Question NW1360 to the Minister of Finance

Reply:

Taxable (fringe) benefits are calculated under the Seventh Schedule to the Income Tax Act. The legislation makes provision for which benefits are taxable, how the value of the taxable benefit must be calculated, and circumstances when no value is placed on a particular benefit.

The tax consequences below are based on the benefits as granted under the Guide for Members of the Executive (Ministerial Handbook). SARS accepts that Ministers and Deputy Ministers (Members) generally utilise these benefits as prescribed in the Ministerial Handbook.

Accommodation (Paragraph 9 of the Seventh Schedule)

Ministers and Deputy Ministers (Members) are entitled to State-provided residential accommodation. They may be provided with either one or two residences (one per seat of office).

• If a member normally resides in his or her own residence, then any residence provided by the state will not attract a taxable value (no value).
• If one residence is provided by the State, and the Member relocates and resides at that residence, the Member is liable to fringe benefits tax on the rental value. The rental value is calculated in terms of a formula linked to the Member’s remuneration.
• Where two State-owned residences are provided, the Member must be taxed on the property with the highest rental value.
• Any rental payable by a Minister for a second residence, may be deducted from the taxable rental value calculated under the formula.

Electricity and Water (Paragraph 9 of the Seventh Schedule)

The Ministerial Handbook provides that Members are liable for all costs related to a private residence. However, should the State pay a member’s private residence utilities bill, a taxable benefit would arise.

Electricity, water, and other property-related utilities supplied to a member occupying a State-owned residence is included in the rental value of the taxable benefit arising from the use of the accommodation, as referenced above.

Security (paragraph 2(a) and 2(e) of the Seventh Schedule)

The State does not provide security upgrades to Members’ private homes, so no tax consequences arise.

Any security upgrades effected at State-owned residences, accrue to the State, not the Member occupying the premises, and so no taxable benefit arises.

Static security is provided to Members both at private residences designated as “official” and at State-owned residences.

• Static security at a private residence is a taxable benefit, the value is the cost to the State.
• Static security at a State-owned residence does not result in a taxable value arising.

Close security provided to a member whilst in the course of performing duties of office will not be taxable. Use of close security when the Member is off duty will be a taxable benefit, the value being the cost to the State of the private cost.

Motor vehicles (Paragraph 7 of the Seventh Schedule)

State-owned motor vehicles are made available to Members to utilise for official purposes. The nature of a member’s duties is such that he or she will perform their duties outside of normal work hours. Private use is infrequent or incidental to business use, and so a no-value rule applies to Members, meaning that no taxable amount arises.

Staff (Paragraph 2(e) of the Seventh Schedule)

Personal staff are provided to Members to assist them with their official duties. No taxable benefit arises due to staff employed to assist with official duties at an official residence.

Flights

Official flights are not subject to fringe benefits tax. Private flights are taxable unless a no-value rule applies. The no-value rule applies if the flight is for the Member’s spouse or minor child, the Member is stationed more than 250kms from his or her home, is away from home for more than 183 days in a year, and the travel is for between home and the place where the Member is stationed.

Allowances (section 8(1) of the Act)

Most allowances paid to Members are fully taxable. Certain exceptions, such as travel allowances and subsistence allowances, are treated preferentially for all taxpayers, including Members, who may all claim deductions for business expenses.

Members also by law receive a public office allowance. 50% of this allowance is taxed monthly via PAYE withholding. The full allowance is taxable on assessment when the annual tax return is submitted, unless the Member can prove that certain qualifying expenses were incurred and paid (and not recovered from the respective Departments), which may reduce the tax liability on assessment.