Page 616 - SAIT Compendium 2016 Volume2

IN 71 Income Tax acT: InTeRPReTaTIon noTes IN 71
In the context of long service awards, the value of the asset is generally equal to the cost of the asset to the employer. In addition, in the case of qualifying long service awards the value of the asset may be reduced by the lesser of –
(a) the cost to the employer of all assets given to the employee for long service during the year of assessment; or
(b) R5 000.
For an award to qualify as a long service award, the asset must have been given to the employee for being in employment with the same employer for –
(i) an initial unbroken period of service of at least 15 years; or
(ii) a subsequent unbroken period of service of not less than 10 years.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
Annexure – The law
Paragraph 1 of the Seventh Schedule – De nitions
‘associated institution’, in relation to any single employer, means—
(a) where the employer is a company, any other company which is associated with the employer company by reason
of the fact that both companies are managed or controlled directly or indirectly by substantially the same persons;
(b) where the employer is not a company, any company which is managed or controlled directly or indirectly by the
employer or by any partnership of which the employer is a member; or
(c) any fund established solely or mainly for providing bene ts for employees or former employees of the employer
or for employees or former employees of the employer and any company which is in terms of paragraph (a) or (b) an associated institution in relation to the employer, but excluding any fund established by a trade union or industrial council and any fund established for postgraduate research otherwise than out of moneys provided by the employer or by any associated institution in relation to the employer;
Paragraph 2 (a) of the Seventh Schedule – Taxable bene ts
2. For the purposes of this Schedule and of paragraph (i) of the de nition of ‘gross income’ in section 1 of this Act, a taxable bene t shall be deemed to have been granted by an employer to his employee in respect of the employee’s employment with the employer, if as a bene t or advantage of or by virtue of such employment or as a reward for services rendered or to be rendered by the employee to the employer—
(a) any asset consisting of any goods, commodity, nancial instrument or property of any nature (other than money) has been acquired by the employee from the employer or any associated institution in relation to the employer or from any person by arrangement with the employer, either for no consideration or for a consideration given by the employee which is less than the value of such asset, as determined under paragraph 5 (2): Provided that the provisions of this subparagraph shall not apply in respect of—
(i) any meal, refreshment, voucher, board, fuel, power or water with which the employee has been provided as contemplated in subparagraph (c) or (d);
(ii) any marketable security acquired by the exercise by the employee, as contemplated in section 8A, of any right to acquire any marketable security;
(iii) any qualifying equity share acquired by an employee as contemplated in section 8B; or
(iv) any equity instrument contemplated in section 8C; or
Paragraph 5 of the Seventh Schedule – Acquisition of an asset at less than actual value
5. (1) Where an asset has been acquired by an employee as contemplated in paragraph 2 (a), the cash equivalent of the value of the taxable bene t shall be so much of the value of such asset (as determined under subparagraph (2) of this paragraph) as exceeds the value of any consideration given by the employee for such asset.
(2) The value to be placed on such asset shall be the market value thereof at the time the asset is acquired by the employee: Provided that where the asset in question is movable property (other than marketable securities or an asset which the employer had the use of prior to acquiring ownership thereof) and was acquired by the employer in order to dispose of it to the employee or the asset in question (other than marketable securities) was held by the employer as trading stock, the value to be placed thereon shall be the cost thereof to the employer or, where such asset was held as trading stock and the market value thereof was less than such cost, such market value: Provided further that where—
(a) any asset is presented by an employer to an employee as an award for bravery, such value to be placed thereon shall be reduced by the lesser of the cost to the employer of all such assets so awarded to the employee during the year of assessment and R5 000; or
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saIT comPendIum oF Tax LegIsLaTIon VoLume 2