Module 4: Fringe Benefits Flashcards
What are fringe benefits (also called taxable benefits)?
Benefits provided to employees.
What can employment benefits include?
Salary, fringe benefits, allowances and advances.
What is the basic calc for cash equivalent of a fringe benefit?
Value of asset - amount paid by employee
If the asset is trading stock…
The value is the lower of cost to employer or market value
If the asset is an award…
The value to be used is the cost to employer
What is remuneration proxy?
A way to determine employees total earnings.
What are the 3 ways to calculate remuneration proxy?
- Employee’s total earnings from previous tax year
- Employee’s total expected earnings for current tax year
- If employee started during tax year, remuneration proxy based on first month’s salary x 12
For which assets will the value be Rnil?
Hint: Fuel
. Fuel or lubricant for use in company car
. Transfer of immovable property to an unconnected employee if:
(A)The property value < R450,000
(B) employee’s remuneration proxy < R250,000
. Accommodation bought at market value by employee or their spouse or minor child
What reduction can be claimed against the cash equivalent of an asset awarded as a long standing award?
.Up to R5,000 can be deducted if asset is a long service award
. If assets value is < R5,000 value is Rnil
How is the taxable benefit for the right of use of an asset calculated?
15% per year on the lower of cost or market value (or rental cost if leased).
Which assets are excluded from the right of use rule?
Remember: an exclusion and an Rnil value are different.
Residential accommodation, motor vehicles, and clothing.
Which rightof use assets have a Rnil taxable value?
Incidental business use, workplace amenities, short-term equipment use, work-related devices, books.
How do you adjust the benefit for part-year use?
Multiply 15% of asset value by (months used ÷ 12).
In the instance that you are granted sole use of the asset for its entire useful life…
the taxable value will be the cost of the asset to the employer.
Cash equivalent for right of use =
Value of private use – employee’s consideration or maintenance/repair costs.
What is the calculation of private use for taxable fringe benefits (Right of Use)?
- Determine the total cost of the asset (e.g., lease, market value).
- Assess private vs. business use:
Mileage method (personal vs. business mileage)
Percentage of time used privately
Market rental value for personal use - Adjust for employer contributions: Subtract any fees the employee pays.
- Calculate taxable fringe benefit: Apply the private use percentage to the total asset cost.
What is “right of private use” for an employee?
Employee can use the vehicle personally, but ownership remains with the employer. Home-to-work travel is also private use.
How is the taxable value of the vehicle calculated?
3.5% of the vehicle’s value per month of private use, or 3.25% if it has a maintenance plan.
What happens if the vehicle is granted 12+ months after the employer acquires it?
The value is reduced by 15% for each 12 months the employer owned it before granting use.
I.E it depreciates by 15% per year
What if the employee also gets a travel allowance on a company car?
Taxable value is still 3.5%. Employee can’t claim deductions; employer can only deduct actual expenses.
How is taxable value calculated for partial use in the first month?
Apportion based on the number of days used in the first month.
What if the employee uses two vehicles?
Taxable value is based on the vehicle with the highest value.
How is PAYE calculated on a fringe benefit?
80% of the fringe benefit is included in remuneration.
What inclusions for right of motor vehicle use have a Rnil value?
. Incidental use
. Regular use outside of normal work hours
. Only used for travel between house and work
What is a tax maintenance plan for a vehicle?
3 years / 60 000km. this will allow for the 3.25% rate
What is the cash equivalent value of a meal/voucher for employee?
Cost - consideration paid by employee
What is the cash equivalent value for residental accomodation?
Rental value less consideration paid by employee
What is rental value formula?
(A - B) x C/100 x D/12
In the rental value formula, (A-B) x C/100 x D/12, what does A represent?
A = remuneration proxy
In the rental value formula, (A-B) x C/100 x D/12, what does B represent?
B = an exemption of R78,150
In the rental value formula, (A-B) x C/100 x D/12, what does C represent?
C = a percentage of;
. 17
. 18 if 4 rooms + is furnished or electricity is supplied
. 19 if 4 rooms + is furnished + electricity is supplied
In the rental value formula, (A-B) x C/100 x D/12, what does D represent?
D = number of full months employee is entitled to accommodation
In the rental value formula, (A-B) x C/100 x D/12, when will B (exemption) be Rnil?
. If employee or spouse controls the private company that is giving the fringe benefit
. If they or their minor child have the option to become the owner of the accommodation
When will the rental value formula be applied?
. Employer owns the accommodation, or;
. Employee has an interest in the accommodation, or;
. Employer doesn’t own the accommodation and it is customary and necessary for employer to provide free/subsidised accommodation
. Is for bona fide business purposes
When will an employee have an interest in the accommodation?
