EMPLOYMENT BENEFITS

PART 2

SILKE: SOUTH AFRICAN INCOME TAX 2023: CHAPTER 8

para (i) of gross income &
7th schedule of Income Tax Act

LECTURER: MR A LATIEF
EMAIL: azlatief@uwc.ac.za
OFFICE NUMBER: 4.03
 LEARNING OBJECTIVES
1) Calculate the normal tax liability of an individual using the framework for
the calculation of taxable income.

2) Understanding concepts in the seventh schedule.

3) Calculating the cash equivalent.

 ADMIN
• Reading Material:
- Silke: South African Income Tax 2023: Chapter 8
- Eg. 8.6, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13, 8.14, 8.15, 8.16,
8.17, 8.18, 8.19, 8.20 & 8.21
- Questions on SA Tax: Chapter 8
- SAICA handbook 2022/2023 – LexisNexis (Income Tax Act and
VAT Act)
 FRAMEWORK
FRAMEWORK FOR TAXABLE INCOME R’s
Gross Income (as defined in section 1 - including special inclusions) (PARAGRAPH i) Xxxx
Add: Deemed inclusions in ‘income’ , for example section 7 and section 8(4)(a) Xxxx
Less: Exempt Income s10 and s10A – s10C (xxxx)
Income Xxxx
Less: Deductions (all s11 and other deductions except s11F and s18A (xxxx)
Less: Assessed Loss s20 (xxxx)
Add: Other Taxable Allowances (net amount of travel allowance s8(1)) xxxx
Add: Taxable Capital Gain s26A Xxxx
SUBTOTAL Xxxx
Less: s11F CONTRIBUTIONS TO ANY Pension Fund, Provident Fund and Retirement Annuity Fund (xxxx)
SUBTOTAL Xxxx
Less: Donations s18A (xxxx)
TAXABLE INCOME Xxxx
 FRINGE BENEFITS
• It is a benefit provided by an EMPLOYER to an EMPLOYEE.
• Employee taxed on the value of the benefit.
• Value determined independently of the cost to the employer.
• Value refers to benefits in terms of the Seventh Schedule.
• This schedule is found at the end of the ITA. (ITA contains 11 schedules)

• Taxable benefits granted to a relative of an employee or any other person by

virtue of the employee’s employment are deemed to be granted to the
employee.
• These benefits are not taxed in the hands of the relative but in the hands of
the employee
• Heading of Seventh Schedule:
BENEFITS OR ADVANTAGES DERIVED BY REASON OF EMPLOYMENT OR THE
HOLDING OF ANY OFFICE
• Included in gross income in terms of paragraph (i) (special inclusions)
 FRINGE BENEFITS
• Consideration paid by employee:
• When calculating the cash equivalent, the value determined in terms of par 5
to par 13 must be reduced by any consideration paid by the employee.
• The definition of ‘consideration’ excludes any consideration in the form of
services rendered or to be rendered by the employee (par 1).
• The consideration paid by the employee should be determined in one of the
following two ways:
1. If the asset acquired by the employee is an asset where input tax was allowed – then the
consideration includes VAT at 15%. Then the tax fraction must be used (15/115) must be
used to calculate the consideration.
2. If the asset acquired by the employer is an asset where input tax was denied - the
consideration is used as is and no amount of VAT is taken out.
 FRINGE BENEFITS
Acquisition of asset at less than actual value
para 2(a) & para 5
• Employee gets ANY asset (except money) from employer
• at less than value of asset.
• Excluded: meals & refreshments,
• Consideration = amount paid by employee (if any)
• Cash equivalent = Value - Consideration

• Movable asset’s value:

• Marketable securities: Market Value
• Specifically purchased for employee: Cost price
• Not specifically purchased for employee: Market value
• Trading stock: Lower of cost price or market value
• Bravery award: Cost price / Market value reduced by
Lower of: Cost and R5 000
• Long-service award: Cost price / Market value reduced by
Lower of :Cost and R5 000
• At least 15 years unbroken service for 1st award and thereafter 10 years unbroken
service
Eg. 8.6 Pg.216
 FRINGE BENEFITS
Acquisition of asset at less than actual value
para 2(a) & para 5

• Immovable asset’s value [par 5(3A)]

• No fringe benefit if acquired immovable property after 1 March 2014 from
employer or associated institution in relation to the employer at less than
MV or for no consideration.
• Requirements:
• Remuneration proxy (remuneration in immediately preceding YoA) of the
employee in the YoA during which property was acquired, is R250 000 or
less; and
• MV on date of acquisition is R450 000 or less; and
• Employee is not connected to employer
 FRINGE BENEFITS
Right of use of an asset belonging to the employer (excluding accommodation)
para 2(b) & para 6

para 2(b) of 7th Schedule

• If asset is leased by employer (in other words it does not belong to the
employer)
Cash equivalent = rentals paid by EMPLOYER
It is reduced if employee pays to use the asset.

