Fringe Benefits Tax
What is a Fringe Benefit?
Fringe benefits usually refer to non-cash benefits granted to employees but do not constitute cash payments made. A fringe benefit is to be understood as a benefit that an employee receives, but which does not form part of the employee’s primary remuneration package (i.e. an employee’s salary cash value).
The most common types of Fringe Benefits:
— Acquisition of an asset at less than market value
— Right of use of an asset
— Right of use of a motor vehicle
— Meals and refreshments
— Residential Accommodation
— Free or cheap services
— Benefits in respect of interest on debt
— Subsidies with respect to debt
— Contributions to benefit funds
— Medical Aid Contributions
— Benefits with respect to insurance policies
— Contributions made by employers to retirement funds
— Payment of employee debt
The type of fringe benefit that the employee receives determines the way that the fringe benefit gets taxed so it is very important that the employer or individual responsible for the monthly payroll refer to the relevant TAX guides available on the SARS website to make sure that the right calculation methods and values are used.
How does this affect the employee’s Monthly Tax Calculation?
Once the employer determines the cash value of the fringe benefit received by the employee and adds the cash value to the employee’s remuneration, the employee may be obliged to pay tax on his/her fringe benefits. On an annual basis, the employer must issue the employee with an IRP 5/IT3(a) certificate. The nature and cash value of the fringe benefit must be clearly stated.
The type of fringe benefit that the employee receives determines the way that the fringe benefit gets taxed so it is very important that the employer or individual responsible for the monthly payroll refer to the relevant TAX guides available on the SARS website to make sure that the right calculation methods and values are used.
Furthermore, it is very important that the employer or person responsible for the monthly payroll explain the basics of fringe benefits to the employees who are receiving them.
