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Taxable Fringe Benefits Gifts Are Not Tax Free

07 March 2012   (0 Comments)
Posted by: TaxFind ™
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Taxable Fringe Benefits Gifts Are Not Tax Free

Often employers fail to properly identify taxable fringe benefits and remuneration. Some employers are even tempted to allow their employees or directors re-structure remuneration packages to reduce employees’ tax liability, often accomplished by means of a salary sacrifice. Employers often give gifts to their staff for Christmas, birthdays, Secretary’s Day, maternity, and as rewards/awards for employee of the month or when a quota is achieved. Other than the occasional lunch or party, such as a year-end function, or long service awards, as prescribed, the employer should be considering the tax liability of the gifts or benefits given to the employees.

Where an employer gives a gift or voucher to an employee (which includes members of close corporations and directors of companies) the general rule prescribes that the cost to the employer for that gift or voucher should be recognised as remuneration and subject to employees’ tax (knows as ‘fringe benefits’). The employer is also required to disclose such fringe benefits in the IRP5 employees’ tax certificate.

The gift or award may be a trip to a spa and not necessarily a voucher or tangible gift. That gift or award will still be regarded as a taxable fringe benefit. This time of year it’s customary for employers to pay bonuses, at least it was before the economic downturn, unless it’s a term of employment that the employee would be entitled to a ‘13th cheque’. As a substantial chunk of the bonus is deducted for employees’ tax, employees often wish to re-structure the salary package in order to change the nature of the bonus payment to a tax-free or partially taxed value, such as subsistence allowance. Salary sacrifices are not automatically illegal, as a taxpayer is entitled to structure his/her affairs so as to pay the least amount of tax. However, how the salary sacrifice is done will be a key determining factor, as well as the nature and purpose of the sacrifice, as to the legitimacy of such sacrifice. If the salary sacrifice was mainly done to reduce the tax liability, SARS will attach the sacrifice in terms of the general anti-avoidance provisions.

The definition of ‘remuneration’ is sufficiently broad to include even tips paid to staff. During the year the extent of this was the subject of a binding ruling, which confirmed that tips given by patrons at their own discretion is not included in the definition of remuneration for purposes of deduction employees’ tax or disclosure in IRP5 employees’ tax certificates. However, the tips will still be taxable income in the hands of the recipient. Where the tips or gratuities are automatically added to the customer’s invoice, such tip or gratuity will be defined as ‘remuneration’ subject to employees’ tax and disclose in IRP5 employees’ tax certificates.

Source: SAIPA Tax Committee (Tax Professional)


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