Page 657 - SAIT Compendium 2016 Volume2

IN 77 Income Tax acT: InTeRPReTaTIon noTes IN 77
The identi cation and determination of what constitutes business use and private use is potentially an extremely detailed task which can be administratively burdensome and onerous. However, it will not always be administratively burdensome and onerous as a detailed analyses of, for example, itemised billings will often not be required in considering and reaching a view on whether an asset is used mainly for business purposes. SARS will consider the facts and the circumstances of the particular employee’s case. This will include a consideration of, amongst others, the nature of the employee’s work and of cial duties (that is, job responsibilities), qualifying criteria for entitlement to the use of the asset or service and the conditions of use or terms of the grant. There must be a close link between the grant of use of the asset and the employee’s job responsibilities.
In practice the terms of the grant are often documented in a policy document which regulates the use of, for example, cell phones and laptops granted to employees. Policy documents generally specify the terms associated with the use of the asset and the consequences if an employee does not adhere to the policy.
The employer and the employee bear the onus of proving that based on the facts and circumstances the particular asset is required due to the nature of the employee’s job and the associated responsibilities and that it is used mainly for business purposes.
Example 1 – The right of use of an asset over its useful life
Facts:
An employer purchases a cell phone costing R4 500. The employer grants an employee (A) the right to use the cell phone for whatever purpose A desires. A is responsible for purchasing the prepaid recharge vouchers for the phone. A has exclusive use of the phone and is only required to return the phone in 2 years’ time at which stage the employer anticipates that the cell phone will be obsolete and will have to be scrapped. A only uses the cell phone for private purposes and does not pay the employer any consideration for the right of use.
Result:
A has the right of use of an asset for private or domestic purposes. The asset is not used mainly for purposes of the employer’s business and is a taxable bene t in A’s hands. As A has the right to use the cell phone for its useful life, the taxable bene t is R4 500 in the month that the employer granted A the right to use the asset.
Example 2 – The right of use of an asset over its useful life
Facts:
An employer purchases a cell phone costing R6 000. The employer grants an employee (A) the right to use the cell phone for whatever purpose A desires. A is responsible for purchasing the prepaid recharge vouchers for the phone. A has exclusive use of the phone and is only required to return the phone in 2 years’ time at which stage the employer anticipates that the cell phone will be obsolete and will have to be scrapped. A only uses the cell phone for private purposes. A agreed to pay the employer R1 500 for the use of the phone as the employer was originally only prepared to purchase a phone costing R4 500.
Result:
A has the right of use of an asset for private or domestic purposes. The asset is not used mainly for purposes of the employer’s business and is a taxable bene t in A’s hands. As A has the right to use the cell phone for its useful life, the taxable bene t is R4 500 in the month that the employer granted A the right to use the asset (value of private use R6 000 – consideration paid by A of R1 500).
Example 3 – The right to use an asset mainly for business purposes
Facts:
Dr C is employed by Good Medical Health (Pty) Ltd (Good Medical Health). Part of Dr C’s job responsibilities is to run the emergency phone assistance programme which is available to patients 24 hours a day, 7 days a week. Good Medical Health purchases and gives Dr C a prepaid cell phone to use for purposes of the emergency line.Good Medical Health also purchases suf cient airtime in case Dr C needs to make a call. However, the purpose of the phone is to keep the line open in order to receive emergency calls and to be able to provide life-saving assistance telephonically. There is limited use of the phone to make calls and it is rarely used to make personal calls.
Result:
The taxable bene t is nil because based on the facts and circumstances of the case Dr C uses the cell phone and prepaid recharge vouchers mainly for the purpose of Good Medical Health’s business and as a result the private or domestic use of the cell phone is given no value under paragraph 6(4)(bA).
Example 4 – Assets used mainly for purposes of employer’s business
Facts:
ABC Limited purchased a laptop for the sole use by one of its employees, A. A is the company accountant and uses the laptop to perform his duties on a daily basis. The agreement between ABC Limited and A is that the laptop must be used mainly for purposes of the employer’s business. A is permitted to use the laptop for occasional private use and is not required to account for business and private usage.
Result:
A uses a computer to perform his job and is required to use the computer mainly for the purposes of the employer’s business. As a result SARS will accept that the laptop is used mainly for purposes of ABC’s business and no value will be placed on the private or domestic use of the computer. This is so despite the fact that A is not required to monitor and maintain records of the actual business and private usage.
saIT comPendIum oF Tax LegIsLaTIon VoLume 2 649