April 23, 2018
May 9, 2018


The Seventh Schedule to the Income Tax Act[1] lists various benefits that employers may grant to employees which will attract income tax for the employee,[2] and require the employer to also withhold PAYE on the amount of the benefit granted.[3] These provisions act as anti-avoidance measures to avoid employees receiving “masked” remuneration in formats other than cash in order to avoid a liability for income tax.

The Seventh Schedule identifies a number of such taxable fringe benefits, and further quantifies the cash flow equivalent of that benefit for purposes of inclusion ultimately in the employee’s taxable income. These taxable benefits provided by employers to employees include:[4]

  1. The acquisition by the employee of assets from the employer at less than its value;
  2. The right to use an asset for free or without the employee paying adequate consideration for the use thereof;
  3. Free meals, refreshments or vouchers to that effect;
  4. Free or cheap residential accommodation;
  5. Free or cheap services provided or sourced by the employer for the benefit of the employee;
  6. Where the employer provides an interest-free or low-interest loan to an employee;
  7. Where the employer pays all of, or a portion of, the employee’s debt owed to another person, with no recourse to the employee;
  8. The employer settles any direct or indirect medical costs incurred by the employee and to the benefit of the employee him/herself, as well as any other dependents;
  9. Contributions made by the employer to any insurance policy which will benefit the employee; and
  10. Contributions by the employer to any retirement type fund on behalf of the employee.

Fringe benefits further also extend to where the above benefits are granted to family members of the employee, or any other person where those benefits are extended by virtue of an arrangement between the employer and the employee and which is granted as a result of the existence of the employment relationship.[5]

Given the very wide definition afforded to the word “employee” for purposes of the fringe benefit regime,[6] we often find that clients are surprised at the very wide potential application of the above benefits, be it to the employee directly or not. Given that the PAYE regime, affected by the above mentioned, carries a potential penalty of imprisonment for up to twelve months in instances of wilful contravention or contravention without just cause,[7] it is of the utmost importance that employers too are completely up to date with and aware of the obligations that they may have towards SARS and arising from fringe benefits provided to employees.

[1] 58 of 1962.

[2] See paragraph (i) of the specific inclusions in the “gross income” definition in section 1 of the Income Tax Act.

[3] Paragraph 2 of the Fourth Schedule to the Income Tax Act.

[4] Paragraph 2 of the Seventh Schedule to the Income Tax Act.

[5] Paragraph 16 of the Seventh Schedule to the Income Tax Act.

[6] Paragraph 1 of the Fourth Schedule read with paragraph 1 of the Seventh Schedule to the Income Tax Act.

[7] Paragraph 30(1) of the Fourth Schedule to the Income Tax Act.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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