What is fringe benefits tax in South Africa?
South Africa has no separate fringe benefits tax. Instead, the cash equivalent of a taxable benefit an employee receives because of their employment is added to their remuneration and taxed through PAYE. The rules are in the Seventh Schedule to the Income Tax Act, and the employer has to work out the value of each benefit.
Need help navigating local labour compliance?
Schedule a strategy callCommon taxable benefits
The Seventh Schedule lists the benefits that are taxable, including:
- the right to use a company car;
- the right to use other assets, and residential accommodation;
- meals, refreshments and meal vouchers;
- free or cheap services;
- low-interest or interest-free loans;
- payment of an employee’s debts;
- medical scheme contributions and medical costs paid for an employee;
- assets acquired for less than their value.
Some benefits have no taxable value, such as meals supplied in a staff canteen or during working hours.
Company cars
The private use of an employer-owned car is valued at 3.5% of the car’s determined value for each month, or 3.25% if a maintenance plan was included in the purchase price. The determined value is broadly the original cost of the car, including VAT and excluding finance charges. For a car under an arm’s-length operating lease, the benefit is the actual lease cost plus fuel. If the employee keeps an accurate record of business kilometres, SARS reduces the taxable value on assessment in proportion to business use.
Employer obligations
The employer must calculate the cash equivalent of each benefit, deduct PAYE on it each month and show it on the employee’s IRP5 or IT3(a) under the right source code. If a benefit is left off the certificate or understated, SARS can impose a penalty of 10% of the value involved, re-determine the value and assess the employer for the PAYE that should have been withheld.
Fringe benefits when TopSource runs your payroll
When TopSource runs your payroll in South Africa, we value each benefit under the Seventh Schedule, include it in the monthly PAYE calculation and report it on the employee’s tax certificate, so the figures match what SARS expects.
Frequently asked questions
How is a company car taxed in South Africa?
Its private use is valued at 3.5% of the car’s determined value a month, or 3.25% if a maintenance plan was included in the price, and taxed through PAYE.
Are medical aid contributions paid by the employer a fringe benefit?
Yes. Medical scheme contributions an employer pays on an employee’s behalf are a taxable benefit and are included in the employee’s remuneration.
What happens if an employer leaves a fringe benefit off the IRP5?
SARS can impose a penalty of 10% of the benefit’s value and assess the employer for the PAYE that should have been deducted.
Related terms in South Africa
- Temporary Employment Services (South Africa)
- Section 198B Fixed-Term Rule (South Africa)
- BCEA Earnings Threshold (South Africa)
- Retrenchment (South Africa)
- Restraint of Trade (South Africa)
- Family Responsibility Leave (South Africa)
- Sick Leave Cycle (South Africa)
- Employment Equity Act Reporting (South Africa)
- B-BBEE Scorecard (South Africa)
- Critical Skills Work Visa (South Africa)
- POPIA and Employee Data (South Africa)
- EMP201 Monthly Return (South Africa)
- EMP501 Reconciliation (South Africa)
- IRP5 and IT3(a) Certificates (South Africa)
- Tax Directive (South Africa)
- Travel Allowance (South Africa)
- Retirement Fund Two-Pot System (South Africa)
- Employment Tax Incentive (South Africa)
- Medical Scheme Fees Tax Credit (South Africa)