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How do I value the right of use of accommodation where a timeshare is involved?

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

Q: An employer owns a timeshare (at an exclusive bush lodge), which was purchased a few years ago for a sizeable sum.Certain qualifying employees are given the use of this timeshare. The employees reimburse the employer by paying a "levy” cost for the period of use.

a) What is the correct methodology to be used to calculate the "fringe benefit” value attributable to the employee?

b) What would SARS’ view be in the event of an audit? Would this be open to attack/scrutiny if only the "levy” portion was regarded as a taxable fringe benefit attributable to the Employee who had the use of the timeshare?

My view would be that the fringe benefit value would be the prevailing rate per day that such accommodation is let to any unconnected person.

Should the employee reimburse the employer for any amounts (e.g. levy for that period occupation) that amount would need to be deducted from the determined fringe benefit.

A: The value of the benefit in this instanced is determined under paragraph 9(4) of the Fourth Schedule to the Income Tax Act.  It reads as follows:

The rental value to be placed on accommodation occupied temporarily for the purposes of a holiday shall be—

a) where such accommodation is hired by the employer from a person other than an associated institution in relation to the employer, so much of the rental payable and any amounts chargeable in respect of meals, refreshments or any services relating to such accommodation as have been borne by the employer and are connected with the period during which the accommodation was so occupied; or

b)   in any other case, an amount calculated at the prevailing rate per day at which such accommodation could normally be let to any person who is not an employee of the employer or of any associated institution in relation to the employer. 

Using the ‘levy portion’ only would not be in terms of the law.  The parties will have to obtain a prevailing rate per day as is required by the above-mentioned paragraph. You are correct that the amount of the benefit is reduced by the amount paid by the employee. 

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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