Accommodation provided to employees
23 October 2014
Posted by: Author: David Honeyball
Author: David Honeyball (Grant Thornton)
Some employers provide residential accommodation for their
employees, especially when the employees work far from their homes. While this
provides some practical benefit to the employees who save money and time by not
commuting between home and work, they should be taxed on the value of the
accommodation, whether it is furnished, unfurnished, supplied with or without
meals, power, water or other utilities.
In some cases, this arrangement gives rise to a taxable fringe
benefit, but employers can help employees to reduce the tax burden. A taxable fringe benefit must be
included in the employee’s gross income and will consequently be subject to
tax. Employers must
also deduct employees’ tax from the value of the taxable fringe benefit on a
The provisions of paragraph 9, read with paragraph 2(d) of the
Seventh Schedule of the Income Tax Act, hold that employees must be taxed on
the cash equivalent of the benefit. These sections provide a number of
calculation methods to determine the rental value of this accommodation, but in
essence, the value is determined by the property’s rental value, less any
amount that the employee pays toward the accommodation provided.
Sometimes an employer may source and provide rental accommodation
from a third party to the employee. In these instances, the determined rental
value can be higher than the actual value, giving rise to a fringe benefit,
which is higher than the actual cost, or economic benefit to the employee. As a
result, employers have to apply to SARS for a tax directive to ensure that the
employee’s calculated fringe benefit is in line with the actual market /
economic value of the use of the accommodation.
In terms of the Taxation Laws Amendment Bill of 2014 (TLAB), SARS
proposed an amendment to the definition of rental value to cater for these
situations. The proposed amendment provides that, if the employer provides
rental accommodation that it rents from a third party, the rental value will be
considered equal to the actual cost to the employer.
It is anticipated that this amendment will apply in respect of
years of assessment commencing on or after 1 March 2015. Until then, employers
will still need to apply for the directives to reduce the fringe benefit.
Employers are reminded that an exemption applies to expatriate
employees, living in South Africa temporarily, away from their usual place of
residence. The employee is not taxed on the accommodation for two years from
the date of arrival in South Africa and commencing employment. It also applies
if the accommodation was provided and the employee was physically present in
the Republic for a period of 90 days in that year of assessment.
In order to mitigate any
tax risks associated with the taxable fringe benefit arising from the provision
of residential accommodation, employers and employees alike are urged to
consult with their SAIT tax professionals.
This article first appeared on gt.co.za.