It’s that time of the year when employers might spread some holiday cheer by rewarding their employees with gifts—otherwise known as taxable “fringe benefits”—or with a cash bonus or 13th cheque.
As welcome as the gesture is, it is important to bear in mind that you may need to share some of your good fortune with the South African Revenue Service (SARS).
Whether it is a shopping voucher or the use of company property for the holidays, your gift may have some tax implications. Your employer will need to determine the cash equivalent of the benefit to calculate how much tax needs to be deducted.
Your employer will issue you with an IRP5/IT3(a) certificate, which will reflect the cash equivalent of the benefit.
Let’s take a look at some examples:
A voucher or a physical present
If your company rewards you with an item that could be seen as an asset, SARS will regard it as a taxable benefit. It will usually be taxed based on the market value, but in some cases, it may be taxed based on the cost to your employer. If you receive a new mobile phone as a personal gift, your employer should tax you on the applicable value on the payroll. The same applies to prizes given to the best performers of the year.
If your employer gives you a gift voucher in lieu of cash, SARS will also treat it as an asset. There are some exceptions, for example, in the case of a long service award. If your employer provides you with a long service award (gift voucher, cash or service) and the value does not exceed R5,000, it will not be treated as a taxable benefit. If your employer provides you with a watch as a long service award, and the value is R7,500, only R2,500 will be taxable.
Holiday accommodation
If your employer lets you use a flat it owns at the coast for your holiday, the taxable value is the amount for which the accommodation could be rented out to non-employees. If the company could rent the flat out for R2,000 per day, then you must be taxed for a R2,000 benefit for each day you stay in the holiday flat.
The taxable benefit will be adjusted if you pay towards your stay in the flat. If the flat could be let out for R2,000 a day and you pay R500 a day, the taxable benefit will be R1,500 for each day you use the flat. If the employer rents rather than owns the flat it allows you to use, the taxable value will be the cost to the employer.
Benefits or gifts to employee’s relatives
If your company decides to give a gift to your child or spouse rather than you, you’ll need to pay tax on it. If your employer directly or indirectly provides a benefit to one of your relatives as a reward for your services, you are deemed to have received the benefit and must be taxed on it.
Transport tickets
Some employers treat their employees to flight or long-haul bus tickets instead of bonuses. SARS generally treats this as a free or cheap service, and the taxable benefit for the employee is the cost to the employer.
Year-end bonus
Year-end bonuses are taxed at the same rate as other remuneration. To determine the rate at which you should be taxed on the payroll, the bonus will be added to your annual salary. This will determine the amount of tax you should pay for the full tax year.
From there, it can subtract your usual annual PAYE deductions, based on remuneration received on a monthly basis, from the total to determine how much tax you should pay on your bonus and your PAYE for the month.
Sometimes the bonus can push you into a higher tax bracket, and that portion of your income will be taxed at a higher rate. Bear in mind these calculations would usually be done automatically by your employer’s payroll software.
Cloud-based solutions give employers more flexibility to process payroll anytime from anywhere – therefore, it is easier for employers to keep track of benefits and quickly process these taxable benefits for the tax to be calculated correctly.
Editor’s note: This article was first published in Dec 2019 and has been updated for relevance.
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Hi, if you are giving a gift voucher to an independent contractor or vendor which is not on your payroll, how would that person declare this on their IRP5?
Hi Celeste, good question. A gift voucher will only be declared on the tax certificate (IRP5) if given to an employee (as defined in the Fourth Schedule to the Income Tax Act). Remuneration paid to an independent contractor may be reflected against code 3616. I hope this is useful.
Please read – Good to bear in mind tax implications for Damiano’s gifts.
Hi, I would like to know if you receive a goodie or a meat hamper, will the employee have tp pay tax on those items as well?
Please advise.
Hi Kashiefa, thank you for asking that. In most cases, PAYE will have to be withheld on non-cash benefits. Please refer to the SARS Guide for Employers in respect of Fringe Benefits for exceptions to the rules here.