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Still not sure what a fringe benefit is? Here's what you need to know

by , 05 August 2014
There's a lot of confusion regarding fringe benefits. This confusion often leads to employers deducting their employee's tax incorrectly and getting punished by SARS.

We don't want you to make the same mistake.

Our experts have taken it upon themselves to do the research for you. Today, they reveal what a fringe benefit is so you can take control of fringe benefits and avoid a 10% penalty.

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Here's what you need to know about fringe benefits

Experts behind the Practical Vat Loose Leaf Service define a fringe benefit as a perk your company gives to an employee for the performance of services.

What you need to know is a fringe benefit has four elements. They're as follows:

#1: There must be an employment relationship between the person giving the benefit and the person receiving it.

#2: The benefit must be a reward for services rendered (or to be rendered) by the employee.

The case between Stander v CIR (59 SATC 212) demonstrates points 1 and 2 very well.

In Stander v CIR (59 SATC 212), the taxpayer won an overseas trip for himself and his wife as one of the top five accountants of certain franchise dealers. A supplier of the taxpayer's employer made the award.

The court held that the trip couldn't be said to have been given 'for services rendered' as the taxpayer hadn't rendered services to the supplier that awarded the prize. Rather, he had rendered services to his employer. The court held there was no employer/employee relationship between the taxpayer and the supplier, and the fact that his services happened to be of benefit to the franchise dealer didn't in itself mean the award was for services rendered. So this isn't a fringe benefit.

#3: The benefit accrues to the employee because of his employment (i.e. it's a perk of his job).

#4: The benefit is taxed even if an associated institution grants it as opposed to you granting it directly.

If the perk you're giving to your employee has these four elements, it's a fringe benefit. This means, your payroll must withhold and deduct the correct amount of employees' tax, or face penalties!

There you have it. We hope the information our experts have given you will help you understand fringe benefits better so you can deduct your employee's tax correctly and avoid SARS penalties.

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