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Revealed: Three fringe benefits that are subject to Vat

by , 20 June 2013
The Star reported yesterday that Limpopo Premier Cassel Mathale allegedly spent thousands of rand flying short distances in a chartered helicopter. According to the newspaper report, last month, he spent R60 000 of tax payer's money travelling a distance of 161km. In addition, Mathale also allegedly rented a helicopter for a 200km trip between Polokwane and Musina in January, costing R82 000. Hopefully the Limpopo government won't make the mistake of failing to levy Vat on the Premier's fringe benefit. Read on to find out which three fringe benefits are subject to Vat to avoid making this common mistake.

According to The Practical Vat Loose Leaf Service, a fringe benefit is any taxable benefit or advantage granted to an employee by an employer in return for their employment or their holding an office.

Many Vat vendors make the mistake of discounting the effect of Vat on their payrolls, particularly as it relates to fringe benefits granted to employees and yet this is one of the first areas SARS auditors will target when auditing your Vat affairs.

Basically, 'where Vat is payable, the consideration for the supply of the fringe benefit is the cash equivalent of the fringe benefit as determined for income tax purposes,' explains the Loose Leaf.

Here are three fringe benefits that are subject to Vat

  1. Assets consisting of goods, commodities or property, but not money, received from the employer.
  2. The right to use assets or services made available by you for your employee's private use. This use could either be free of charge or for a nominal consideration, usually below market value.
  3. The release of an employee from an obligation to pay an amount he owes you.

Remember, the cash equivalent of the value of the fringe benefit during the tax year must be included in the employee's gross income and should form part of his taxable income.

'To determine the amount of output tax to be accounted for, the employer must apply the tax fraction(x14/114) to the cash equivalent and this will determine the Vat amount on the value of the consideration,' explains the Loose Leaf.

Knowing which fringe benefits are subject to Vat will ensure you avoid making this common mistake so you don't get in trouble with SARS.

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