tax guide

Governments tax annual bonuses. Governments have found that some creative citizens have tried to get out of paying taxes on annual bonuses by giving big work anniversary gifts. That has led to what can sometimes be complicated rules when it comes to taxation and work anniversaries.

This is the obligatory paragraph where we make clear that we’re not tax lawyers or accountants, nor are we expert in employment law, and we don’t live in most of the countries listed below. And further, laws can change and this web page could easily be out of date. For all these reasons and more, you should consult with an attorney and not rely on this web page for legal advice.

That warning aside, we do think this web page is helpful. It gives you a high-level understanding that allows you to craft your draft program in a somewhat informed way so that you can save time (and thus money) when you talk to your lawyer and/or accountant.

  • Gifts must be “tangible personal property”, that is, not cash or cash equivalents. The value of the gift is limited to $400. The gift must be given as part of a “meaningful presentation”. It cannot be given to employees until their fifth anniversary, and then can only be given every fifth anniversary after that. “De minimis” gifts are allowed, but de minimis isn’t well defined. $100 is definitely not de minimis.

  • You don’t have to report or pay on a non-cash award to an employee if all of the following apply: they’ve worked for you for at least 20 years, the award is worth less than £50 per year of service, you haven’t given them a long-service award in the last 10 years. For example, you can give a non-cash award with a value of up to £1,000 for 20 years’ service.

  • Cash awards are taxable. Non-cash work anniversary awards are not taxable if they don’t exceed $200. If the award exceeds the exemption threshold, the whole value is taxable.

  • Awards for length of service, which must be in the form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees are exempt.

  • The Personal Income Tax Act doesn’t make any special allowances for long service awards, and work anniversary gifts are taxable to the extent that they are “any salary, wage, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums, benefits or other perquisites allowed, given or granted by any person to any temporary or permanent employee”.

  • New Zealand does not have special rules for work anniversaries. You can provide an employee with up to $300 of gifts and prizes, subsidized or discounted goods and services each quarter and not pay FBT. As soon as you go over this limit the full value of the benefit is subject to FBT. Employers who file annual or income year returns have a yearly exemption of $1,200 for each employee. The maximum total exemption an employer can claim is $22,500 each year. If you pay FBT quarterly and the value of the benefits you provide exceeds $22,500 in total for the current and last 3 quarters, you must pay FBT on the full value of the benefits for the current quarter.

  • India doesn’t have special rules for work anniversaries. Gifts in cash or convertible into money (like gift cards) are fully taxable. Gifts in kind for any reason, including work anniversaries, up to Rs.5,000 in aggregate per year are exempt, beyond which they are taxable.

  • $500 is exempt every five years for a non-cash award that is also not a gift card.

  • The exemption limit formula is set as follows: $1,000 + ($100 × (RLS − 15)). RLS is the number of whole years of service so essentially the exemption is $1,000 for the first 15 whole years of service plus $100 for each additional whole year of service after that.

Why these countries? They’re the bigger English-speaking countries which will appear in the Taxes appendix of the English-language version of the forthcoming book Inspiring Work Anniversaries. If your country isn’t here, and you happen to know the rules, let us know, and we’ll happily add it!

(If you would like your law firm to be mentioned in the guide as a place readers can go for professional legal advice on this topic, please contact us.)