10 February 2008

Free accommodation in South Africa

As from 2001, South Africa (SA) moved from a source-based income tax system to a residence-based income tax system. Residents (juristic and non-juristic) are subject to certain exclusions, taxed on their worldwide income, irrespective of where the income is earned.

However, source continues to be relevant since persons who are not resident in SA are subject to tax in SA only on income, which is from a South African source. In terms of the principles laid down by the courts, any income earned in exchange for services rendered in SA, will therefore be taxable in SA. Similarly, where a person's wits, skills and labour are exercised in SA, the source of the income earned would be considered to be SA.

Therefore, should a person render services for an employer in SA and the employer provides housing to the employee, such benefit is considered to be a taxable fringe benefit, subject to certain conditions. In terms of paragraph 9 of the Seventh Schedule (the Schedule) to the Income Tax Act 58 of 1962 (the Act), the value of the benefit is the greater of the benefit determined in accordance with a remuneration based formula (generally applied where the use of a company owned house is provided), and the total amount of the rentals payable for such accommodation by the employer, or associated institution in relation to the employer, and any other expenditure defrayed by the employer in respect of such accommodation.

Where a cash housing allowance is granted to an employee, such allowance will be taxable as cash remuneration.

In the case of employer-provided accommodation, relief is available in terms of paragraph 9(7A) of the Schedule in terms of which no taxable value shall be placed on any employer-provided accommodation while an employee is absent from his usual place of residence for the purposes of performing the duties of his employment.

The length of time for which the benefit may continue to be provided tax-free is limited to two years, calculated from the date of arrival of the employee in SA. It will also apply where an employee is physically present in SA for a period of less than 90 days in a year of assessment. The interpretation of sub-paragraph has been a contentious issue prior to its amendment, effective 1 January 2007, as the Act did not specifically define the phrase “away from his usual place of residence”.

The two-year tax-free period will not apply if the employee was present in SA for a period exceeding 90 days in the immediate preceding year of assessment of arrival. The employee will further not be entitled to receive tax-free accommodation where the total value of the accommodation exceeds an amount equal to R25,000 per month.

Mariëtte Cruywagen, Tax Manager: Cliffe Dekker Hofmeyr

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