Fringe Benefit – Purchase of residential accommodation by an employer for an employee.
If an employee wishes to claim a nil value fringe benefit for the residential accommodation, please be mindful of the following:
- The employee must own the accommodation.
- The remuneration proxy of the employee must not exceed R250 000. `Remuneration proxy’ is not the same as `remuneration’ as defined by the ITA.
“remuneration proxy”, in relation to a year of assessment, means the remuneration, as defined in paragraph 1 of the Fourth Schedule, derived by an employee from an employer during the year of assessment immediately preceding that year of assessment, other than the cash equivalent of the value of a taxable benefit derived from the occupation of residential accommodation as contemplated in paragraph 9(3) of the Seventh Schedule: Provided that—
(a) where during a portion of such preceding year the employee was not in the employment of the employer or of any associated institution in relation to the employer, the remuneration proxy as respects that employee must be deemed to be an amount which bears to the amount of the employee’s remuneration for the portion of such preceding year during which the employee was in such employment the same ratio as the period of 365 days bears to the number of days in such last-mentioned portion;
(b) where during the whole of such preceding year, the employee was not in the employment of the employer or of any associated institution in relation to the employer, the remuneration proxy as respects that employee must be deemed to be an amount which bears to the employee’s remuneration during the first month during which the employee was in the employment of the employer the same ratio as 365 days bears to the number of days during which the employee was in such employment.
A ‘month’ is defined for the purposes of the Seventh Schedule as any of the twelve portions into which a calendar year is divided.
3. The employee must not be `connected’ to the employer.
If the employee meets all the above requirements, then only the fringe benefit be declared nil-value from the employee’s perspective. There would be zero PAYE implication under these circumstances.
With respect to VAT, fringe benefits are a taxable supply, and there should be output tax levied by the employer.
However, given the fact there is a nil-value fringe benefit and involves residential accommodation (which is specifically exempt from VAT), there would be no VAT implication in this transaction.