You can be provided with or paid for various types of accommodation by your employer, some of which is taxable, some tax-free. In this third article in our series on how to structure a salary package, we wend our way through the "ifs" and "buts" that the taxman applies to accommodation allowances.
Your employer can contribute to your accommodation costs in one of several ways.
Under certain circumstances, this can be by providing you with residential accommodation, or by providing you with holiday accommodation, or through a low-interest loan.
If you are required to move or travel in your job, your employer can help you with the relocation costs, or pay you a subsistence allowance.
Residential Accommodation
In recent years it became increasingly common for employers to provide residential accommodation to employees, because although this was taxed as a fringe benefit, the tax was according to a formula and even after paying tax, employees, particularly those on lower incomes, were still better off than if they paid for the accommodation themselves.
But the application of this benefit was limited in the 1997 Budget Speech prompted partly by the misuse of the benefit by those setting up trusts, close corporations and companies to own their properties. Since March 1997 this benefit has only been available to employees who have entered into third party rental agreements concluded "in good faith" with parties that are not "connected persons".
From 1999, the residential accommodation perk will only be available to those who live in accommodation owned by their employers or an associated institution, provided three criteria are met.
These are that it is customary in the industry concerned to provide free or subsidised accommodation because it is necessary for employees' to do their duties properly; if there is no alternative accommodation; and the accommodation is provided at arm's length and for bona fide purposes. All these criteria must be met, and, if they are, then tax is applied according to a formula.
The value of your taxable benefit is: remuneration during the previous year less a rebate of R20 000, multiplied by 16, 17 or 18 percent (rising depending on the size of accommodation and services provided), multiplied by the number of months you occupy it divided by 12, less the rental you paid.
Your taxable salary in this case excludes the fringe benefit value of company cars and travel or entertainment allowances.
Holiday Accommodation
If your employer (or an associated institution of your employer) owns a holiday house or flat which you can use for holidays only, what will be added to your salary will be either R100 a person a day that you occupy it, or whatever rental your employer would charge non-employees, depending on whichever calculation produces a lower amount.
If your employer does not own the holiday house or flat, what will be added to your salary and taxed will be the actual cost to your employer of renting the accommodation on your behalf.
Low-Interest Loans
Housing loans at favourable interest rates are commonly granted to employees of banks as part of their salary packages. But a low-interest loan need not necessarily be related to housing it could be granted to you to buy a computer.
The way the loan is taxed is generally the same, no matter what it is used for.
If your employer gives you a loan at a five percent annual rate of interest, you will be taxed on the difference between this rate you are paying and the "official rate of interest" as decreed by SA Revenue Service (SARS). The SARS rate of interest is not the same as the prime or bank rate. It is a rate which is changed in the Government Gazette by the Commissioner for Inland Revenue from time to time. Currently, SARS's interest rate is 16 percent.
If your employer grants you a loan of R10 000 at five percent a year interest you will be taxed on the difference between the value of the five percent (R500) and the 16 percent (R1 100) in other words, R600 a year is added to your salary. The low-interest loan is an attractive fringe benefit as long as the SARS rate of interest is below the prime lending rate. At the moment that situation exists, with the prime rate at 18,25 percent versus SARS's 16 percent.
Your employer can also make you an occasional or casual loan to a maximum of R3 000 at low or no interest, without your having to pay tax on the loan.
Relocation Costs
Relocation costs are pretty generous. Your employer can pay you, without your having to pay tax, the costs incurred in moving you, your family and possessions from your current home to your new home; a relocation residential allowance, for a maximum of 183 days, which is intended to cover the costs of your temporary accommodation for the first few months while you look for a permanent home; costs you incurred in selling your former home, and the costs of settling in to your new home.
You may also be paid up to equivalent of one month's salary, tax-free. This is to cover expenses like curtains, school uniforms, motor registration fees, telephone, water and electricity deposits.
These allowances can apply to you whether you are a SITE or a PAYE taxpayer because there is no tax implication.
Subsistence Allowance
If you have to travel for business, you can be paid a tax-free amount by your employer which differs depending on whether you are travelling locally or abroad.
These amounts have not been increased for at least five years, Hanneke van Wyk, tax consultant at Arthur Andersen, says, and currently do not realistically reflect the costs of business travel.
If you are travelling within South Africa, you can be paid R150 a day if you are paying for your own accommodation.
If your employer is paying for your accommodation directly, you can still be paid R65 a day to cover your incidental expenses like beverages and tips (even if your employer is paying for those too, so the R65 a day is pure profit to you!).
Just as an indication of how meagre the subsistence allowance is, the Holiday Inn in Greenmarket Square, Cape Town, currently quotes R304 a night as the normal rate for a single room.
If you are travelling to another country, your employer can pay your accommodation costs plus up to $120 a day tax free or its equivalent.
Jenny Klein, tax manager at Deloitte & Touche, says if you are required to travel in your work and your employer does not pay the maximum allowable daily allowances, the difference between what you are paid for subsistence and the maximum allowable could be incorporated into your salary package as a tax-free amount.
For example, if you travel for 50 days a year in South Africa, and your employer pays you R100 a day (not the maximum R150) subsistence allowance, and you are staying with friends or family for free, you could ask your employer to structure R2 500 (R50 x 50 days) of your annual package as a subsistence allowance.
You could also do this at the beginning of each year by estimating the amount of travel you will do, setting aside an amount for the daily allowance, and balancing it at the end of the year, paying tax on the sum if you did not travel as much as you expected.