Page 661 - SAIT Compendium 2016 Volume2

IN 77 Income Tax acT: InTeRPReTaTIon noTes IN 77
4.4.2 Debts owing by the employee
In the context of split billing, the portion of the bill that is for the account of the employee will often be settled via a direct debit against the employee’s bank account. In this case a taxable fringe bene t does not arise because the employee is settling the relevant portion of the debt. However, the amount paid by the employee may impact on the calculation of the taxable fringe bene t – see Example 14. There may be circumstances in which the employer will pay the service provider the portion of the bill owing by the employee. This constitutes the payment of an amount owing by the employee to a third person and is a taxable fringe bene t if the employer does not require full reimbursement from the employee.* In the absence of reimbursement, the amount paid by the employer and not recovered from the employee is a taxable bene t.
Example 13 – Debt vests with the employee
Facts:
FGH Limited (FGH) has entered into a cell phone contract with Cell Phone Service Provider Company. The subscription is R350 per month. Under the split billing agreement between FGH, Cell Phone Service Provider Company and Employee Z, any call charges that exceed the free minute allocation are payable by Employee Z. Cell Phone Service Provider Company will recover all call charges directly from Employee Z’s bank account but if unsuccessful may collect the amount from FGH.
Result:
Any amount paid by FGH for the call charges which it fails to recover from Employee Z is a taxable bene t in Employee Z’s hands. Whether or not FGH’s payment of the monthly subscription gives rise to a taxable fringe bene t will depend on the facts – see 4.1.2.
Example 14 – Split billing
Facts:
An employer (X) and an employee (Z) enter into a split billing arrangement with ABC Service Provider. X pays the monthly subscription of R400 which includes 100 free minutes and a free cell phone. Z is responsible for any usage charges which are payable over and above the monthly subscription (for example, call, text or data charges not included in the monthly subscription). During the month of January 2014, Z made calls totalling 240 minutes of which 110 minutes were for business purposes. ABC Service Provider deducted the usage charges for the excess 140 minutes of R280 directly from Z’s bank account. Z analysed the itemised billing statement and determined that of the 140 minutes which exceeded the 100 free minutes, 50 were for business calls and 90 were for private calls.
Result:
A taxable fringe bene t does not arise for the usage charges settled directly by Z. In relation to the subscription paid by X, there is insuf cient information to support an assessment that, taking all of the aspects of use into account, the phone was used mainly for business purposes. Accordingly, the value of private use must be determined. It is accepted that the number of minutes calls are made is an accurate re ection of business and private use. The private portion of the total bill for January 2014 may be calculated as follows:
• Private portion of the monthly subscription (based on call minutes which are considered to be re ective of business and private use) plus the actual cost of private calls
= [(R400) subscription × (240 – 110) private minutes / 240 total minutes] + (90 chargeable private minutes × R2 / minute)
= R396,67
Private portion of the total bill paid for by X = R396,67 – R280 paid by Z* = R116,67** * Allocate amount paid by employee to private use rst
** Limited to nil
5. Conclusion
The facts and circumstances of a particular employee’s case will determine whether the use of an employer-provided telephone, computer equipment or employer-funded telecommunication service gives rise to a taxable fringe bene t. A taxable fringe bene t will not arise if the facts and circumstances indicate that the employee uses the asset or telecommunication service mainly for the purposes of the employer’s business. ‘Mainly’ in this context means that more than 50% of the total use of the asset or service is for business purposes.
The employer will have to calculate the value of the taxable fringe bene t if the asset or service is not used mainly for business purposes. In the case of –
• the use of an asset, the value of the taxable fringe bene t is, depending on the facts, equal to either the rental cost or
the 15% calculated amount or the cost to the employer, less any consideration payable by the employee for such use; or • the use of a telecommunication service, the value of the taxable fringe bene t is the cost to the employer of rendering or having the service rendered but only to the extent it is used for private or domestic purposes less any consideration
payable by the employee for such service.
Allowances received in anticipation of an employee incurring business-related expenditure for telephone and computer equipment or telecommunication services must be included in taxable income and generally do not qualify for any reductions or deductions in determining the amount of the allowance which must be included in taxable income.
* Paragraph 2(h).
saIT comPendIum oF Tax LegIsLaTIon VoLume 2 653