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Where does the line between taxable and tax-free fringe benefits lie?

by , 15 August 2014
Employees love company benefits. They give them access to things they wouldn't normally be able to afford. Even the extra tax they pay isn't enough to dampen their enthusiasm for fringe benefits.

But did you know that some employee benefits are tax-free?

It's true. But there's a clear distinction between tax-free and taxable fringe benefits.

Do you know what that distinction is?


Here's the distinction between tax-free and taxable fringe benefits

Whenever you want to give your employee something or pay for him to do something ask yourself: 'Does my employee need this benefit purely for the purpose of doing work?'
If you answer 'yes' then you're probably looking at a tax-free benefit. 
An example of this is if your employee has to travel for work and you pay for his accommodation.  This is a tax-free benefit. 
Even with a company car, if your logbooks and records prove your employee only uses that car for business and then leaves it at work, it too is tax-free.
But if you cross the line from business to pleasure, your employee will have tax to pay.
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Here's when your employee will pay fringe benefit tax

If you answered 'no' to the question above, because your employee uses the benefit for private purposes, he'll have to pay fringe benefit tax.
For example, let's say your employee is going away for business. He wants to take two days leave and take his wife and kids with him, so you pay for two hotel rooms and not one.
Your employee will pay tax on the accommodation even though he's still partly travelling for business.
There you have it! If you're going to cross that line and give your employee something for his private use, warn him about the extra tax first. 

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Where does the line between taxable and tax-free fringe benefits lie?
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