. Accommodation is owned by employee/connected person or;
. Any increase in value will accrue to employee/connected person or;
. Employee/connected person has a right to acquire the accommodation (will invoke a Rnil exemption in rental value)
True or false: If an employee is provided with two or more residences, the highest rental value among them is used for tax purposes during any period they occupy more than one.
True.
If an employer rents (not owns) accommodation for an employee, the taxable value is the lower of:
The rental formula value OR
The actual rent paid by the employer.
What is the Rnil provision for employer/provided accommodation for SA residents?
If employee is away from their normal home for work, the accommodation provided is not taxed.
What is the Rnil provision for employer/provided accommodation for non-residents?
Accommodation given in SA is tax-free if:
. Stay < 2 years after arrival
. Stay is < 90 days in tax year
When is the Rnil provision for employer/provided accommodation for non-residents NOT applicable?
. If employee was present in SA > 90 days during previous yoa as well as current
. cash equivalent value of the taxable benefit exceeds R25,000 x number of months employee was away
In terms of employer-provided holiday accommodation, if the accommodation is rented from an independent landlord, the taxable value is:
the actual cost of rent, meals and services
In terms of employer-provided holiday accommodation, if the accommodation is owned by employer or rented from related entity, the taxable value is:
based on the normal daily rental rate that a non-employee would pay
when are travel facilities NOT taxable benefits? (5 answers)
. If an employer who operates a passenger transport business provides it to employee freely
. If an employer provides transport for commuting purposes
. If an employer provides phones/interest mainly for business
. If services provided at work are for the employee’s performance, well-being or receational use
. If employee is stationed > 250km from home and works there at least 183 days a year, spouse or minor child’s travel expenses can be paid tax-free by employer
True or false: a loan granted by an employer relating to services rendered will constitute a fringe benefit.
True, unless the loan is for buying shares in the company.
When does a loan provided by an employer become a fringe benefit?
When there is a difference between the market interest rate and the interest rate provided by employer. The difference is the taxable benefit.
What are the 3 Rnil provisions for loans provided by employer?
. Debt is < R3,000 at all times; or
. Debt is for further studies
. Transfer of fixed property (paragraph 5) provided that:
a. Remuneration proxy < R250,000
b. Value of property < R450,000
c. Employee is not a connected person
What is the cash equivalent of a loan?
Interest at official interest rate - interest paid by employee
When is residential accommodation qualify as a low interest-rate loan?
. Employee lives in employer owned house and ;
. is entitled/obliged to acquire the house at a future date at a price stated in an agreement and;
. employee is paying for use wholly or partly as a % of a future purchase price
For low-interest rate loans for residential accommodation, what is the future purchase price and employee’s payment for use?
future purchase price = loan granted
employee’s payment for use = deemed interest paid
True or false: For subsidy loans, the taxable amount is the total subsidy paid by employer.
True, regardless of interest or capital.
What’s the cash equivalent of medical aid/RAF contributions?
Contributions paid (if such contribution cannot be attributed to a
specific employee, the lump sum contribution must be apportioned between employees entitled to the benefit)
When will medical aid contributions by employer be Rnil?
When the person is:
. retired from old age, health or infirmity
. the dependents of a deceased employee
. the dependents of a retired employee after their death
When will RAF contributions by employer be Rnil?
. Contributions for the dependents or nominees of a deceased fund member.
. Contributions for a member who has already retired from the fund.
Which employer-paid medical expenses will have an Rnil value?
. Treatments covered under prescribed minimum benefits for an employee, spouse, or children in an employer-run medical scheme.
. Medicines or services required by law (e.g., HIV/AIDS treatment).
. Benefits for retirees due to age, ill health, or disability.
. Benefits for dependents of a deceased employee.
. Benefits for individuals eligible for the over-65 tax rebate.
. Medical services provided at the workplace to help employees perform their duties.
True or false: employee debt written off by an employer is a fringe benefit.
True.
True or false: if a debt prescribes (expires) after 3 years, it is still a fringe benefit.
True.
What are the Rnil provisions for discharge of debts?
. Paying an employee’s professional body subscription if membership is required for their job.
. Covering insurance premiums that protect the employee from claims due to negligence.
. Payments made by a former non-statutory force member to the Government Employees’ Pension Fund.
. Paying off an employee’s bursary or study loan from their previous employer, as long as the employee agrees to work for the new employer for the remaining required period.
Follw this formula for right-of-use of vehicle:
Step 1. Determine value of benefit by using the 3.5% per month and grossing up to a year
Step 2. Deduct business km by apportioning value of benefit by business km/total km
Step 3. Deuct fuel based on deemed or actual costs IF covered by employee
