What are the tax implications for my employees when it comes to relocation costs?
One of the questions our tax experts received this week comes from an employer who wants to know about relocation costs.
To be more specific, this employer wants to know about the tax implications for employees when it comes to relocation costs.
One of his employees will be relocating next month, from the company's Joburg office to the Cape Town one.
If you want to know the answer too, keep reading...
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Here are the tax implications for your employees when it comes to relocation costs
Relocation expenses are expenses you'll incur when you move an employee to another location.
What you need to know is all payments you make to your employee have tax consequences.
Since SARS is always on the lookout for tax avoidance schemes, one of the first questions it'll ask is: 'Would this person have received such a payment if they weren't employed by you?'
When it comes to relocation costs, the answer to this question is almost always 'no'.
So what are the tax implications for your employee if you cover these costs?
Paying relocation costs for an employee qualifies as a fringe benefit. This means you must tax your employee correctly on this perk.
When it comes to relocation costs, you don't work out tax on gross income. You determine it on taxable income.
If you need a practical example of how to work out your employee's tax when it comes to relocation costs, check out the Practical Tax Loose Leaf Service so you can get it right.
Well there you have it: Paying relocation costs for an employee qualifies as a fringe benefit. The implication for your employee is that you must work out his fringe benefit tax.