Source: SARS External Guide, effective 12 March 2025 after the annual budget speech from the Minister of Finance
This article, the fourth 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.
FREE OR CHEAP SERVICES
Reference to the Act: Paragraph 2(e) and 10 of the Seventh Schedule
A taxable benefit shall be deemed to have been granted if any service has, at the expense of the employer, been rendered to the employee (whether by the employer or by some other person) and that service has been utilised by the employee for his/her private or domestic purposes and no consideration or an inadequate consideration has been given by the employee.
Value to be placed on the benefit:
If any travel facility granted by an employer engaged in the business of conveying passengers for reward by sea or air, to enable an employee or his/her relative to travel to any destination outside the Republic for private purposes, an amount equal to the lowest fare payable by any passenger utilising such a facility less any amount paid by the employee or his/her relative. Forward and return journeys are regarded as one journey. If rendering any other service, the cost to the employer in rendering such service or having the service rendered is less any amount paid by the employee.
Example:
If an educational institution such as a university or technikon provides free or cheap tuition to the children of personnel, a taxable benefit arises. The value that must be placed on the benefit is the marginal cost involved in the tuition of the additional person. If the employee makes a contribution that is equal to or more than the marginal cost, no taxable benefit accrues.
No value may be placed on any:
- Travel facility granted by an employer engaged in the business of conveying passengers for reward by land, sea or air, to enable any employee, his/her spouse or minor children to travel to any destination in the Republic or to travel overland to any destination outside the Republic; or outside the Republic if such travel was undertaken on a flight or voyage made in the ordinary course of the employer’s business and such employee, spouse, or minor child was not permitted to make a firm advance reservation of the seat or berth occupied by him/her.
- Transport service rendered to employees in general for conveyance of such employees from their home to place of employment and vice versa.
- Communication service provided to an employee if the service is used mainly for the purposes of the employer’s business.
- Services rendered to employees at their place of work: For better performance of their duties.
As a benefit to be enjoyed by them at their place of work.
For recreational purposes at work or a place of recreation, other than at a place of work that is for the use of employees in general. - Provision of parking for motor vehicles of personnel at their place of work is not a taxable benefit.
- Travel facility granted by employer to spouse or minor child of employee if employee is: For duration of his/her employment stationed for purposes of employer’s business at a specific place in Republic further than 250 kilometres away from his/her usual place of residence in Republic;
Required to spend more than 183 days during the tax year at that specific place; and such a facility is granted in respect of travel between the employee’s usual place of residence in the Republic and that specific place where the employee is so stationed.
Employees’ tax
Employees’ tax must be deducted from the cash equivalent of the benefit.
IRP5/IT3(a) detail
The cash equivalent of the benefit must be reflected under code 3806.
LOW INTEREST OR INTEREST FREE DEBT
Reference to the Act: Paragraph 2(f), 10A and 11 of the Seventh Schedule
This section prescribes that a taxable benefit shall be deemed to have been granted if a debt (other
than a debt for purposes of the payment of any consideration in respect of any qualifying equity share in terms of section 8A by the employee, the payment of any securities transfer tax payable in respect of that share or a debt in respect of which a subsidy is payable has been incurred by the employee), whether in favour of the employer or in favour of any other person by arrangement with the employer or any associated institution in relation to the employer, and either no interest is payable by the employee or interest is payable at a lower interest rate in comparison to the official rate of interest.
Value to be placed on the benefit: The amount of interest that would have been paid on the amount owing in respect of debt during the year of assessment if any interest had been paid at the official rate, less such amount of interest (if any) actually incurred by the employee.
No value may be placed on the benefit derived in consequence of:
- A debt owed by any employee to his/her employer if such debt or the aggregate of such debts does not exceed the sum of R3 000 at any time. Debt owed contemplated in this exclusion are short-term debts granted at irregular intervals to employees, and not all debts owed merely because they are less than R3 000. A taxable benefit would arise if the debt owed were granted on a regular basis to all employees or a certain category of employees, notwithstanding the fact that the debt owed does not exceed R3 000.
- Granting of debt to enable an employee to further his/her own studies.
- With effect from 1 March 2019, debt owed to the employer as a result of a loan granted by that employer to that employee which does not exceed R450,000 if: the debt was granted for the purposes of acquiring immovable property used for residential purposes by the employee;
the market value of the immovable property acquired does not exceed R450,000 in relation to the year of assessment during which the property was acquired;
the remuneration proxy of the employee does not exceed R250,000 in relation to the year of assessment during which the loan is granted; and
the employee is not a connected person in relation to the employer.
Deemed interest:
Where the debt owed by the employee to the employer is used by the employee to produce income, for example, where the employee uses the money to purchase fixed property from which he/she derives rental income, the cash equivalent of the taxable benefit which is included in the employees’ taxable income, will be deemed to be interest actually paid by him/her and will be allowed as a deduction from the income
earned.
Accrual of taxable benefit
A portion of the cash equivalent is, for employees’ tax purposes, deemed to have accrued to an employee where:
• Interest on the debt owed becomes payable by the employee at regular intervals during the tax year, on each date during the year on which interest becomes payable.
• Interest on the loan becomes payable at irregular intervals or, where interest is not payable, on the last day of each period during the year in respect of which any cash remuneration becomes payable to the employee.Employees’ Tax
The amount that is subject to employees’ tax is determined by calculating the interest at the official rate for the portion of the year mentioned above, reduced by the amount of interest (if any) actually payable by the employee for the portion in question.
The official interest rate means a rate of interest that is equal to the country’s repurchase rate plus 100 basis points. For an example, if the country’s repurchase rate is 7%, the official interest rate will be 8% (7% plus 100 basis points).
An alternative method for the calculation of the cash equivalent for Employees’ Tax and for normal tax purposes may be used if the Commissioner is satisfied that such method achieves substantially the same result as the prescribed methods.
IRP5/IT3(a) details
The cash equivalent of the benefit must be reflected under code 3801.
SUBSIDIES IN RESPECT OF DEBT
Reference to the Act: Paragraphs 2(g) and 12 of the Seventh Schedule
A taxable benefit shall be deemed to have been granted if the employer has paid any subsidy in respect of the amount of interest or capital repayments payable by the employee in terms of any debt.
Value of the benefit: A taxable benefit shall be deemed to have been granted if the employer has made
a payment to a third party in respect of the granting by that party of a low-interest or interest-free debt to an employee. Such payment would be deemed to be a subsidy.
The amount of any subsidy paid by the employer in respect of the amounts of interest or capital repayments.
Employees’ tax: The full amount of the subsidy in respect of any debt is subject to the deduction of employees’ tax.
IRP5/IT3(a) details: The cash equivalent of the benefit must be reflected under code 3801.