Fringe Benefits

SILKE 8
Study Unit 11
 Per
study

Study Outcomes guide

On the successful completion of this study unit

you should be able to:
• demonstrate your ability to calculate the taxable
portions of allowances and fringe benefits; and
Part on

• demonstrate your ability to calculate an

alowance

individual's taxable income (integrating

allowances and fringe benefits)

SILKE Chapter 8
 Seventh schedule Fringe
benefits
• What is a fringe benefit?
• Where do we include 7th Schedule fringe benefits
in our framework?

Included in gross income –

Special inclusion – s1 GI def par (i)

7th Schedule only applies if employer-employee relationship

• Benefit is received because of services rendered/ employment
 Fringe benefits
• On what value will an employee be taxed?
How to
determine
Determined value value?

less
Why do we
Consideration paid by deduct the
amount paid by
employee the employee?

= cash equivalent (taxable

fringe benefit)
 Fringe benefits
1. Assets acquired at less than actual value
2. Right of use of assets
3. Right of use of motor vehicle
4. Meals, refreshments & vouchers
5. Residential accommodation
6. Holiday accommodation
7. Free or cheap services
8. Low or interest-free loans
9. Subsidies
10. Discharge or payment of obligation
11. Contributions to medical schemes
12. Medical expenses
13. Contributions to retirement funds
Assets acquired at less than actual value Par 2(a)
Par 2(1)(h) 8th and 5
Schedule
Asset acquired for no consideration/consideration < MV
FB = Value of asset
VAT Exclusions
VALUE = incl/excl? • Money
MV on date of acquisition by • Meals & refreshments
employee except: • Shares

• Moveable property acquired to give/sell to employee (not

used before) = @ cost to employer (excl. VAT)
• Trading stock = lower of cost/MV
Bravery/long service reward – reduce value with
Example 1
lessor of cost/R5000
Long service award deduction available if initial period of
service of 15 years or subsequent 10 years
Assets acquired at less than actual value
Par 2(a)
and 5

NO VALUE

Remuneration last
Immovable property year
NOT APPLICABLE if:
• the remuneration proxy of the employee > R250 000 or,
• MV of the property > R450 000 or,
• the employee and employer are connected persons

Fuel or lubricants if employee is taxed on right of

use of a motor vehicle (par 7)
Example 1: Assets acquired at
less than actual value
A computer was acquired by the employer at a cost of R10 000 (excluding
VAT), and used in the business for three years. It is sold to an employee for
R2 000 (excluding VAT). The market value (excluding VAT) of the
computer on the date of sale is R3 000. A gold watch, which cost the
employer R6 270 (including VAT), was bought for and awarded to an
employee as a long-service award after he had completed 15 years of
service. The market value (including VAT) of the watch on the date of the
award is R6 840.

Determine the cash equivalent in respect of the above dispositions of

property
Example 1: Assets acquired at
less than actual value
Value of asset (VAT excl) 3 000
Cost for employee (2 000)
Cash equivalent 1 000 1 000

Value of asset (VAT excl) (6 270 x 100/115) 5 452

Deduction (5 000)
Cash equivalent 452
 Par 2(b)
and 6
Right of use of assets
VAT? Excl. house/car
Sole right given to employee for
useful life/major part of useful life
Use for limited time
of asset

Employer leases Employer owns

Value = cost of asset asset
asset

Fringe benefit = no value: Value = 15%

• Incidental private use Rent paid x lower of
• Used at work cost/MV
• Employees allowed use in general x no of
• Books, literature, recordings or days/365
works of art
• Telephone/computer mainly
(>50%)used for business
 Example 2: Right of use of
assets
Mr Z is allowed to use a personal computer, which is owned by his
employer, for private purposes. The computer cost the employer R11
400 (including VAT). (The market value also amounted to R11 400
(including VAT)). Mr Z does not pay anything for the use of the
computer.
Calculate the amount of the taxable benefit if:
(a) Mr Z uses the computer at home continuously for 91 days.
(b) (b) Mr Z uses the computer at home for its useful life or over a
major portion of its useful life.
 Example 2: Right of use of
assets
a) Cash equivalent (11 400 x 100/115 x 15% x 91/365) = 371

b) b) Cash equivalent (11 400 x 100/115)= 9 913

 Par 2(b)
and 7

USE OF MOTOR VEHICLE

Taxable fringe benefit Consideration paid
Next slide by employee
Excluding:
Value of private use Less: Why?
• Fuel
• Insurance
• License
• Maintenance

