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How is the provision of a company car and accommodation taxed?

01 June 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: A company employs a person specifically because of his skills to perform work on a site away from his ordinary place of residence. The employee is provided with a vehicle, owned by the company, to be used for moving around on site. The vehicle will be used 99% of the time for business purposes. The employee will also be provided with accommodation while he is on site.

Query 1: Will the employee be taxed in terms of paras 2(b) and 7 of the Seventh Schedule on the private use of a motor vehicle in this case?

Query 2: If the employee is not taxed on the right of the private use of a motor vehicle, and the company gives him a petrol card to pay for his fuel, will this be taxed as a fringe benefit?

Query 3: Is there a difference for PAYE purposes when an employee is given a petrol card for his fuel, or whether he is reimbursed for his fuel expenses?

Query 4: Will the accommodation provided by the employer for the employee while he is on site specifically to perform the job he was appointed for, be taxed as a fringe benefit in the hands of the employee?

Query 5: When the company pays for the employee to go home to his family once a month, will this be taxed as a fringe benefit?

A: You are reminded that the service offered by SAIT is limited to guidance only. 

Free use of employer owned motor vehicle

The problem here is to determine whether or not a taxable benefit has arisen when the employee has been granted the right to use the motor vehicle for his or her private or domestic purposes either free of charge or for a consideration payable by the employee which is less than the value of such use, as determined under paragraph 7 of the Seventh Schedule.  The current practice prevailing (Interpretation note 72) is that "private use includes travelling between the employee’s place of residence and place of employment”.  We accept that this is the 1% use that you refer to.  Paragraphs 7(7) and 7(8) of the 7th Schedule allows for the amount of the taxable benefit to be reduced, but it requires a logbook. 

We don’t have enough information to comment on whether the benefit will qualify for the nil value – paragraph 7(10).  It may be that the use is infrequent or merely incidental to the business use of the vehicle. 

The petrol card given to pay for the fuel of the vehicle will not be taxed if it is an allowance to pay expenses on behalf of the employer.  There would only be a difference if the card is given to a person in receipt of a travel allowance (or who makes a deduction under section 8(1)). 

Transport between ordinary place of residence and place of work

Such a benefit will only have a nil value (paragraph 10(2) of the Seventh Schedule) if the any travel facility granted by an employer to the spouse or any minor child of an employee if—

(i) that employee is for the duration of the term of his or her employment stationed for purposes of the business of that employer at a specific place in the Republic further than 250 kilometres away from his or her usual place of residence in the Republic;

(ii) that employee is required to spend more than 183 days during the relevant year of assessment at that specific place for purposes of the business of that employer; and

(iii) that facility is granted in respect of travel between that employee’s usual place of residence in the Republic and that specific place where the employee is so stationed.

As this is granted to the employee the risk is that the transport service is not provided to employees in general and that it will be a taxable benefit. 

Accommodation

This is a paragraph 2(d) benefit.  It will only qualify get a nil value if either of paragraph 9(7) applies.  We copied it below for your convenience:

(7) No rental value shall be placed under this paragraph on any accommodation away from an employee’s usual place of residence in the Republic provided by his employer while such employee is absent from his usual place of residence in the Republic for the purposes of performing the duties of his or her employment: Provided that the preceding provisions of this subparagraph shall not apply in respect of any residential unit referred to in subparagraph (6). 

Paragraph 9(6) is not applicable – it provides that where any employee has been provided by his employer with residential accommodation consisting of two or more residential units situated at different places which the employee is entitled to occupy from time to time while performing his duties the cash equivalent of the value of the benefit of such units which shall be included in the gross income of the employee shall be the value of the unit with the highest rental value determined under subparagraph (2) over the full period during which the employee was entitled to occupy more than one unit.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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