Draft Interpretation notes on Fringe benefits and Allowances

SARS recently issued 3 different Draft Interpretation notes on Fringe benefits and Allowances – as these are not yet law, these give employers useful insight and guidance on the tax treatment and the practical application:

  • Issue 13 of Interpretation Note No.14 on allowances, advances and reimbursements

More specific guidance is provided relating to travel allowances (what constitutes business travel/private travel and the issue surrounding place of employment) along with commentary and examples for subsistence allowance calculations. Clarity is also given on the treatment between employees who live far away from their place of employment and were given an accommodation allowance, and the situation where the employee (as part of performing his duties to his employer) is required to spend nights away from home.

Also stated is that regular review of an employee’s travel allowance should be performed to satisfy the employer of the current circumstances and whether the 80% or 20% taxation of travel allowance rules may be applied and justified.

  • Draft Interpretation Note on the right of use of a motor vehicle

Guidance is provided on the calculation of the tax treatment of company cars – determined values, maintenance plans and reduction of determined value in certain circumstances and exemptions are dealt with in more detail.

  • Draft Interpretation Note on long service awards

The new interpretation note clarifies the tax treatment of gift vouchers (other than meal vouchers) which are now to be regarded as a form of property for the exemption on long service awards (paragraph 12(a) of the Seventh Schedule).

  • Draft Interpretation Note on the use of employer-provided cellular phones or computer equipment and employer-funded telecommunications services.

The new interpretation note provides guidance on the tax treatment of the following benefits:

– Private use by employees on employer-provided telecommunication equipment (eg. cell phones)
or computer equipment (eg. laptops) – right of use of such assets or free/cheap services; and

– Allowances  or reimbursements granted by the employer relating to the employee’s private/own
equipment or service contracts used for business purposes.

Per SARS legislation (Seventh Schedule to the Act), no value is placed on private or domestic use of an asset (telephone or computer equipment) which the employee uses mainly for the purposes of his employer’s business (more than 50% must relate to business purposes). Considerations as to the nature of employee’s work, conditions of use and associated responsibilities, along with the causal link between the asset and the employee’s employment will be reviewed by SARS on a case by case basis.

Implications of allowances versus reimbursements are also discussed in more detail to ensure correct treatment.

SARS emphasises that employers are responsible for the correct tax treatment of these assets/services, failing which they would be required to account for the fringe benefits in the hands of the employees.

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