SOUTH AFRICAN REVENUE SERVICE
PRESS STATEMENT

5 SEPTEMBER 2005

REDUCTION IN OFFICIAL RATE OF INTEREST FOR PURPOSE OF DETERMINING A FRINGE BENEFIT

The "official rate of interest" for calculating fringe benefits has been reduced with fifty basis points with effect from 1 September 2005 following a decrease in the South African Reserve Bank's repo rate earlier in the year. Finance Minister Trevor Manuel has approved that the rate be reduced from 8.5% to 8%.

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 R150 000. The monthly taxable benefit for September 2005 and subsequent months should be calculated as follows:

Interest at the official rate: R150 000 x 8% 12* = R1 000
Less Interest payable by employee: R150 000 x 0% 12 = Nil
Monthly taxable fringe benefit = R1 000

* 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 R1 000 will be added to the employee's other income such as salary, etc. in determining his/her monthly employees' tax liability.

Government Notice 806 giving effect to the decrease of the official rate of interest was published in Gazette No. 27878 dated 5 August 2005.

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

END

For further media enquiries please contact Adrian Lackay, SARS Communications, on 012 422 6037 or 083 388 2580.

ISSUED BY THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE
PRETORIA



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