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Content of the session
Basics
Travel allowance
Subsistence allowance
Entertainment allowance
Fringe benefits
Link with VAT
Foreign employment exemptions
Allowances – Position of
inclusion
Gross income
Less: Exempt income
Less: Deductions
Less: Section 20 assessed loss
Less: Section 10(1)(k) fund contributions
Add: Taxable capital gain
Add: Section 8(1)(a) AllowancesLess: Section 18A donations
Taxable income
Allowances
Net amount should be included
Allowance / advance paid or granted
Less: Portion actually expended
Basics
Fixed travel allowance
Employee receives the same monthly amount, regardless of how many km’s he/she
travels for business purposes
Reimbursive travel allowance
Employee receives the allowance based on the actual distance travelled for business
Therefore, the employee first has to travel for business purposes and will then receive
the reimbursive allowance based on actual data
Fixed travel allowance
Portion that is expended for business purposes is effectively tax free
Can only be claimed if log book is kept
Therefore, the private part is taxable
If travel allowance is received in respect of a vehicle that is also a company car as
defined in paragraph 7 (i.e. It is one and the same vehicle)
Full travel allowance is included in taxable income
No deductions are allowed against the travel allowance
Travelling between home and work ≠ business travel
Deemed rate/km
Value of vehicle (including VAT, excluding finance charges)
Fixed cost (per annum)
Fuel cost (c/km)
Maintenance cost (c/km)
Does not exceed R80 000 26 675 82.4 30.8
R80 000- R160 000 47 644 92.0 38.6
R160 000 – R240 000 68 684 100.0 42.5
R240 000 – R320 000 87 223 107.5 46.4
R320 000 – R400 000 105 822 115.0 54.5
R400 000 – R480 000 125 303 132.0 64.0
R480 000 – R560 000 144 784 136.5 79.5
Exceeding R560 000 144 784 136.5 79.5
∑ = total deemed cost/km
Only if FULL cost borne by the employee
Deemed rate: Fixed cost
component
Total fixed cost .
Total km’s travelled
Total km’s travelled = All travel (i.e. Business and private)
Must be converted to cents (other components in table are quoted in cents)
Total fixed cost is a value per annum
Therefore, must be apportioned on a daily basis if travel allowance is received for less
than the full year
Represents total wear-and-tear / lease instalments, interest, licence and insurance for the
year of assessment
Actual rate/km
If accurate records are kept of actual expenses incurred, a taxpayer can also claim actual expenses against the
travel allowance received
How is the “cost” that can be deducted against the allowance calculated?
Leased vehicle (finance or operating lease) – Total lease expense is used and must be limited based on
the fixed cost in the table
Vehicles owned – Wear-and-tear must be determined over 7 years, cost of vehicle limited to R560 000
Actual costs also includes fuel, maintenance, insurance, finance charges, licence costs and toll fees
All actual cost is aggregated and divided by the total km’s travelled
Business km’s x actual rate/km = Actual cost which is then deducted from the travel allowance received
Example
Mr A owns a Polo Vivo that cost him R200 000 (including VAT, excluding finance charges).
He receives a R3 000 travel allowance per month from his employer. During the 2017 year
of assessment, he travelled 20 000 km in total of which 5 000 was travelled for business
purposes. He kept an accurate log book and record of actual costs incurred which
amounted to:
Fuel costs R10 000
Maintenance costs R5 000
Insurance R2 500
Finance costs R7 000
Licence cost R500
Solution – Deemed cost
Allowance received (R3 000 x 12) R36 000
Total km’s travelled 20 000
Less: Private km’s (15 000)
Business km’s 5 000
Deemed cost:
Fixed cost per tables(68 684 / 20 000 x 100) 343.4c
Fuel cost per table 100.0c
Maintenance cost per table 42.5c
Total cost per km 485.9c
Total deemed cost (485.9c x 5 000km) (24 295)
Taxable amount based on deemed cost 11 705
Solution – Actual cost
Allowance received (R3 000 x 12) R36 000
Less: Actual costs incurred
Wear-and-tear (R200 000 / 7) R28 571
Fuel costs R10 000
Maintenance costs R5 000
Insurance R2 500
Finance costs R7 000
Licence cost R500
Total actual costs R53 571
Actual cost deducted for business use (R13 393)
(R53 571 / 20 000km x 5 000km)
Taxable amount if actual costs are claimed R22 607
Therefore, taxpayer must claim deemed cost
Example
Mr A owns a Polo Vivo that cost him R200 000 (including VAT, excluding finance charges).
