Fringe benefits – Part 2

Assets acquired at less than actual value (Para 5)

Type of taxable Assets acquired: no consideration/ consideration <
benefit MV
Cash equivalent MV less consideration
Special rules Movable asset purchased to be given to employee:
value= cost price (incl VAT)
Trading stock: Value = lower of cost/ MV
Bravery award/ long-service: value is reduced by
the lower of cost price (all assets) and R5 000

No values Immovable property for residential purposes

•MV of property </= R450 000 AND
•Remuneration proxy </= R250 000 AND
•Employee and employer are not connected
persons

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Remuneration proxy

•Prior year annualized remuneration

•Includes cash equivalents of the fringe benefits
•Excludes the right of use of residential
accommodation
•Started working for the employer during the current
year: Remuneration for 1st month x 365/ No. of
days in first month
•Started working for the employer in prior year (part of
prior year):
Remuneration in prior year x 365/ No. of
days worked in prior year

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VAT

•Seventh Schedule cost/MV = inclusive of VAT

•Regardless of s23C
•Amendment - effective from January 2020

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Assets acquired at less than actual value (Examples)
1. A computer was acquired by the employer at a cost
of R15 000 (incl VAT) and used in the business for
three years. It is sold to an employee for R2 000. The
market value of the computer on the date of sale is R3
000 (incl VAT).
2. A gold watch, which cost the employer R8 020 (incl
VAT at 15%), was bought for and presented to an
employee as a long-service award after he had
completed 20 years of service. The market value of
the watch on the date of the presentation is R8 550
(incl VAT).
Source: Silke: Income Tax 2018 (Amended) 5
Assets acquired at less than actual value (Examples)

Computer R

Market value 3 000

Less: Consideration (2 000)
Cash equivalent Fringe benefit 1 000

Long service award R

Cost including VAT 8 020

Less: Lower of cost (R8 020) or R5 000 (5 000)

Cash equivalent of the benefit 3 020

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Use of sundry assets – para 6
Type of taxable Free private use of various assets or for consideration less than
benefit MV (Excluding the use of a motor vehicle or residential
accommodation)
Cash equivalent Value of private use of the asset less consideration by employee
or repairs or maintenance paid by employee
Special rules Value of private use = rent paid by employer (if leased)
Value of private use = 15% x lesser of cost price and MV x period
of use/365 or 366 (If owned by employer)
Value of private use = cost price of asset (employee has the sole
right of use for a major portion of its life)
No values • Private use is incidental to the use for trade
• Telephone/ computer mainly (>50%) used for business
• Asset consist of books, literature, recordings or works of art
• Assets can be used by employees in general for short periods
and value of private use is negligible
• Amenity enjoyed at:
• Employees place of work OR
• For recreational purposes at work OR at a place of
recreation provided to employees in general 7
Use of sundry assets - Example
• Mr Xulu is given a personal computer (which is owned by his
employer) to use 100% for private purposes. The computer
cost the employer R11 500 (including VAT at 15%). The cost
and the market value are the same. Mr Xulu pays R50 per
month for the use of the computer. The employer is a VAT
vendor.
Calculate the amount of taxable benefit if:
1. Mr Xulu uses the computer for three months from 1 June
2021.
2. Mr Xulu uses the computer over the useful life and the MV
was R10 350 (incl VAT) and does not pay anything for use.

Source: Silke: Income Tax 2018 (Amended) 8

Use of sundry assets - Example

1. Mr Xulu uses the computer for 3 months.

Cash equivalent = R11 500 x 15% x 92/365 –

(R50*3) = R285

2. Mr Xulu uses the computer over its useful life.

Cash equivalent = R11 500 (in the first month of
use)

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 MEALS, REFRESHMENTS, AND MEAL AND REFRESHMENT
VOUCHERS (Para 8)
Type of taxable Free meals, refreshments and meal/refreshment vouchers
benefit (or for a consideration less than the value)
Exclusion from Meals provided with residential accommodation
taxable benefit
Cash equivalent Value of meals, refreshments or voucher less
compensation by employee
Special rules Value of meal = cost for the employer
No values • A meal/refreshment by employer to his employee at a
canteen, cafeteria or dining-room operated by employer
• A meal/refreshment supplied on business premises of
employer
• A meal/refreshment supplied by the employer to an
employee during business hours or extended working
hours or special occasions
• A meal/refreshment enjoyed by employee in the course
of entertaining someone on behalf of an employer
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Free or cheap service (Para 10)
Type of taxable Free/cheap services (For Employee’s private/domestic purposes)
benefit
Exclusions Services relating to residential accommodation, medical services
and payments to insurers for the benefit of Employee
Cash equivalent Cost to the employer of rendering the service less amount paid by
employee
Special rules Travelling outside SA by employee or relative where employer is
in a business of transporting passengers for a reward by sea or
air= lowest fare less consideration given by employee or relative

