Source: SARS External Guide, effective 12 March 2025 after the annual budget speech from the Minister of Finance
This article, the first 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.
OBLIGATIONS OF THE EMPLOYER
An obligation is placed on the employer to determine the cash equivalent of the value of a taxable benefit. The Commissioner may, if no determination is made or if such determination appears to him or her to be incorrect, re-determine such cash equivalent:
- Issue the employer with a notice of assessment in terms of section 95 of the Tax Administration Act for the unpaid amount of Employee Tax that is required to be deducted or withheld from such cash equivalent; or
- Upon assessment of the liability for normal tax of the employee to whom such taxable benefit has been granted.
Where any associated institution concerning any employer grants a benefit to an employee as a reward for services rendered, it constitutes a taxable benefit deemed to be granted by the employer to the employee.
The employer must determine the cash equivalent of the value of the taxable benefit granted by the associated institution to the employee as if he/she has granted the relevant benefit.
Every employer must deliver an IRP5/IT3(a) certificate to the employee. The nature of the taxable benefit and the cash equivalent of the value thereof must be reflected on the IRP5/IT3(a) certificate.
Where the employer fails to comply with this requirement, a penalty equal to 10% of the cash equivalent of the value of the taxable benefit or 10% of the amount by which the cash equivalent is understated may be imposed.
The employer must declare that all taxable benefits enjoyed by their employees are included in the certificate issued to employees. This declaration forms part of the Employer Reconciliation Declaration (EMP501) that must be submitted annually by all employers.
Any person who makes issues or causes to be made or issued, knowingly possesses, uses, or causes to be used any IRP5/IT3 (a) certificate which is false, shall be guilty of an offense and liable on conviction to a fine or imprisonment for a period not exceeding twelve months.
TAXABLE BENEFITS
ACQUISITION OF AN ASSET AT LESS THAN THE ACTUAL VALUE
Act: Paragraphs 2(a), 2A and 5 of the Seventh Schedule
A taxable benefit shall be deemed to have been granted if any asset consisting of any goods, commodity, financial instrument, or property of any nature (other than money) is acquired by an employee from the employer, any associated institution, or from any person by arrangement with the employer, for no consideration or consideration less than the value of the asset.
For purposes of calculating a taxable benefit, a partner is deemed to be an employee of a partnership.
A. Value to be placed on the benefit
The value to be placed on the asset is the market value thereof, at the time the asset is acquired by the employee.
- However, where the asset is a:
Movable property and the employer acquired the asset to dispose of it to the employee; the value to be placed on the asset is the cost thereof to the employer.
In trading the stock of an employer, the value to be placed on the asset is the lower of the cost thereof to the employer or the market value.
For marketable securities, the value to be placed on the asset is the market value.
An asset that the employer had the right to use prior to acquiring ownership thereof (for example, a leased asset on which the employer had the right to acquire ownership at the end of the lease agreement), the value to be placed on the asset is the market value.
B. Reducing the value of the benefit
With effect from 01 March 2014, a taxable fringe benefit may arise where the employee acquires an asset from the employer at less than the market value.
C. No value
- The remuneration proxy of the employee in respect of the year of assessment of acquisition does not exceed R250,000 per annum;
- The immovable property acquired by the employee is used for residential purposes;
- The market value of the immovable property to the employee on the date of acquisition is not more than R450,000; and
- The employee is not a connected person to the employer.
D. Exclusions
Assets (other than cash) disposed of to an employee in the following circumstances are not regarded as a taxable benefit (under paragraph 5 of the Seventh Schedule):
• Fuel or lubricants supplied for use in a motor vehicle where the private use of such vehicle is brought into account as a taxable benefit according to other provisions of the Schedule (in other words, a company vehicle).
• Meals, refreshments, vouchers, board, fuel, power, or water which are brought into account as taxable benefits according to other provisions of the Schedule.
• Marketable securities acquired by the employee in exercising any right to acquire such marketable security, as is contemplated in section 8A of the Income Tax Act.
• Any gain made by the employee from the disposal of any qualifying equity share or any right or any interest in the qualifying equity share, as contemplated in section 8B of the Income Tax Act.
• Any amount made by the employee in respect of the vesting of the equity share acquired by that employee by his/her employment as contemplated in section 8C of the Income Tax Act.
E. Employees’ tax
Employees’ tax must be deducted in the month during which the employee acquires the asset. If the amount of employees’ tax to be deducted is excessive concerning the employee’s 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 the employee.
This is reflected under code 3081 on the annual return.
Examples are:
• Prizes given to an employee by an employer or any other person by arrangement with the employer, for sales performance, outstanding work, etc.
• Benefits enjoyed by employees according to an agreement whereby employees are provided with credit cards and may purchase goods.
• In cases where the employer arranges for the employee to acquire an asset from any other person at a discount, a benefit accrues to the employee.
