I have a client with an expat from Japan who has been in the country less than 2 years. The employer is paying R26000 rent for the accommodation and I need to calculate the fringe benefit, however I am unclear as to what needs to happen in this case. Do w
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Under paragraph 9(7A)(a) of the Seventh Schedule no rental value shall be placed under this paragraph on any accommodation provided by an employer to an employee away from such employee's usual place of residence outside the RSA for a period not exceeding 2 years from the date of arrival of that employee in the Republic, for the purposes of performing the duties of his or her employment.
However, as you correctly pointed out, the provisions of subparagraph (7A)(a) does not apply … to the extent that the cash equivalent of the value of the taxable benefit derived from the occupation of the residential accommodation exceeds an amount equal to R25 000 multiplied by the number of months during which subparagraph (7A) applies.
The question is what is the rental value.
Under paragraph 9(3C) of the Seventh Schedule, where the employer or associated institution in relation to the employer supplies accommodation, obtained in terms of a transaction at arm’s length with a person that is not a connected person in relation to that employer or associated institution and the full ownership does not vest in the employer or associated institution, the value to be placed on such accommodation shall be the lower of—
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the amount determined in accordance with subparagraph (3); and
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the amount of the expenditure incurred in respect of that accommodation by that employer or associated institution.
Under paragraph 9(3) of the Seventh Schedule the rental value to be placed on such accommodation for any year of assessment shall be an amount determined in accordance with the formula. The formula is set out in paragraph 9(3) and uses the remuneration proxy as the basis for the calculation.
It is this value, the lower of the two, that is reduced by the R25 000.