7th Schedule fringe Benefits Flashcards
General principles (7thschedule)
Consider PSP for individuals always and s12E
- Do not include amount s7B if still needs to be approved
- Mention: Year of assessment of a natural person is always 28 February:
- Definition of employer
- If company contributes x% towards medical aid eg. on total amount
- Travel allowance (wear and tear of deceased/7*x/12)
- Definition of remuneration
- Dividends included in GI are gross
- Dealing with individuals-PSP
- Termination package (leave pagans termination amount) gross income (d) it is not a SB
- Official rate = Repo rate+1%*x/365
- Transferring amounts from RAF to living annuity used to purchase a living annuity is excluded from the definition of ‘lumpsum benefit’ in paragraph 1 of the Second Schedule
- Entertainment_no deduction s23(m) if not earning mainly commission
Employer implications
- Carrying on a trade
- Liable for withholding employees tax
- Deductions read under s11(a) and 23(b)
- Consider provisions s23(b)(b)
ROUA
- ROU is a par 7 FB in terms of the 7th schedule and included in gross income in terms of par i
- No maintenance plan therefore 3.5%
- Value 85% # months
- Answer from above *business km/total km
Individual: 3.5% #months
Company: 100/1150.3 or 0.6* 15/115*# months
Individual volunteered in SBC and received a gift
- Donations tax
- Services are not part of ‘property’ definition in section 55 and hence not a donation for donations tax purposes.
Income tax implications
Rendering of services
In order for an amount to be included into gross income, all the requirements of the definition should be met.
- All other requirements of the definition have been met except for whether or not an amount has been received by or accrued to or in favour of Mr Sam Ndlovu, for the rendering of the services during the 2021 year of assessment.
- An amount must be included into a person’s gross income on the earlier of when it has been received or accrued to the taxpayer.
- As the services are rendered free of charge there, is no contractual obligation for the assigned small business to pay for the services rendered. Therefore, no amounts were paid by the assigned small business.
- In addition to this, there is no unconditional entitlement to any amount per the memorandum of understanding, therefore nothing can be deemed to accrue to Sam Ndlovu (CIR v People’s Stores (Walvis Bay) (Pty) Ltd).
- Conclusion: Therefore, Sam will not include any amount for the services rendered in your 2021 year of assessment.
Receipt of gift set
-During the 2021 year of assessment Sam Ndlovu received a gift set from the assigned small business which normally would not be included in ‘gross income’ because it would be regarded to be of a capital nature thus excluded from the gross income definition.
-However, Sam should consider whether any special inclusion to gross income are applicable. Par (c) of the definition includes amounts received by virtue of employment or for services rendered.
-Sam should therefore consider if there is a causal relationship between the gift and the services rendered to the assigned small business.
-As stated in the question, Sam’s connections and insights helped increase profitability of the business and hence the gift set received was as a result of those services. (C:SARS v Kotze)
- Conclusion: Therefore, the receipt of the gift set will give rise to an inclusion in Sam’s gross income during the 2021 year of assessment,
and the value will be the open market value of the asset on the day that you received it, i.e. R7 890. (cost of gift)
Lumpsum payment
- Lumpsum received by x is included in gross income as a special inclusion
- It is an amount irt termination of employment by ER and he is over 55 years
- Amount will be taxed separately from other tax income in normal tax tables as it is a severance benefit as defined
- Amount taxed i.t.o SB/ retirement table
- This is the only amount received so there is no hypothetical tax
- If less 500k no tax payable
Income protection insurance policy
- The amount will be prohibited from deducting the premiums paid on this policy under s11(a)
- The amounts received each month from income protection insurance policy form part of gross income
-Amounts will be exempt s10(1)(gl) - ## CGT par 55 of 8th schedule disregarded
EE and ER implications: ER sells to EE
- Issue is whether cash equivalent of benefit will be included ito par i of gross income
- ER sold them at less than mv therefore it is consideration at less than mv
- A taxable benefit arises par 2 of 7th schedule
- Cash equivalent of value of taxable benefit ito par 5 would be mv of asset on date acquired less consideration given by EE’s
- EE’s are not CP to ER as they do not own any shares in the company
- Par 5 will not place a value
- Acquisition cost not deducted because it is capital in nature
They contribute to a RAF and had built up a credit of contribution not qualified as deduction
Section 11F(3) provides that any amount contributed to a retirement fund in any previous year of assessment which was disallowed solely by reason if the fact that it exceeds the amount of deduction allowable in respect of that year of assessment is deemed to be an amount so contributed in the current year of
assessment except to the extent that it has been:
allowed as a deduction against income in any year of assessment;
allowed as a deduction against the lumpsum benefit as provided for under para 5(1)(a) or 6(1)(b)(i) of the Second Schedule,or
exempted under section 10C.
Travel Allowance and ROUA
Travel Allowance:
-80% of X’s travel allowance will be included in his monthly balance of remuneration calculation.
ROUA
- 80% of the Seventh Schedule fringe benefit will be included in X’s monthly balance of remuneration calculation.
- Since the motor plan only covers 50000km, it is not a “motor plan” as defined for purposes of the Seventh Schedule.
- Therefore, a fringe benefit rate of 3,5% must be used.
- The paragraph 7(7) and 7(8) deductions are not relevant for employees’ tax purposes (business km vs private km, expenses incurred)
s10(1)(o)
Days worked outside SA/ Total work days * Remuneration
= Exempt portion
If acquiring services how should amount be accounted for?
- PSP?
S23(b) disadvantages
- Used portion of primary residence for trade purposes, trigger CGT when disposing
- This will trigger SARS audit
- Future CGT on sale
- Assets used in business are disposed incur CGT as no longer PUA
