Making sense of your IRP5 - Part 2

Steven Jones - Moneyweb Tax

This week we look at the fringe benefit codes on your IRP5.

Now that you know what a 3601, 3605, and various other codes mean, and how they are taxed, it's time to have a look at the various fringe benefit codes, how they came about, and - most importantly - what they mean for your ultimate tax liability.

3801 - Acquisition of asset. Do you remember that last major computer upgrade your company did, and the bargain that you had when you bought one of the old PCs for home? If you don't, the South African Revenue Service (Sars) has just reminded you. Whenever your employer sells (or gives) an asset to you, they are required, for tax purposes, to value such asset at open market value, and if the price you paid is less than this amount, the shortfall gives rise to a fringe benefit, which is taxable.

Unfortunately it doesn't work the other way around - if you paid more than market value, the excess does not give rise to a tax deduction!

3802 - Use of motor vehicle. Despite the widespread move to cost-to-company remuneration packages, there are still those privileged few who enjoy the use of company cars. Unfortunately SARS wants their slice of this pie as well, and the taxable value of a company car benefit is calculated at 2.5% of the so-called "determined value" of the vehicle.

This "determined value" is based on the original cost of the vehicle, excluding VAT and finance charges, and remains static during the entire period in which you make use of this vehicle. If you are the second (or subsequent) user of this particular vehicle, the "determined value" is written-down by 15% per annum on a reducing balance basis.

For those who have reached the rarefied heights of the corporate hierarchy that entitled them to more than one company car, the more expensive of the two is taxed at 2,5% of "determined value", and the additional vehicles taxed at 4%.

3802 - Use of asset. If the employer owns any asset (other than vehicles or accommodation) that is made available for an employee's private use, such use gives rise to a taxable fringe benefit. The value is calculated at 15% of the lesser of cost or market value. If the asset is rented by the employer, the cost of the rental becomes the taxable value. However, if the private use of the asset is incidental to the business use (e.g. laptop computers and cell phones), no taxable benefit arises.

3804 - Meals, etc. This code is used for meals, refreshments, and meal vouchers supplied by the employer. However, this benefit normally arises in conjunction with the use of holiday accommodation provided by the employer where meals are included as well. The use of a subsidised canteen on company premises does not give rise to a taxable benefit, nor do meals provided as part of one's subsistence when out of town as well as meals enjoyed when entertaining clients.

3805 - Accommodation. If you enjoy a holiday at your employer's expense, this will give rise to a taxable fringe benefit. The taxable value is based on the greater of a predetermined formula or the cost thereof to the employer. However, accommodation provided by an employer to an employee who is making use of such accommodation while travelling on business does not give rise to a taxable benefit.

3806 - Services. The cost of any free or cheap services provided to an employee by the employer gives rise to a taxable benefit.

3807 - Loans or subsidy. Loans granted at interest rates lower than the "official" rate of interest, or subsidies (such as housing subsidies), give rise to a taxable benefit. However, there is no taxable benefit on interest-free "casual" loans not exceeding R3 000, as well as interest-free loans of any amount that are to enable the employee to study.

3808 - Employee's debt. If an employee is indebted to the employer, and part or all of such debt is waived, such waiver gives rise to a taxable fringe benefit. The same will apply in cases where the employer settles a debt on the employee's behalf. However, no taxable benefit arises from bona-fide bursary schemes for employees, where the tuition fees and books are paid for on a loan basis, with such loan being written off when the employee successfully completes the course of study.

3809 - Bursaries and scholarships. These are not bursaries and scholarships provided to the employees themselves, but rather those granted to relatives of the employee. If the bursary or scholarship is granted on the basis of the relative's employment, the value thereof is taxable. A common example is where children of teachers or lecturers receive subsidised or free tuition at the institution where they are employed. However, if the relative concerned applies for a bursary under an "open" scheme, and is successful in terms of criteria unrelated to the relative's employment, no taxable fringe benefit will arise.

3810 - Medical aid contributions. The portion of medical aid contributions exceeding the monthly tax-free "cap" gives rise to a taxable benefit. However, no taxable benefit arises where contributions are made on behalf of an employee who has retired, whether upon reaching the age of 55 or due to ill-health or incapacity.

3811 - Medical services costs. Medical expenses (other than medical aid contributions) paid by the employer will give rise to a taxable fringe benefit. However, if the employer is a hospital, doctor, or other medical service provider and the services provided form part of the prescribed minimum benefits provided for under the Medical Schemes Act, no taxable benefit arises. Medical expenses provided to retired employees are also not taxable.