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If you give your employee free holiday accommodation, it might actually cost them

by , 25 June 2014
Your employees work hard, so when John comes to you and asks for leave, you don't hesitate to say 'yes'. He deserves the break.

But that's not all John asks you for. He's mentions the fact that his family would love to go to Cape Town. He then mentions the flat the company has there and how it would be the perfect place to go away to.


But, before you say yes to John's not very subtle request to rent the flat as cheap holiday accommodation, consider what it'll cost him in Fringe Benefit Tax...

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Remember free or cheap holiday accommodation is a taxable fringe benefit

 
There are 12 fringe benefits SARS will make your employees pay tax on. Included in this list of taxable fringe benefits is the company benefit of free or cheap holiday accommodation.
 
This means your employee won't actually get the accommodation free. He'll still have to pay tax on it. This tax is 3.5% of the rental value of the accommodation even if you don't charge your employees rent on that flat. 
 
When it comes to working this out, you have two options...
 

Here's how to work out your employee's tax on that cheap holiday accommodation

 
According to the Practical Tax Loose Leaf Service, you have two options on how you work out your employee's tax on this employee benefit:
 
1. You can use the rent rate-per-day to work out the 3.5% of the rental value; or
2. You can add the rental value that you pay with electricity and any other extras you provide, like meals.
 
With either of these you must take the total cost of the accommodation and workout 3.5% of that value. 
So work this out first before you let John use that company flat as a cheap holiday get away. 
 
PS: You can legally pay less tax
139 reasons SARS doesn't want you to see this

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