Employer-provided residential accommodation: Determine the fringe benefit value
06 March 2014
Posted by: Author: Nicole Paulsen
Author: Nicole Paulsen (DLA Cliffe Dekker Hofmeyr)
Where an employer provides its employee with residential
accommodation, either free of charge or for a rental consideration payable by
the employee, which is less than the rental value of such accommodation, a
taxable benefit is deemed to have been granted by the employer to his employee.
The value of the taxable benefit for the employer-provided
accommodation is determined in relation to the 'rental value' representing the
value of the use of the accommodation. Currently, the rental value is
calculated according to the specific formula contained in paragraph 9(3) of the
Seventh Schedule to the Income Tax Act, No 58 of 1962 (Act), otherwise referred
to as the 'remuneration proxy' and the period that the employee used the
accommodation. Alternatively, the 'rental value' can also be calculated by
taking into account the aggregate of the total rentals payable and other
associated costs or the portion of the accommodation costs borne by the
employer that pertains to the use by the employee.
However, the Minister has proposed in the 2014 Budget Speech
that the method of valuation of the fringe benefit resulting from
employer-provided accommodation be reviewed so that the rental value is no
longer determined in accordance with a specific formula or varying
circumstances but that the 'rental value' is determined with reference to the
actual market value of the use of the accommodation.
In this regard it is important to note the effect of the proposals
made by the Minister, namely:
- Firstly, where the employer rents accommodation from an unconnected
third party, it is proposed that the value of the taxable benefit should be the
cost to the employer in providing the accommodation; and
- Secondly, the Seventh Schedule to the Act currently does not
make provision for the apportionment where employees share employer-provided accommodation.
The Minister therefore proposes that some form of apportionment
be considered where one has to determine the taxable benefit in instances where
employees have to share the employer-provided accommodation.
This article first appeared on cliffedekkerhofmeyr.com.