• If asset is owned by employer:

Cash equivalent = lower of cost or MV x 15% x portion of year asset is used by
the employee
It is reduced if employee pays to use the asset
 FRINGE BENEFITS
Right of use of an asset belonging to the employer (excluding accommodation)
para 2(b) & para 6

• If employee is granted sole right of use for the major portion of the useful
life:
Cash equivalent = cost to the employer on the date the use was granted to
employee

• Which assets are excluded (in other words, no value will be placed on it and
the use will be tax free)?
Books, recordings, artwork
Use is for a very short period and value of use is almost nil
Private use is incidental
Amenity is provided by workplace for recreational purposes
Telephone or computer used mainly for business purposes
Eg. 8.7 Pg.218
 FRINGE BENEFITS
Right of use of motor vehicle
para 2(b) & para 7
• Right of Use of a Motor Vehicle (Paragraph 7)
1. ‘Determined Value’: Retail Market Value reduced by 15% on the reducing balance
method for every full 12 months from date of purchase to date of right of use
granted.
2. Multiplied by 3.5% or 3.25% (includes a maintenance plan)
3. Multiplied by the number of months the right of use was granted in the YOA.
4. EQUALS the Value of Private Use.
5. Value of Private Use will be reduced by:
Business km deduction (par. 7(7)): Private Use value x (Business km/Total km).
- Licence deduction(par. 8(a)(i)): Licence cost x (Private km/Total km)
- Insurance deduction(par. 8(a)(ii)): Full cost of insurance x (Private km/Total km)
- Maintenance deduction(par. 8(a)(iii)): Maintenance Cost x (Private km/Total km)
- Fuel deduction(par. 8(b)): Value per table (page 353) x Private km.

6. Cash Equivalent = Value of Private Use LESS Consideration

- More than 1 vehicle: Use highest Private Use value UNLESS either of 2 vehicles
receives any deduction. If so, include both.
- Right of Use and Travel Allowance: No Travel Allowance Deduction!
 FRINGE BENEFITS
Right of use of motor vehicle
para 2(b) & para 7
• Cash Equivalent = Value of private use – consideration [par 7(2)] monthly
basis

• If employee has more than one company vehicle – primarily for business
purposes value for private use of vehicle with highest Determined Value
will be used.[para 7(6)]. Must provide full detail why 2 cars made available.
• If accurate record kept, para7(7) and para7(8) over ride para 7(6)
• If only used for part of a month, Value of private use apportioned on a daily
basis.
• Para 7(7) and Para 7(8) adjustments done at assessment. (end of year) to give
taxable benefit.
• Must keep accurate logbook record of business and private km’s to get
deduction
• Para7(7) – reduction of Value of private use by business kms :
Value of private use x business kms/ total kms
 FRINGE BENEFITS
Right of use of motor vehicle
para 2(b) & para 7
• Para 7(8) – Where the employee bears FULL cost of the licence,
insurance or maintenance – then part related to private use can be
deducted.
• Value of private use X private kms/ total kms

• For fuel cost : if full cost for private use is borne by employee then
the reduction is based on: Private km’s x cost per km from table
• Para 7 (8) A – for a judge or constitutional court judge the km’s travelled
between home and court that judge presides over is seen as business km’s
• No/Nil values –
• when used by employees in general ( pool car) and not kept at employee premises.

• If employees duties regulary requires use of motor vehicle outside of regular work hours
and private use limited to travel between home and work.
 FRINGE BENEFITS
Right of use of motor vehicle
para 2(b) & para 7
• Where the company car is acquired by the employer under an operating
lease
• Must meet requirements of an operating lease:
- The employer must rent the vehicle from a lessor in the ordinary course of
the lessor’s business.
- The vehicle may be leased by the general public for a period of less than a
month.
- The costs of maintaining the vehicle must be borne by the lessor.
- The risk of loss or destruction of property must not be assumed by the
lessee.
• Where the vehicle is acquired by the employer under an operating lease, the
actual cost to the employer incurred under the operating lease and the cost
of fuel in respect of that vehicle, will be the value of the private use.
• Par 7(8) reduction does not apply to a vehicle acquired by the employer
under an operating lease
Eg. 8.8, 8.9, 8.10, 8.11, 8.12 & 8.13 Pg. 224 - 226
 FRINGE BENEFITS
Meals, refreshments and meal and refreshment vouchers
para 2(c) & para 8
• Employer provides free meals, refreshments and refreshment vouchers (or for a
consideration less than the value of the meal, refreshment or voucher)
Cash equivalent = Value of meals, refreshments vouchers – Amount paid by employee
• Value = cost to the employer of meals, refreshments and refreshment vouchers

