FRINGE BENEFITS ON RESIDENTIAL ACCOMMODATION

A3bEmployees’ remuneration packages are often comprised of more than only a monthly cash salary component. Many employees also receive various other benefits from their employers, be it in the form of an interest free loan, use of an employer-owned vehicle, vouchers or gifts, or the provision of residential accommodation. These fringe benefits are all required to be quantified by the Seventh Schedule to the Income Tax Act, 58 of 1962, and which benefits are required to be included in such recipient employees’ taxable income and subject to income tax (and PAYE).

The provision of residential accommodation to employees is at times controversial and complicated. This article seeks to focus on the calculation of this specific form of fringe benefit popularly provided to employees, and is especially relevant in certain specific industries such as mining and farming, although by no means limited thereto.

The standard approach prescribed by paragraph 9 of the Seventh Schedule to the Income Tax Act is to calculate the fringe benefit by applying the below formula and to arrive at the appropriate “rental value” to be placed on the accommodation supplied to the employee:

(A – B) x C/100 x D/12

A:  the “remuneration proxy” (typically, the remuneration paid to the employee by that employer during the previous tax year);

B:  an abatement of R75,000 (for 2017 specifically, which amount is linked to the annual primary rebate enjoyed by taxpayers who are individuals);

C:  an amount of 17 (increased to 18 if the accommodation consists of at least 4 rooms and either the accommodation is furnished or power is supplied by the employer, and increased further to 19 if the accommodation is both furnished and power is supplied at the cost of the employer); and

D:  the number of months that the employee was entitled to use the accommodation.

The value of the fringe benefit must be declared on the employee’s IRP5 under code 3805.

Where the employer has obtained the accommodation from an unconnected person to supply to its employee, the fringe benefit value adopted may be such actual cost to the employer if less than the fringe benefit value determined in terms of the above calculation. Any fringe benefit value should further be decreased by any amount contributed thereto at the employee’s own expense. Finally, it is worth noting that no fringe benefit arises if the employer is providing accommodation to an employee where necessary for the employee to spend time away from his usual place of residence to perform his/her duties.

It should be noted that the above is intended to serve as general guidance only. Several nuances and specific provisions exist where international considerations come into play, where the employee has a fixed or contingent interest in the property concerned or where the property is made available for holiday purposes only.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)