Technical FAQ – 7 May 2014
07 May 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Employer-provided residential accommodation
Q: I’m seeking
the method to calculate the fringe benefit resulting from residential
accommodation, fully owned by an employer, that is provided to an employee (a)
for no consideration and (b) if consideration is paid by the employee.
A: It is assumed that the employee has
no interest in the accommodation, that the employee is ordinarily resident in
South Africa and that the accommodation is not occupied for purposes of a
holiday by the employee. Please refer to par 9(7) to determine if the benefit
may have a zero value (the information provided by you do not allow us to make
such a determination).
Employee pays no consideration for the use of the residential accommodation
fringe benefit for the right of use of residential accommodation is determined
in terms of par 2(d) and par 9 of the Seventh Schedule to the Income Tax Act
(No. 58 of 1962) (hereinafter referred to as ‘the Act’). In terms of par 9(2),
the fringe benefit would be equal to:
rental value of such accommodation (as determined under subparagraph (3), (3A), (4) or (5) of this paragraph in respect of the year of assessment)
less any rental consideration given by the employee for such
accommodation in respect of such year, any rental consideration given by him in
respect of household goods supplied with such accommodation and any charge made
to the employee by the employer in respect of power or fuel provided with the
accommodation.’ (own emphasis added).
9(3A)(a) determines that the formula provided for in par 9(3)(a) must be used
to determine the rental value where the employer owns the residential
accommodation and the employee does not contain an interest in the
accommodation as stipulated in par 9(3B) read with par 9(10). In this instance,
where the employee pays no consideration for the use of the residential
accommodation, the rental value calculated in terms of the par 9(3)(a) formula
will constitute the taxable benefit which must be included in the employee’s
gross income by virtue of par (i) of the definition of gross income as defined
in sec 1 of the Act.
Employee pays consideration for the use of the residential accommodation
taxable benefit will be calculated and included in gross income in exactly the
same manner as above, the only difference being that the employee would be
entitled to deduct the ‘rental consideration’ and other qualifying expenses stipulated
in par 9(2) from the rental value calculated in terms of the par 9(3)(a)
taxable benefit as calculated above (i.e. the rental value less consideration
if consideration was paid by the employee or only the rental value if the
employee does not pay any consideration) will be included in ‘remuneration’ as
defined in par 1 of the Fourth Schedule to the Act according to par (b) of the
2. Employer contributions to loyalty programmes
Q: Will Discovery vitality contributions paid by an employer give rise to a fringe benefit?
A: The Vitality
contributions paid by the employer on the employee’s behalf would constitute a
taxable benefit in terms of par 2(h) of the Seventh Schedule to the Income Tax
Act (No. 58 of 1962), valued in terms of par 13 of the said Schedule.
3. Period for
claiming input tax and the exportation of animals
Q: My client sold and exported a horse to an export country, but did so
when he was not a VAT vendor. He has since become registered for VAT and would
like to back claim VAT on cattle purchased before he was a vendor too. I would
like to find out whether it is best to exclude both transactions from future
VAT returns. He will also be exporting another horse shortly, during this time
he is registered for VAT, what is the process and the VAT implication of this
A: In terms of sec 16(3)(f), read with sec 18(4)(b)(i) of the
Value-Added Tax Act (No. 89 of 1991) an input tax credit may be claimed on the
cattle in accordance with the formula provided by sec 18(4) of the VAT Act,
provided that the requirements of sec 16(2) (i.e. retention of a valid tax
invoice issued in terms of sec 20) has been met. In terms of proviso (i)(aa) to
sec 16(3), the deduction of input tax must be made within five years from the
end of the tax period during which the vendor first became entitled thereto.
Given the fact that the vendor, in your particular case, becomes entitled to
the sec 18(4) adjustment as soon as he is registered as a vendor, the deduction
of input tax in accordance with sec 18(4) must be made within five years from
the date that he becomes registered as a vendor.
From the facts provided, it would appear as if the output
tax paid by your client when he acquired his first horse would not qualify as
an input tax deduction. This is due to the fact that your client was not a
vendor at the time that the horse was supplied and the supply consequently did
not form part of a ‘taxable supply’ made by the vendor. Remember that a vendor
is any person ‘who is or is required to be registered’. It would seem as if the
sec 18(4) adjustment may only be made for the cattle and horses which your
client acquired before he became a vendor, which will be supplied by him after
he became a vendor as taxable supplies (albeit zero-rated exports or standard-rated
local sales). Input tax may be claimed on other livestock, acquired after your
client became a vendor, according to the normal VAT principles contained in the
definition of ‘input tax’ in sec 1 of the VAT Act read with sec 7(1)(a), sec
16(3) and sec 17.
The exportation of movable goods (which livestock is
presumed to be) will be zero-rated under certain circumstances according to sec
11(1)(a) of the VAT Act, read with the definition of ‘export’ in sec 1 of the
VAT Act and with sec 11(3) of the said Act.
In terms of Interpretation Note No. 30 (Issue 2), in order
for the zero-rate to apply, various documents would have to be obtained by the
supplying vendor within three months of the earlier of the time an invoice is
issued by the supplying vendor or the time the payment of any consideration is
received by the supplying vendor in respect of the supply of the horse.
should be noted that your client does not have a choice as to whether or not he
wants to charge output tax – if he is registered as a ‘vendor’ and the supply
falls within the ambit of sec 7(1)(a), then he would have to levy output tax.
He may however claim his input tax in a later tax period. He may also
choose not to make the sec 18(4) adjustment, but that would be to his own
detriment (if he does not do so within the five years), as in either case, he
would have to levy output tax on the subsequent supply of the horse/cattle.