Two years ago Finance Minister Trevor Manuel announced in his Budget speech that Income Tax Act provisions relating to the residential accommodation fringe benefit were going to change the formula method for calculating the value of the benefit if the employer did not own the accommodation was to be replaced with a method based on the cost of the accommodation to the employer.
The announcement was met with an outcry, with objectors saying this would cause considerable hardship for affected employees. They also pointed out that the new system would be unfair in cases where an employer needed to accommodate employees, such as in the farming, mining or forestry industries, and was only able to do so by owning and renting accommodation. In this instance employees who lived in accommodation rented by their employer rather than owned, would be taxed more.
The proposed change was postponed but now with certain changes to ensure that accommodation supplied by the employer was not owned by the employee or a person connected to the employee, the provisions have been legislated and will be effective from March 1 this year for the tax year ending February 28 2000.
So what will this mean to you, if your employer currently provides you with accommodation?
If your employer owns the accommodation, you will be taxed as you were before in terms of the formula. But if your employer rents accommodation for you, you may find yourself with less money in your March salary or wage packet.
Currently, the taxable benefit is calculated by taking your annual salary last year (excluding entertainment and travel allowances, and any company car or residential fringe benefit value relating to last year) less R20 000, and multiplying this figure by about 16 percent (it may be 17 or 18 percent if the accommodation is furnished and/or your employer pays for electricity). This would generally amount to less than the rental your employer is paying.
At the moment, if for example, you earned R60 000 last year, and your employer rents a house for you which costs R1 800 a month, you are only taxed on R533,34 a month .
From March 1, however, you may be taxed on R1 800 a month. On a salary of R60 000 a year, you will pay an extra R544,66 in tax each month. Quite a chunk out of your spending money.
The extra tax is only a possibility because there are circumstances where your employer need not tax you more even if the accommodation is not owned:
* If the industry in which you work is one in which it is customary for your employer to provide accommodation (eg farming, mining, forestry);and
* If it is necessary for your employer to provide accommodation for you to properly perform your work, or if you must frequently move around, or if your employer does not own enough accommodation; and
* If the accommodation is provided to you is for genuine business purposes and not just so that you obtain a tax benefit.