In the past there were definite financial gains attached to certain fringe benefits granted by an employer to employees. There were also quite a few loopholes which were abused by a number of taxpayers. As a result SARS has clamped down on the tax treatment of fringe benefits by changing the Tax Laws and closing the loopholes.SARS started taxing the cash value of fringe benefits. The cash value of a fringe benefit is equal to the cost of the benefit to the employer. If the asset depreciates over time, the cash value will have to be re-considered each year, otherwise the employee will be paying too much tax.
The following fringe benefits granted by an employer to an employee will be taxable in the employee’s hands at the cash value as set out below:
The onus to prove that the asset is required to be used outside of the workplace by the employee and mainly for business purposes, rests on the employer and the employee.
The cash value of the company car fringe benefit will be calculated with reference to the original cost of the vehicle to the employer.
There are special tax considerations to be taken into account in the following circumstances:
The cash value of the fringe benefit will be the value of the asset less any consideration paid by the employee.
The fringe benefit will have a cash value of interest calculated at the SARS official tax rate and be reduced by any interest paid by the employee.
The cash value will be equal to the cost of the subsidy to the employer in respect of any interest and/or capital repayments.
The cash value will be the amount of the subsidy paid by the employer.
The cash value will be equal to the amount of the premiums paid by the employer.
The cash value is equal to the amount paid by the employer.
The cash value is equal to the cost to the employer.
The cash value is equal to the amount paid by the employer or the amount of the debt of which the employee has been released.
There are a number of exceptions where no value will be placed on the payment or the release of the debt. Please contact your tax practitioner for more information.
The cash value will be calculated as the cost of the service to the employer less any amount paid by the employee.
The cash value of this benefit will be equal to the cost to the employer less any amount paid by the employee.
It is important to ensure that an employee is taxed on the correct amount for a fringe benefit. Taxing an employee on an amount higher than the cash value of a fringe benefit will result in the employee paying too much tax. Taxing the employee on an amount lower than the cash value, thus deducting too little Employees’ Tax will cause the employer to become liable for fines and penalties from SARS.
As can be seen from the above, an employee will be taxed on his/her cost to the employer and it is fast becoming irrelevant whether an employee’s package is structured in a certain way to reduce income tax.
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your attorney for specific and detailed advice. (E&OE)