Source: SARS External Guide, effective 12 March 2025, after the annual budget speech from the Minister of Finance.
This article, the fifth in a series, will assist employers in understanding their obligations regarding determining the cash equivalent of the value of a taxable fringe benefit as provided for in the Seventh Schedule to the Income Tax Act.
Reference to the Act: Paragraphs 2(k) and 12C of the Seventh Schedule.
In terms of the amendments to paragraph 2(k) of the Seventh Schedule to the Income Tax Act, any direct or indirect contribution by an employer to an insurer in respect of insurance benefits for the benefit of an employee, his spouse, children, dependent or nominee will constitute a taxable fringe benefit in the employees’ hands. The cash equivalent of this taxable benefit is calculated in accordance with the new paragraph 12C of the Seventh Schedule and is the total cost incurred by the employer in respect of any premium payable.
This paragraph shall not apply where the total cost is in respect of an insurance policy that relates to an event arising solely out of and in the course of employment of the employee.
Value to be placed on the benefit
The amount of any expenditure incurred by the employer in respect of premiums paid under a policy of insurance during that year of assessment. Where a portion of any expenditure incurred by the employer cannot be attributed to the employee for whose benefit the premium is paid, the benefit will be the total amount of expenditure incurred by the employer for the benefit of all employees divided by the number of employees in respect of whom the expenditure is incurred, during the year of assessment.
Employees’ tax: The taxable benefit must be reflected under the income code 3801 on the IRP5/IT3 (a)
certificates.
EMPLOYEE’S DEBT OR RELEASE FROM OBLIGATION TO PAY DEBT
Reference to the Act: Paragraphs 2(h) and 13 of the Seventh Schedule and Section 11F
A taxable benefit shall be deemed to have been granted if the employer has paid an amount owing by the employee to a third party, whether directly or indirectly, without requiring the employee to make any payment for the amount paid or employer has released employee from an obligation to pay an amount owing by employee to employer. Where the amount owed by the employee to the employer has been prescribed, the employer shall be deemed to have released the employee from his/her obligation of paying the debt unless the Commissioner is satisfied that it was not the intention of the employer to transfer the benefit to the employee. This excludes medical contributions made by the employer or medical costs incurred by the employer.
Value to be placed on the benefit: The amount paid by the employer, including the amount paid by the employer on behalf of the employee to a retirement annuity fund, or the amount of the debt from which the employee has been released. There is no limitation on the method by which this debt may have arisen or the size of the debt.
No value may be placed on the taxable benefit under the following circumstances:
- The employer has paid subscription fees to a professional body if membership of such a body is a condition of the employee’s employment.
- Insurance premiums indemnifying an employee solely against claims arising from negligent acts or omissions on the part of the employee in rendering services to the employer.
- Any portion of the value of a benefit which is payable by a former member of a non-statutory force or service as defined in the Government Employees Pension Law, 1996, to the Government Employees’ Pension Fund.
No value may be placed on the benefit should the new employer grant a low interest or interest-free debt to the employee in order to enable him/her to recompense the previous employer; such new debt owed cannot be regarded as a study loan in respect of which no benefit is considered to arise.
However, a refund of any bursary, debt in respect of studies or similar assistance by an employer on behalf of his/her employee to the employee’s previous employer, is not regarded as a taxable benefit, if:
• The employee’s previous employer made a grant on condition that the employee rendered service to the employer for an agreed period.
• On termination of service before the expiration of the period agreed upon, the employee is liable to refund an amount to his/her previous employer.
• Upon accepting employment with a new employer, the outstanding amount is refunded to the previous employer by the new employer on behalf of the employee.
• The employee consequently is liable to work for the new employer for a period not shorter than the remaining period that he/she should still have worked for the previous employer.Note: A scholarship, which is subject to repayment if certain written conditions are not met, is treated as a bona fide scholarship or bursary until the conditions are not fulfilled. In the tax year in which such conditions are not fulfilled, the amount of the scholarship will be regarded as a debt, and any benefit that the employee may have received will constitute a taxable benefit.
Employees’ tax
Employees’ tax must be deducted from the cash equivalent during the month in which the benefit accrues to the employee. If, however, the amount of employees’ tax to be deducted is excessive in relation to the employee’s monthly remuneration for that month, the deduction of the tax in respect of the benefit may be spread over the balance of the tax year during which the benefit accrued to him/her.
IRP5/IT3(a) details: The cash equivalent of the benefit must be reflected under code 3808.
Examples:
Payment by employers of a portion or the whole of an employee’s mortgage bond payment, credit card account, clothing account, etc., is fully subject to tax, notwithstanding the fact that the payment is made by the employer directly to the institution or supplier.
Where an employee changes employment and is obliged to repay a study debt or a bursary to his/her previous employer, the new employer may pay this debt on behalf of the employee. Such a payment constitutes a benefit to the employee, which must be taxed in full.
Retirement Annuity Fund contributions are paid on behalf of the employee. The employer’s contribution is regarded as payment of the employee’s debt.
IRP5/IT3(a) details: The cash equivalent of the benefit must be reflected under code 3828.
