Guide for Employers in respect of Fringe Benefits

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.

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.

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 for a 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.

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 in order to dispose of it to the employee; the value to be placed on the asset is the cost thereof to the employer.
  • Trading stock of 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 which 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.

Relief for low cost housing will have no value if the:

• 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 in relation to the employer.

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 virtue of his/her employment as contemplated in section
  8C of the Income Tax Act.

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 in relation to the

employee’s remuneration for that month, the Deduction of the tax in respect of the benefit

maybe spread over the balance of the tax year during which the benefit accrued to the

employee.

• 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 installing of an alarm system, burglar bars or the provision of armed
  response.

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 a 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 aggregare 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.

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 service with the employer, and any subsequent unbroken period of 10 years service with that same employer; and
• The total value of the long service award must not exceed R5 000.

Note:

This subsection comes into operation on 1 March 2022.

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.

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.

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 in 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 purposes of 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.

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.

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.

Paragraphs 2(b) and 7 of the Seventh Schedule

Section 8(1)(b)(ii) and (iii), 23A(1)

A taxable benefit shall be deemed to be granted where employee is granted the right of
use of any motor vehicle for private or domestic purposes. The cash equivalent of value of
taxable benefit shall be so much of value of private use of such vehicle as exceeds any
consideration given by employee to employer for use of such vehicle during such period,
other than consideration in respect of cost of licence, insurance, maintenance or fuel in
respect of such vehicle.

The value of a taxable benefit shall be calculated on a monthly basis or each part of a month during which the employee was entitled to the use of the vehicle for private purposes (including travelling between the employee’s place of residence and his or her place of employment or any other travelling done for his or her private or domestic purposes).

Shall be placed on:

• Any meal or refreshment supplied by an employer to his/her employees in any canteen, cafeteria or dining room operated by or on behalf of the employer and patronised wholly or mainly by his/her employees or on the business premises of the employer.
• Any meal or refreshment supplied by an employer to any employee during business hours or extended working hours or on special occasions.
• Any meal or refreshment enjoyed by an employee in the course of providing a meal or refreshment to any person whom the employee is required to entertain on behalf of the employer.
• Board and meals provided with accommodation. They are dealt with as part of the accommodation benefit.

The employer pays R20 a meal for his employees at a dining place close to where his business is situated. He provides each employee with 20 coupons per month for which the employee must pay R160 (R8 per coupon). One meal can be enjoyed at the dining place for each coupon. The taxable value of the benefit is calculated as follows:

Shall 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 Republic or to travel overland to any destination outside Republic; or Outside Republic if such travel was undertaken on a flight or voyage made in ordinary course of 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 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.

Shall 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 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 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 exceeed 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.

If a financial institution (e.g. bank) provides debt to its employees at same rate as to its customers on the same conditions and under same circumstances, no taxable benefit will accrue if such customer rate is below official interest rate.

If a low interest or interest free debt is provided to a director of a company or to a member of a close corporation, no taxable benefit will accrue if such debt is, for example, provided only as a result of the director’s shareholding and not in respect of any services rendered. In such a case, the interest on the debt owed will not be deductible in the hands of the company or close corporation

Paragraph 10A of the Seventh Schedule makes provision for the benefits granted to employees under a certain type of housing scheme, to be deemed to constitute a debt owed. Under this type of scheme, the employee’s house is acquired by and registered in the name of his/her employer. The employee is in terms of the agreement with the employer either entitled or obliged to acquire the house, either on termination of his/her service or after the expiration of a fixed period at a price stated in such an agreement. The employee is granted the right to occupy the house and as a consideration in respect of his/her occupation pays a rental to the employer, which is calculated as a given percentage of the cost of the house to the employer. This scheme is in effect identical to the granting by the employer of a low-interest housing debt and is in terms of Paragraph 10A to be treated as such.

Where the employee ultimately purchases the house from the employer, which will probably be at a price considerably lower than its then market value, the difference between the market value and the purchase price will not be subject to tax in the hands of the employee, provided that the purchase price is not lower than the market value of the house on the date on which the original agreement was concluded between the employer and the employee

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.

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.

That 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

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 and in the course of employment of the employee

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.

Shall be placed on the taxable benefit under the following circumstances:

• The employer has paid subscription fees to a professional body if such membership of such body is a condition of the employee’s employment
• Insurance premiums indemnifying an employee solely against claims arising from negligent acts or omissions on 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 non-statutory force or service as defined in the Government Employees Pension Law, 1996 to the Government Employees’ Pension Fund.

No value shall 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, outstanding amount is refunded to previous employer by 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 which 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.