NO value:
• Available to all Employees, private use incidental or
infrequent and not used after hours
• OR Used after hours – private use NOT allowed except for
travel between residence and work
 Par 2(b)
Vehicle acquired and 7
before 1 March
2015
Use of a motor vehicle
= cost VALUE: Value of private use
Example 3
Retail MV (finance charges excl)
VAT?
Less: 15% for each completed 12-months between date of acquisition by employer
and date right of use was given @ reducing balance

x (3.5% (motor without motor maintenance plan)) OR

x (3.25% (motor with motor maintenance plan))

x no of months (apportioned for part of a month)

Maintenance plan: contract covering all maintenance costs for ≥ 3
years and distance ≥ 60 000km

Value: motor leased ito operating lease: Example 4

cost for employer incl. fuel
 Example 3: Right of use of a
motor vehicle
Mr R was granted the right to use the employer-
owned motor vehicle with effect from 1 June 2021.
The employer originally acquired the vehicle on 1
March 2020 at a cost of R91 200 (including VAT).
The motor vehicle does not have a maintenance plan.

Calculate the value of the taxable benefit to Mr X for

the 2022 year of assessment
 Example 3: Right of use of a
motor vehicle
Cost 91 200
 
Reduced with 15% for completed 12 months before
right of (13 680) 
use was granted
Determined value 77 520
 
     
Cash equivalent (77 520 x 3.5% x 9) 24 419
 
 Example 4: Right of use of a
motor vehicle: operating lease
Jan had the right of use of a luxury motor vehicle with a retail market
value of R741 000 (VAT included) since 1 March 2020. This vehicle
was leased by his employer, Protea Ltd, at R15 000 per month under an
operating lease. Jan travelled 21 000 kilometres in total with the motor
vehicle and the accurate log book proves that 11 000 kilometres thereof
was travelled for business purposes. Protea Ltd also paid the fuel cost
amounting to R2 500 per month. The Commissioner accepted the log
book as accurate. Jan bears no costs in respect of the vehicle.

Calculate the amount that must be included in Jan’s taxable income in

respect of the right of use of the motor vehicle in the 2021 year of
assessment.
 Example 4: Right of use of a
motor vehicle: operating lease

Cash equivalent (15 000 x 12) + (2 500 x 12) 210 000

Par 7(7) reduction (210 000 x 11 000/21 000) (110 000)

Cash equivalent 100 000

 Use of motor vehicle - reductions
Reduce value on assessment (par 7(7))
Example 5
• If (accurate records) logbook is kept:
Reduce with Business kms / Total kms

Reduce value on assessment (par 7(8))

If employee paid for fuel, insurance, license and maintenance:
Reduce with:
• Cost of insurance, license and maintenance
x Private kms / Total kms
• Cost of fuel
Private kms × rate in Appendix C/fixed rate
Private use incl. travel between residence and work
• Note: Par 7(8) N/A to motor under operating lease
 Appendix c

VALUE OF THE FIXED FUEL COST MAINTENANCE COST

VEHICLE (R) COST (R) (c/km) (c/km)
0 - 95 000 29 504 104.1 38.6
95 001 - 190 000 52 226 116.2 48.3
190 001 - 285 000 75 039 126.3 53.2
285 001 - 380 000 94 871 135.8 58.1
380 001 - 475 000 114 781 145.3 68.3
475 001 - 570 000 135 746 166.7 80.2
570 001 - 665 000 156 711 172.4 96.6
more than 665 000 156 711 172.4 96.6
 Example 5: Right of use of a
motor vehicle: reductions
Jan had the right of use of a luxury employer owned motor vehicle with a
retail market value of R741 000 (VAT included) up and until his retirement
on 30 September 2021. The motor vehicle was purchased by Protea Ltd on
1 March 2021. Protea Ltd took out a maintenance plan (as defined) in
respect of the motor vehicle. Jan travelled 21 000 kilometres from the
beginning of the year of assessment until his retirement with the motor
vehicle and the accurate log book proves that 11 000 kilometres thereof
was travelled for business purposes. Jan had to bear the total fuel cost of
private use and also paid the full licence cost of R890. The Commissioner
accepted the log book as accurate. Jan monthly pays R200 (excluding
VAT) as consideration for the right of use of the motor vehicle.

Calculate the amount that must be included in Jan’s taxable income in

respect of the right of use of the company car for the 2022 YOA.
 Example 5: Right of use of a
motor vehicle: reductions
Value of private use (741 000 x 3.25% x 7) 168 578
Less consideration paid (200 x 7) (1 400)
Par 7(7) reduction for business kms
(168 578 x 11 000/21 000) (88 303)

Par 7(8) reduction for cost incurred  

* License (890 x 10 000/21 000) (424)
* Fuel (10 000 x R1,751) (17 510)
Cash equivalent 60 941
 Use of more than one motor Par 2(b)
and 7
vehicle
Was accurate records (logbook) of km travelled kept?

