determining a fringe benefit
5 September 2006
The "official rate of interest" for calculating fringe benefits has been
increased with one hundred basis points with effect from 1 September 2006
following increases in the South African Reserve Bank's report rate earlier
this year. Minister of Finance, Trevor Manuel, has approved that the rate be
increased from 8% to 9%.
The fringe benefit provisions in the Seventh Schedule to the Income Tax Act,
1962 provide that a taxable fringe benefit arises where an employee obtains a
loan from his or her employer in terms of which:
* no interest is payable or
* interest is payable, but the interest is charged at a rate which is lower
than the "official rate of interest", which is a rate specifically prescribed
by the Minister of Finance for purposes of determining the value of this type
of fringe benefit.
The fringe benefit is calculated as the difference between:
* the amount which would have been payable on the loan if interest was charged
at the official rate of interest and
* the amount actually paid by the employee.
Example:
An employer grants an employee an interest-free loan of R150 000. The monthly
taxable benefit for September 2006 and subsequent months should be calculated
as follows:
Interest at the official rate: R150 000 x 9% ÷ 12 = R1 125
Less Interest payable by employee: R150 000 x 0% ÷ 12 = Nil
Monthly taxable fringe benefit = R1 125
* Where an employee is paid at other intervals than on a monthly basis, e.g.
weekly or fortnightly, use 52 or 26 instead of 12 to determine the taxable
benefit.
The amount of R1 125 will be added to the employee's other income such as
salary, etc. in determining his /her monthly employees tax liability.
Government Notice 870, giving effect to the increase of the official rate of
interest, was published in Gazette no. 29180 dated 31 August 2006.
The Government notice has been published on the South African Revenue
Service (SARS) website (http://www.sars.gov.za) and can be accessed under
Legislation /Regulations and Government notices /Income Tax /Notices.
Enquires: Adrian Lackay (SARS communications)
Tel: (012) 422 4206
Cell: 083 388 2580
Issued by: South African Revenue Service
5 September 2006
