Unit 1 - Individuals - Fringe Benefits Flashcards
Definition: Fringe Benefit
Pmt made to EE usually in form other that cash
- ER will reduce EE cash salary by amount equivalent to cost of providing the fringe benefit
Par (c) of the GI def.
All amounts received for services rendered
What is included in a TP GI i.r.o Par(c)
- Any amount
- Incl. any voluntary rewards
- Received/accrued i.r.o services rendered/to be rendered
- or any amount received/accrued i.r.o any employment/holding of an office.
“Voluntary awards”
As long as it is pd for services rendered/to be rendered = incl. in GI.
Provisos for Par (c)
i) Par (c) does not apply to benefits in Par (i) - Fringe benefits
ii) The person who rendered services must include the amount in their GI even if they have not received it.
iv)Long services awards to the extent that it does not exceed R5000 in total.
Under what provisions do long service awards fall
- Par (c)
- Par 5(2)(b), Par 6(4)(d), & Par 10(2)(e) of 7th Schedule
What does Par (i) - Fringe Benefits of the GI def Incl.
“Value” of frindge benefits received by EE/director form their ER.
What is “Value”
Cash Equivalent of fringe benefits as determined under provisions of the 7th Schedule
7th Schedule
- Lists Taxable benefits
- How the value of taxable benefits is to be calculated (Par 5 - 13)
Are gains from Share Options included
Par (c) specifically incl s8A - gains made by EE/director on exercise of share options granted to him by his ER
BEFORE 26 OCT 2004
Why are they referred to as taxable benefits and not pmts
Not pd in cash
Difference between Par(c) & Par(i)
Par (c) - amount
Par (i) - Value
What is the amount which is subject to tax in EE hands i.e CASH EQUIVALENT
Value of benefit - Any amount pd by EE for benefit
Definition of EE
A person who is EE for the purpose of the 4th Schedule (EE tax).
Incl. - Directors of Private companies [(Pty) Ltd]
Excl. - Any person (other than director/controlling shareholder) who retired prior to 1 MARCH 1992 by reason of superannuation, ill-health/other infirmity
- :. will not be subject to tax on any fringe benefit received after retirement
7th Schedule Benefits Included
- Hint = 15
- Acquisition of an assets for no consideration/ less than actual value
- Right of use of any asset (not residential accommodation/any motor veh.)
- Right of use of a Motor veh.
- Meals, refreshments & meal and refreshment vouchers
- Residential accommodation
- Free or cheap services
- Low interest loans
- Housing & other subsidies
- Housing & other subsidy schemes
- Pmt of EE debts/release of an EE from an obligation to pay debt
11.Medical aid fund contribution
- Medical exp. pd by ER
- Insurance provided by ER
14.ER contributions to pension/provident fund
- ER contributions to Bargaining Council
7th Schedule benefits Excluded
- Hint = 5
1.Benefits that are exempt from tax under s10
2.Benefit provided by any benefit fund i.r.o medical, dental & similar services, hospital services, nursing services & medicines
3.Any lump sum benefit payable by a benefit fund, pension/pension preservation fund, provident/provident preservation fund.
4.Any benefit/privilege received by/accrued to government EE, stationed outside SA
5.Any severance benefits
Definition: Benefits given by associated institutions
- Where the ER is a company.
Any other company which is managed & controlled directly/indirectly by substantially the same persons who manage & control the ER. - Where the ER is not a company.
Any company which is managed & controlled by the ER/by any partnership of which ER is a member - Certain funds est. solely/mainly for providing benefits for EE/former EE of the ER/its associated institutions
Excl. = Funds est. by - Trade union
- Industrial council
- Certain funds est. for postgraduate research
Benefits given by associated institution
Deemed to be a taxable benefit granted by ER if benefit would have been a taxable benefit had it been given by the ER personally.
Fringe benefit:
Par 2(a) & 5: Acquisition of an asset @ less than actual Value
BENEFIT:
The taxable benefit arises whenever EE has acquired an asset from:
- ER
- Associated institution
- Any other person by arrangement with his ER
for no consideration/for consideration less than Par 5(2) value.
CASH EQUIVALENT:
MV/cost/Lower of cost/MV (mentioned below)
Less: amount pd by EE
Value =
- MV @ time asset is acquired by EE.
OR
- If movable property which was acquired to give to EE = Cost to ER
OR
- If trading stock of ER = Lower of Cost/MV
Bravery/Long-service awards
Reduces the cash equivalent of long services awards given by ER -EE
Limited to lessor of:
- R5000 / aggregate of cost of all awards less than R5000.
Def:
- Initial unbroken period of >15 years
- Subsequent unbroken period of >10 years
Requirements of no value for ER-provided Low-cost housing Par5 of 7th schedule
Given to EE/Sold @ discount to EE, provided that:
- MV <= R450,000 on date EE acquires it
OR
- Remuneration proxy of EE <= R250,000 i.r.o YoA during which EE acquires the immovable property.
OR
-EE is not a connected person to ER
Define the Remuneration proxy
Remuneration in previous YoA
Define Remuneration
Salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, allowance, pension, Superannuation allowance, retiring allowance, cash/otherwise.
When is the remuneration proxy use & how is it calculated?
