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We gave our employee cash as a for long-service award, is this taxable?

by , 26 June 2014
The experts behind the Practical Tax Loose Leaf Service are always answering questions about giving gifts and awards to employees. It's a grey area and fringe employee benefits and remunerations can easily be confused.

Our experts received just such a question about a long-service award. This troubled employer gave his employee R5 000 as a long-service award. The employee had been with them for 20 years.

He wanted to know if this money is taxable.

Keep reading to find out the answer...

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Here's when your employee won't pay fringe benefit tax of a long-service award

 
According to the Practical Tax Loose Leaf Service, there's an exemption you can claim when it comes to a long-service award
 
You qualify for this if:
 
1. The award is in the form of an asset or a service; and
2. Its total cost isn't more than R5 000.
 
If it's more than R5 000, it's a taxable fringe benefit. This means your employee will have to pay the normal 3.5% tax on the extra amount. 
 
Remember: You can only give your employee a long services award after he's been with you for 15 years. There must also be ten year gaps between each following award.
 
But this question specifically says the award was R5 000 in cash, so how is this taxed?
 

Here's how your employee will pay tax on a cash long-service award

 
Unfortunately, if you give your employee cash as his award, it's not seen a fringe company benefit. It's a remuneration. 
 
This means your employee will have to pay his normal employee tax rate on this money. 
 
You must add this tax to your employee's normal amount of PAYE and ensure it reflects on his payslip. 
 
So if you want to give your employee a long-service award, rather give him an asset or a service so it won't push up his tax. 
 
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