Rendering of transport services by employers
Paragraph 2(e) of the Seventh Schedule to the Income Tax Act[1] deems an employer to grant a taxable benefit to an employee if any service has, at the expense of the employer, been rendered to the employee for his or her private or domestic use.
The taxable benefit which arises in this instance is valued under paragraph 10 of the Seventh Schedule and is included in paragraph (i) of the definition of “gross income” and therefore subject to income tax.[2] The taxable benefit will further be included in the employee’s remuneration[3] and the employer will be obliged to withhold employees’ tax on these amounts.[4]
Where an employer, that is engaged in the business of conveying passengers for reward by sea or air, enables an employee (or relative) to travel overseas for private or domestic purposes, the cash value of the taxable benefit is an amount equal to the lowest fare less any consideration payable by the employee or relative.[5]
The cash value of a taxable benefit with regards to the rendering of any other service is the cost to the employer in rendering that service or having that service rendered.[6] These services may, therefore, be rendered by the employer or some other person.
Paragraph 10(2)(b) of the Seventh Schedule, however, states that the taxable benefit will attract no value if a transport service is rendered by the employer to its employees in general for the conveyance of such employees from their homes to the place of their employment (and vice versa).
Some uncertainty existed as to the application of the no-value provision. The South African Revenue Service (“SARS”) therefore issued two binding general rulings under section 89 of the Tax Administration Act[7] as well as the recent Interpretation Note 111 to provide clarity on these issues.
In BGR 42 (issued on 22 March 2017) it was considered whether the word “homes” should be restricted to the exact position of an employee’s specific dwelling or whether an employer may arrange for employees living within a certain radius to be collected from or dropped off at a common area or central point between the employees’ homes and place of employment.
In this regard, it was confirmed that the no-value provision would apply to transport services provided to employees to and from any collection or drop-off point en route to or from the employees’ homes and place of employment or any part of that trip.
[1] No 58 of 1962
[2] Section 5(1) of the Income Tax Act.
[3] Paragraph (b) of the definition of “remuneration” in paragraph 1 of the Fourth Schedule.
[4] Paragraph 2(1) of the Fourth Schedule.
[5] Paragraph 10(1)(a) of the Seventh Schedule.
[6] Paragraph 10(1)(b) of the Seventh Schedule.
[7] No 28 of 2011
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