No values:
A meal or refreshment supplied by an employer to his employee:
• in a canteen, cafeteria or dining room wholly or mainly used by his employees, Par
8(2) Par 8(3)( a ) or
• on the business premises of the employer, or Par 8(3)( a ) l during business hours or
extended working hours, or
• on a special occasion Par 8(3)( b )
• A meal or refreshment enjoyed by an employee when he must entertain someone on
behalf of the employer
Eg. 8.14, Pg. 227
 FRINGE BENEFITS
Residential Accommodation
para 2(d) & para 9
• Employer provides accommodation to employee
• (un)furnished; with(out) electricity, water, meals, services

Cash equivalent = Rental value – Rent paid by employee

• Employer owns accommodation: Rental value = formula

• Employer does NOT own accommodation: Rental value = greater of:

Formula or
Total rental expenses / other expenses paid by employer

• Employer does NOT own accommodation, but may use the formula if:
customary to provide employees with free / subsidised housing and
necessary due to particular kind of employment and
bona fide business purposes
Formulae [par9(3)] = (A-B) x C/100 x D/12
 FRINGE BENEFITS
Residential Accommodation
para 2(d) & para 9
• Residential Accommodation (Paragraph 9)
• Cash equivalent value = Rental Value less consideration.
• If rented by the employer, Rental Value is the lesser of:
- (A-B) x (C/100) x (D/12); or
- Rentals payable and any other expenditure defrayed.
•WHERE:
A= Remuneration proxy,
B = R91,250, but nil if:
• the employee or his spouse directly or indirectly controls the employer (who is a private
company), or
• the employee, his spouse or minor child have a right of option or pre-emption granted by
employer
C = 17 (Less than 4 rooms)
= 18 ( at least 4 rooms AND power OR furniture)
= 19 ( at least 4 rooms AND power AND furniture),
D=No. of months use.
Eg. 8.15 Pg.229
 FRINGE BENEFITS
Residential Accommodation
para 2(d) & para 9

• If employer-provided accommodation is rented by the employer from an

unconnected third party, the rental value will be determined as the lower of
the cost to the employer in providing the accommodation or the rental value
as determined in the Income Tax Act
• If employer-provided accommodation is rented by the employer from an
unconnected third party, the rental value will be determined as the lower of
the cost to the employer in providing the accommodation or the rental value
as determined in the Income Tax Act
 FRINGE BENEFITS
Residential Accommodation
para 2(d) & para 9

• No Values:
• Para 7: Temporary accommodation - where employee away from usual place
of residence in SA for work purposes.
• para 9(7A)When an employee is away from usual place of residence outside
SA ( non- resident), no value on:
• accommodation received from employer:
• If physically present in SA for less than 90 days in year of assessment OR
• For a period less than or equal to 2 years after the date of arrival in SA.
Exception to No Value rule: The less than 2 year rule does not apply if:
• the employee was present in SA for a period exceeding 90 days in the year
immediately before date of arrival. OR
• to the extent of the cash equivalent over an amount of R 25 k X no of
months accommodation supplied.
 FRINGE BENEFITS
Holiday Accommodation
para 2(d) & para 9

• Value:
• If employer rents from any person other than associated institution to him -
cost irt rental, meals and other services.

• In any other case - the market / going rate at which accommodation would
be charged if not to an employee.

Eg. 8.16 Pg.231

 FRINGE BENEFITS
Free or Cheap Services
para 2(e) & para 10

• Taxable Benefit: Utilised by employee for personal use .

• Excluded would be:
• Residential accommodation, medical services, insurance payments for
benefit of employees.
• Cash equivalent : general rule:
• Travel facility – where employer in travel business and employee make use
of this facility for employee or employee‘s relatives outside SA by sea or air:
• Cash Equivalent = Lowest fare less any consideration paid.
• All other cases:
• Cost to employer less any amount paid by employee.
 FRINGE BENEFITS
Low-interest loans
para 2(f) & para 10A & para 11
• Loan granted to employee by
• employer or other person by arrangement with the employer and
• loan is interest-free or < official rate

Cash equivalent = Interest @ official rate – interest actually paid

• If employee uses loan in production of income?

• then may deduct cash equivalent ito s 11(a) - Zero-effect on his taxable income
This is due to the wording of par 11(5) of the 7th Schedule, where “...such amount shall
for the purposes of section 11(a) of this Act be deemed to be interest actually incurred by
him”.
• Official interest rate in Government Gazette - provided in question (or repo rate
+1%)
• No fringe benefit if:
• Casual loan
short-term loan granted irregularly AND
total “casual” loans never > R3 000
Just because < R3 000, not necessarily “casual”
• Study
 FRINGE BENEFITS
Low-interest loans
para 2(f) & para 10A & para 11

• Par 11(2)(a):
• If no interest is payable by the employee on the debt, or if interest is
payable at irregular intervals, a portion of the cash equivalent will be
deemed to have accrued to the employee on the last day of each period in
the year of assessment for which any cash remuneration becomes payable
by the employer to him (usually monthly).
• Therefore the fringe benefit in respect of the debt is taxed on a regular basis
although the interest on the loan is not raised regularly.
• When interest is payable by the employee at regular intervals, a portion of
the cash equivalent will be deemed to have accrued to the employee on
each date during the year of assessment on which the interest becomes
payable by him for a part of the year (for example, quarterly or half-yearly).

