Enntertainment allowance over the holidays

Allowances received are specifically included in the definition of remuneration and are accordingly taxable.

There are, however, certain exceptions which are separately dealt with in Practice Note 3 of 2001:

An entertainment allowance received is not subject to pay-as-you-earn (PAYE), but it is taxable in the hands of the employee receiving it.

Entertainment allowances are usually received by client facing staff on management level and above with the purposes to entertain clients of your business.

The following should be noted:

· The full amount of entertainment allowance should be reflected on the annual PAYE 5 certificate ;

· You (i.e. the employee) are allowed to deduct actual expenses incurred for business purposes against the entertainment allowance with the submission of your annual income tax return;

· The deduction of business expenses incurred is limited to the allowance received;

· You will be taxable on the unexpended portion of the allowance received; and

· Proof of expenses incurred for business purposes should be retained to substantiate the proof of expenses claimed against the allowance.

ONUS

Remember that the onus is on you as the taxpayer to proof that the expenses are incurred for business purposes. Therefore, taking your family to breakfast with a receipt that has chocolate milkshakes and kiddies meals on it would be difficult to argue that it was incurred for business purposes.

So in the event that you do in fact entertain clients of your business over this festive season make sure that you have all the required documentary evidence to support your claims.

Johan Nel is a partner/director at PwC Namibia.