He received a R3 000 travel allowance per month from his employer for the last 6 months of
the 2017 year of assessment. During the last 6 months of the year of assessment, he
travelled 20 000 km in total of which 5 000 was travelled for business purposes. He kept an
accurate log book but did not keep record of expenses.
Solution – Deemed cost
Allowance received (R3 000 x 6) R18 000
Total km’s travelled 20 000
Less: Private km’s (15 000)
Business km’s 5 000
Total fixed cost per tables 68 684
Apportioned fixed cost for 6 months
68 684 x 181/365 34 060
Deemed cost:
Fixed cost per tables (34 060 / 20 000 x 100) 170.3c
Fuel cost per table 100.0c
Maintenance cost per table 42.5c
Total cost per km 312.8c
Total deemed cost (312.8c x 5 000km) (15 640)
Taxable amount based on deemed cost 2 360
Reimbursive travel allowance
Based on actual distance travelled
Use deemed cost per table or actual cost if records are kept
Fixed rate or 329c / km
Total business km’s < 8 000
8 000km not apportioned for less than a year
If > 1 vehicle is used for business travel – Total business travel of all vehicles must be aggregated
together
AND No other travel allowance or reimbursement may be paid to the employee (other than parking fees
and toll fees)
If fixed travel allowance and reimbursive travel allowance are received
Both amounts will be aggregated and treated as travel allowance
Cannot use fixed rate method above
Example
Mr A owns a Polo Vivo that cost him R200 000 (including VAT, excluding finance charges).
He received a travel allowance of R3.00 per km travelled for business purposes. During the
year of assessment, he travelled 20 000 km in total. He kept an accurate log book but did
not keep record of expenses.
A) Assume he travelled 5 000 km for business purposes
B) Assume he travelled 10 000 km for business purposes
Solution A
Travel allowance received (R3.00 x 5 000 km) 15 000
Deemed fixed rate per km (329c x 5 000km) 16 450
Limited to travel allowance received (15 000)
Therefore, taxable amount 0
Solution B
Allowance received (R3.00 x 10 000km) 30 000
Total km’s travelled 20 000
Less: Private km’s (10 000)
Business km’s 10 000
Deemed cost:
Fixed cost per tables(68 684 / 20 000 x 100) 343.4c
Fuel cost per table 100.0c
Maintenance cost per table 42.5c
Total cost per km 485.9c
Total deemed cost (485.9c x 10 000km) 48 590
Limited to allowance (30 000)
Taxable amount based on deemed cost 0
Anti-avoidance
Vehicle is owner / hired by employee, spouse or child and let to employer, employer then
gives right of use of the vehicle to the employee
Rental paid and expenditure incurred by employer = Travel allowance paid to employee
Rental deemed not to have been received (and therefore no costs are deductible
against such “rental”)
Deemed that the employee has not received the right of use of the vehicle (taxed as
travel allowance, cannot also be taxed as fringe benefit, otherwise double tax will arise)
Example
Mr B leases a Polo Vivo with a cost price of R200 000 (including VAT) for R3 000 per month. He then leases
the vehicle to his employer for R3 000 per month and is granted the right of use of the vehicle by his employer.
