Oupa, it’s My Friday Uniform
25 June 2010
Posted by: Author: Vedika Andhee
Oupa, it’s My Friday Uniform
Is that soccer T-shirt your staff wears on Fridays considered "uniform”, or does a taxable fringe benefit arise?
The provision of soccer paraphernalia (including T-shirts)by an employer to an employee free of charge constitutes a taxable fringe benefit and the employee must pay the tax on it.
However, most employers finds this out "after the fact” and have in some instances either chosen to ignore the tax implications, or in other cases picked up the tax cost.Some employers have contended that the provision of soccer shirts was for employees to wear on Soccer Fridays and constituted a "uniform”. The reason that they have sought to go this route is because, in terms of the Income Tax Act, uniforms clearly distinguishable from ordinary clothing can be provided tax free.There are however strict conditions as to what constitutes a uniform:
• It must be a condition of the employment agreement between the employer and employee;
• It must be mandatory for the employee to wear a special uniform while on duty and;
• The uniform must be clearly distinguishable from ordinary clothing.
Only once these three conditions have been satisfied, would it be exempt.Several court cases have dealt with what constitutes a uniform,and the basic principles are as follows:
• The uniform must be unique;
• The wearing of the uniform must be entrenched in the conditions of employment;
• The uniform must be worn by all members of a particular group /organisation;
• The uniform should not be capable of fulfilling a dual role of working and ordinary apparel;
• The clothing must have an abundant quality about it; and
• A member of the public would upon casual observation clearly identify the clothing to be a uniform.
Having regard to the legislation as well as case law, it would be very difficult (if not impossible) for the T-shirts granted by an employer to an employee to be categorised as a "uniform” (unless, of course, the employee is a Bafana Bafana player who has been given a Bafana Bafana T-shirt!). In addition, bearing in mind that most of these T Shirts look alike, it is not possible to distinguish the "employee” from a normal customer who walks in with the same T-shirt.Some employers have decided to add the company's logo to the soccer shirt (ideally placed and in a small font so as to not mar the actual shirt, of course!) and are contending that these T-shirts now constitute a uniform because it has a logo and employees are required to wear these T-shirts on Friday.
It is questionable whether this argument will succeed. In terms of the legislation, it must be a condition of employment that the individual wear the T-shirt, and there should ideally be repercussions in the event of non compliance.
The courts have held that it is not sufficient for the condition to be included in a policy document but must be embedded in a contract of employment. Arguably, to the extent that the employment contract links into the policy document by reference, it could be regarded as forming part of the employee's conditions of employment.
As one can see, it is quite difficult to get away from the tax impact. There are some employers out there who state that the T shirts are being provided so as to support South Africa in its hosting of the World Cup and should not be taxed.Hats off to employers who provided employees with T shirts - this is in fact quite admirable.
SARS has been approached for guidance in this matter, and it is currently a matter of serious deliberation.It would be quite interesting to see whether SARS would stick to the letter of the law, or whether it would sway its response based on national interest.Whatever SARS does, the nation is watching as it would set a trend for the future. Should SARS decide to interpret the legislation and case law loosely (based on national interest), it would open a Pandora's Box, as its decision could effectively be viewed as a potential deviation from law. It would allow companies to approach SARS in relation to issues that have an impact on other "interests” on the basis that the problem that they are seeking leeway on would be of political interest, sports interest, etc.
Looking at the legislation and case law, it seems that the answer is not that difficult.Soccer Fridays were introduced to support the country in this unique event.Employers participate and provide employees with T-shirts. They encourage employees to participate,by wearing their company-provided T-shirts on Fridays. It is not a condition of their employment that they wear these T-shirts, and there are generally no repercussions to not wearing these T-shirts.The T shirtis not distinguishing the individual as an employee of the company, because it is not unlikely that visitors of the company who walk onto the premises on Soccer Friday could also be wearing the same shirt.
In order for an SA World Cup T-shirt to be regarded as a uniform,it seems logical that one needs to be a member of the SA team.Interestingly enough, if we were to turn the question around and ask whether a company who provided T-shirts based on each individual’s allegiance to a specific team, e.g. Italy, Germany, etc, would these Tshirts also be viewed as a uniform?
Not paying tax on this fringe benefit and other similar benefits contributes to the tax gap related to individual taxpayers.If the taxes in relation to these fringe benefits are not paid, there will be more ammunition for SARS to motivate an increase in personal tax rates next year (as they threatened in the Budget speech this year).Several employers have provided T shirts—the combined tax on these T-shirts should well be in excess of a couple of hundred million rand.
Quite frankly, the non payment of these taxes has the ability of affecting the tax rates applicable to the entire tax-paying population in future years.The issue at hand is whether SARS should allow a few to benefit on the basis of "national interest”, or whether they are comfortable to spread the tax burden that will then arise, amongst the entire population, when the Budget is announced next year.
Source: By Vedika Andhee (Tax breaks)