SOUTH AFRICAN REVENUE SERVICE
PRESS STATEMENT

1 SEPTEMBER 2004

OFFICIAL RATE OF INTEREST FOR PURPOSE OF DETERMINING A FRINGE BENEFIT

The "official rate of interest" is to come down by 50 basis points with immediate effect following the recent decrease in the South African Reserve Bank's repo rate last month. Finance Minister Trevor Manuel has approved that the rate be reduced from 9% to 8.5% with effect from today.

The fringe benefit provisions in the Seventh Schedule to the Income Tax Act, 1962 provide that a taxable fringe benefit arises where an employee obtains a loan from his or her employer in terms of which -

The fringe benefit is calculated as the difference between-

EXAMPLE

An employer grants an employee an interest-free loan of R100 000. The monthly taxable benefit for September 2004 and subsequent months should be calculated as follows -

Interest at the "official rate": R100 000 x 8.5% 12* = R708.33
Less Interest payable by employee: R 100 000 x 0% 12 = Nil
Taxable fringe benefit equals = R 708.33

* Where an employee is paid at other intervals than on a monthly basis, e.g. weekly or fortnightly, use 52 or 26 instead of 12 to determine the taxable benefit.

The amount of R 708.33 will be added to the employee's other income such as salary, etc. in determining his/her monthly employees' tax liability.

Government Notice 1024 giving effect to the decrease of the official rate of interest has been published in Gazette No. 26742 dated 1 September 2004.

The government notice will be published on the SARS website http://www.sars.gov.za and can be accessed under Legislation/Regulations and Government Notices/Income Tax/Regulations/Notices.

For further comment please contact Sechaba Nkosi at (012) 422 5046 or 082 465 2901.

ISSUED BY THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE
PRETORIA



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