• The provision of security for the protection of the private home of an employee in the form of the installation of an alarm system, burglar bars, or the provision of armed response.
F. Long Service Awards
Act: Paragraphs 5 (2), 6(4), 10(2) of the Seventh Schedule
Paragraph (c) of the definition of gross income
Where assets are presented to the employee as an award for long service, the value determined is reduced by the lesser of the cost to the employer of all such assets so awarded to the relevant employee during the tax year and R5 000.
- The aggregate value of the amounts determined under paragraphs 5(2)(b), 6(4)(d), 10(2)(e) of the Seventh Schedule and the proviso to paragraph (c) of the definition of gross income must be taken into account.
- These can include gift vouchers or other assets, cash, free or cheap services, or the right of use of an asset owned by the employer for private purposes.
The following requirements must be met to qualify for a no fringe benefit value:
• The employee must have completed an initial unbroken period of 15 years of service with the employer, and any subsequent unbroken period of 10 years of service with that same employer; and
• The total value of the long service award must not exceed R5 000.
This subsection came into operation on 1 March 2022.
The cash equivalent of the benefit must reflect under code 3835 on the annual return.
G. Right of use of an asset
Act: Paragraphs 2(b) and 6 of the Seventh Schedule
This section prescribes that a taxable benefit shall be deemed to have been granted where an employee is granted the right of use of any asset (other than residential accommodation or any motor vehicle) for private or domestic purposes, either free of charge or for a consideration which is less than the value of such use.
Value to be placed on benefit
Where the employer is leasing/hiring the asset: The amount of the rental payable by the employer for the period during which the employee has the use of the asset. Where the employer owns the asset: An amount calculated for the period during which the employee has the use of the asset, at the rate of 15% per annum on the lesser of the cost of the asset to the employer or the market value of the asset at the date of commencement of the period.
The sole right of use of the asset is granted to the employee: Where an employee is granted the sole right of use of the asset for a period extending over the useful life of the asset or a major portion thereof, the value to be placed on the use of the asset shall be the cost thereof to the employer.
The taxable benefit will be deemed to have accrued to the employee on the date on which he was first granted the right of use of such asset.
No value:
Exemptions in respect of assets used for private or domestic purposes are applicable when one of the following criteria is met:
- The private use is incidental to the use of the asset for the employer’s business.
- The asset is provided by the employer as an amenity for recreational purposes for the use of his/her employees in general at his/her place of work.
- Any equipment or machine that the employer allows his/her employees to use in general from time to time for short periods where the value of the private use of the asset does not exceed an amount determined on a basis as set out in a public notice issued by the Commissioner.
- The asset consists of telephone or computer equipment which the employee uses mainly for the employer’s business.
- Books, literature, recordings, or works of art.
Note: The no value rule in terms of paragraph 6(4) will not apply in respect of clothing with effect from 1 March 2018.
Employees’ tax:
The cash equivalent of the benefit must be apportioned and is deemed to have accrued on a monthly or weekly basis during the year at the same intervals that the employee receives his/her cash remuneration, except in respect of those cases where the employee is granted the sole right of use of the asset during its useful life or a major portion thereof.
As the latter benefit is deemed to accrue on the date on which he/she was first granted the right of use of such asset, employees’ tax must be deducted from the full value of the benefit during that specific month.
This must be reflected under code 3801 of the IRP5/IT3(a) annual return.
Examples:
The employer rents an asset:
- The employer rents a caravan from a third party and makes it available to the employee for a holiday. The employer pays R100 per day for 10 days, which amounts to R1 000 rent paid by the employer.
- The rent amount (R1 000) is subject to employees’ tax and the employer must deduct the employees’ tax from the R1 000 at the same intervals at which the employee is remunerated for the relevant period of use.
- The employer owns the asset: The employer owns a caravan which he makes available to the employee for a holiday of 10 days. The employer paid R60 000 on the date he bought the caravan but the market value of the caravan on the date he made it available for use by the employee is R40 000. • The taxable benefit amount is the lesser of:
15% x R60 000 ÷ 365 x 10 days = R247 (cost of the asset to the employer), or 15% x R40 000 ÷ 365 x 10 days = R164 (market value of the asset on the commencement date of the period of use).
The R164 would be subject to employees’ tax and the employer must deduct the employees’ tax from the employee at the same intervals at which the employee is remunerated for the relevant period of use.
A second article will deal with examples related to RIGHT OF USE OF A MOTOR VEHICLE FOR PRIVATE OR DOMESTIC PURPOSES, MEALS, REFRESHMENTS AND MEAL AND REFRESHMENT VOUCHERS, ACCOMMODATION, and FREE OR CHEAP SERVICES.
The essence of fringe benefits related to tax is available in an article dated July 2021 via this link https://fincor.co.za/fringe-benefits-and-tax/