To provide some background: A taxable fringe benefit arises where an employer provides free or cheap residential accommodation to an employee.The value of the fringe benefit is generally the cost to the employer of providing the accommodation.If the employer owns the accommodation, the taxable value is calculated according to a formula which takes into account the employee’s remuneration in the previous year of assessment.
Up until 29 February 2008, the taxable value of such accommodation was NIL where an employer provided accommodation to an employee who was away from his or her usual home for employment purposes.The question was whether an expatriate employee who kept his or her home abroad whilst working in South Africa for a reasonably long period of time could still be regarded as being away from his or her "usual home”.
Prior to 2006,SARS used a one-year rule,in terms of which an expatriate could enjoy tax free accommodation in South Africa for up to one year.Once he or she remained in South Africa for longer than a year, the accommodation had the usual taxable value and employees’ tax had to be withheld. That one-year rule was, however,dismissed in a 2006 tax case because it was not contained in the legislation.
However,an amendment to the Income Tax Act that became effective from 1 March 2008 now entrenches the one-year rule in the legislation in respect of an employee is away from his or her usual home outside South Africa for work purposes there is no value on the accommodation provided by an employer for the first 12 months after the employee arrives in South Africa.
That 12-month window falls away,though,if the employee spent more than 30 days in South Africa during the 12 months before he or she arrived here to commence his or her duties.That will prevent someone from abusing the 12-month window by,for example,leaving South Africa after they have been here for slightly less than 12 months and then returning a short time later to star t a new contract.
The effect of the new legislation is that, from 1 March 2008 on wards,employees’ tax must be withheld on any free or cheap residential accommodation provided to expatriates who have been in South Africa for more than 12 months.The same will apply where free or cheap residential accommodation is provided to employees who do not qualify for the 12-month window because they spent more than 30 days in South Africa during the year before they arrived here to commence their contract.
Where an employee is paid on a "guaranteed net” basis, the additional cost in respect of the employees’ tax will have to be absorbed by the employer.In his 2008 Budget speech, Finance Minister Trevor Manuel announced that the new 12-month window is to be extended to a two-year window.Furthermore,no employees’ tax is required if the expatriate employee actually spends less than 90 days in South Africa in a particular year of assessment.However,there will be a ceiling on the tax-free amount of the benefit, which will be the lower of 25% of the employee’s salary or R25 000 per month.
These proposed amendments are contained in the Draft Taxation Laws Amendment Bill that was currently under discussion at the time of writing.If the Bill is promulgated in its current form,employees’ tax will have to be withheld from day one in certain cases (where high-value accommodation is provided),even if an expatriate employee is in South Africa for less than two years.Employers will have to be on their guard to ensure that residential accommodation provided to expatriate workers is dealt with correctly for employees’ tax purposes.
Source: By Prof. Jackie Arendse (TaxTALK)