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Taxing Incentives

Thursday, 01 July 2010   (0 Comments)
Posted by: Author: Kershnee Naiker
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Taxing Incentives

One are the days when employees are accepting a pat on the back for a job well done.The new generation Xers of employees are cheeky in their delivery and annoying in their lack of loyalty.The Xers embrace risks and work hard but expect quick, short-term rewards.Remuneration is just not enough, they thrive on appreciation.In an attempt to attract, retain and engage the Xers’ talent, employers are providing small tokens, prizes and rewards.During the last silly season,some employers provided their employees with a Christmas hamper and during this World Cup,employers are even providing soccer balls and jerseys to support our national team. 

Are these minor, incidental gifts that employers grant to their employees taxable?

The South African Income Tax legislation is very wide as it encompasses all gifts granted to employees in the course of employment,whether in cash or kind as constituting a taxable fringe benefit.

Let’s look at how other regimes treat the granting of gifts to employees

The United States Internal Revenue Code allows for gifts,rewards and prizes to be granted to employees,where the value of the item is considered a de minimis.A de minimis is defined as the value of the item being nominal and given infrequently for the purpose of promoting goodwill,content or efficiency of the employee. 

The Canadian Revenue Agency enables employers to give each employee an unlimited number of non-cash gifts and non-cash awards and achievements per year on a tax free basis provided that the total cost does not exceed $500.The New Zealand Revenue Authorities allows for non-taxable gifts provided that the value of these minor and infrequent rewards and gifts are 300 Dollars. 

The United Kingdom HM Revenue and Customs generally treats gifts as a taxable benefit with the exception of trivial gifts.Trivial gifts are defined to include seasonal gifts for example Christmas or gifts in recognition of an employee’s marriage or birth of a baby. 

In keeping with international trends, reliance should not be placed on the broad interpretation of the Income Tax Act,but rather clarity should be provided by SARS.The SA Tax Regulators should take cognisance of workplace environments,value systems and the  dynamic  employee base to amend  the existing tax rules.

Employees should,in the course of their employment,be able to receive small incidental,ad-hoc gifts,rewards and prizes in lieu of the festive spirit; for example,Christmas,the World Cup celebrations,recognition of a marriage,a birthday, the birth of a baby,sympathy wishes and even as a token of appreciation and loyalty, tax-free up to and including a cumulative value of R500.

Source: By Kershnee Naiker (TaxTALK)



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