Example 6
Yes No

Do calc. for vehicle with

Do calc. for BOTH vehicles
highest value

IF both vehicles
Deduct available reductions primarily used for
Par 7(7) and business purposes
7(8) Par 7(6)
 Example 6: Right of use of two
motor vehicles
Mr Z is granted the right to use two motor vehicles that were owned
by his employer. The motor vehicles were purchased on 1 March
2021 and had a retail market value of R114 000 (Vehicle 1) and R171
000 (Vehicle 2). Both amounts include VAT at 15% and no
maintenance plan was taken out in respect of the vehicles. Mr Z bears
no costs in respect of the vehicles.
 Example 6: Right of use of two
motor vehicles
• Calculate the monthly cash equivalent of the value of the
taxable benefit, as well as the taxable amount (on
assessment) if Mr Z is granted the right of use of both
vehicles if:
(a)Mr Z uses both vehicles primarily for business purposes and
kept an accurate logbook proving that 12 000 km of the total
23 000 km travelled with each of the vehicles was travelled
for business purposes.
(b) (b) Mr Z uses both vehicles primarily for business purposes
but kept no accurate logbook of his travels.
 Example 6: Right of use of two
motor vehicles
a) Because accurate logbook was kept par 7(7) and not
par
7(6) should be applied    
Monthly cash equivalent: Vehicle 1 Vehicle 2
171 000 x 3.5% 5 985  
114 000 x 3.5% 3 990
     
Taxable on assessment:    
Gross income
Vehicle 1 (5 985 x 12) Vehicle 2 (3 990 x 12) 71 820 47 880
Par 7(7) reduction for business kms
Vehicle 1(71 820 x 12 000/23 000) (37 471) (24 981)
Vehicle 2(47 880 x 12 000/23 000)
Cash equivalent 34 349 22 899
 Example 6: Right of use of two
motor vehicles

b) Par 7(6) will apply as no accurate logbook was

kept but    
vehicles were used primarily for business purposes
Monthly cash equivalent: Vehicle 1 Vehicle 2
171 000 x 3.5% 5 985  
114 000 x 3.5% 3 990
     
Highest value (5 985) x 12
 Cash Equivalent    71 820
 MEALS, REFRESHMENTS &
VOUCHERS Par 2(c)
and 8
VALUE:

• at canteen, cafeteria mainly for Other

employees
• Supplied on business premise
• Supplied during business Cost to employer
hours/extended working hours
• Special occasions
• Required to entertain on employer’s
behalf

No value
 Residential accommodation
Par 2(d)
and 9
• Employer owns the house
Employer does not own
• Employee has an interest in the
the house
accommodation
Lower of
Formula • Formula OR
Interest in • Cost to employer
accommodation:
• House owned by employee/his connected person
• Increase in the value of the house accrues for the benefit of the
employee/his connected person
• Employee/connected person has a right to acquire house
Two/more residential units: use highest value of those
determined above
 RESIDENTIAL ACCOMMODATION
Par 2(d)
and 9
Formula = (A - B) x c/100 x D/12
• A = Remuneration proxy (last year remuneration excluding residential
accommodation)
• B = abatement R87 300, but if:
• employee/spouse controls a private company or
• employee/spouse/minor child option to buy
• Then B=Rnil
• C = 19: House with at least 4 rooms (any room) & electricity provided
and furnished
• C = 18: House with at least 4 rooms (any room) & electricity or
furnished Example 7
• C = 17: All other circumstances
• D = No of months entitled to accommodation
 Residential accommodation
Par 2(d)
and 9
No value:

• Accommodation (in and outside SA) where employee (resident)

is away from usual place of residence in SA for work purposes

• Accommodation (in SA) where employee (non-resident) is away

from usual place of residence outside SA
• For ≤ 2 years after arrived in SA OR
for < 90 days in yoa
NO VALUE NOT APPLICABLE IF:
• In SA > 90 days in yoa before coming to SA OR
• To the extent the value > R25 000 per month
 Example 7: Residential
accommodation
Mr A’s employer provided him with residential
accommodation for the entire 2022 year of
assessment at an annual rental of R4 000. Mr A is not
a shareholder in the employer company. The
accommodation is unfurnished and is provided
without any services. Mr A’s remuneration from his
employer in the previous year of assessment
comprised a cash salary of R203 024.
 Example 7: Residential
accommodation
Calculate the cash equivalent of the taxable benefit
arising from Mr A’s right of occupation of the
accommodation, if:
• (a) the accommodation is owned by the employer
• (b) the employer rents the accommodation from the
owner at a cost of R10 000 per year.
 Example 7: Residential
accommodation
a) Owned accommodation - use formula  
(A - B) x C/100 x D/12  
A = R203 024  
B = 83 100  
C = 17  
D = 12  
(203 024 – 83 100) x 17/100 x 12/12 20 387
Consideration paid by employee (4 000)
Cash equivalent 16 387
 Example 7: Residential
accommodation

