Module 4: Fringe Benefits

Question 1

What are fringe benefits (also called taxable benefits)?

Answer 1

Benefits provided to employees.

Question 2

What can employment benefits include?

Answer 2

Salary, fringe benefits, allowances and advances.

Question 3

What is the basic calc for cash equivalent of a fringe benefit?

Answer 3

Value of asset - amount paid by employee

Question 4

If the asset is trading stock…

Answer 4

The value is the lower of cost to employer or market value

Question 5

If the asset is an award…

Answer 5

The value to be used is the cost to employer

Question 6

What is remuneration proxy?

Answer 6

A way to determine employees total earnings.

Question 7

What are the 3 ways to calculate remuneration proxy?

Answer 7

1. Employee’s total earnings from previous tax year
2. Employee’s total expected earnings for current tax year
3. If employee started during tax year, remuneration proxy based on first month’s salary x 12

Question 8

For which assets will the value be Rnil?
Hint: Fuel

Answer 8

. Fuel or lubricant for use in company car
. Transfer of immovable property to an unconnected employee if:
(A)The property value < R450,000
(B) employee’s remuneration proxy < R250,000
. Accommodation bought at market value by employee or their spouse or minor child

Question 9

What reduction can be claimed against the cash equivalent of an asset awarded as a long standing award?

Answer 9

.Up to R5,000 can be deducted if asset is a long service award
. If assets value is < R5,000 value is Rnil

Question 10

How is the taxable benefit for the right of use of an asset calculated?

Answer 10

15% per year on the lower of cost or market value (or rental cost if leased).

Question 11

Which assets are excluded from the right of use rule?
Remember: an exclusion and an Rnil value are different.

Answer 11

Residential accommodation, motor vehicles, and clothing.

Question 12

Which rightof use assets have a Rnil taxable value?

Answer 12

Incidental business use, workplace amenities, short-term equipment use, work-related devices, books.

Question 13

How do you adjust the benefit for part-year use?

Answer 13

Multiply 15% of asset value by (months used ÷ 12).

Question 14

In the instance that you are granted sole use of the asset for its entire useful life…

Answer 14

the taxable value will be the cost of the asset to the employer.

Question 15

Cash equivalent for right of use =

Answer 15

Value of private use – employee’s consideration or maintenance/repair costs.

Question 16

What is the calculation of private use for taxable fringe benefits (Right of Use)?

Answer 16

1. Determine the total cost of the asset (e.g., lease, market value).
2. Assess private vs. business use:
   Mileage method (personal vs. business mileage)
   Percentage of time used privately
   Market rental value for personal use
3. Adjust for employer contributions: Subtract any fees the employee pays.
4. Calculate taxable fringe benefit: Apply the private use percentage to the total asset cost.

Question 17

What is “right of private use” for an employee?

Answer 17

Employee can use the vehicle personally, but ownership remains with the employer. Home-to-work travel is also private use.

Question 18

How is the taxable value of the vehicle calculated?

Answer 18

3.5% of the vehicle’s value per month of private use, or 3.25% if it has a maintenance plan.

Question 19

What happens if the vehicle is granted 12+ months after the employer acquires it?

Answer 19

The value is reduced by 15% for each 12 months the employer owned it before granting use.

I.E it depreciates by 15% per year

Question 20

What if the employee also gets a travel allowance on a company car?

Answer 20

Taxable value is still 3.5%. Employee can’t claim deductions; employer can only deduct actual expenses.

Question 21

How is taxable value calculated for partial use in the first month?

Answer 21

Apportion based on the number of days used in the first month.

Question 22

What if the employee uses two vehicles?

Answer 22

Taxable value is based on the vehicle with the highest value.

Question 23

How is PAYE calculated on a fringe benefit?

Answer 23

80% of the fringe benefit is included in remuneration.

Question 24

What inclusions for right of motor vehicle use have a Rnil value?

Answer 24

. Incidental use
. Regular use outside of normal work hours
. Only used for travel between house and work

Question 25

What is a tax maintenance plan for a vehicle?

Answer 25

3 years / 60 000km. this will allow for the 3.25% rate

Question 26

What is the cash equivalent value of a meal/voucher for employee?

Answer 26

Cost - consideration paid by employee

Question 27

What is the cash equivalent value for residental accomodation?

Answer 27

Rental value less consideration paid by employee

Question 28

What is rental value formula?

Answer 28

(A - B) x C/100 x D/12

Question 29

In the rental value formula, (A-B) x C/100 x D/12, what does A represent?

Answer 29

A = remuneration proxy

Question 30

In the rental value formula, (A-B) x C/100 x D/12, what does B represent?

Answer 30

B = an exemption of R78,150

Question 31

In the rental value formula, (A-B) x C/100 x D/12, what does C represent?

Answer 31

C = a percentage of; . 17 . 18 if 4 rooms + is furnished or electricity is supplied . 19 if 4 rooms + is furnished + electricity is supplied

Question 32

In the rental value formula, (A-B) x C/100 x D/12, what does D represent?

Answer 32

D = number of full months employee is entitled to accommodation

Question 33

In the rental value formula, (A-B) x C/100 x D/12, when will B (exemption) be Rnil?

Answer 33

. If employee or spouse controls the private company that is giving the fringe benefit . If they or their minor child have the option to become the owner of the accommodation

Question 34

When will the rental value formula be applied?

