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If you give your employee's brother's daughter's son a benefit, your employee pays the tax

by , 25 June 2014
Sometimes, helping out your employee means helping out his relatives. This might not happen often, but occasionally you may find yourself paying school fees or selling a company asset to them for cheaper than what it's worth.

But do not be caught out. If you give your employee's relatives a benefit, SARS sees this as your employee receiving a company benefit.

This means he will be charged fringe benefit tax according to the 3.5% rule...

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12 Taxable fringe benefits - are you taking advantage of all of them?
 
There are hundreds of companies out there that don't know which fringe benefits are taxable or they land up taxing the wrong percentage on them...
 
This kind of error could cost you thousands in penalties to SARS if it catches you out – and it will!
 
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Benefits for your employee's relatives equal tax for your employee

 
Let us say, you decide to pay your employee's sister's children's school fees. That may cost you R12 000 a month for a good school. This means your employee will pay tax each month on that amount. 
 
The rule of thumb with any of the 12 taxable fringe benefits is your employee's tax is 3.5% of the value of the benefit.
 
This means on a benefit such as school fees your employee with pay 3.5% of R12 000 every month. That's a R420 fringe benefit you'll deduct from his PAYE. 
 
And this is just one relatives' benefit. Here's what happens if you sell your employee's brother your old company car at a cheaper rate.
 

Sell your employee's brother the old company car at a lower rate and you employee gets taxed

 
Let's say you want to get rid of your old company car and your employee tells you his brother is interested in buying it. The car's market value is R90 000, but you sell it for R70 000 because that's what your employee's brother can afford.
 
The taxable fringe benefit is the difference between the market value and the amount of money you got for it. So your employee will pay 3.5% on the difference which is R20 000; that's R700.
 
So remember, before you help out your employee's relatives, you must apply the normal fringe benefit tax rules to your employee's tax.
 
PS: Avoid costly tax issues
 
 

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