Friday, 20 July 2007 9:55 AM

Government may Impose Tax on Non-Cash Benefits

The Minister of Finance, Hon Gordon Darcy Lilo, yesterday launched a discussion paper on the tax treatment of benefits supplied to employees.

Mr Lilo stated that a recent review of Inland Revenue Departments (IRD) policy showed that the current policy is out of date and to a certain extent, cumbersome. Lilo said that this is mainly due to out of date schedules, which were last updated in 1998.

"All employees who receive benefits such as free housing or motor vehicles from their
employers will now be taxed on the market value of the benefit received," Lilo said.

Lilo stated that this would include both cash and non-cash benefits. Simply put, someone who was offered a $100,000 package (cash $70,000, with non cash benefits of accommodation and car worth $30,000) would be taxed the same as someone who took $100,000 cash. Prior to the change, the employee may have been taxed on the amount of money, or cash benefit, they received - $70,000.

"I have decided to release a Discussion Paper showing proposed changes rather than
simply announcing a policy change as there are a number of possible ways some of
these matters can be dealt with," said Lilo.

"I am sure the paper will attract interest from both employers and employees who I hope will take advantage of the opportunity to share their thoughts on how we address these matters with the Government."

The Acting Commissioner of Inland Revenue, Ronnie Piva, said that the Discussion
Paper will be released to those businesses known to provide such benefits to their
employee.

"All submissions need to be in writing and be received by the Division by 30
September. We will then be reporting to the Minister, so as to allow the release of the changes by the end of October. At this stage we anticipate the new rules will become operational from 1 January 2008," Mr Piva said.