3. Introduction
Employees receives particular benefits due to the causal link of
employment
These benefits can consist of of a combination of cash salary, allowances,
advances and fringe benefits.
Benefits or assets given to employees, in a form other than cash, are
defined as ‘taxable benefits’ in paragraph 1 of the Seventh Schedule and
are generally referred to as ‘fringe benefits’.
The taxable value of fringe benefits (referred to as ‘cash equivalent’) are
included in gross income through the application of par (i) of the gross
income definition
.
4. Advances and allowances
Some companies pay advances to their employees i.e- S&Ts.
These advances must be included in gross income.
For the following allowances:
– Travel allowances
– Subsistence allowances
= include the NET AMOUNT (gross allowance less certain expenditure) in
taxable income
An amount paid as reimbursement NOT included in taxable income if it
will be used:
for expenditure incurred or to be incurred by him
on the instruction of his employer (‘principal’) in the furtherance of the
employer’s trade
and the employee is required to provide proof of the expenditure to the
employer
6. TRAVEL ALLOWANCE
(s8(1)(b)
We will focus on two types of allowances:
Fixed travel allowance
Reimburse vie allowance
Fixed travel allowances
To this type of allowance, the portion for business purposes is tax free
Only part associated with private use is taxable
Business kilometres can only be claimed if accurate log book is kept
Travelling between place of home and business ≠ business kms
There are two methods of calculation:
I.Actual business kms x deemed rate per km (provided by SARS)
II.Actual business kms x actual rate per km (supported by actual records kept)
7. TRAVEL ALLOWANCE (s8(1)(b)
DEEMED RATE PER KM
On this calculation the value of the vehicle is used to determine deemed rate
per km as per table of rates as prescribed by SARS
Value of the vehicle is:
Original cost, including VAT but excluding finance charges OR
Market value at the time when the employee first obtained the vehicle or
the right of use of it (no debt on the car)
DEEMED RATE PER KM
How to calculate deemed rate per km:
Fixed cost / total kms = fixed cost per km PLUS
Fuel cost PLUS
Maintenance cost
Deemed rate x business km = non-taxable amount
NOTE: Fixed cost apportion using days if travel allowance is received for
part of a year
NOTE: Fuel cost taxpayer must cover full cost of fuel
NOTE: Maintenance cost taxpayer must cover full cost of
maintenance
8. Travel allowance actual cost
If actual costs are used, then value of the vehicle is:
If vehicle is leased = total lease payments for the year but
may not exceed the amount of fixed cost in the table (see
previous slide) for the category of vehicle used, and
in any other case = wear and tear must be determined over a
period of seven years from date of acquisition. The cost of the
vehicle is currently limited to R595 000.
How to calculate actual rate per km:
Wear and tear / 7 years PLUS
Actual costs related to vehicle
9. Example
Royce Leyland, aged 45 years, and a resident of the Republic, owns a
vehicle that cost R513 000 (R450 000 + VAT of R63 000). He
received a travel allowance of R22 500 a month from his employer for
the year of assessment. He travelled 36 000 kms in the vehicle during
the 2019 year of which 9 000 was travelled for business purposes.
Royce kept an accurate logbook. The following actual costs (including
VAT) were incurred by Royce for the year:
Fuel costs R36 267
Maintenance costs R18 000
Licences cost R13 800
10. Solution
Deemed rate per km
Allowance received (22 500 x 12) 270 000
Total kms travelled 36 000
Private kms travelled (27 000)
Business kms travelled 9 000
Fixed cost component 153 850
Fixed cost per km (153 850/36 000) x 100 427.3c
Fuel cost per km 158.4c
Maintenance cost per km 88.9c
Total cost per km 674.6c
Deduction for business use (R6.746 x 9 000) (60 714)
Taxable amount if deemed costs are claimed 209 286
11. Solution actual rate
Actual rate
Allowance received (22 500 x 12) 270 000
Actual costs
Wear and tear (513 000/7) R73 286
Fuel costs R36 267
Maintenance costs R18 000
Licences cost R13 800
R141 353
Deduction for business use (141 353/36 000 x 9 000) (35 338)
Taxable amount if actual costs are claimed 234 662
12. REIMBURSIVE TRAVEL ALLOWANCE
Taxpayer travels first and then claims business kms from his/her
employer
Taxpayer is given an allowance on actual distance travelled (i.e.
business kms)
If the following two requirements are met:
o Allowance is based on the actual distance travelled or such
actual distance is proven to the Commissioner &
o No other travel allowance or reimbursement may be paid by
employer to employee
o THEN use simplified method
Simplified method: choose the best rate between deemed rate and
R3,61 (applied to business km)
13. Example
Lerato owns a motor vehicle that cost her R21 000 (inclusive of VAT but
exclusive of finance charges). She received a travel allowance of R3.70 per
kilometre travelled on business from the employer during the 2019 year of
assessment. She travelled 16 000 kms in the vehicle during the year and
maintained an accurate log book of business travels. She paid all the costs in
respect of maintenance and fuel and travelled 9 000 kms for business
purposes.
Calculate the taxable amount of the travel allowance on the assumption that
she would use simplified method where possible.
