Summary
Summary TAXN7311 - LU 5 FRINGE BENEFITS
- Course
- Taxation (TAXN7311)
- Institution
- Varsity College
Summary of 12 pages for the course Taxation at Varsity College (FRINGE BENEFITS)
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LU 5 - FRINGE BENEFITS AND ALLOWANCESIntroduction
Fringe benefits - payments made to employees by employers in a form other than cash e.g. the use of a company car.
Included in the net of gross income
ALLOWANCES – S8 (1)
Often given to employees in order to cover any expenses that they may incur as a result of their employment.
The employer must add the full amount of the allowance to the income, except for travel allowances, of which either 80%
or 20% must be added, in order to calculate the amount of net remuneration for the calculation of employees’ tax.
The taxable portion of the allowance will eventually be equal to the allowance received less any deductions which the
taxpayer may claim against the allowance in respect of business expenses incurred.
TRAVEL ALLOWANCE – S8 (1) (b)
When a person is expected to travel for business purposes, the employer often includes a travel allowance as part of the
employee’s remuneration package.
Employer must add either 20% or 80% of the allowance to the net remuneration of the employee to calculate the
employee’s tax payable.
100% of the travel allowance will be included in gross income when performing the annual tax calculation and the taxpayer
will then be permitted to claim a deduction against this travel allowance for business expenditure.
In order to claim a deduction against the travel allowance, the following information must be disclosed in the tax return:
o Cost of the vehicle(s).
o Make, model and year of the vehicle(s).
o Registration number of the vehicle(s).
o Odometer reading at the beginning of the tax period, or on the first day on which the vehicle was used for business
purposes.
o Odometer reading at the end of the tax period, or on the last day on which the vehicle was used for business
purposes.
o Business kilometres travelled during the tax year.
Two different ways in which a taxpayer can claim deductions against the travel allowance:
Actual expenses – Claimed where accurate detailed records are kept of the business expenses incurred.
o Listed in the tax return and will be deducted from the travel allowance received. NB! The allowable deduction will
be limited to the amount of the allowance.
o In terms of S8(1)(b)(iiiA), where actual costs are used by the taxpayer to determine the deduction against the travel
allowance, the value of the vehicle used in the calculation must be limited to R 595 000.
o In addition, the wear and tear calculated on the vehicle must be calculated over a period of seven years (this differs
from the five years allowed in the S11 (e) capital allowance).
o If the vehicle is leased, the instalments claimed may not exceed the fixed cost per the table issued by SARS based
on the vehicle’s cash cost.
o Where the distance travelled by the employee for business purposes is less than 8 000 km during the year of
assessment, the employee may deduct R 3.61 per kilometre from his travel allowance.
Actual business kilometres and deemed cost per kilometre - claimed where an accurate logbook is kept detailing all
business travel.
o The cost per kilometre is determined according to the vehicle cost tables for the relevant tax year from SARS.
o These tables make provision for three elements of cost: fixed cost, fuel cost and repair cost, taking the value of the
vehicle into consideration.
, The value of the vehicle is defined as the original cost of the vehicle, including any sales tax or VAT paid, but excluding any
finance charges. Where the cost cannot be determined the value is the market value of the vehicle at the time when the
recipient first acquired the motor vehicle plus any VAT which would have been payable at the time.
The amount which will be allowed as a deduction will be calculated as follows:
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effective from 1 March 2010 – i.e. the 2011 year of assessment – the deemed method of calculating business kilometres is no
longer allowed and therefore each taxpayer will be required to keep a logbook of actual business kilometres travelled or actual
business travel expenses.
Where the distance travelled for business purposes does not exceed 12 000 kilometres per annum, no tax is payable on an
allowance paid by an employer to an employee up to the rate of R 3.55 (2017: R 3.29) per kilometre, regardless of the value of
the vehicle. This alternative is not available if other compensation in the form of an allowance or reimbursement is received
from the employer in respect of the vehicle.
DO QUESTION 5.1 – 5.3
SUBSISTENCE ALLOWANCE – S8(1)(c)
When an employee is required to travel, for business purposes, and has to spend at least one night away from his
normal home in South Africa.
The subsistence allowance is tax-free provided that it does not exceed a certain limit or actual expenditure incurred and
provided that it is given to the employee to cover certain costs while he is away from his home on business. If the
allowance exceeds the limit, the excess is included in gross income (in terms of paragraph (n) of the gross income
definition) and is also subject to employee’s tax.
In order to ensure that one is not taxed on any subsistence allowance which exceeds the limits set by SARS, the
employee must keep accurate records so as to verify all expenses incurred while travelling on behalf of his employer.
If the employee received a subsistence allowance of R 800 and can only prove expenditure of R 650, he will be taxed on
the additional R 150 received but not used for subsistence.
Should an employee receive R 800 and incur R 900 expenses, he will not be taxed on the subsistence allowance
received, but the deduction will be limited to the amount actually received (he can only claim a maximum amount of R
800).
Where the employee has no proof of actual expenditure SARS will allow deemed expenditure as a deduction for
accommodation in South Africa of an amount equal to:
o R 122 per day or part of a day if the allowance is to defray the cost of incidental expenses only; or
o R 397 per day or part of a day if the allowance is to defray the cost of meals and incidental expenses.
NOTE: The deemed deduction only applies in respect of meals and incidental costs. Where an employee has been given an
allowance in order to pay for accommodation he will be required to provide proof of his expenditure on this accommodation
and only the expenditure actually incurred will be allowed as a deduction against the allowance.
Where the accommodation is outside South Africa an allowance equal to the prescribed amount applicable to the relevant
country is deemed to be expended for each day or part of a day in the period during which the employee is absent from his/her
usual place of residence. The schedule disclosing the 2018 prescribed amounts applicable to each country can be found on the
SARS website. This means that as long as the employee receives an allowance equal to or less than the prescribed amount
applicable to the country he/she is visiting, he/she will not be subject to employees’ tax on the allowance received.
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