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 paid on behalf of the employee. Employer’s contribution is regarded as payment of employee’s debt.

The cash equivalent of the benefit must reflect under code 3828.

The amount of the contribution or payment by the employer (directly or indirectly) to a medical scheme for the benefit of the employee and dependants 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 in the employ of such employer, it 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.

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 in relation 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.

Shall be placed on the benefit, if the payment by the employer is made on behalf of:

• A pensioner (a person who by reason of superannuation, ill-health or other infirmity retired from the employ of such employer); or
• The dependants of a pensioner after the death of the pensioner, (if such pensioner retired from the employ of such employer by reason of superannuation, ill-health or other infirmity); or
• The dependants 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

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 dependants of a deceased employee
• Code 4493 where the “no value” provisions apply in respect of the relevant employee/former employee.

On 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 Registrar of Medical Schemes as being exempt from complying with 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 medical scheme and the total cost of that treatment is 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 by reason of superannuation, ill-health or other infirmity retired from the employ of that employer
  • The dependants of a person after that person’s death, if that person was in the employ of that employer on the date of death
  • The dependants of a person after that person’s death, if that person retired from the employ of that employer by reason 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 in respect of taxable benefit must reflect under 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/dependants of the employee).
• Code 4024 — medical costs deemed to be paid by the employee.

Employee is deemed to be granted a taxable benefit by his/her employer if, as a reward for services rendered or to be rendered by the employee:

• Employer has granted a benefit or advantage directly or indirectly to a relative of the employee; or
• Anything done by employer under any agreement, transaction or arrangement so as to confer any benefit or advantage upon any person other than the employee, whether directly or indirectly

The benefit or advantage would have been a taxable benefit if it had been granted to employee in terms of paragraph 2. Provisions of this paragraph shall not apply where benefit has been taxed in the hands of the employee already.

An employee is deemed to have been granted a taxable benefit by his/her employer if, the employer has made contributions or paid any amount to the pension or provident fund on behalf of the employee excluding any amount which is transferred as surplus as defined in the Pension Funds Act.

This paragraph is deemed to have come into operation with effect from 1 March 2017.

An employee is deemed to have been granted a taxable benefit by his/her employer if the employer has made contributions to retirement annuity fund on behalf of the employee, in terms of paragraphs 2(h) and 13 of the Seventh Schedule.

For defined contribution components, the value of the taxable fringe benefit will be the value of the amount contributed or paid by the employer for the benefit of an employee who is a member of that fund.

“Defined contribution component” includes a benefit or part of a benefit receivable from a pension fund, provident fund or retirement annuity fund that consists of a risk benefit provided by the fund directly or indirectly for the benefit of a member of the fund, if the risk benefit is provided by means of a policy of insurance or a risk benefit policy.

Self-insured risk benefits are classified as a ‘defined contribution component’. The value of the risk premiums under self-insured risk benefits must be determined based on the cost to the employer (i.e. the actual contribution made by the employer).

A risk benefit policy means a policy under which the risk benefit provided by the fund directly or indirectly for the benefit of a member of the fund is provided by means other than a policy of insurance.

Where the fund member category is other than only defined contribution components, the value of the taxable fringe benefit must be determined in accordance with the formula.

• X = represent the amount to be determined
• A = represents the fund m ember category factor in respect of the fund member category of which the employee is a member
• B = represents the amount of the retirement funding income of the employee
• C = represents the sum of the amount contributed by the employee to the fund in terms of the rules of the fund, excluding any additional voluntary contributions contributed to the fund by the employee and buyback in respect of that year of assessment.

The above formula must be contained in a contribution certificate and must be submitted to the employer by the board of the fund.

No value must be placed on any contribution made by an employer to a fund
if the benefit is –

• For the retired member of that fund; or
• In respect of dependants, nominees of a deceased member of that fund.

The board of a fund must provide the employer with the certificates of the employees who are the members of a fund:

• No later than one month before the commencement of the year of assessment in respect of which the certificates are issued;
• If there were amendments to the rules of the fund, one month after the day on which those amendments become effective;
• If there was an error in calculation of fund member category factor, the corrected certificate will have effect from first day of month following the month during which that corrected certificate was received; or
• Where the fund member category factor changed during the year of assessment, the certificate must be provided to the employer no later than one month after the day on which those changes become effective.

The value of the taxable fringe benefit will be the value of the amount contributed or paid by the employer for the benefit of an employee to the Bargaining Council.

Where the bulk contribution is made by the employer and the employer is unable to determine the value of a taxable benefit per employee, the taxable value per employee shall be the total contributions divided by number of employees.