Mr X bears the full fuel cost and cost of maintenance of the vehicle. During the 2017 year of assessment Mr B
travelled a total 20 000 km of which 12 000 was travelled for business purposes
Solution
Rental income Not taxable
Rental expense Not deductible
Use of company car Not applicable
Travel allowance (R3 000 x 12) 36 000
Less: Deduction for business use (12 000km x 485.9c ) R58 308
Limited to travel allowance (36 000)
Taxable amount 0
Deemed cost:
Fixed cost per tables(68 684 / 20 000 x 100) 343.4c
Fuel cost per table 100.0c
Maintenance cost per table 42.5c
Total cost per km 485.9c
Link with employees’ tax
Normal rule: Include 80% of fixed travel allowance in remuneration for employees’ tax
purposes
If 80% or more of the vehicle is used for business purposes: Only 20% of fixed travel
allowance must be included in remuneration
Log book must be used to prove business use
Reimbursive travel allowance is not subject to employees’ tax
Regardless of what business km’s came to
Regardless of whether fixed rate was used or not
Unexpended portion will be subject to normal tax
Working
When an employee must spend at least one night away from usual residence for business purposes
Usual residence must be in SA
Not applicable for allowance received to move to a new place of residence (since no usual residence exists at
that point in time)
Can claim costs against allowance received
Actual accommodation, meals and other incidental costs (records must be kept)
OR
Deemed cost for each day or part of a day that a recipient is away from usual residence for business purposes
In SA:
Incidental costs only – R109 per day
Meals and incidental costs – R353
Outside SA: Tables (convert to Rand using average exchange rates)
Therefore, only ACTUAL costs allowed for accommodation (no deemed option)
Can only claim for ad hoc allowances, not applicable if salary is structured to include a fixed monthly subsistence
allowance
Can only claim if costs are incurred by employee (if incurred by employer, no deduction against allowance)
Example
Mr. C must spend one night away from his usual place of residence to visit a branch of the
employer that he is working for. He received an allowance of R5 000 in this regard.
(A) Mr. C travels to Limpopo and kept record of all expenses incurred by himself which
amounted to R2 800.
(B) Mr. C travels to Limpopo and does not keep record of expenses incurred by himself.
(C) Mr. C travels to Belgium. His employer pays for his accommodation and Mr. C pays for
meals and other incidental costs which amounted to R4 000 (but he has not kept accurate
record). The average exchange rate for the year of assessment is 1€ = R15.00
Solution
(A) Allowance received R5 000
Less: Actual expenditure incurred (R2 800)
Taxable amount R2 200
(B) Allowance received R5 000
Less: Deemed expenditure incurred (2 days x R353) (R706)
Taxable amount R4 294
(C) Allowance received R5 000
Less: Deemed expenditure incurred (2 days x €146 x R15) (R4 380)
Taxable amount R620
Link with Employees’ Tax
Subsistence allowances are excluded from the definition of remuneration for Employees’ Tax
purposes
Therefore, not subject to Employees’ Tax
If, by the end of the month following the payment of the subsistence allowance, the
employee has
Not spent at least one night away from usual place of residence; or
Paid back the allowance to the employer
THEN: Deemed to be paid for services rendered – Gross income paragraph (c)
Therefore, will then become subject to Employees’ Tax
Working
Include amount awarded in taxable income
Can only claim a deduction against it if incurred in the production of income and the
requirements of section 11(a) have been met
General tax principles
Not of a capital nature
In the production of income (future income also allowed)
Basics
Calculate the cash equivalent per the Seventh Schedule if a benefit / advantage is given to
an employee by virtue of his/her employment
Needs employer/employee relationship
Still fringe benefit if employees are released from an obligation to repay an obligation to
the employer which arose prior to retirement
Directors and past employees who were the sole or controlling holders of shares are
specifically included in the definition of an employee
Benefits granted to a relative of an employee or another person by virtue of the employee’s
employment with the employer
Taxed in the hands of the employee
Assets acquired at less than
MV
General rule: MV of asset – consideration paid by employee
If acquired specifically to dispose of the asset to the employee: Use CP excl VAT
If trading stock: Use lower of CP or MV
Asset given as an award for bravery or long service: MV – lower of CP or R5 000
No value:
Fuel / lubricants supplied by an employer to employee for use in a paragraph 7 motor vehicle
Immovable property acquired by the employee, unless:
Remuneration proxy exceeds R250 000; or
MV of immovable property exceeds R450 000; or
Employee is a connected person in relation to the employer
Acquisition of accommodation in terms of paragraph 10A at a price which is not less than the MV
Long service award: First unbroken period of service of 15 years and subsequent periods of 10 years
Remuneration proxy: Remuneration derived in preceding year; or Annual equivalent of current year’s
remuneration or of first month’s remuneration
Examples
A computer was acquired by XYZ Ltd at a cost of R10 000 (excluding VAT). The computer
was used for business purposes for 5 years and then sold to Employee A for R3 000
(excluding VAT) when the market value was R5 000.