• If loan made to start a trade, interest incurred deductible ito s11(a) .

 FRINGE BENEFITS
Low-interest loans
para 2(f) & para 10A & para 11
• Deemed Loan:
Paragraph 10A deems residential accommodation to constitute a loan where:
• any employee has been granted the right to occupy residential
accommodation owned by his employer or by any associated institution in
relation to his employer;

• the employee, his spouse or minor child is entitled or obliged to acquire the
house, either on termination of his service or after the expiration of a fixed
period at a price stated in such an agreement; and

• the employee is granted the right to occupy the house and as a

consideration in respect of his occupation, pays a rental to the employer
which is calculated as a given percentage of the price used in the agreement
above.
 FRINGE BENEFITS
Housing Subsidy
para 2(g), (gA) & para 12
• Two types of subsidies:

(a) Loan by employer to employee

iro interest or capital repayments
Cash equivalent = amount subsidy

(b) Loan by 3rd party to employee

Employer subsidy + interest paid by employee > interest at official rate
Cash equivalent = amount subsidy

• If subsidy + interest paid by employee ≤ interest at official rate,THEN it is a low-

interest loan [par2(f)]
Cash equivalent = Interest @ official rate – interest actually paid
 FRINGE BENEFITS
Release from or payment of an employee’s debt
para 2(h) & para 13

• The employer has

• directly or indirectly paid a debt owing by the employee to a third person without requiring
reimbursement by the employee, or
• has released an employee from an obligation to pay a debt owing by the employee to the employer
Cash equivalent = the amount released or paid by the employer

• No fringe benefit if:

person retired due to age, ill-health or infirmity;
dependants of deceased employee who was employed at date of death;
dependants of former employee after his death (if retired due to age, ill-health or
infirmity)
 FRINGE BENEFITS
Contributions to medical scheme
para 2(i) & para 12A

• Employer makes medical aid contributions for the benefit of employee or his
dependants
Except if par2(j) is applicable

Cash equivalent = Contributions

• No fringe benefit if:

person retired due to age, ill-health or infirmity;
dependants of deceased employee who was employed at date of death;
dependants of former employee after his death (if retired due to age, ill-health or
infirmity)
 FRINGE BENEFITS
Medical Services
para 2(j) & para 12B

• Employer direct/indirectly incurs expenses (except medical aid contributions) iro

- dental, medical etc services
- hospital + nursing services
- medicines
to an employee / spouse / child / relative / dependant

• Cash equivalent = Expense

• No fringe benefit [par 12B(3)]:

Treatments listed by Minister of Health as prescribed minimum benefits
Person retired due to age, ill health or other infirmity
Services rendered to employees in general at workplace to enhance performance
 FRINGE BENEFITS
Insurance Policy
para 2(k) & para 12C

• Payment to insurer for benefit of employee or the spouse/child/dependant or

nominee

• Exclusions? If insurance policy relates to an event arising solely out of and in the
course of employment of the employee

Cash equivalent = premiums paid

• If i.r.o income protection policy: employee deemed to have paid the premium
(thus deductible under s11(a))
 FRINGE BENEFITS
Contributions by an employer to pension and provident funds
para 2(l) & para 12D

• Taxable benefit : Contributions made by employer

• Note diff between defined benefit and defined contribution fund.

• Impacts cash equivalent : when contribution fund, it will be contributions paid.

• When defined benefit fund must use formula
• X = (A x B) – C
• Refer page 243 for definitions

• If iro income protection policy: employee deemed to have paid the premium (thus
deductible under s11(a))
 FRINGE BENEFITS

Familiarise yourself with the “no value” provisions of each paragraph, for example:
- Incidental use of a motor vehicle,
- Accommodation provided for business purposes.
NB! Not a complete list.

• VAT on Fringe Benefits (Section 18(3))

- Must be a Fringe Benefit.
- Must not relate to a zero-rated supply (section 11).
- Must not relate to an exempt supply (section 12).

• Time of supply(section18(3))
- Time when the benefit becomes subject to employees tax

• Value of Supply(section18(3))
- Consideration in money for the supply is deemed to be the cash equivalent of the
benefit per the 7th Schedule, MULTIPLIED BY the tax fraction(15/115).