'My employee is away from home for business reasons and I paid for his accommodation. Is this a taxable fringe benefit?'
Many employers find it hard to decide which company benefits are taxable and which ones aren't.
Take this one question from an employer who asked our tax experts whether paying accommodation for an employee who's on a business trip is taxable.
Read on to find out the answer so you'll know what to do when you're in this situation.
To treat or not to treat your employee's accommodation for business travel as a taxable fringe benefit?
'If your employee is away from home for business reasons and you pay for him to stay at a hotel, it's not taxable,' says the Practical Tax Loose Leaf Service.
But, there's a catch.
This tax break only applies to resident employees. The Loose Leaf Service
says a resident employee is someone who's from another country, but works in South Africa.
And there's another catch.
If you give this type of employee more than one residential unit, he loses this tax break. Only the unit with the highest rental value becomes a taxable fringe benefit
for the full period he used more than one unit.
What about non-resident employees?
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Find out how to make sure every time you offer a fringe benefit to your employees you'll know if it's taxable or not and how to tax it correctly.
Here's how fringe benefits tax works when it comes to accommodation for non-resident employees?
Non-residents are those who have been sent to work in South Africa for a certain period. They get tax-free accommodation of up to R25 000 per month if they meet these conditions:
The period of their transfer mustn't be longer than two years. (Calculate this from the date the employee arrives in SA.)
Here's an example to explain:
Let's say the head office of a London based company transfers Mr Able to work for its South African branch for two years.
Mr Able keeps his place in London because he'll come back after his two-year stint in SA.
The South African branch then gives Mr Able free accommodation for the two years he's in SA. The value of the accommodation is R30 000 per month. This means the taxable fringe benefit is R 5000 per month (i.e. R30 000 – R25 000 monthly tax-free portion).
If Mr Able wants to stay for longer in SA, he'll lose the R25 000 tax-free benefit. This because he would've been present in South Africa for longer than 90 days in the tax year prior to his second transfer term.
For his accommodation to be tax-free during the second period of the transfer, he needs to leave South Africa for nine months and then come back to fulfill the second period of the transfer.
If the employee was in South Africa before the transfer, it must have been for less than 90 days. If he's here for longer than 90 days in a 12-month tax year period, the tax break doesn't apply.
Knowing whether or not your employee's accommodation for business travel is a taxable fringe benefit will help you comply with tax law.
PS: For more information on taxable fringe benefits, check out The Fringe Benefit Guide All South African Companies Must Have.