University of Pretoria. LEARNING AREA 6: Fringe Benefits Lecture 38-41

Transcription

1 University of Pretoria LEARNING AREA 6: Fringe Benefits Lecture

2 Recap Due to the nature of Simpiwe s work, he travels to clients quite often as he needs to audit on site. Simpiwe stays 10km from the office, and on the days that he does not have to be at a clients offices, he drives to the PWC office. His employer awards R3.80 for every km that he has traveled for business purposes. Simpiwe is unsure about the taxability of this amount. Please advise him. 2

3 Fringe Benefits Overview Lecture Topic Silke Lecture 36 Lecture 37 Intro, Allowances 11.1, 11.2, 11.3 Lecture 38 to 41 Various fringe benefits 11.4 Practical 14 Integrated question Chapter 11 3

4 Remember the Darren family 4

5 Extensive Calculation Par (i) Gross Income Fringe Benefits XXX Less Exempt income (LA6) (xxx) = Income XXX Less Deductions (e.g. s 11(a), (e), (i), Income protection contributions (xxx) = Subtotal 1 XXX Less Assessed loss carried forward from previous year (xxx) Less Pension fund contributions deduction (s 11(k)) LA5 (xxx) = Subtotal 2 XXX Less Retirement annuity fund contributions deduction (s 11(n)) LA5 (xxx) Add Taxable capital gain xxx Add Nett allowances i.t.o section 8(1) LA6 xxx = Subtotal 3 XXX Less Donations deduction (s 18A) LA5 (xxx) = Taxable Income XXX Normal tax per tax tables XXX Less Primary and secondary rebates (xxx) Less Medical expense tax credit (s6a and B) LA5 (xxx) 5

6 11.1 Learning Area 6 Allowances & advances s8(1) Fringe benefits Included in gross income par (i) Taxable income of individual Gross income Exempt income INCOME Deductions Taxable income Fringe benefits (para (i)) Allowances & advances (s8(1)) 6

7 Fringe Benefits Benefit SILKE Acquisition of < asset value Right of use of asset (other than residential acc. or motor vehicle) Right of use of motor vehicle Meals & refreshments Residential accommodation Holiday accommodation Free or cheap services Low interest loans Housing subsidies Discharge or payment of obligation Medical aid fund contributions Medical expenses paid by employer Benefits in respect of insurance policies

8 The Income Tax Act Par (c) - any amount, including any voluntary award, received or accrued in respect of services rendered or to be rendered or any amount (other than an amount referred to in section 8 (1)) received or accrued in respect of or by virtue of any employment or the holding of any office: Provided that (i) (ii)... the provisions of this paragraph shall not apply in respect of any benefit or advantage in respect of which the provisions of paragraph (i) apply; Par (i) the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of assessment of any benefit or advantage granted in respect of employment or to the holder of any office, being a taxable benefit as defined in the said Schedule, and... 8

9 Fringe Benefits Determined value of fringe benefit Consideration paid by employee CASH EQUIVALENT = included in gross income

10 Assets acquired at less than actual value Cash Equivalent Value of asset Consideration paid by employee Usually MV on date given to employee Refer SILKE for special valuation rules 10

11 Long service award 1 st 15 years thereafter 10 years Benefit Market value (or if purchased with intention to give to E E Cost to E R) Lowest of Cost to E R R

12 Immovable property No value Remuneration proxy < R and Market value of property < R and Employer and employee not related parties New 12

13 Immovable property No value Remuneration proxy Remuneration as defined in Fourth Schedule (ER to EE) preceding that year of assessment If EE was not in employment for part of preceding year: apportion (x?/365) If not employed for full preceding year by the employer, assume remuneration to be same as first month of current year employment: apportion (x?/365) 13

14 Use of sundry assets Cash equivalent Value of private use Consideration paid by employee Asset leased by employer = rental paid Asset owned by employer = 15% x LESSER of cost / MV on date of use x (number of months used/12) Granted use over full useful life = CP 14