MEDICAL SCHEME CONTRIBUTIONS PAID BY AN EMPLOYER
Reference to the Act: Section 6A
Paragraphs 2(i) and 12A of the Seventh Schedule
A taxable benefit shall be deemed to have been granted where the employer contributes directly or indirectly to a medical scheme on behalf of an employee and his/her dependents.
Value to be placed on the benefit:
The amount of the contribution or payment by the employer (directly or indirectly) to a medical scheme for the benefit of the employee and dependents of such employee for any period.
The amount of contributions paid by the employer on behalf of an employee who is 65 years and older and is still employed by such employer is a taxable fringe benefit with effect from 1 March 2012.
However, where an employee has retired from the employ of such employer, irrespective of the age of the employee and the employer continues to pay contributions on behalf of that retired employee, the ‘no value ‘fringe benefit still applies.
Appropriate portion cannot be attributed to the relevant employee in cases where the contribution or payment is made by the employer in such a manner that an appropriate portion thereof cannot be attributed to the relevant employee, in other words, where the employer makes a lump sum payment to the scheme in respect of all employees or a class of employees, the amount of that contribution or payment to that employee and his/her dependents is deemed to be an amount equal to the total contribution or payment by the employer to the scheme during the relevant period for the benefit of all employees and their dependents divided by the number of employees in respect of whom the contribution or payment is made.
If the apportionment of the contribution or payment amongst all employees does not reasonably represent a fair apportionment of that contribution or payment amongst the employees, the Commissioner may, on application by the taxpayer, decide that the apportionment be made in such other manner as is fair and reasonable.
No value may be placed on the benefit if the payment by the employer is made on behalf of:
• A pensioner (a person who, because of superannuation, ill-health, or other infirmity, retired from the employ of such employer); or
• The dependents of a pensioner after the death of the pensioner (if such pensioner retired from the employ of such employer because of superannuation, ill-health, or other infirmity); or
• The dependents of a deceased employee after such employee’s death, if such deceased employee was in the employ of the employer on the date of death.
Employees’ tax must be deducted during the month in which the benefit accrues.
IRP5/IT3(a) details:
The fringe benefit value taxed in the hands of the employee must be added to the value of code 4005 to have been paid by the employee if the benefit was included in the employee’s remuneration.
Employer’s medical scheme contributions made for the benefit of the employee must be reported under:
• Code 3810 (fringe benefit value)
• Code 4474, where the employee is not a retired employee or the contributions were not made for the benefit of the dependents of a deceased employee
• Code 4493, where the “no value” provisions apply in respect of the relevant employee/former employee.
MEDICAL COSTS INCURRED BY AN EMPLOYER
Reference to the Act: Paragraphs 2(j) and 12B of the Seventh Schedule
A taxable benefit shall be deemed to have been granted where the employer, directly or indirectly, incurred any amount (other than a medical scheme contribution paid to a registered medical scheme) in respect of medical, dental and similar services, hospital services, nursing services or medicines provided to the employee, his/her spouse, child, relative or other dependant.
Value to be placed on the benefit:
Amount incurred by employer (directly/indirectly) in respect of any medical, dental, similar services, hospital services, nursing services, or medicines in respect of an employee, his/her spouse, child, or other relative or dependents.
The appropriate portion cannot be attributed to the relevant employee:
Where payment is made in manner that an appropriate portion thereof cannot be attributed to employee, his/her spouse, children, relatives and dependents, the amount of that payment to that employee and his/her spouse, children, relatives and dependents is deemed to be, amount equal to total amount incurred by employer during relevant period in respect of all medical, dental and similar services, hospital services, nursing services or medicines for benefit of all employees, spouses, children, relatives and dependents divided by number of employees who are entitled to make use of those services.
No value applies to any benefit resulting from provision of medical treatment listed in any category of prescribed minimum benefits determined by Minister of Health in terms of section 67(1)(g) of Medical Schemes Act no. 131 of 1998, which is provided to employee, his/her spouse or children in terms of a scheme or programme of that employer, which:
• Constitutes carrying on of business of medical schemes if that scheme or programme is approved by the Registrar of Medical Schemes as being exempt from complying with the requirements of medical schemes.
• Does not constitute the carrying on of the business of medical schemes, if that employee and his/her spouse and children are:
Not beneficiaries of a medical scheme registered under the Medical Schemes Act No. 131 of 1998.
Beneficiaries of such a medical scheme and the total cost of that treatment are recovered from that medical scheme.• Where the services are rendered, or the medicines are supplied, for purposes of complying with any law of the Republic.
• Derived from an employer by:
A person who, because of superannuation, ill-health, or other infirmity, retired from the employ of that employer.
The dependents of a person after that person’s death, if that person was employed by that employer on the date of death.
The dependents of a person after that person’s death, if that person retired from the employ of that employer because of superannuation, ill-health, or other infirmity.
An employee who is 65 years or older.- Where the services are rendered by the employer to its employees in general at their place of work for the better performance of their duties.
Employees’ tax must be deducted during the month in which the benefit accrues.
The information with respect to taxable benefits must be reflected under the codes:
- Code 3813 — cash equivalent of the benefit (costs paid on behalf of the employee, whether the expenses were paid in respect of an immediate family member or other relatives/dependents of the employee).
- Code 4024 — medical costs deemed to be paid by the employee.