A computer was acquired by XYZ Ltd at a cost of R10 000 (excluding VAT) with the specific
purpose of awarding it as a fringe benefit to Employee B when the market value thereof was
R12 000 (excluding VAT).
XYZ Ltd acquired a gold watch at a cost of R6 840 (including VAT) to award to Employee C
as a long-service award after completing 20 years of service. On the date that the watch
was awarded to Employee C, it had a market value including VAT of R7 500 (including VAT).
XYZ Ltd awarded a cash amount of R6 270 to Employee D after completing 20 years of
service.
Solution
Employee A:
Market value R5 000
Consideration (R3 000)
Cash equivalent R2 000
Employee B:
Cost price R10 000
Consideration R0
Cash equivalent R10 000
Employee C:
Cost price (R6 840 x 100/114) R6 000
Exempt (lower of R5 000 or R6 000) (R5 000)
Cash equivalent R1 000
Employee D:
Cash awarded R6 270
Private use of sundry assets
Other than right of use of motor car and residential accommodation
If rented:
Value of private use = rent paid by employer
If employee has sole right of use for useful life
Value of private use = cost price of asset
If asset is owned by employer
Value of private use = 15% x lower of CP/MV x period used/365
No value
Private use is incidental
Asset is amenity to by enjoyed at employee’s place of work or for recreational purposes at employee’s
place of work or at place of recreation provided by employer for the use of employees in general
Asset can be used by employees in general for short periods and value of private use does not exceed
amount determined in public notice of Commissioner
Telephone or computer which employer uses mainly for business purposes
Books, literature, recordings or work of art
Right of use of motor car
Determined value = Retail MV at the time when the employer acquired the vehicle
What is the retail MV?
Reduced by 15% diminishing value for every completed 12-month cycle that someone else had the right
of use or that the vehicle was used for a different purpose
Reduction is n.a. If the employee and the asset are transferred to an associated institution
Basic calculation
Operating lease: Actual cost of operating lease for the employer + cost of fuel
3.5% p.m. x Determined value less consideration given by employee
3.25% p.m. x Determined value if “maintenance plan” was automatically included in the CP of the motor
vehicle (“maintenance plan” = contract covering all maintenance costs for not < 3 years and a distance of
not < 60 000km) less consideration given by employee
Value of private use is apportioned on a daily basis
No reduction is made simply because the vehicle is for any reason temporarily not used by the employee
If an employee used > 1 vehicle primarily for business purposes – Value of private use is calculated as
3.5% or 3.25% on the vehicle with the highest determined value
Right of use of motor vehicle
Nil value
Vehicle is available to and used by employees in general and private use is infrequent
or merely incidental to business use and vehicle is not normally kept at or near the
employee’s residence when not in use outside of business hours
Employee is regularly required to use the vehicle for the performance of his duties
outside normal working hours and he is not permitted to use the vehicle for private
purposes other than to travel between work place and place of residence
Link with PAYE
Normal rule: 80% inclusion
If vehicle is used 80% or more for business purposes: 20% inclusion
Gross inclusion (i.e. Before adjusting for paragraph 7(7) and 7(8))
Right of use of motor vehicle
Paragraph 7(7) and 7(8) reduction
If employee keeps accurate logbook or business and private travel – Reduce private use on assessment (i.e.
Not applicable to PAYE)
Paragraph 7(7): Value of private use x Business km’s
Total km’s
Paragraph 7(8):
Paragraph 7(8) adjustment not available for ‘operating lease’ as defined in section 23A (paragraph 7(7) will still
be available)
Exception for km’s travelled by a judge: Travel between place of residence and court will be deemed business
travel
Full cost paid by employee Reduce value of private use with:
Cost of licence, insurance and maintenance
Cost x private km’stotal km’s
Cost of fuel for private use Private km’s x tariff per km
Examples
Employee A was granted the right of use of a motor car owned by ABC (Pty) Ltd with effect from1 August 2016. ABC (Pty) Ltd originally acquired the vehicle on 1 February 2014 at a cost of R114 000(including VAT).
