FAQ - 13 April 2016
13 April 2016
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Tax implications on private use of a
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
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
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
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.
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.”
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.