In his Budget Speech on 12 March 1997, the Minister of Finance expressed his concern about the loss in revenue as a result of the widespread use of fringe benefits to structure remuneration packages by way of the so-called "salary-sacrifice" schemes. Several measures to counter this tendency were therefore announced.
Special reference was made to the provisions relating to the determination of the taxable benefit in respect of residential accommodation provided by an employer to its employees. It was proposed that as from 1 March 1997, where the residential accommodation provided as a benefit to the employee is not owned by the employer, or an associated institution in relation to the employer, or where the employee has an interest in the accommodation in question, such an employee will be taxed on an amount equivalent to the rentals paid by the employer or associated institution and any other expenditure, which includes maintenance, water and electricity and other incidental costs, incurred by the employer or associated institution in providing such accommodation.
Legislation to give effect to these proposals is currently being drafted and should be promulgated by mid-year. Such legislation will, however, come into operation with effect from 1 March 1997 and employers are therefore advised to bear these measures in mind when calculating employees' tax (PAYE). Failure to do so will result in the underdeduction of employees' tax and the relevant employer may become liable for the payment of penalties and interest.
The proposed amendment to the Seventh Schedule to the Income Tax Act, 1962 (Act No. 58 of 1962) will provide that where the employer, or associated institution in relation to such employer does not have full ownership in the accommodation provided to the employee, the rentals paid and other expenses incurred by the employer or associated institution to provide such accommodation will be included in the employee's taxable income. An amount of R3,000 per annum will be allowed to be deducted from the amount of the rentals and other expenses so included in the employee's taxable income. As in the case of the R20,000 abatement provided in the formula determination of the taxable benefit, the purpose of the R3,000 deduction is to also provide relief where the employer or associated institution does not have full ownership in the property.
Where, however, the employee or a connected person in relation to the employee, has an interest in the accommodation in question, e.g. where the employee is a connected person in relation to a property-owning employer, the amount to be included in the employee's taxable income will be the greater of the rentals paid and other expenses incurred by the employer, or the rental value determined in accordance with the formula. The deduction of R3,000 will not be granted in such circumstances.
Where the accommodation was provided for a period of less than 12 months during the tax year, the allowance must be reduced proportionally.
The Minister furthermore proposed that with effect from 1 July 1997 the value to be placed on the private use (taxable benefit) of the first company car which is made available by an employer to the employee be increased from 1,2 per cent of the determined value of the vehicle to 1,8 per cent per month, while the value of a second or subsequent vehicle be increased from 2 per cent to 4 per cent per month. The proposed legislation in this regard will provide that where an employee has been granted the use of a company car and also receives a travelling allowance, the company car will be regarded as a second vehicle where such vehicle is not used primarily for business purposes and the value to be included in the employee's taxable income will, therefore, be calculated at a rate of 4 per cent per month of the determined value of such vehicle.
ISSUED BY THE COMMISSIONER FOR INLAND REVENUE