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Summary EMPLOYMENT BENEFITS TAX399
EMPLOYMENT BENEFITS FOR TAX399/388
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Fringe benefits:NB!! For all fringe benefits:
For company car and travel allowance, include VAT and finance charges are excluded.
When calculating fringe benefits, the company car provisions will either be applicable
or the travel allowance for own car (must do separate, one or the other – not both)
Introduction:
Fringe benefits = payment from ER to EE = normally not in cash (but could also be in
cash)
Taxable value of fringe benefit = cash equivalent = included in gross income in terms
of par (i) of the gross income definition.
Taxable allowances = included in TAXABLE INCOME!!!
Certain fringe benefits are included in gross income or exempt income or income:
o Seventh schedule benefits = Gross income
o S8B gain from disposal of a qualifying equity share (except special
exclusions) and s8C profit upon vesting = Income (can also be included in
gross income)
o S8 (1) (a) (i) allowances = Taxable income
These allowances are included in the framework just before the S18A
donation deduction under the heading ‘Other amounts included in
taxable income’
Allowances:
S8 (1) (a) (i) states that travel allowances, subsistence allowances and public officer’s
allowances (focus on first 2, last one is not so important) received shall be included in
the taxable income of a person.
However, the following shall not be included in taxable income:
o Travel for business purposes
o Expenditure when away on business for at least one night
o Necessary expenditure in respect of the public office
Uniform allowance as a cash payment is gross income and such an amount is
potentially exempt in terms of s10 (1) (nA). But it mustn’t be treated the same as a
travel and subsistence allowance.
The full amount of other allowances is included in taxable income, with possibly no
deductions.
o An example is an entertainment allowance, which is included in taxable
income but cannot be claimed as a deduction if the taxpayer is a normal salary
worker.
Reimbursive allowances are not included in taxable income because an employee
spends an amount on behalf of an employer and then get reimbursed immediately and
thus there is a null effect.
Travel allowance (s8 (1) (b)):
Only the part of the allowance associated with private use will fall into the recipient’s
taxable income. The portion that is expended for business purposes is tax free.
Two ways to calculate costs
o The portion of the allowances expended for business purposes can be
calculated in two ways:
, Actual business kilometres travelled during the year multiplied by the
deemed rate per km.
This method may only be used when the taxpayer maintains an
accurate log book or records of his business travel
The travelling between the taxpayer’s house and work is a
private cost
Actual costs incurred for business purposes where the recipient is able
to provide accurate information to substantiate this.
Value of vehicle (par 7 (1)):
o Where the vehicle was acquired by a bona fide sales agreement, the original
cost to him including VAT but excluding any finance charges or interest
o Where the vehicle is held by the recipient as a instalment credit agreement/
finance lease, the cash value in terms of the VAT act
o In any other case, the market value of the vehicle including (or plus) VAT
payable in respect of the purchase of the vehicle.
o *If actual costs are used, then the value may not exceed R480 000 (maximum
that wear and tear can be claimed on)
o **correct value is needed to read off costs from table!!
Components of travel costs:
o The fixed cost component:
This is the fixed cost divided by the total kilometres travelled in the
vehicle (for both private and business purposes) during the year of
assessment
Where the vehicle was used for business purposes for less than the full
year, x n/365
This cost includes the cost of wear and tear, loss of interest, licence
and insurance
o The fuel cost component:
This is the fuel cost per the table where the employee has borne the full
cost, or else it will not be deductible
o The maintenance cost component:
The maintenance cost per the table where the recipient has borne the
full cost including the cost of repairs, servicing, lubrication and tyres
or else it will not be deductible.
o Do example 11.1 and 11.2
o Reimbursive travel allowance (s8 (1) (b) (iii)):
Where the employee paid an amount per km (and not fixed amount per
month), the following requirements must be met to claim the 324 cents per
km:
The distance travelled in the vehicle for business purposes during the
year of assessment, must not exceed 8 000 km’s, or where more than
one vehicle has been used during the year of assessment, the total
distance travelled in such vehicles for business purposes must not
exceed 8 000 km’s:
Fixed cost per km = deemed cost, do example 11.3
No other allowance or reimbursement may be payable by the employer
to the employee in respect of the vehicle in question.
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