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FAQ – 3 July 2014

Wednesday, 02 July 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Fringe benefit on residential accommodation

Q: If a company owns a flat, but it is customary of the industry to provide fee accommodation, do you use the formula or do you calculate the taxable benefit on the cost which will be higher than the formula?

A: Paragraph 9(3A) of the Seventh Schedule is relevant.  It provides as follows:

"Subject to subparagraph (3B), the value determined in accordance with the formula contemplated in subparagraph (3)(a) shall apply where—

(a) the full ownership of such accommodation vests in the employer or associated institution in relation to the employer; or

(b) the full ownership does not so vest in the employer or associated institution, and—

(i) it is customary for an employer in the industry concerned to provide free or subsidised accommodation to its employees; and

(ii) it is necessary for the particular employer, having regard to the particular kind of employment, to provide free or subsidised accommodation—

(aa) for the proper performance by the employees of their duties; or

(bb) as a result of the frequent movement of employees; or

(cc) as a result of the lack of employer-owned accommodation; and

(iii) the benefit is provided solely for bona fide business purposes, other than the obtaining of a tax benefit.”

Paragraph 9(3B) states that where the employee has an interest in the accommodation in question, subparagraph (3) shall apply.  Paragraph 9(10) explains when an employee will be deemed to have an interest in accommodation. 

So if the employee DOESN’T have an interest in the accommodation and the circumstance is subparagraph (3A) apply, the formula must be used. 

2. Deductions relating to a home office

Q: I would like some help on expenses incurred for a home-based business regarding income tax.  When the business is using an office from home totalling 9 square meters, how do I calculate the claim for using the office from home? The client is operating from home and would like to claim some expenses done for business purposes. Also, how do I deduct the expenditure incurred on the client’s personal motor vehicle which was used for business purposes?

A: Our guidance assumes that with "home based business” you meant that the client carries on a trade (other than employment).  In essence that section 23(m) does not apply.  As a general rule the expense must meet the requirements of section 11(a) of the Income Tax Act and then not be prohibited by section 23.  In this instance there are two subsections of section 23 that are relevant.  

The deduction for expenditure relating to, what is commonly referred to as, a study at home is allowed in terms of section 11(a), but subject to section 23(b).  Based on our assumption we comment on subparagraph (a) only.  We copied section 23(b) below for completeness:  

No deductions shall in any case be made in respect of the following matters, namely domestic or private expenses, including the rent of or cost of repairs of or expenses in connection with any premises not occupied for the purposes of trade or of any dwelling-house or domestic premises except in respect of such part as may be occupied for the purposes of trade: Provided that—

(a) such part shall not be deemed to have been occupied for the purposes of trade, unless such part is specifically equipped for purposes of the taxpayer’s trade and regularly and exclusively used for such purposes; and

Comments regarding the requirements are as follows:

  • The study must be specifically equipped for purposes of the taxpayer’s trade and regularly and exclusively used for trade purposes.  (The emphasis here is on the word "exclusively”).  
  • The expenses can be domestic or private expenses and includes the rent of or cost of repairs of or expenses of any dwelling-house or domestic premises.  In SARS’s interpretation note 13 (example G) it is stated rates and taxes would be included as expenses of the study – you refer to the utility bill.  
  • The deduction is then allowed in respect of such part as is occupied for the purposes of trade.  In the same example referred to above SARS uses ratio of the "square metre room exclusively as his home office” to the total square metre of the house.  This is a generally accepted method of doing the apportionment to determine the portion that relates to the trade.  

The same principles really apply to the vehicle expenditure.  An adjustment for the private use is made in terms of section 23(g) (or even 23(a)).  In principle the total of the costs in respect of the vehicle (depreciation, maintenance, fuel, etc.) is multiplied by the total trade (business kilometres) divided by the total kilometres (business and private) for the year to determine the amount that may be deducted.  Note that SARS has specifically provided that the business kilometres must be based on a log book.  

3. Submission of a return for the 2014 year of assessment

Q: A client works in Holland and is employed by a company registered in Holland and gets paid in dollars. He resides in SA and rotates to Holland for work purposes. The client is a resident according to the SA income tax law. Must the client declare the income in South Africa since he did not receive an IRP5? 

A: We accept that when you say the client "resides in SA” and "is a resident according to the SA income tax law” that you mean that the client is deemed to be a resident solely of the RSA (refer to article 3 of the RSA / Netherlands treaty).  As such, in terms of the definition in section 1(1) of the Income Tax Act, the amounts received in respect of services rendered (the fact that it is in dollars is irrelevant) will be gross income.  In terms of article 14 of the treaty neither country (specifically the Netherlands) has a sole taxing right in this respect.  The RSA provides an exemption in section 10(1)(o), but we you don’t provide enough information for us to comment on that (we accept that this is not really relevant to your question).  

We submit that, in terms of the notice issued by SARS to indicate who is required to furnish a return in respect of the 2014 year of assessment, the person will have to submit a return.  This is because we assumed that the gross income is in excess of the amounts in the notice (i.e. R67 111 if under 65 years).  The R250 000 principles will not apply as no employees’ tax is withheld.  The client must thus declare the income in a return of income.



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