SOUTH AFRICAN REVENUE SERVICE
MEDIA RELEASE NUMBER 4 OF 1997

9 JUNE 1997

TAXATION OF FRINGE BENEFITS: RESIDENTIAL ACCOMODATION

The Minister of Finance announced in his Budget Speech on 12 March 1997, that Government would the addressing certain schemes, whereby the taxable income of an employee is reduced by way of fringe benefits in the form of residential accommodation provided by the employer to the employee. Two types of schemes were identified-

• Aggressive tax avoidance schemes, in terms of which an employee retains an interest in the accommodation, for example via a connected person, but the accommodation is let to the employer or an associated institution in relation to the employer.
• Salary sacrifice schemes, in terms of which the employer for example pays the monthly rental in respect of the accommodation utilised by the employee, thereby reducing the taxable income of the employee.

Measures to combat schemes of this nature were proposed in the Budget earlier this year. Such measures in essence proposed that where the accommodation is not owned by the employer, the employee would be taxed on an amount equal to the rentals paid and other expenses defrayed by the employer in order to provide such accommodation.

After deliberation with the Portfolio Committee on Finance, the Minister of Finance has agreed that the proposals with regard to salary sacrifice schemes be postponed until March 1998. However, as Government in principle remains opposed to such practices, employers and employees are advised to take advantage of the period between now and March 1998 to rearrange their affairs.

As a number of employers have already commenced deducting PAYE in respect of such fringe benefits, the employer must adjust the relevant employee's future PAYE deductions accordingly.

ISSUED BY THE COMMISSIONER FOR INLAND REVENUE
PRETORIA