When:
EE worked only part of the previous YoA or not at all in the previous YoA
Calculation:
Remuneration in 1st month of empl. / Number of days that EE was empl. in such month x 365 days
Fringe Benefit:
Par 2(b) & 6: Right of use of an asset (other than residential accommodation/Motor vehicle
BENEFIT:
For Private/domestic purposes free or for consideration < value of use
CASH EQUIVALENT:
Value of private/domestic use - consideration pd by EE/amount spent on maintenance
Value=
- If leased by ER = Rental pd by ER - Amount pd by EE
- If owned by ER = Lower of MV/ Cost to ER x 15% per annum apportioned for the portion of yr asset used by EE - Amount pd by EE
- If EE is granted sole right of use for major portion of assets useful life/Extending beyond that = Cost to ER
No values for right of use of asset
- Use of assets is incidental to use asset for purposes of ER business/provided as amenity enjoyed by EE @ workplace/recreational purposes - not apply to clothing.
- Equipment/machinery used by EE for short periods occasionally, & value of private use is negligible
- Telephone/Computer equipment EE uses mainly for business purposes
- Books, literature, recording/ works of art
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
THE VALUE?
Value of private use - consideration pd by EE for use of the vehicle
Consideration excl. license, insurance, maintenance, fuel costs incurred by EE.
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
THE VALUE OF PRIVATE USE/ cash equivalent?
- ER-owned/leased vehicle WITHOUT maintenance plan
= 3.5% X Determined value of motor veh. for each month EE is entitled to use veh, for private purposes - ER-owned/leased vehicle WITH maintenance plan
= 3.25% X Determined value of motor veh. for each month EE is entitled to use veh, for private purposes - Vehicle is held by ER under OPERATING LEASE
= Lease is to be concluded @ arm’s length with lessor who is not a connected person to ER
= Cost to ER, incurred under OL + Cost of fuel.
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
Define Operating lease (OL)
All points must apply:
- of moveable property
- Lessor’s business in leasing vehicles as part of ordinary business
- Lessor cannot be Bank/Finacial services business/insurance business
- Vehicle may be hired by general public directly from lessor for < 1 month
- Cost of maintaining & repairing veh. must be borne by lessor
- Risk of destruction/loss of veh must be assumed by lessor. Lessor my claim from lessee for such loss arising out of lessee’s failure of proper care of veh.
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
What is the determined value?
- Price of acquisition incl VAT (excl. Finance charge/ Interest
- Acquired @ no cost
= MV - For motor vehicle dealers
= Dealer billing price incl VAT - For motor vehicle dealers if pre-owned veh. has no cost
= MV incl VAT + Cost of repairs incl VAT, for purpose of giving use of veh. to EE - 2nd Hand/Pre-owned veh.
= Cost to ER incl VAT
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
Use for part of a month?
EE must be entitled to use only part of the month
Amount of fringe benefit for full month X nr of days in month that EE is entitled to use/Total nr of days in month
Does not apply if veh. is for any reason temporarily not used by EE for private purposes
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
CHANGE IN EE USING VEHICLE?
DETERMINED VALUE IS REDUCED
If EE is granted right of use of veh., & veh. was acquired by ER > 12 months before time EE is granted right of use
Reduced by 15% p.a (reducing balance method) for each completed 12-month period)
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
> 1 MOTOR VEHICLE.
EE uses each veh. primarily (>50%) for business purposes
Value of private use
= Based on vehicle with HIGHEST determined value (private use value) X 3.5/3.25% p.m
- Not applicable where Par 7(7) & Par 7(8) applies
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
Par 7(7) - Business use % reduction?
EE to claim a reduction in
value of fringe benefit
- Accurate record of business travels must be kept
- Commissioner will reduce the value as follows:
Cash equivalent (e.g. 3.5% x determined value) X (business km’s/total km’s)
Deduct this from the Total value of fringe benefit to arrive @ private use value.
- JUDGES are allowed to claim distance travelled btw home & courts as business km’s, still required to keep accurate records
- Travel btw home and workplace does not constitute business km’s in all other cases
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
Par 7(8) - EE bears all/some of costs
EE to claim a reduction in
value of fringe benefit
- Accurate record of private travels must be kept
&
EE must bear full amount of 1/< of following costs:
- License
- Insurance
- Maintenance
Calculation
= Cost incurred by EE (license, insurance & maint.) x private km’s/total km’s
Fuel cost - private use
= Private km’s X rate per km iro fuel as per table
Deducted from value of private use
Does not apply to right of use of motor vehicle under OL
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
No values
Value of private use = nil (0)
- Veh. available & used EE/ER in general
- Private use = infrequent/incidental to business use
- Not normally kept by EE residence
- Regular use of vehicle outside of normal business hours (not permitted use private purposes)
Fringe Benefit:
Par 2(b) & 7: Right of use of motor vehicle
Define maintenance plan
- Contractual obligation undertaken by provider in ordinary course of trade with general public to underwrite costs of all main. of that motor veh., other that cost related to top-up fluids, tyres/abuse of motor vehicle of:
- Period not > 3 years & distance travelled
by veh > 60,000km’s from date provider undertakes contractual obligation
- Period not > 3 years & distance travelled
Provided that contractual obligation may terminate @ earlier of:
- End of period of 3 years
- Date of which distance of 60,000 km’s is travelled.