OLD rules for determined value
Original cost (including VAT) R114 000
Less: R114 000 x 15% (R17 100)
Subtotal R96 900
Less: R96 900 x 15% (R14 535)
Determined value R82 365
Cash equivalent: R82 365 x 3.5% x 7 R20 179
Employee B was granted the right of use of a motor car owned by ABC (Pty) Ltd with effect from1 August 2016. ABC (Pty) Ltd originally acquired the vehicle on 1 April 2015. Assume a retail market value ofR100 000.
NEW rules for determined value
Retail market value R100 000
Less: R100 000 x 15% (R15 000)
Determined value R85 000
Cash equivalent: R85 000 x 3.5% x 7 R20 825
Examples
Taxpayer K is granted the right of use of two motor vehicles which are owned by his
employer (no maintenance plan exists on these two vehicles). Vehicle 1 has a retail MV of
R136 800 and Vehicle 2 has a retail MV of R182 400. All costs are incurred by the employer
and Taxpayer K bears no cost.
(a) Assume Taxpayer K uses both vehicles primarily for business purposes and kept an
accurate logbook proving that 10 000km of the total distance travelled of 15 000km was
travelled for business purposes.
(b) Assume Taxpayer K uses both vehicles primarily for business purposes but kept no
accurate logbook. He applied for paragraph 7(6).
Solution (a)
Accurate logbook was kept
Therefore, paragraph 7(6) is not available
Paragraph 7(7) must be applied
Cash equivalent =
Vehicle 1: R136 800 x 3.5% R4 788
Vehicle 2: R182 400 x 3.5% R6 384
Total monthly cash equivalent R11 172
Taxable amount on assessment: R11 172 x 12 – (R11 172 x 12 x 10 000/15 000)
= R44 688
Solution (b)
Cash equivalent is based on vehicle with the highest determined value
Therefore, the monthly cash equivalent amounts to R182 400 x 3.5% = R6 384
Taxable amount for assessment purposes: R6 384 x 12 = R76 608
Example
DEF Ltd granted the right of use of a BMW X5 to its CEO from 1 March 2015. The vehicle
was acquired by DEF Ltd on 1 March 2015 and is subject to a maintenance contract. It has
a retail MV of R912 000. The CEO kept an accurate logbook of distance travelled. Total
travel during the 2016 year of assessment was 15 000km of which 10 000km was travelled
for business purposes. The CEO pays an amount of R5 000 for this right of use. He is
responsible for the total fuel expense and also paid R1 200 for the licence of the vehicle.
Solution
Value of private use (R912 000 x 3.25% x 12) R355 680
Consideration paid by CEO (R5 000 x 12) (R60 000)
Cash equivalent R295 680
Paragraph 7(7) adjustment (R355 680 x 10 000/15 000) (R237 120)
Paragraph 7(8) adjustment (R6 920)
Licence: R1 200 x 5 000/15 000 R400
Fuel: 5 000km x 130.4c = R6 520
Taxable income R51 640
Example
DEF Ltd granted the right of use of a BMW X5 to its CEO from 1 March 2016. The vehicle
was acquired by DEF Ltd on 1 March 2016 and is subject to a maintenance contract. It has
a retail MV of R912 000. The CEO kept an accurate logbook of distance travelled. Total
travel during the 2017 year of assessment was 15 000km. The CEO only uses the vehicle
to travel between his home and the office and uses it for private purposes over weekends
and family outings. The CEO pays an amount of R5 000 for this right of use. He is
responsible for the total fuel expense and also paid R1 200 for the licence of the vehicle.
Solution
Value of private use (R912 000 x 3.25% x 12) R355 680
Consideration paid by CEO (R5 000 x 12) (R60 000)
Cash equivalent R295 680
Paragraph 7(7) adjustment (not available – all travel is private)
Paragraph 7(8) adjustment (R21 675)
Licence: R1 200 x 15 000/15 000 R1 200
Fuel: 15 000km x 136.5c = R20 475
Taxable income R274 005
Example
DEF Ltd granted the right of use of a BMW X5 to its CEO from 1 March 2015. The vehicle
was leased by DEF Ltd from 1 March 2015 at a monthly rental of R20 000. It has a retail MV
of R912 000. The CEO kept an accurate logbook of distance travelled. Total travel during
the 2016 year of assessment was 15 000km of which 10 000km was travelled for business
purposes. DEF Ltd also pays R1 500 per month in respect of the fuel cost of the vehicle.
