SARS defines a fringe benefit in the seventh schedule as having four elements i.e
- There’s an employment relationship;
- The benefit accrues to the employee as a result of this relationship;
- The benefit is a reward for services rendered;
- The benefit is taxed.
These benefits are taxable. This means your payroll must deduct the correct amount of employees tax.
There are basically 12 categories of fringe benefits namely:
- Provide the employee with an asset for free or at a lower value compared to its price. So if you provide an employee with an apple tablet as an example this would then be taxable in the employees hands. Note that payments for Bravery or long service awards are tax free up to R5000. Amounts in excess of that is taxable.
- Employee use of Company assets. If an employee uses Company assets for private use then the free use is taxable. The employee should be taxed on the date employees first given right to use the asset.
- Private use of a Company car based on 3.5% of the determined value of the vehicle.
- Free meals, refreshments or meal vouchers – remember that if you supply your employees meals in any canteen, cafeteria or dining room or any special occasion or for extended working hours then this is not taxable.
- Free residential accommodation to employees is taxable. The value is determined by the higher of the cost to the employer or the amount determined when applying the SARS prescribed formula. To calculate the rental value for holiday accommodation to staff it is recommended to use the prevailing rate per day. Also note rent-free accommodation of employees working away from home is tax free.
- Free or cheap services are also taxable – however services to improve performance at work is tax free e.g. advisory services.
- Low or interest free loans are also taxable. If you make a loan to an employee and either no interest is payable on the loan or interest is payable at a rate lower than the official interest rate, it’s a taxable fringe benefit. A portion of the taxable benefit is deemed to accrue on each date during the year where your employee pays interest on the loan at regular intervals.
- Subsidies provided to employees are also taxable.
- Debt paid on behalf of employees is also taxable in the employees hands.
- Medical aid fringe benefits – however amounts paid to a medical aid on behalf of a person who has retired from your employ by reason of superannuation, ill-health or other infirmity or amounts paid to dependents after the death of the employee.
- Medical expenses incurred – if you pay for the medical treatment of an employee’s dependents after he dies.
- Benefits to employees relatives.