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FAQ - 13 April 2016

13 April 2016   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Tax implications on private use of a company car.

Q: Does the employee who is a director of the company pay PAYE or dividends tax on private use of company vehicle?

A: For the purposes of the Seventh Schedule and of paragraph (i) of the definition of "gross income" in section 1(1) of the Income Tax Act a taxable benefit is deemed to have been granted by an employer to his employee in respect of the employee’s employment with the employer, if as a benefit or advantage of or by virtue of such employment or as a reward for services rendered or to be rendered by the employee to the employer the employee has been granted the right to use any asset … 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.  The value, in the case of a motor vehicle, is determined under paragraph 7 of the Seventh Schedule.  

The issue then is whether or not the benefit was granted "as a benefit or advantage of or by virtue of … employment or as a reward for services rendered or to be rendered…” If this was the case, the benefit will be a taxable benefit.  As such it would be remuneration and subject to employees’ tax.  You stated that the individual "the employee … is a director”.  


For section 64E to apply the individual (the employee or director) must be a resident of the RSA and importantly, must be a holder of shares in the company.  We assumed this was so otherwise the issue would not have arisen.  

A dividend as defined (in section 1(1) of the Income Tax Act) "dividend” means any amount transferred or applied by a company that is a resident for the benefit or on behalf of any person in respect of any share in that company.  

Judge Howie (in the Stevens case) said "…there is no material difference between the expressions ‘in respect of’’ and ‘by virtue of’ in paragraph (c).  They connote a causal relationship between the amount received and the taxpayer’s services or employment.”  (The reference to paragraph (c) is to the paragraph in the definition of gross income).  We submit that the same principal will apply in this instance.  In other words, if the private use was granted to the person in his capacity as a holder of a share (as opposed to an employee as above) the causal relationship between the share and the benefit exists and a dividend arises.  

Note that, even it may be a dividend, but is in respect of services rendered, it will still be treated as income – in other words the section 10(1)(k) exemption will not apply. 

2. VAT consequences in a principal/agent relationship.

Q: What is the vat treatment for invoicing a client for the following 3 categories? 

1) Invoice for hours worked (labour brokerage) 

2) Invoice for travel to site 

3) Invoice for accommodation on site. 

Do you charge vat on all 3 categories or just the first one?

A: From the facts provided we assumed that these expenses are incurred by the vendor in its capacity as the agent of the principal (the client).  We base this assumption on the fact that the recovery seems to be at the actual amount of the expense.  In essence we are accepting that it is not a single supply made by the vendor.   

Judge Nugent explained the position in this respect as follows (in CSARS v British Airways Plc) when he said that "a further tax does not accrue when the vendor of another service … does no more than bring to account and recover the charge that it was required to pay for the supply of that service by the company… The moneys that are recovered … are not a consideration for the supply by it of airport services simply because it does not supply them at all.”  

If no principle / agent relationship exists, these expenses will form part of the expenses incurred by the vendor to perform the services to the client (so-called disbursement). Output tax at 14% should then be levied on the cost as the breakdown of expenses is simply a way of arriving at the fee for the service rendered to the client (section 7(1)(a) of the VAT Act).  

Disclaimer: Nothing in these queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.  


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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