A2bTwo significant rulings by SARS, both relating to non-executive directors’ remuneration, were published by SARS during February 2017. The rulings, Binding General Rulings 40 and 41, concerned the VAT and PAYE treatment respectively to be afforded to remuneration paid to non-executive directors.The significance of rulings generally is that it creates a binding effect upon SARS to interpret and apply tax laws in accordance therewith. It therefore goes a long way in creating certainty for the public in how to approach certain matters and to be sure that their treatment accords with the SARS interpretation of the law too – in this case as relates the tax treatment of non-executive directors’ remuneration.

The rulings both start from the premise that the term “non-executive director” is not defined in the Income Tax or VAT Acts. However, the rulings borrow from the King III Report in determining that the role of a non-executive director would typically include:

  • providing objective judgment, independent of management of a company;
  • must not be involved in the management of the company; and
  • is independent of management on issues such as, amongst others, strategy, performance, resources, diversity, etc.

There is therefore a clear distinction from the active, more operations driven role that an executive director would take on.

As a result of the independent nature of their roles, non-executive directors are in terms of the rulings not considered to be “employees” for PAYE purposes. Therefore, amounts paid to them as remuneration will no longer be subject to PAYE being required to be withheld by the companies paying for these directors’ services. Moreover, the limitation on deductions of expenditure for income tax purposes that apply to “ordinary” employees will not apply to amounts received in consideration of services rendered by non-executive directors. The motivation for this determination is that non-executive directors are not employees in the sense that they are subject to the supervision and control of the company whom they serve, and the services are not required to be rendered at the premises of the company. Non-executive directors therefore carry on their roles as such independently of the companies by whom they are so engaged.

From a VAT perspective, and on the same basis as the above, such an independent trade conducted would however require non-executive directors to register for VAT going forward though, since they are conducting an enterprise separately and independently of the company paying for that services, and which services will therefore not amount to “employment”. The position is unlikely to affect the net financial effect of either the company paying for the services of the non-executive director or the director itself though: the director will increase its fees by 14% to account for the VAT effect, whereas the company (likely already VAT registered) will be able to claim the increase back as an input tax credit from SARS. From a compliance perspective though this is extremely burdensome, especially in the context where SARS is already extremely reluctant to register taxpayers for VAT.

Both rulings are applicable with effect from 1 June 2017. From a VAT perspective especially this is to be noted as VAT registrations would need to have been applied for and approved with effect from 1 June 2017 already. The VAT application process will have to be initiated therefore by implicated individuals as a matter of urgency, as this can take several weeks to complete.

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)


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)