adminDid you know that it is common for employers to come up with incentives and other payments to retain the services of critical employees? This might entail the payment or granting of benefits or advantages. Such benefits or advantages constitute remuneration and should be subjected to tax in terms of the Income Tax Act [Chapter 23:06].
What is an advantage or benefit for Income Tax Purposes?
An “advantage or benefit” is defined as the occupation of quarters or a residence, the use of furniture or a motor vehicle, the use or enjoyment of any property whatsoever corporeal or incorporeal and an allowance granted by or on behalf of an employer to an employee, his spouse or child. An employee in this case includes a director or a person otherwise gainfully employed.
From the definition provided in the foregoing, it can be noted that a number of benefits granted under contracts of employment are subject to income tax. In this case the employer should ensure that the amounts are properly quantified, valued and subjected to employees tax (PAYE) every month. This is in addition to salaries and other emoluments paid to employees.
Basis of valuation of advantages or benefits
The correct valuation of benefits for income tax purposes is as follows:
(a) Allowances: The payment made by the employer excluding the portion expended for the purposes of the employer’s business should be subjected to tax
(b) Occupation or use of quarters, residence or furniture – the value to the employee should be determined and subjected to tax.
(c) In the case of any other advantage or benefit — the value of the taxable benefit is determined by reference to the cost to the employer
A brief explanation on the taxation of some of the benefits is given below.
Taxation of specific benefits
Housing Benefit
The value for a free use of a residence or quarters granted by an employer or its associate to director or an employee is the residence or quarters’ open market rental. For a house located outside the municipal area, the benefit to the employee is the greatest of 12,5 percent of his salary and 7 percent of the cost construction of the house. A further benefit of 8 percent of the cost of furniture accrues to an employee for a furnished house.
The benefit is reduced by any rent paid by a person for the occupation.
Passage Benefit
A passage benefit is the cost borne by an employer towards any journey by an employee, his spouse and children in connection with his taking up of employment or terminating and any other journey made by the employee during the course of his employment. This excludes the costs incurred by the employer towards:
The employee’s taking up employment (if no other trips were not borne or sponsored by the same employer).
Termination of employment (if no other trips were not sponsored by the same employer).
Any costs incurred by the employee for the purposes of the business transactions of the employer
All the private trips and family member trips borne by the employer on behalf of the employee are taxed to the employee.
Motoring Benefit
A motoring benefit arises where an employer grants an employee usage of a vehicle for business and private purposes. Private usage includes travelling between home and place of work or between two distinct businesses or use of the vehicle over the weekends for private purposes. The benefit is valued on the basis of a deemed cost as prescribed in the Income Tax Act.
The deemed costs are based on the engine capacity of the vehicle and these are as follows:
Engine Capacity Value (Deemed Benefit) per Year (in US$)
1500cc or Less 1 800,00
1501cc to 2000cc 2 400,00
2001cc to 3000cc 3 600,00
Above 3000cc 4 800,00
Where an employee does not have a company car but is granted fuel or fuel costs are financed by the employer, the fuel allowance or other costs incurred by the employer on behalf of the employer are taxable. The benefit is computed on the basis of costs to the employer.
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