No values • Travel by employee, spouse/minor child to a destination in SA,

overland to a destination outside SA, any destination outside
SA on a normal flight and no firm reservation of seat.
• Transport of employee from work to home (vice versa) in
general
• Communication services mainly for business
• Services at work place to improve performance of duties
• Travel facility for spouse/minor child of employEE, to travel residence
and business place: >250km and >183 days away

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Free/cheap services - Case law
BMW SA v CSARS
•Issue –payments to tax consultants to assist expatriate employees
is a taxable fringe benefit

1.Was an employee granted a benefit/advantage by the employer?

2.Was the benefit/advantage for employee’s private/domestic
purpose?

NB!!! The benefit for employee ≠ wholly (100%) benefit the

employee.
i.e. an employer may also obtain a marginal advantage or benefit

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Long service awards

•Value <=R5 000 not taxable

•Applies to:
1. Cash – para c of gross income
2. Assets acquired < value - paras 2(a) and 5
3. Use of assets - paras 2(b) and 6
4. Free/cheap service – paras 2(e) and 10
•In aggregate
•During year of assessment

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Fringe benefits – Residential Accommodation
 Residential Accommodation (1) – para (9)
Type of taxable Free residential accommodation (or for consideration less
benefit than cash equivalent)
Cash Rental value of accommodation less amount paid by
equivalent employee
Special rules Rental value = Formula value (subject to conditions and
exceptions)
Two accommodation – we use one with highest rental
value
No values • Accommodation supplied while employee (resident) is
away from his usual place of residence in South Africa
for work purposes

• Expatriates (next slide)

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Residential Accommodation – Para 9
Expatriates
No value - Para 9(7A):
•Accommodation in SA to an non-resident employee who is
away from his usual place of residence outside SA
1. Presence < 90 days in the year of assessment, or
2. Presence ≤ 2 years after arriving in SA

Exception - Para 9(7B):

1.Present in SA for period > 90 days during the YoA preceeding
arrival date
2.Extent that the cash equivalent > R25 000 p.m

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Example

Miss K is a non-resident and has been in South Africa for a

broken period of 120 days for work purposes during 2022 year
of assessment. On 1 August 2022, Miss K was seconded to
South Africa for 18 months. Her employer has always provided
accommodation to Miss K whenever she is in South Africa.
She arrived in South Africa on 1 August 2022.

•Will the no value rules be applied during the 2023 year of

assessment?

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Solution

•Miss K has been provided accommodation by the

employer for 18 months < 2 years
•Arrival date is 1 August
•physically present for > 90 days (120 days) in prior
year
•The no value rule will not be applicable
•The cash equivalent of the use of accommodation
will be included in gross income

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Residential Accommodation (2)

See next slide

for when When
will B = 0?
• A = remuneration proxy
• B = R91 250; or Zero
• C = 17
= 18 (≥ 4 rooms, either furnished/ power or fuel provided)
= 19 (≥ 4 rooms, both furnished and power or fuel is
provided)
• D = months the accommodation was provided during YOA

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Residential Accommodation (3)

When will “B” be Zero?

1.Employer is a private company controlled by the employee

or spouse of the employee through shareholding; OR
2.Employee/spouse/minor child has an option or pre-emption
from employer to acquire the residential property because of
controlling interest in a company or otherwise

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Residential Accommodation (4)

Rental value
•Accommodation rented by the employer
•Lower of :
oFormula
oCost to employer
•The employer must not own the accommodation
• Accommodation obtained from an unconnected party
•The transaction must be at arm’s length.

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Residential Accommodation (5)
• Rental value
• Holiday Accommodation

• hired by employer employer costs

• owned by employer prevailing rates if let to

non-employee.