14. Solution
Allowance received (9 000 x R3.70) 33 300
Deemed cost
Fixed cost component 28 352
Fixed cost per km (28 352/16 000) 177.2c
Fuel cost per km 95.7c
Maintenance cost per km 34.4c
Total cost per km 307.3c
Rate per kilometre R3,073
Simplified method
Rate per kilometre R3,61
(Simplified method is more beneficial)
Deduction for business use (9 000 x R3,61) (32 490)
Taxable amount 810
15. SUBSISTENCE ALLOWANCE (s8(1)(c))
Subsistence allowance may occur if:
o employee is required to stay away from home for at least one night for
business purpose then
o only the amount that exceed the actual or deemed costs will be
included in taxable income
If proof provided of expenditure can claim expenses for
accommodation, meals or incidental costs
If proof not provided claim up to (for travel in RSA):
o R128 per day if allowance is granted for incidental costs OR
o R416 per day if the allowance is granted for costs of meal and
incidental costs
If travel outside RSA use international rates of the specific
country employee is visiting for business
16. Example
Nosipho is obliged to spend one night away from his usual place of residence
for business purposes in South Africa. She receives an allowance of R 1 580
from his employer. Calculate his taxable amount of the allowance assuming
that:
a) He is able to prove that he incurred actual expenditure of R 1 650 on
meals, accommodation and other incidental costs
b) The employer pays for accommodation and Sipho pays for R350 for
meals and other incidental costs. He does not keep documentation.
17. Seventh Schedule- Fringe Benefits
• Fringe benefits are specifically dealt with in Seventh Schedule of
Income Tax Act.
• There are two requirements that should be met:
1. An employee-employer relationship is a prerequisite to the application of the
Seventh Schedule.
2. The taxable benefit (‘fringe benefit’) must be granted because of this
relationship or as a reward for services rendered.
Benefits granted to relatives of employees and others
Taxable benefits received by a relative of an employee or any other person
because of the employee’s employment or services rendered, are taxed in
the hands of the employee.
18. Right of use of a motor vehicle
Applies if: free private use (or for a consideration less than the value
of private use) of a motor vehicle (company car)
Cash equivalent = Value of private use (3,5% or 3,25% per month x
Determined Value) LESS amount paid by employee
Use 3,25% = if the car has a maintenance plan if not use 3,5%
Maintenance plan contract covering all maintenance costs for not
less than 3 years and a distance of not less than 60 000 km
Determined value = Retail market value
If car is owned by employer:
reduce determined value by depreciation of 15% per year (using
the reducing balancing method)
between the date of acquisition and date of right of use
for each completed 12-month period
19. Right of use of motor vehicle continued
If accurate log book is kept for private and business km then value
of private use can be reduced in term of par 7(7) and par 7(8)
Par 7(7) reduction on value of private use = value of private use x
business km/total kms = reduction in terms of par 7(7)
Par 7(8) reduction on private use (USE PRIVATE KMS ONLY):
Cost of license x private kms/total kms
Cost of insurance x private kms/total kms
Cost of maintenance x private kms/total kms
Fuel = private kms x rate per deemed table use determined value to
determine the rate for fuel
:
20. EXAMPLE
SOLUTION
Value of private use (3.25% x R741 000 x 7) =
168 578
Cash equivalent (R168 578 – (R200 x 7))
167 178
Paragraph 7(7) adjustment (R168 578 x 11 000/21 000) (88
303)
Paragraph 7(8) adjustment (16
264)
Licence cost (R890 x 10 000/21 000) R424
Fuel (10 000 km x R1,584) R15 840
Taxable income 62 611
21. Right of use of a motor vehicle
If two cars are made available to the
employee
use the car with the highest determined value for
calculating private use if an accurate log book is
not kept
If accurate log book is kept use both
determined values to calculate the private use
No value:
private use of vehicle by employee is infrequent and vehicle is
not normally kept at the employee’s residence
If the nature of the employee’s duties regularly requires him to
use the vehicle for duties outside of his normal hours of work
and his private use is limited to travel between his place of
residence and his place of work
Ignore operating lease consequences
22. Meals, refreshments, meal & refreshment
vouchers
Applies if: free meals, refreshments, meals & refreshment vouchers
(M,R,V)
Exclusion = board or meals provided with residential accommodation
Cash equivalent = Value of M,R,V LESS amount paid by employee
Value = cost of M,R,V for employer
No value = meals or refreshments supplied by employer to employee in a canteen (or similar) mainly used by
employees, on the business premises of the employer, during business hours or extended working hours, on a
special occasion
23. Residential accommodation
Applies if: free residential accommodation or for
a consideration of less than the cash equivalent
Cash equivalent = Rental value LESS amount
paid by employee
Special rules (cash equivalent) = (A – B) x
C/100 x D/12
A = ‘remuneration proxy’
B = abatement = R78 150
C = 17 or 18 or 19
D = number of months entitled to the accommodation
C:
17 = all other cases
18 = house has 4 rooms or more and is either
furnished or electricity is supplied
19 = house has 4 rooms or more and is furnished and
electricity is supplied
24. EXAMPLE
EXAMPLE
From 1 July 2018 Big Bang rented a house in Umhlanga sands for
Sheldon, one of its employees. Big Bang pays rental of R5 000 per
month, and in return Sheldon pays Big Bang R1 500 per month. The
house has three bedrooms, a kitchen, a lounge and two bathrooms.
Sheldon is responsible for the water and lights and he bought his own
furniture when he moved into the house. Sheldon’s salary was R388 000
during the previous year of assessment.
SOLUTION
Cash equivalent
Value of private use = (A – B) x C/100 x D/12 = (388 000 – 78 150) x
17/100 x 8/12 35 116
Less amount paid by employee (R1 500 x 8) (12
000)
Cash equivalent (‘taxable benefit’) 23
116
25. QUESTION TIME
“The only difference between tax and death is that death doesn’t get worse every time
Congress meets.” Will Rose