b) Not owned use lower of formula/cost to employer  

Formula = 20 387  
Cost = 10 000  
Lower = Cost 10 000
Consideration paid by employee (4 000)
Cash equivalent 6 000
 Holiday accommodation
Par 2(d)
and 9

Owned by employer Not owned by employer

Amount a non-employee Cost to the employer

would normally pay

Example 8
 Example 8: Holiday
accommodation
Mr A’s employer provided him, his wife and two children
with free holiday accommodation in its cottage at the
coast for ten days. The employer owns the cottage.
Calculate the cash equivalent of the taxable benefit to Mr
A if:
(a) the cottage is normally let to non-employees for
R5000 a day
(b) the cottage is normally let to non-employees for R800
per person per day.
 Example 8: Holiday
accommodation
• a) 5 000 x 10 50 000
• b) 800 x 10 x 4 32 000
 Free or cheap services Par 2(e)
Value = cost for employer and 10
Exception:
IF Employer in business of travel by sea or air, grants travel facility for employee/his relative to travel
outside SA for private purposes.
THEN: Value = minimum cost of travel

NO value:
• Travel for employee/spouse/minor child
• In SA (local)
• Outside SA (overland)
• Outside SA (flight) where no advance reservation could be made Example 9
• Transport of employees in general to from home to work and vice versa
• Travel for spouse/minor child of employee to see employee IF employee away > 183 days AND > 250 km from
home
• Service rendered by employer to employees at the workplace for better performance of their duties or as a benefit
to be enjoyed by them at the workplace/recreational services at workplace
 Example 9: Free or cheap
services
Every morning, Park Supermarket's minibus picks up
all the employees from home and drives them to their
place of employment. The cost per person amounts to
R20 per day.

Calculate the value of the benefit to be included in

the employees' taxable income.
 Example 9: Free or cheap
services
• No value - travel between work and home
LOW OR INTEREST FREE LOANS Par 2(f),
10A and 11

VALUE = Difference between rate employee pays and official interest rate.
Official interest rate:
From May 2022 = 8,25% Example 10
Will be
given
• No value:
• Debt < R3000, or
• Debt that enables employee
to further his studies
• Debt<450 000 for purchase of immovable property for residential
purposes with a MV of R450K or less ( employee’s remuneration
proxy <= R250K
Example 10: low or interest free
loans
Example 10: Debts A company made the following loans to its employees during the
year of assessment ending on 29 February 2022:
1. an interest-free loan of R20 000 to Mr A on 1 September 2021
2. a loan of R50 000 at an interest rate of 4% to Mr B on 1 September 2021 to enable
him to buy a small rent-producing investment
3. an interest-free loan of R1 500 to Miss C on 15 October 2021 in order to help her
pay unexpected medical bills
4. 4. an interest-free loan of R6 000 to Mr D on 7 January 2021 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 the loans were still outstanding at the end of the year. You may assume
the official rate for the year was 8% until 31 July 2021 and 7.75% from 1 August 2021.
 Example 10: low or interest free
loans

(1) 20 000 x 7,75% x 182/365 773

 
(2) 50 000 x (7,75%-4%) x 182/365 935
 
(3) No value - < R3 000 -
 
(4) No value - to pay for employee's studies -
 
 Deemed loans Par 10A

Employee lives in employer owned house

Employee/spouse/minor child entitled to buy house at a

price per agreement
AND rental is a % of price per agreement

Example 11
Deemed loan of future purchase price
per agreement

IF MV < purchase price per agreement – no

On date of par 2(a) & 5 taxable fringe benefit with
agreement purchase
 Example 11: Deemed loan
• Mr A and his employer entered into an agreement on 1 March 2021 where
Mr A is entitled to acquire a house owned by his employer at a price of
R160 000 (market value R140 000). In the meantime, he has the right to
occupy the house on 1 March 2021 at a fixed annual rental of 4% of price in
the agreement. The house cost the company R110 000.

