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If you give your employees free services, find out whether or not they're a taxable fringe benefit

by , 05 August 2014
A fringe benefit is a perk your company gives to an employee for the performance of services.

If you want to handle fringe benefits correctly and avoid penalties, it's important to know the type of perks that attract tax and those that are tax free.

Continue reading to find out if the free services you give to your employees are taxable fringe benefits.


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Giving employees free services is a taxable fringe benefit

The Practical Vat Loose Leaf Service says if you provide your employee with any service (other than medical services) for his private use, without charging him, then it's a taxable fringe benefit (Paragraph 10 read with 2(e) of the Seventh Schedule of the Income Tax Act.)

Here's an example: Sipho is a company executive, working for Big Time Ltd. He receives the following benefit from the company:

He's entitled to play golf at a leading golf course, privately, with up to three companions, by means of his employer's corporate membership of the golf club.

He'll be taxed on the free service provided to him for private purposes. The cash equivalent of the taxable benefit is the cost of rendering the service to the employee, less any consideration given by him.

Here the bottom line: Giving free services to your employees is a taxable fringe benefit. So make sure your payroll withholds and deducts the correct amount of employees' tax – it's the only way to avoid SARS penalties.

If you want more information on this issue, for example, which perks are taxed and how they're taxed, etc, check out the Practical Vat Loose Leaf Service so you can take control of your taxable fringe benefits and never make the errors that will attract penalties.

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