Answer 34

. Employer owns the accommodation, or; . Employee has an interest in the accommodation, or; . Employer doesn't own the accommodation and it is customary and necessary for employer to provide free/subsidised accommodation . Is for bona fide business purposes

Question 35

When will an employee have an interest in the accommodation?

Answer 35

. Accommodation is owned by employee/connected person or; . Any increase in value will accrue to employee/connected person or; . Employee/connected person has a right to acquire the accommodation (will invoke a Rnil exemption in rental value)

Question 36

True or false: If an employee is provided with two or more residences, the highest rental value among them is used for tax purposes during any period they occupy more than one.

Answer 36

True.

Question 37

If an employer rents (not owns) accommodation for an employee, the taxable value is the lower of:

Answer 37

The rental formula value OR The actual rent paid by the employer.

Question 38

What is the Rnil provision for employer/provided accommodation for SA residents?

Answer 38

If employee is away from their normal home for work, the accommodation provided is not taxed.

Question 39

What is the Rnil provision for employer/provided accommodation for non-residents?

Answer 39

Accommodation given in SA is tax-free if: . Stay < 2 years after arrival . Stay is < 90 days in tax year

Question 40

When is the Rnil provision for employer/provided accommodation for non-residents NOT applicable?

Answer 40

. If employee was present in SA > 90 days during previous yoa as well as current . cash equivalent value of the taxable benefit exceeds R25,000 x number of months employee was away

Question 41

In terms of employer-provided holiday accommodation, if the accommodation is rented from an independent landlord, the taxable value is:

Answer 41

the actual cost of rent, meals and services

Question 42

In terms of employer-provided holiday accommodation, if the accommodation is owned by employer or rented from related entity, the taxable value is:

Answer 42

based on the normal daily rental rate that a non-employee would pay

Question 43

when are travel facilities NOT taxable benefits? (5 answers)

Answer 43

. If an employer who operates a passenger transport business provides it to employee freely . If an employer provides transport for commuting purposes . If an employer provides phones/interest mainly for business . If services provided at work are for the employee's performance, well-being or receational use . If employee is stationed > 250km from home and works there at least 183 days a year, spouse or minor child's travel expenses can be paid tax-free by employer

Question 44

True or false: a loan granted by an employer relating to services rendered will constitute a fringe benefit.

Answer 44

True, unless the loan is for buying shares in the company.

Question 45

When does a loan provided by an employer become a fringe benefit?

Answer 45

When there is a difference between the market interest rate and the interest rate provided by employer. The difference is the taxable benefit.

Question 46

What are the 3 Rnil provisions for loans provided by employer?

Answer 46

. Debt is < R3,000 at all times; or . Debt is for further studies . Transfer of fixed property (paragraph 5) provided that: a. Remuneration proxy < R250,000 b. Value of property < R450,000 c. Employee is not a connected person

Question 47

What is the cash equivalent of a loan?

Answer 47

Interest at official interest rate - interest paid by employee

Question 48

When is residential accommodation qualify as a low interest-rate loan?

Answer 48

. Employee lives in employer owned house and ; . is entitled/obliged to acquire the house at a future date at a price stated in an agreement and; . employee is paying for use wholly or partly as a % of a future purchase price

Question 49

For low-interest rate loans for residential accommodation, what is the future purchase price and employee's payment for use?

Answer 49

future purchase price = loan granted employee's payment for use = deemed interest paid

Question 50

True or false: For subsidy loans, the taxable amount is the total subsidy paid by employer.

Answer 50

True, regardless of interest or capital.

Question 51

What's the cash equivalent of medical aid/RAF contributions?

Answer 51

Contributions paid (if such contribution cannot be attributed to a specific employee, the lump sum contribution must be apportioned between employees entitled to the benefit)

Question 52

When will medical aid contributions by employer be Rnil?

Answer 52

When the person is: . retired from old age, health or infirmity . the dependents of a deceased employee . the dependents of a retired employee after their death

Question 53

When will RAF contributions by employer be Rnil?

Answer 53

. Contributions for the dependents or nominees of a deceased fund member. . Contributions for a member who has already retired from the fund.

Question 54

Which employer-paid medical expenses will have an Rnil value?

Answer 54

. Treatments covered under prescribed minimum benefits for an employee, spouse, or children in an employer-run medical scheme. . Medicines or services required by law (e.g., HIV/AIDS treatment). . Benefits for retirees due to age, ill health, or disability. . Benefits for dependents of a deceased employee. . Benefits for individuals eligible for the over-65 tax rebate. . Medical services provided at the workplace to help employees perform their duties.

Question 55

True or false: employee debt written off by an employer is a fringe benefit.

Answer 55

True.

Question 56

True or false: if a debt prescribes (expires) after 3 years, it is still a fringe benefit.

Answer 56

True.

Question 57

What are the Rnil provisions for discharge of debts?

Answer 57

. Paying an employee’s professional body subscription if membership is required for their job. . Covering insurance premiums that protect the employee from claims due to negligence. . Payments made by a former non-statutory force member to the Government Employees’ Pension Fund. . Paying off an employee’s bursary or study loan from their previous employer, as long as the employee agrees to work for the new employer for the remaining required period.

Question 58

Follw this formula for right-of-use of vehicle:

Answer 58

Step 1. Determine value of benefit by using the 3.5% per month and grossing up to a year Step 2. Deduct business km by apportioning value of benefit by business km/total km Step 3. Deuct fuel based on deemed or actual costs IF covered by employee