Cash equivalent: (R20 000 + R1 500) x 12 R258 000
Paragraph 7(7) adjustment (R258 000 x 10 000/15 000) (R172 000)
Taxable income R86 000
Meals, refreshments and
vouchers
Cost for employer less compensation paid by employee
Nil value
Meal or refreshment supplied in canteen, cafeteria or dining room operated by or on
behalf of the employer and patronised wholly or mainly by its employees
Meal or refreshment supplied by employer to employees on business premises
Meal or refreshment supplied by employer to employee during business hours or
extended working hours
Meal or refreshment supplied by employer to employee on a special occasion
Meal or refreshment enjoyed by an employee in the course of providing a meal or
refreshment to someone whom he is required to entertain on behalf of employer
Residential accommodation
Rental value less amount paid by employee for accommodation and household goods or power
Rental value = (A – B) x C/100 x D/12
A = Remuneration proxy
B = R75 000 (Rnil if employee or spouse controls the private company or they or their minor child have
the option to become the owner of the accommodation)
C = 17 (18 if four rooms and is either furnished or electricity is supplied; 19 if four rooms and furnished
and electricity is supplied)
D = number of FULL months that employee is entitled to accommodation
What is remuneration proxy?
Remuneration as defined in paragraph 1 of the Fourth Schedule
If employee was employed by the employer for the whole of the preceding year: full remuneration
If previous year’s remuneration is less than 365 days: remuneration must be grossed up for 365 days
If employee was not employed in previous year: remuneration of first month of employment must be
grossed up for 365 days
Residential accommodation
When will the formula be used?
Employer / associated institution owns the accommodation; or
Employee has an interest in the accommodation; or
Employer / associated institution does not own the accommodation; and
It is customary and necessary for the employer to provide free / subsidised accommodation
For proper performance of employee duties; or
As a result of frequent movement of employees; or
As a result of the lack of employer-owned accommodation; and
The benefit is solely for bona fide business purposes
When will an employee have an interest in the accommodation?
Accommodation is owned by employee / connected person; or
Any increase in the value of the accommodation accrues for the benefit of the employee / connected person; or
Employee / connected person has a right to acquire the accommodation from his/her employer
NEW PROVISION FROM 1 MARCH 2015 If employer or associated institution obtained the accommodation in an arm’slength transaction from a non-connected person and full ownership does not vest in the employer or associated institution:Use lower of
Formula value; or
Expenditure paid by employer / associated institution
If residential accommodation = 2 or more units situated at different places which the employee is entitled to occupy fromtime to time while performing duties: Highest rental value of the units
Residential accommodation
Nil value
Accommodation inside or outside SA supplied by an employer while the resident employee is away from
his/her usual place of residence in SA for work purposes
Not applicable if more than one residential accommodation is made available at different places
which the employee is entitled to occupy from time to time while performing his/her duties
Accommodation in SA supplied by employer to non-resident employee who is away from his/her usual
place of residence outside SA
For ≤ 2 years after date of arrival in SA: or
The employee is physically present in SA < 90 days in the y.o.a.
Rnil not applicable if employee was present in SA > 90 days during the y.o.a. Immediately
preceding the date of arrival of the employee in SA; or
Rnil not applicable to the extent that the cash equivalent of the value of the taxable benefit
exceeds R25 000 x number of months during which the employee was away
Examples
(a) Employee A was in the employ of KLM Ltd for the full previous year. His salary was
R10 000 per month. KLM Ltd owns accommodation and supplies Employee A with
unfurnished flat consisting of 3 bedrooms. Employee A uses the accommodation for the
full year and pays R500 rent per month. All other expenses are borne by the employer.
