses to be allowed as a deduction for income tax purposes, they have to be incurred as a
result of the nature of the job. In other words, travelling from home to work and vice versa does
not result in a tax benefit being received.

Subsistence Allowance:
This is payment made to employees for actual expenses incurred or in lieu of actual expenditure.
These amounts are reimbursable expenses and as a result would not be considered as a benefit
and would not be taxed. Payments made to employees, that are termed subsistence allowances,
should be paid at a scale rate, which no more than reimburses the employee for the actual
expenditure.
 The Commissioner General must approve the scale for the payments to be classified as tax-
free.
 Subsistence in any other form is taxable.

Credit Cards
 If the employer provides a credit card to the employee, on each occasion that the employee
uses the credit card to obtain money, goods or services, it shall be treated as emoluments
received by the employee unless it can be proven that the card was used for the purpose of
the business.
 If the employee has a personal credit card and the expenses relating to the credit card is paid
by the employer, the amount paid will be treated as emoluments and will be liable for
taxation.
 A credit card provided by the employee for the sole purpose of business is not treated as an
emolument. The expenses incurred will be allowable for tax purposes.
 Where a credit card is provided to the employee and it is used both for business and
privately, the amount used for personal expenses will be treated as emoluments and will be
subjected to taxation.

Telephone Service
If the employer pays for telephone expenses of the employee for private residence incurred in the
process of conducting employment related business the payments are not taxable.

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If the entity provides the employee with a cellular phone with a specific limit per month, the
taxable emolument is the limit given. Business portions of the telephone charges would be tax
exempted.

Tips, Prizes, Incentive Schemes, Awards, etc., Cash Vouchers

Employees are taxable on the above named items. Awards may be given in cash, goods and
holidays. Cash award vouchers that can be exchanged for cash are to be treated as emoluments
and taxed accordingly.

Concessionary Loans
A loan to an employee is a concessionary loan and deemed taxable if:
 The institution giving the loan is in the business of lending money, and if
 The loan is given at an interest rate lower than the prescribed rate.

Specified Financial Institutions

Section 5 A on the Income Tax Act lists the following as specified financial institutions:
 Bank of Jamaica
 Merchant Banks
 Development Banks
 Insurance Companies
 Building Societies licensed under the Building Societies Act
 Trust Companies
 Any other institution licensed under the Banking Act or Financial Institutions Act

Prescribed Rate
The previous rate of 18% was lowered to 14% on February 10, 2003. In January of 2015, a
Resolution passed by the House of Parliament, lowered the interest rate to 9%. The Minister of
Finance has the right to amend the rate, if he deems it necessary, by Order under the Act.

Cash Equivalent
This is the difference between the amount of interest which would have been payable at the
prescribed rate and the amount of interest actually paid at the concessionary rate.

It is the cash benefit that is treated as emolument.

Exempt Purposes
Only loans up to a maximum of $1,500,000** will be exempt if used for the following purposes:
 Purchasing a house for owner occupation
 Purchasing a motor vehicle for private use
 Purchasing land
 Education
 Training
 Emergency needs (compassionate loan)
 Furnishing of a residence for owner occupation.

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** In January of 2015 a resolution was passed by the House of Parliament to increase this
amount to $4.5M.

Example 1 – Loan for exempt purpose from prescribed financial institution

In February 2012, Marcia, who was employed to a development bank, received a loan of
$400,000 for educational purposes. By December of the same year, she had repaid $80,000 of
the principal. The concessionary interest rate for the loan was 5% and the prescribed interest rate
was 14%.
What was the tax on Marcia’s loan for the year of assessment, December 31, 2012?

Answer
The loan is for one of the exempt purposes and it does not exceed $1.5M therefore there was no
cash benefit received by Marcia.

Example 2 – Loan not for exempt purpose from prescribed financial institution
In February 2012, Marcia, who was employed to a development bank, received a loan of
$400,000 to invest in a business with her sister. By December of the same year, she had repaid
$80,000 of the principal. The concessionary interest rate for the loan was 5% and the prescribed
interest rate was 14%.
What was the tax on Marcia’s loan for the year of assessment, December 31, 2012?

Answer
The loan did not fall in the exempt category and as such Marcia’s cash equivalent is calculated as
follows:
(14% - 5%) x $400,000 = $36,000

Tax liability @ 25% = $36,000 x 0.25 = $9,000.

Example 3 – Loan exceeds $1.5M for exempt purpose from prescribed institution
Judith received a loan in January 2011 for $1,800,000 from her employer, a development bank.
The interest rate on the loan was 6% and the prescribed rate was 14%. The loan is for an exempt
purpose.
a. What is the cash equivalent on the loan?
b. What is the tax liability on the loan in December 2011?

Answer
Loan amount $1,800,000
Loan threshold 1,500.000
Balance on loan $ 300,000
a. Cash equivalent = (14% - 6%) x $300,000 = $24,000
b. Tax liability @ 25% = 0.25 x $24,000 = $6,000

Employer has more than one loan.

