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Confused about when fringe benefits are taxable and when they aren't? Read this

by , 16 September 2013
According to a Sunday Times report, Northern Cape premier Sylvia Lucas used her official credit card to spend R53 159 on fast food during her first ten weeks in office. Now, the minister's office has reportedly defended this excessive spending of taxpayer's money, saying she was 'within her rights'. While ministers are governed by a ministerial handbook, this isn't the case in your business. That's why you need to take control of your fringe benefits. Read on to discover when fringe benefits are taxable and when they aren't to avoid penalties.

Before you give your employee a loan or a gold watch for his long service, you have to be aware that these could be taxable fringe benefits, says the Practical Tax Loose Leaf Service.

This means your payroll must withhold and deduct the correct amount of employees' tax or face the penalties. And, if you haven't explained things to them clearly, your staff will also question the extra taxes on their pay slips.

To make sure you're taxing your employees correctly, you need to know which fringe benefits are taxable and which perks you give your employees are tax free.

Be aware of these 12 taxable fringe benefits

The following 12 fringe benefit categories are taxable if you:

  1. Give your employee an asset for free, or for a price that's lower than its value;
  2. Let your employee use assets owned by you (other than a company car);
  3. Give your employee a company car for his private use;
  4. Give your employee free meals, refreshments or meal vouchers;
  5. Provide free or cheap accommodation for your employee;
  6. Provide free or cheap services for your employee;
  7. Provide low interest or interest-free loans for the employee;
  8. Provide employer subsidies;
  9. Pay a debt on behalf of your employee;
  10. Pay medical aid contributions on behalf of your employee;
  11. Pay your employee's medical expenses on his behalf; and
  12. Give your employee's relatives some benefits.

Now that you know the taxable fringe benefits, find out which perks are tax free.

Don't forget about these five tax-free benefits

According to the Practical Tax Loose Leaf Service, you don't have to withhold employees' tax where:

#1: The private use of the asset is incidental to its business use (i.e. your employee uses the asset for personal reasons once in a blue moon); or

#2: You provide the asset to your employees as an amenity or for recreational purposes;

For example, Bill works for Future Planet, an IT company that provides substantial benefits to its employees at the workplace.

Bill can use the company computer to surf the Internet and pay his bills online. He's even allowed to play online games during certain hours. He's given free use of the company's gym and swimming pool and his children can use the company-provided crèche free of charge.

Since all these amenities are provided by the employer at his place of work or for recreational purposes, they're tax-free.

#3: The asset consists of any equipment or machine you allow your employees to use in general from time to time and for short periods. Remember that SARS must be satisfied the value of the private or domestic use of the asset is negligible;

For instance, Simphiwe is given a laptop, which she uses for business purposes. The laptop is owned by her employer and she'll have to return it to the company should she leave its employ.

But she also uses the laptop for personal purposes such as paying bills via the Internet and sending and receiving personal emails. She won't be taxed as the personal use of a computer is tax free because it's mainly used for business purposes.

#4: The asset consists of books, literature, recordings or works of art;

#5: The asset consists of telephone or computer equipment which the employee uses mainly for your business.

Now that you know the fringe benefits that are taxable and the ones thataren't, make sure you withhold and deduct the correct amount of employees' tax to avoid a 10% penalty.

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