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Example
• Mr A’s employer provided him with residential accommodation for the entire 2023
year of assessment at an annual rental of R40 000. Mr A is not a shareholder in the
employer company. The accommodation is unfurnished and is provided without any
service. Mr A’s remuneration from his employer in the previous year of assessment
comprised of a cash salary of R450 000. Calculate the cash equivalent of the taxable
benefit arising from Mr A’s right of occupation of the accommodation if

1.The accommodation is owned by the employer

2.The employer rents the accommodation from the unconnected owner at a cost of R
50 000 per year.

• Source: Silke: South African Income Tax

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Example Solution
R
1. Rental value (A – B) x C/100 x D/12
(R450 000 – R91 250) X 17/100 X 12/12 60 988

Cash equivalent (R60 988 – R 40 000) 20 988

2. Taxable benefit
Lower of (R450 000 – R91 250) X 17/100 X 12/12 60 988

Amount paid by the employer 50 000

Lower amount is 50 000

Less: Consideration paid by the employee (40 000)
10 000
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Example

• Mr A’s employer provided him, his wife and two children with
free holiday accommodation in its cottage at the coast for 10
days. The employer owns the cottage.

Calculate the cash equivalent of the taxable benefit to Mr A if:

a)The cottage is normally let for R5 000 a day

b)The cottage is normally let for R800 per person per day.

• Source: Silke: South African Income Tax

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Example Solution

a)R 5 000 x 10 = R50 000

b)R800 x 10 x 4 = R32 000

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Fringe benefits – Debts, subsidies, contributions to
funds and insurance
Deemed housing loans (para 10A)
Type of • Employee/spouse/ minor child
taxable • has a right to purchase residential accommodation
benefit • Owned by the employer
• at the future date – at agreed price
• Rentals - % of purchase price
Cash The purchase price ≈ loan to employee
equivalent
The rentals ≈ interest on the loan

Deemed interest on the loan less interest at official rate

Official rate of interest = repo rate + 1%
Special rules No taxable benefit in respect of use of residential
accommodation (para 9)

No taxable benefit in terms of para 5 if purchase price ≥

MV at the date of concluding the contract

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Example
Belinda was granted a right to use a house for private purposes on 1 March
2022 by ABC Limited (her employer). The market value of the house was
R480 000 at the time. The house is owned by ABC Limited. In terms of the
contract, Belinda has a right to buy the house in 5 years time at a price of
R550 000. In the meantime, Belinda pays annual rental which is 2% of the
agreed purchase price. The repo rate remained constant at 3.5% during the
2023 year of assessment.

Required:
Discuss the income tax implications for Belinda for 2023 year of assessment

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Example - Solution
The deemed housing loan benefit arises (para 10A):
• A right of use of a house owned by the employer (ABC Limited)
has been granted to an employee (Belinda)
•Belinda has entered into a contract to acquired the house in 5 years
time at an agreed purchase price of R550 000
•Rentals are payable and are expressed as a percentage of the
purchase price, i.e 2% of R550 000 = R11 000
•Rental of R11 000 deemed to be interest paid by Belinda
•Interest at official rate = R550 000*(3.5%+1%) = R24 750
•The taxable benefit = R24 750 – R11 000 = R13 750
•No taxable benefit in terms of residential use of the house

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 Low interest debt (para 11)
Type of Debt at no interest / lower than official
taxable rate
benefit
Cash Interest at official rate less interest paid
equivalent by employee

Official rate of interest = repo rate + 1%

Potential • deductible for employee – s11(a)

deduction • If interest incurred in the production of
income

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Low interest debt - No value rules

• Casual loans ≤ R3 000 (aggregate)

• Study loans
• Loan ≤ R450 000
residential immovable property
MV of the property ≤ R450 000
Remuneration proxy ≤ R250 000
Employer and employee ≠ connected persons.

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Examples - Debts
• A company made the following loans to its employees during the year of assessment ending
on 28 February 2023:
a)An interest-free loan of R20 000 to Mr A on 1 September
b)A loan of R400 000 at an interest rate of 4% to Mr B on 1 September to enable him to buy a
residential immovable property. Mr B’s remuneration proxy is R350 000 and he is not
connected to the employer.
c)An interest-free loan of R1 500 to Miss C on 15 October in order to help her meet unexpected
medical bills, which were repaid in November. No other loans were provided to her.
d)An interest-free loan of R12 000 to Mr D on 7 January to enable him to pay his university fees.
Calculate the cash equivalent of the taxable benefit, if any, from each of these loans, assuming
that all loans except that made to Miss C were still outstanding at the end of the year. The
repo rate was 5.75% until 31 August and is 5% since 1 September 2022.