• Calculate the cash equivalent of the taxable benefit arising from Mr A’s
right of occupation of the house and the taxable benefit, if any, that will
arise if he exercises his option and buys the house for R160 000 when the
market value amounted to R230 000. You may assume the official rate of
interest is 8% until 31 July 2021 and 7.75% from 1 August 2021.
 Example 11: Deemed loan
Mr A stays in employer owned house    
He has the option to purchase the house at a price
specified    
in a contract (R160 000)
The rental payments is a % of the purchase price (4%)    
Therefore - deemed low interest loan    
     
(160 000 x (8% - 4%) x 153/365) + 2 683  
(160 000 x (7.75% - 4%) x 212/365) 3 485  
Cash equivalent 6 168 6 168
     
Because cost price is more than the market value on the    
date of the agreement, there is no par 2(a) and 5 taxable
fringe benefit on the date the option is excercised
 Par 2(g),

Subsidies (gA) and 12

Employer paid capital/interest on behalf of employee

Capital Interest

Amount paid by Interest paid by employer +

employer interest paid by employee

Example 12 < Official rate > Official rate

Interest at official rate less Amount paid by

interest paid by employee employer
 Example 12: Subsidies
Mr A was granted a 6-month loan of R10 000 by a financial
institution on 1 September 2021 at a rate of interest of 2% subject
to his employer’s paying the institution a further amount of
interest on the loan. Calculate the cash equivalent of the taxable
benefit to Mr A if his employer pays interest at the rate of:
(a) 10%,
(b) 3%.
You may assume the official rate for the year was 8% until 31
July 2021 and 7.75% from 1 August 2021.
 Example 12: Subsidies

(a) 10% + 2% = 12% > 7,75% therefore cash

equivalent is the
cost for the employer (10 000 x 10% x 182/365)   497

(b) 3% + 2% = 5% < 7,75% therefore treated as  

low interest loan, cash equivalent is (10 000 x
(7,75% - 2%) x 182/365)
286
 Discharge or payment of
obligation Par 2(h)
Discharge of debt owed to employer/third party and 13

Excluding:
• Contributions to benefit funds/medical costs
VALUE = amount discharged/paid by employer
No value
• Subscriptions to professional body
• Government pension fund
• New employee released from study debt at prior employer (if
required to remain employed at new employer for period)
• Insurance premiums to indemnify an employee against claims from
negligent acts or omissions in rendering services to the employer
 Contributions to medical schemes
Par 2(i)
and 12A

• Fringe benefit = Employer contribution to medical scheme

• No value:
• Retired due to age, ill health or infirmity
• Dependents of employee who died
(was in employment at date of death)
• Dependents of employee who died
(was retired because of age, ill health or infirmity)
 MEDICAL EXPENSES Par 2(j)
and 12B
Fringe benefit – cost employer paid for medical expenses for
employee, his or her spouse, child, family member or dependant.

No value:
• Costs paid but recovered from medical aid
• Retired due to age, ill health or infirmity
• Dependents of employee who died (while
employee/after retired due to age, ill health/
infirmity
• Person ≥ 65 years
• Services rendered to employees in general at their place of work
Example 13
Example 13: Medical expenses
Employer A has a scheme in terms whereof medical services are
provided to employees, spouses and dependants. The following
payments are made by employer A:
• Employee B: Payment of dental services - R4 000 (Employee B is a
member of a medical scheme and employer A recovered the full R4
000 from employee B’s medical scheme.)
• Employee C: Payment of hospital account for open heart operation -
R26 000 (Employee C is 66 years old).
• Employee D: Payment of medicine for epilepsy - R3 000 (Employee
D was employed by employer A, but died during the year. The R3
000 was paid on behalf of his wife after employee D’s death.)
Example 13: Medical expenses

• Calculate the cash equivalent of the taxable benefit

as a result of employer A’s payments on behalf of
the respective employees.
 Example 13: Medical expenses

Employee B - amount recovered from medical scheme

- no
-
value

Employee C - employee 65 or older - no value -

Employee D - dependent of employee who died - no -

value
 Benefits iro insurance policies
Par 2(k)
and 12C
• Insurance payment to insurance policy for benefit
of employee/spouse/child/dependent/nominee
• Excl. insurance against loss of income

• VALUE = amount of premiums paid

From 1 March Par 2(l)
2016
Contributions to retirement and 12D

funds
Fund consists:

Only defined contribution NOT only defined contribution

components components

Total amount contributed by Formula:

employer X = (A x B) – C given
A = fund member category
factor
B = retirement funding income
RFI = the amount taken C = employee contributions
into account to determine (excl. voluntary contributions)
contributions
 Questions and homework

Homework
• Will be announced