If there are more than one loan, first, apply the exemption to the loan with the lower interest rate
and then to the progressively higher rates.

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Example 4 – employee receives more than one loan
Martha, who works at a commercial bank, received a loan in January 2011 for $1,700,000 at an
interest rate of 6%, from her employer. In April of the same year she received another loan in the
amount of $2,000,000 at an interest rate of 4%. The prescribed interest rate was 14%. The loans
were for specified purposes.

Calculate the cash equivalent and tax liability in December 2011.

Answer
First, apply the exempt portion to the loan with the lower interest rate.
$
Loan with lower interest rate (4%) 2,000,000
Less loan threshold 1,500,000
Balance remaining on loan 500,000
Add second loan with higher interest rate (6%) 1,700,000
Total loan after threshold 2,200,000

Cash equivalent =
Interest @ 14% = 0.14 x $2,200,000 308,000
Interest on $500,000 @ 4% $ 20,000
Interest on $1,700,000 @ 6% 102,000
(102,000)
Cash equivalent 206,000

Tax liability for December 2011 @ 25% = 0.25 x $206,000

= $51,500

Loans to Employees on Study Leave

Salaries paid to employees while on study leave is taxable.
If the amount paid to the employee is deemed a loan, based on agreement between parties, the
amounts received will not be taxable. For the amount received to be considered a loan the
following conditions must be met:
 The employee should not take any form of paid leave (vacation, maternity, etc.) during the
period of the study leave.
 Employee cannot earn leave during this period.
 The employee is bonded to work for a specified period in the employer’s service after the end
of the leave period.
 If the employee leaves the employment during the specified period, the loan or part
outstanding must be repaid in full.
 If the employee is taxed on the loan a claim for refund can be made.
Salary increased received during this period should be included in the loan agreement. If not
treated as such the amount received will be subject to tax.

Taxation and Pensioners

According to Section 5 ITA - Pension income is a taxable emolument. Under Section 12(z) there
is a special relief or exemption given as follows:

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 Persons under 55 years old, who receive a pension from a Statutory Pension Scheme e.g.
NIS, or an Approved Superannuation Scheme, are entitled to the tax exemption amount
of $80,000.00 against that Pension income only plus $557,232.00 – income tax threshold,
totalling $637,232.00.
 Persons 55 years and over, who receive a Pension from a Statutory Pension Scheme or an
Approved Superannuation Scheme are entitled to a tax exemption amount
of $80,000.00 from that pension income and any other source of income, plus $557,232.00 –
income tax threshold, totalling $637,232.00.
 Pensioners who are 65 years and over, are entitled to an exemption of $80,000.00 for age
relief & 80,000.00 pension relief, plus $557,232.00 –income tax threshold,
totalling $717,232.00.

Lesson Summary
 Emoluments is made up of salary/wage/basic pay plus any additional allowances given to the
worker by the employer.
 Some allowances are, however, not included in the emoluments e.g. uniform allowances to
designated employees (to a given amount), meal allowances for overtime work, gratuity paid
to certain workers in the tourism industry (with stipulations).
 Employees are taxed on their gross emoluments (basic pay + allowances).
 All statutory deductions must be made by the employer and same remitted to the relevant
authorities.
 In order to determine if the worker must be taxed at source or if he is responsible for filing
his own tax return, it must first be determined if his employment constitutes a contract of
service or a contract for service.
 A contract of service is made between an employer and an employee.
 Someone who is engaged under a contract for service is self-employed.
 In a contract of services, the employer is responsible under the PAYE system, whereas in a
contract for services, the independent contractor is subject to the self-assessment system.
 Sometimes it is difficult to determine if an individual has been retained under a contract of
service or a contract for service. Case laws are usually used to make the distinction.
 Allowances are subject to tax.
 The interest benefit received from concessionary loans given to employees of certain
financial institutions are liable to tax.
 Pension to retiree is liable to tax, however, there are conditions attached.

Key Terms
 Pension Scheme - pension scheme or pension plan is applied generally to a tax-exempt
arrangement that provides pension payments and other benefits usually on the retirement or
death of a member in return for contributions by, or in respect of that member.

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 Superannuation Scheme/Fund – savings set aside during your working life to provide you
with funds for retirement. Membership in superannuation funds is limited to those employed
by employers.
 Gratuity payment - is a lump sum that your company will pay you as an acknowledgement
of your loyalty to the company.

References
Mendes, M., McLean, R. A. and Wynter, C. (2013). Essentials of Jamaican Taxation (4th ed).
CFM Publications, Kingston: Jamaica.

https://www.jamaicatax.gov.jm/documents/10181/420229/it_and_contracts.pdf/408390c7-cf69-
4238-82c4-049ef8d22839

https://www.jamaicatax.gov.jm/employer-s-guide

https://www.jamaicatax.gov.jm/income-tax2

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