• Source: Silke: South African Income Tax

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Example Solution

a)R20 000 x 6% x 181/365= R595

b)R400 000 x (6% - 4%) x 181/365 = R3 967 – The no value

rule is not applicable as the remuneration proxy is>R250 000

c)There will be no value for this benefit to Miss C, since the

amount is less than R3 000.

d)There is no value for the benefit to Mr D, since it was

granted for the purposes of enabling him to further his study.

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 Subsidies in respect of debt (para 12)
Type of taxable Subsidies paid by the employer iro interest or capital
benefit repayment of a loan owed by employee to a third party.
Cash equivalent Amount of the subsidy

1. If amount paid by employer and employee interest >

official rate of interest The amount paid by the
employer is a subsidy
2. If amount paid by employer and employee interest <
official rate of interest Low interest loan

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Example - subsidy

• Herbert owns a property in Betty’s Bay. He had initially taken out a bond on the
property of R1 000 000 at the prime interest rate. His employer had an arrangement
with the bank and amended the terms on 1 April 2022 such that Herbert would only
have to pay prime less 5% and the company would pay 5% interest to the bank. On 1
September, Herbert was able to renegotiate the interest with the bank to prime less
3%. The employer continued to pay 5% of this interest. No portion of the outstanding
capital has ever been repaid.
• Interest rate charged by the bank for was:
• 1 Mar 2022 to 31 Aug 2022 (Prime =9%)
• 1 Sep 2022 to the end of Feb 2023 (Prime less 3% = 6%)

The prime rate remained 9% and official rate remained 6.5% throughout the year of
assessment

Source:TAX33B3 Final Assessment (2015)

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Example - Solution

Period Interest Official

charged rate
1 April 2022 to 31 Aug 2022 9% 6.5% Subsidy – para 12
1 Sep 2022 to 28 Feb 2023 6% 6.5% Low interest loan –
para 11

Period
1 April 2022 to 31 Aug 2022 R1 000 000 x 5% x 153/365 R20 959
1 Sep 2022 to 28 Feb 2023 R1 000 000 x (6.5% - (6%-5%)) R27 274
x181/365
Amounted to be included in gross income R48 233

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Discharge or payment of obligation (Para
13)
Type of taxable • Discharge of debt owned by employee to the
benefit employer
• Direct or indirect payment of debt owing by employee
to any third party
Cash equivalent Amount released or paid by the employer

Special Rules Deemed discharged of debt where the debt by employee

to the employer has prescribed and the employer could
have recovered the debt or interrupted the prescription
period.
No values • Payment of employee’s professional membership fees
if membership is a condition of employment
• Settlement to 1st employer arising from non-
compliance of bursary /study loan settled by 1st
employer (no value if employee undertakes to work for
2nd employer for at least unexpired period not worked
for 1st employer)
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Contributions to medical schemes – para 12A
Type of taxable Direct or indirect contributions to benefit funds for the
benefit benefit of an employee or his or her dependents
Cash equivalent Amount of contributions paid

No values • Retired employee who retired due to old age, ill-health

or other infirmity; or
• Dependents of a deceased employee; or
• Dependents of a deceased former employee who
retired on grounds of old-age, ill-health and infirmity.

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Costs relating to medical services – Para
12B
Type of taxable Costs in respect of various medical services supplied to
benefit employees or spouse or child or family member and paid
by employer
Cash equivalent Amount incurred by employer

No values • Services rendered to employees in general at

workplace for better performance of their duties
• Services rendered or medicines supplied for purposes
of complying with any laws of the Republic
• For benefit of retired people (old age, infirmity or ill
health), dependents of former employees who died,
employees who are at least 65 years

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Benefits in respect of insurance policies (para 12C)
Type of taxable Premiums paid by employer to insurer for the benefit of
benefit employee, spouse, child, dependent or nominee
Exclusion Insurance policy that relates to an event arising solely out
and in the course of employment of the employee
Cash equivalent Premiums paid

Special Rules Average premium per employee is acceptable where

employer cannot determine the premium for individual
employee

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Contributions to funds (para 12D)
• Effective from 1 March 2016
Type of taxable Contributions made by the employer to the funds for benefit of
benefit employee
Cash equivalent Solely defined contribution component – contributions made by
the employer

Ignore the formula in respect of defined benefits components

No value • for the benefit of a member who retired from a fund

• for a benefit of the dependants of the deceased member

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