Page 658 - SAIT Compendium 2016 Volume2

IN 77 Income Tax acT: InTeRPReTaTIon noTes IN 77
Example 5 – Assets not used mainly for purposes of employer’s business
Facts:
ABC Limited purchased a laptop which it allows S, the company’s receptionist, to use. On receipt of the laptop S signed an IT form con rming receipt of the laptop. The ne print on the form stated that all company assets must be used mainly for work purposes. As S already has a desktop computer at work, the laptop is left at home. S is generally not required to perform any work outside of normal of ce hours and uses the laptop at home for private purposes. As an exception to the norm S occasionally assists with capturing data into a company database over the weekend – S does this from home using the company laptop.
Result:
S’s job responsibilities do not require the use of a laptop mainly for work purposes. The fact that the IT form stated that the asset must be used mainly for work purposes is not relevant because it is not a condition that is enforced in S’s case. ABC Limited and S will need to determine the value of the private use taking into account the period of use.
Another exception is when the private or domestic use is incidental to the business use. In the case of telephone and computer equipment this exception has effectively been superseded by the exception discussed above, that is, when these assets are used mainly for business purposes. In these circumstances the value of private use will also be nil.
4.1.2 Free or cheap services provided by the employer
A taxable bene t arises to the extent a service, which has been rendered to an employee at the employer’s expense, is used for the employee’s private or domestic purposes. The service can be rendered by the employer, however, it is often rendered by a service provider as a consequence of an arrangement with the employer. Examples include network access to make and receive telephone calls and internet connectivity.
There are exceptions to the general valuation rule noted above. No value is placed on the private use of a communication service if the service is used mainly for business purposes. An assessment of whether or not the service is used mainly for business purposes must be determined on a case-by-case basis taking all the facts and circumstances into account. The type of factors which SARS will consider in assessing whether the service is used mainly for business purposes are the same as those discussed in 4.1.1.
Employers are responsible for ensuring that the services are used mainly for business purposes, failing which they will be required to include a taxable fringe bene t in the employee’s gross income and, for purposes of calculating employees’ tax, remuneration. No value is also placed on the private use of a telecommunication service if the service is rendered to employees as a bene t to be enjoyed by them at their place of work, for example, private calls made from the of ce using the employer’s xed line service.
The amount of the taxable bene t = cost* to the employer of rendering or having the service rendered† – any consideration payable by the employee for such service.
Example 6 – Taxable bene t for free or cheap services
Facts:
An employee is granted the use of a cell phone as a bene t of employment. The employee uses the phone mainly to make and receive personal telephone calls. The employee does not pay for personal calls.
Result:
A taxable bene t arises under paragraph 2(e) because the service, which has been provided by arrangement with the employer, has been used for private purposes and the employee has not paid any consideration for that private use. The amount of the bene t is equal to the cost to the employer of having that service rendered but limited to the extent it was used for private purposes. Accordingly, the monthly subscription and any call charges borne by the employer will need to be allocated between business use and private use. The amount of the taxable bene t will be equal to the portion attributable to the private use.
Example 7 – Taxable bene t for the right of use of an asset and free and cheap services
Facts:
An employer enters into a cell phone contract with ABC Service Provider. The subscription is R300 per month and includes a ‘free cell phone’ and ‘100 free minutes’ per month. The contract is for a period of 24 months. The employer grants the right of use of the cell phone to the employee for the period of the contract based on the understanding that the employee has to be available and be able to make business calls if necessary when the manager is away on business. This happens every few months. Other than that the employee uses the phone mainly to receive and make private calls and for private emails. During the month of February 2014 the employee used 40 minutes for business calls and 50 for private calls. The employee only used email for private purposes and it was estimated that 80% of the calls received were private. The employee does not pay any consideration for this fringe bene t.
Result:
The employer is paying R300 per month for the subscription, which includes a ‘free cell phone’ (depending on the contract this may be structured as the right of use of the cell phone with ownership transferring on termination of the contract) and ‘free minutes’. The employee’s use is mainly for private or domestic purposes and not mainly for
* The appropriate method to determine cost, for example, speci c cost, weighted average or marginal cost will depend on the facts and circumstances of the particular case.
† To the extent the service is used for private or domestic purposes.
650 saIT comPendIum oF Tax LegIsLaTIon VoLume 2