15 Use of sundry assets No value The private use is incidental Asset is provided as an amenity at place of work Used by employees in general from time to time value negligible Telephone or computer mainly used for business purposes Book, literature, art 15

16 Right of use of motor vehicle 16

17 Right of use of a motor vehicle Cash equivalent Value of private use Consideration paid by employee to employer CALCULATE! EXCLUDING cost of fuel, licence, insurance, maintenance carried by employee deduction on assessment 17

18 Value of private use 3.5% / 3.25% Determined value Number of months Effected by: Maintenance plan: 3.25% 2 vehicles, both primarily for business only 3.5%/3.25% on highest determined value (unless y/e adjustments made) 2 vehicles, not both for business 3.5%/3.25% on both Include VAT Cost/MV 15% depreciation on reduced balance method for 12 month period held by employer before given to employee MONTHLY calculation Less than month = apportion # of days 18

19 Amount included in taxable income (adjustments allowed on assessment) Taxable amount Cash equivalent Adjustments on assessment 7(7) cash equivalent x bus km/ total actual km (employee had to keep logbook) 7(8) actual cost for licence, maintenance, insurance x private km / total actual km - Fuel per deemed cost table x private km (employee had to carry expenses) 19

20 Right of use of motor vehicle No value The private use is incidental, used by employees in general from time to time, not kept at employees residence Nature of work has to use car, cannot use for private purposes except travel between home and place of work. 20

21 3.5% (3.25%) of determined value Right to use a motor vehicle How to calculate the taxable benefit Value of private use Only one vehicle More than one vehicle Adjustments for private use 3.5% (3.25%) of highest determined value if both for business NO adjustments for private use If only 1 for business OR want to claim adjustments, both at 3,5% (3.25%) Receive a travel allowance for same vehicle? No adjustments allowed, not even actual costs Yes No Taxable benefit Adjust for private portion of actual costs incurred 21

22 Example On 1 May 2014, Unathi received the right of use of a Audi A3 from her employer, SABC. The SABC purchased the vehicle on 1 March 2012 for R (including VAT and a maintenance plan). The market value of the vehicle on 1 May 2014 was R As consideration for the right of use of the vehicle, the SABC withholds R1 000 per month from Unathi s salary. Unathi kept accurate records of her business travels for the year. She travelled a total of km of which km was for business purposes. She incurred licencing costs of R800 during the 2015 year of assessment. She also paid for all of her fuel costs. 22

23 Deemed Cost Table 2015e Value of the vehicle (including VAT) Fixed Cost Fuel Cost Maintenance Cost R R per jaar c per km c per km Oorskry

24 Determined value of vehicle? A. R B. R C. R D. R

25 Value of private use? A. R B. R5 479 C. R D. R

26 Cash Equivalent? A. R B. R C. R D. R

27 Taxable benefit? A. R B. R C. R D. R

28 Meals, refreshments and such vouchers Cash equivalent Cost to employer Consideration paid by employee 28

29 Meals and refreshments No value Canteen During business hours / special occasions Entertaining clients On business premises 29

30 Holiday accommodation Cash equivalent > Owned by employer = rate per day usually paid > Leased by employer = rental Consideration paid by employee 30

31 To do Visit SARS website Personal Income Tax Revise Lectures Prepare for Practical 13 Read Chapter 11 in preparation of next lectures 31

32 Something to think about 32

33 Recap Simpiwe enjoys various benefits due to his employment at PWC. These include: Use of a laptop owned by PWC Substituted meals at the canteen Use of PWC gym equipment Month-end drinks Audit lunches I-pad s as gifts to all first year trainees who passed the board exams Are these benefits taxable? 33

34 Fringe Benefits Overview Lecture Topic Silke Lecture 36 Lecture 37 Intro, Allowances 11.1, 11.2, 11.3 Lecture Various fringe benefits 11.4 Practical 14 Integrated question Chapter 11 34

