The South African Revenue Service (SARS) has announced an increase in the official interest rate for calculating fringe benefits from eight percent to nine percent effective from September 1, 2006.
In terms of the Seventh Schedule of the Income Tax Act, a taxable fringe benefit arises when you obtain a loan from your employer on which you pay no interest or you pay interest at a rate that is lower than the "official rate of interest".
To calculate the taxable fringe benefit, you must calculate the difference between the interest you pay on the loan and the official rate of interest. If, for example, your employer gives you 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 nine percent ÷ 12 = R1 125. Less interest payable by employee: R150 000 x 0 percent ÷ 12 = 0. Monthly taxable fringe benefit = R1 125. The amount of R1 125 will be added to your other income to determine your tax liability.