The Bermudan government is set to reap millions by tightening the rules on payroll taxes in relation to notional salaries for owner-managed businesses.
Notional salaries were branded an “often-abused part of the payroll-tax system” by Premier David Burt in his Budget speech and were estimated as likely to yield Bd$10 million of tax revenues over the coming fiscal year. They are given to “deemed employees” who receive an income “partly or wholly through sharing the profits of the business instead of only through salaried remuneration”.
For example, Parliament was told, partners in local law and accounting firms may declare a notional salary of Bd$200,000, even though they actually earn Bd$1 million from their business. But this would mean they were taxed only on the Bd$200,000.
Notional salaries initially came under fire in the pre-Budget report, according to The Royal Gazette. At the time, companies were put on notice that the Office of the Tax Commissioner was examining these kinds of arrangements for “professions deemed particularly at risk of under-declaration”.
But the decision has now been taken to amend the Payroll Tax Act 1995. As a result, deemed employees will be required to declare all of the income they receive on a cash basis.
The overall yield from payroll tax is estimated to be Bd$454 million in 2018-19, or nearly 42% of total government revenues. A suggested professional services tax (PST) was axed following an industry consultation.
On the other hand, tax relief for workers earning less than Bd$96,000 a year was promised. Other tax initiatives include absolving employers of disabled persons from their portion of payroll tax, plus a year’s tax exemption for new entrepreneurs meeting Bermuda Economic Development Corporation standards.
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
The Bermudan government is set to reap millions by tightening the rules on payroll taxes in relation to notional salaries for owner-managed businesses.
Notional salaries were branded an “often-abused part of the payroll-tax system” by Premier David Burt in his Budget speech and were estimated as likely to yield Bd$10 million of tax revenues over the coming fiscal year. They are given to “deemed employees” who receive an income “partly or wholly through sharing the profits of the business instead of only through salaried remuneration”.
For example, Parliament was told, partners in local law and accounting firms may declare a notional salary of Bd$200,000, even though they actually earn Bd$1 million from their business. But this would mean they were taxed only on the Bd$200,000.
Notional salaries initially came under fire in the pre-Budget report, according to The Royal Gazette. At the time, companies were put on notice that the Office of the Tax Commissioner was examining these kinds of arrangements for “professions deemed particularly at risk of under-declaration”.
But the decision has now been taken to amend the Payroll Tax Act 1995. As a result, deemed employees will be required to declare all of the income they receive on a cash basis.
The overall yield from payroll tax is estimated to be Bd$454 million in 2018-19, or nearly 42% of total government revenues. A suggested professional services tax (PST) was axed following an industry consultation.
On the other hand, tax relief for workers earning less than Bd$96,000 a year was promised. Other tax initiatives include absolving employers of disabled persons from their portion of payroll tax, plus a year’s tax exemption for new entrepreneurs meeting Bermuda Economic Development Corporation standards.
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