35 Extensive Calculation Par (i) Gross Income Fringe Benefits XXX Less Exempt income (LA6) (xxx) = Income XXX Less Deductions (e.g. s 11(a), (e), (i), Income protection contributions (xxx) = Subtotal 1 XXX Less Assessed loss carried forward from previous year (xxx) Less Pension fund contributions deduction (s 11(k)) LA5 (xxx) = Subtotal 2 XXX Less Retirement annuity fund contributions deduction (s 11(n)) LA5 (xxx) Add Taxable capital gain xxx Add Nett allowances i.t.o section 8(1) LA6 xxx = Subtotal 3 XXX Less Donations deduction (s 18A) LA5 (xxx) = Taxable Income XXX Normal tax per tax tables XXX Less Primary and secondary rebates (xxx) Less Medical expense tax credit (s6a and B) LA5 (xxx) 35

36 Fringe Benefits Benefit SILKE Acquisition of < asset value Right of use of asset (other than residential acc. or motor vehicle) Right of use of motor vehicle Meals & refreshments Residential accommodation Holiday accommodation Free or cheap services Low interest loans Housing subsidies Discharge or payment of obligation Medical aid fund contributions Medical expenses paid by employer Benefits in respect of insurance policies

37 Residential accommodation 37

38 Residential Accommodation Cash equivalent Rental value Rental consideration paid by employee Depends on whether full ownership vests in employer or not OR whether employee has interest in accommodation Refer SILKE discussion and flow chart on ClickUp 38

39 Rental value calculated using FORMULA Remuneration factor Number of months accommodated (A B) x C/100 x D/12 Abatement of R OR 18: > 4 rooms, unfurnished with power or furnished without power 19: > 4 rooms, furnished and power 39

40 Example Simpiwe was seconded to the Cape Town office of PWC for 6 months, starting 1 April He was employed by PWC from 1 January He earns a salary of R per month. His employer provided him with residential accommodation at a nominal rental of R200 per month for the 6 months whilst situated in Cape Town. The accommodation is owned by the employer. Simpiwe has no interest in the accommodation. The house, consisting of 4 rooms, was unfurnished and electricity is paid by the employer. 40

41 Example Rental value? Use formula or not? A? B? C? D? Cash equivalent? 41

42 Free or cheap services Cash equivalent Cost to employer Consideration paid by employee 42

43 Free or Cheap Services No value Certain travel facilities Transport services from work to home Telephone / computer communication services for business purposes Rendered at place of work to benefit of all Travel of spouse and minor children, >250 km away for >183 days 43

44 Low interest debts 44

45 Low-interest debts Cash equivalent Amount of interest official interest rate (8% currently) Amount of interest paid by employee 45

46 Example Simpiwe is auditing a client s payroll reconciliation. He came across the schedule of loans granted by the client to their employee s. He is unsure about the calculation of the cash equivalent which has to be included in the gross income of the respective employees. 1. On 1 September, an interest free loan of R granted to Mr. A 2. On 1 September, a loan of R at 6% interest to Mr. B that he applied for an investment to earn rental income from 3. On 15 October, an interest free loan of R1 500 to Miss. C to enable her to pay unexpected medical costs. The loan is repaid in November 46

47 Housing subsidies Cash Equivalent = Subsidy amount Subsidy vs. low interest loan Refer example in SILKE 47

48 Discharge or payment of obligation Amount paid by employer Cash Equivalent Amount of debt that employee is relieved from 48

49 Medical aid contributions Cash equivalent Contribution by employer 49

50 Costs relating to medical services Cash equivalent Cost by employer OR total cost / # employees 50

51 Benefits i.r.o insurance policies Cash equivalent Cost by employer 51

52 Exempt Fringe Benefits LA2 s10(1)(na) Special Uniforms SILKE s10(1)(nb) Relocation allowance SILKE Bursaries and Scholarships SILKE

53 To do Visit SARS website Personal Income Tax Revise LA6 Prepare for Practical 14 53

54 Something to think about 54