Dear Reader,

In this bulletin:

•    I’ve just joined the tax team
•    SARS is now scraping the bottom of the barrel
•    Don’t jump the tax gun
•    Is SARS going to catch you this PAYE season?
•    So what is a fringe benefit?
•    One last point about the soccer t-shirts…
•    It’s a lose-lose situation

I’ve just joined the tax team

My name is Professor Marius Maritz, and as Fulvia mentioned last week, I’ve just joined the tax team as the new Editor in Chief. I’ll be writing to you every few weeks, to bring you the latest tax headlines, as well as tips and tools to save you time and money.

Let’s jump straight in, and find out why SARS is scraping the bottom of the barrel….

SARS is now scraping the bottom of the barrel…

As proud South Africans hosting the 2010 Fifa World Cup and building a spirit of nationhood, employers have bought “Football Friday” supporters shirts for their employees. Their general belief was that such an expense would be tax deductable AND that there’d be no taxable fringe benefit accrued to the employees.

Don’t jump the tax gun!

Shockingly, a recent announcement by a SARS spokesperson revealed that employers MUST tax the “free” T-shirt as a fringe benefit. As if that wasn’t enough, SARS is also going to crack down on employers who provide their employees with shirts, but at a cost lower than the actual retail price. Specifically, the taxman’s going to look to those paragraphs of the Tax Act dealing with the acquisition of an asset at less than its actual value, and the right of an employee to use an asset that’s paid for (or subsidized by) the employer. Both of these are fringe benefits.

Is SARS going to catch you this PAYE season?

The employer PAYE reconciliation deadline on the 31st of May is looming around the corner. It’s generally known that whenever SARS conducts a tax audit they scrutinise all your expenses to specifically check for undeclared fringe benefits. In terms of the law, the obligation falls on you to correctly assess any possible fringe benefit.

So what is a fringe benefit?

Remember, a taxable fringe benefit is defined in the taxman’s dictionary as:

Any assets, goods or property (other than money) given to the employee (or his relations) by his employer. Usually at very little or no cost. Practical examples include:

•    Prizes awarded, whether monetary or otherwise, for being the employee of the month or for sales performance and/or outstanding work performance.
•    An arrangement for the employee to acquire an asset from a supplier at a discount.
•    Gifts for birthdays or any other celebration or event.
•    Paying for vacations to the benefit of the employee for whatever reason.

One last point about the soccer t-shirts…

Another important aspect of the free soccer shirt issue is around the principle of the right of use of an asset. If you give your employee the right of use of an asset (e.g., a laptop ), for little or no cost, then you’re giving him right of use of this asset. This also qualifies as a fringe benefit.
 

It’s a lose-lose situation

So, before you decide to supply shirts for your employees, I urge you to be cautious, especially because you could unwittingly increase their tax bills! Oh, and if you’re considering paying the fringe benefit taxes on their behalf, think again: The amount you pay for them will be an additional benefit your employees accrue, and they’ll have to pay tax on both the shirt, and the additional payment you make on their behalf.

Finally, the financial consequences of not taxing employees correctly could lead to severe penalties and interest backdated to the month when the fringe benefit was incurred! So be careful.

Until next week,

Prof Marius J Maritz  

Editor in Chief,
Practical Tax Handbook