(b) Employee B was in the employ of KLM Ltd for the full previous year. His salary was
R10 000 per month. KLM Ltd rents a flat from an unconnected person in an arm’s length
transaction at a cost of R1 500 per month. Employee A uses the accommodation for the
full year and pays R500 rent per month.
Solution
(A)
A: R10 000 x 12 = R120 000
B: R75 000
C: 18
D: 12
Rental value: (R120 000 – R75 000) x 18/100 x 12/12 R8 100
Less: Rental paid by employee (R500 x 12) (R6 000)
Taxable benefit for the year of assessment R2 100
(B)
A: R10 000 x 12 = R120 000
B: R75 000
C: 18
D: 12
Lower of Rental value: (R120 000 – R75 000) x 18/100 x 12/12 R8 100
Or Rental paid by employer (R1 500 x 12) R18 000
Therefore, taxable benefit for the year R8 100 – (R500 x 12) R2 100
Holiday accommodation
Prevailing rate per day less consideration paid by employee
If employer is not the owner and rents accommodation for the employee from a person other than an
associated institution: Costs incurred by employer for rental, meals, refreshments and other services
Example
ABC Ltd makes free holiday accommodation available to Employee E, his wife and three children
at its cottage in Hermanus for ten days
(A) What is the cash equivalent of the taxable benefit if the cottage is normally let for R2 000
per day?
10 days x R2 000 = R20 000
(B) What is the cash equivalent of the taxable benefit if the cottage is normally let for R500
per person per night?
9 nights x R500 x 5 = R22 500
Low-interest rate loans
If loan granted relates to services rendered – Fringe benefits
Not applicable if loan is granted to enable employees to buy qualifying shares
If loan granted relates to holding of shares – Deemed dividend
Calculation: Interest on outstanding capital based on official interest rate less actual interest paid by employee
What is the official interest rate?
When does this cash equivalent accrue to the employee?
Nil value
Debt ≤ R3 000 at any point in time; or
Debt enables the employee to further his/her own studies
Deemed loan: Residential accommodation is deemed a low-interest rate loan if
Employee lives in employer-owned house; and
Employee, his spouse or minor child is entitled or obliged to acquire the house from the employer at a
future date at a price stated in an agreement; and
Employee is required to pay for use of accommodation a rental based wholly or partly as a % of future
purchase price stated in the agreement
THEN: Loan granted = future purchase price
THEN: Employee’s payment for use = deemed interest paid
Examples
DEF Ltd has awarded the following loans to employees during the 29 February 2016 year of
assessment:
(a) On 1 June 2015 R2 000 was awarded to Employee D to enable him to pay unexpected medical bills.
Employee D repaid the R2 000 on 31 July 2015.
(b) On 1 July 2015 R10 000 was awarded to Employee E to enable him to pay for his study fees.
Employee E is taking management and basic accounting courses.
(c) On 1 August 2015 R5 000 was awarded to Employee F. The amount was repaid on 30 September
2015.
(d) On 1 November 2015 R100 000 was awarded to Employee G to enable him to renovate his family
home. An amount of R10 000 was repaid on 31 January 2016. The loan bears interest at 5%.
Assume an official interest rate of 5.75% until 31 August 2015 and 6% since 1 September 2015.
Solution
(a) R2 000 loan < R3 000. Therefore, Rnil value
(b) R10 000 loan to further studies. Rnil value
(c) (R5 000 x 5.75% x 1/12) + (R5 000 x 6% x 1/12) = R48.96
(d) Until 31 January 2016 ((R100 000 x (6% - 5%) x 3/12)) = R250
1 Feb – 28 Feb 2016 ((R90 000 x (6% - 5%) x 1/12)) = R75
Therefore, total cash equivalent = R325
Example
KLM Ltd owns a house and granted Employee B an option to acquire the house at a price of
R1 500 000 when the market value thereof was R1 300 000. KLM Ltd originally paid
R1 200 000 for the house. Employee B is granted the right to occupy the house from
1 March 2015 at a monthly rental equal to 5% of the option price.
Assume an official interest rate of 6.75% until 31 August 2015 and 7% since
1 September 2015.
What will the tax consequences be if Employee B exercises the option when the market
value of the house was R2 000 000?
Solution
Purchase price below MV – No fringe benefit
Deemed loan:
R1 500 000 x (6.75% - 5%) x 6/12 = R13 125
R1 500 000 x (7% - 5%) x 6/12 = R15 000
Total: R28 125
Discharge of debt
Debt owing to employer or debt owing to a 3rd party
Includes a person who retired from the employ of the employer due to ill health, age or other infirmity
prior to 1 March 1992 and after retirement is released from an obligation that arose before retirement
Exclusions:
Contributions by employer to medical aid
Costs in respect of medical services paid by employer
Calculation: Value of discharge
Deemed discharge if debt prescribes (3 years after becoming payable or claimable) and employer could
have recovered the debt or could have interrupted the running of the discharge
Rnil values
Subscription to professional body that is a requirement of the employment contract
Insurance paid by employer indemnifying employee from negligent acts
Obligation to 1st employer related to bursary or study loan which is settled by the 2nd employer (provided
that the employee has undertaken to work for the 2nd employer for a minimum of the unexpired period
related to the service of the 1st employer)
Contributions to medical
schemes
Value of benefit = value of contribution paid
If contributions are made as lump sums and cannot be specifically attributed to an employee and his/her
dependants: Total contributions .
Total number of employees
Nil value
Person who has retired due to age, ill health or other infirmity
Dependants of deceased employee who was in the employ of the employer at the date of death
Dependants of former employee after his death (provided that the employee retired from the employ due
to age, ill health or other infirmity)
Contributions to retirement
funds
NEW!!! Effective 1 March 2016
Value of fringe benefit
Fund consisting only of defined contribution components: Total contributions paid to pension, provident
and RAF funds
Fund also consisting of other components: X = (A x B) – C
A = fund member category factor of the employee
B = retirement funding income of the employee
C = contributions by the employee (excluding voluntary and buy-back contributions)
Contribution certificate must be provided by the fund to the employer with the abovementioned
calculation
Nil value:
Benefit is for a retired member of the fund; or
Benefit is in respect of dependants or nominees of a deceased member of the fund
Fringe benefits
Time of supply
Time when the benefit becomes subject to employees tax
Value of supply
Fringe benefit value, except right of use of a motor vehicle
What happens if the fringe benefit has a Rnil value in terms of the Seventh Schedule?
Remember exempt supplies
Examples
Cash allowances?
Long service awards – cash?
Long service awards – assets?
Holiday accommodation?
Low interest rate loan?
Share incentive scheme?
Bursary scheme?
Supply of a motor vehicle at less than market value?
Use of motor vehicle
Determined value is ALWAYS excluding VAT, even if input VAT was denied
15% diminishing value
If input tax deduction was denied
0,3%
If input tax was not denied
0,6%
Employee bears FULL maintenance costs
Deduct cost incurred, limited to R85 per month
MONTHLY!!!
TAX FRACTION!!!
Apportion for taxable use
Example
ABC Ltd is a registered VAT vendor. The CEO of ABC Ltd, Mr. Smith felt that he deservedto drive a luxury vehicle after his recent promotion as CEO. Therefore, ABC Ltd decided tobuy a BMW 325 for Mr. Smith. ABC Ltd bought the BMW from Alberante BMW and paidR399 000 for the vehicle. Mr. Smith will be responsible for all costs relating to themaintenance and repair of the vehicle.
Solution
Determined value = R399 000 x 100/114
= R350 000
“Motor vehicle” as defined Therefore, input tax deduction was denied
Therefore, 0,3%
R350 000 x 0,3% = R1 050
Deduction of R85 p.m.
= R1 050 – R85
= R965
x 2 months (assumption) = R1 930
x 14/114 = R237.02 output VAT (during that VAT period)
x % taxable supplies
Section 10(1)(o)(ii)
Remuneration received by employee for services rendered outside SA will be exempt, if:
Employee was outside SA > 183 full days during 12 month period; and
Period outside SA includes a continuous period of absence of > 60 full days during the 12 month period; and
Services were rendered during the period of absence from SA; and
Services were rendered for or on behalf of an employer (situated inside or outside SA)
Which remuneration?
What are “days”?
What about a person being in transit through SA?
Applies only to normal tax
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