Tax­man eyes em­ployee phone use

Tax­able ben­e­fits can arise through the use of an in­stru­ment pro­vided by an em­ployer

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - FALONE MU­LUMBA

DUE to glob­al­i­sa­tion and other eco­nomic fac­tors, com­mu­ni­ca­tion by tele­phone and email has formed what can be de­scribed as a “cyber-of­fice” where peo­ple per­form work func­tions. This “cyber-of­fice” has been funded by or­gan­i­sa­tions through pro­vid­ing em­ploy­ees with tele­phone and telecom­mu­ni­ca­tion ser­vices, in­clud­ing cel­lu­lar tele­phones, smart­phones, tablets, lap­tops, modems, re­mov­able stor­age de­vices, print­ers, soft­ware, 3G cards and con­tract sim cards.

A draft in­ter­pre­ta­tion note was re­leased by the South African Rev­enue Ser­vice (SARS) in 2012 for comment. The in­ter­pre­ta­tion note is based on the In­come Tax Act No 58 of 1962 more specif­i­cally, para­graphs 2(b), 2(e), 2(h), 6, 10 and 13(1) of the sev­enth sched­ule, which re­late to the tax­able ben­e­fits that arise from the use of tele­phone or com­puter equip­ment and telecom­mu­ni­ca­tion ser­vices pro­vided by em­ploy­ers to em­ploy­ees. The afore­said note deals with how the value of the tax­able ben­e­fit through the use of em­ployer-pro­vided or em­ployer-owned tele­phone or tele­phone equip­ment, is de­ter­mined. A tax­able ben­e­fit arises from the pri­vate or do­mes­tic use of an em­ployer-pro­vided tele­phone or tele­phone equip­ment.

The ra­tio­nale be­hind the pro­vi­sion of tele­phone or tele­phone equip­ment by an em­ployer is so that it may be used for work pur­poses. How­ever, such as­sets are of­ten used by em­ploy­ees out­side the of­fice for pri­vate and do­mes­tic use. The sev­enth sched­ule of the act treated such use as a tax­able ben­e­fit. The tax­able ben­e­fit would arise through the pri­vate or do­mes­tic use of the as­set in terms of para­graph 2(b) of the act. Ac­cess to and use of telecom­mu­ni­ca­tion ser­vices re­lated to the as­sets, for ex­am­ple line rental, call charges and data down­loads for pri­vate and do­mes­tic use at the em­ployer’s cost, would arise in terms of para­graph 2(e) of the act. In 2008, the act was amended so as to en­sure that in cer­tain cir­cum­stances pri­vate or do­mes­tic use would not be taxed.

The in­ter­pre­ta­tion note de­scribes how the tax­able ben­e­fit would be ar­rived at. If en­acted, the amount of the tax­able ben­e­fit would be de­ter­mined by the value of the pri­vate or do­mes­tic use less any pay­ments made by the em­ployee for such use or any amount spent by the em­ployee on re­pair­ing and main­tain­ing the as­set. This is sub­ject to cer­tain ex­cep­tions. The value of the pri­vate use would be cal­cu­lated us­ing one of two meth­ods: “If the as­set is held by the em­ployer un­der a lease or hir­ing agree­ment, the value would be cal­cu­lated through the rental payable by the em­ployer for the pe­riod of use. If the as­set is owned by the em­ployer, the value would be de­ter­mined by an

De­ter­min­ing whether the as­set has been utilised for busi­ness or pri­vate pur­poses could cre­ate an ad­min­is­tra­tively bur­den­some task

amount cal­cu­lated for the pe­riod of use at the rate of 15% per an­num or the mar­ket value of the as­set at the date the em­ployee ob­tained the use of the as­set.”

Not­with­stand­ing what is men­tioned above, the facts and cir­cum­stances of ev­ery case would be con­sid­ered in the de­ter­mi­na­tion of whether the pri­vate or do­mes­tic use of an em­ploy­er­pro­vided tele­phone, com­puter equip­ment or em­ployer-funded telecom­mu­ni­ca­tion ser­vice gives rise to a tax­able ben­e­fit.

A tax­able ben­e­fit would not arise if the facts and cir­cum­stances re­flect a sit­u­a­tion where the em­ployee has utilised the as­set or telecom­mu­ni­ca­tion ser­vice mainly for the pur­poses of the em­ployer’s busi­ness. “Mainly” refers to cir­cum­stances where more than 50% of the to­tal use of the as­set or ser­vice is for busi­ness pur­poses.

De­ter­min­ing whether the afore­said as­set has been utilised for busi­ness or pri­vate pur­poses could have the prac­ti­cal ef­fect of cre­at­ing an ad­min­is­tra­tively bur­den­some task, for ex­am­ple, by hav­ing the monthly task of con­sid­er­ing itemised billing for tele­phone or telecom­mu­ni­ca­tion ser­vices. The in­ter­pre­ta­tion note pro­poses a so­lu­tion to this in that the cir­cum­stances of ev­ery case would be con­sid­ered. This would in­clude a con­sid­er­a­tion of the na­ture of the em­ployee’s work and the key per­for­mance in­di­ca­tors for such role, and de­ter­min­ing whether same calls for the en­ti­tle­ment of such ben­e­fit. “There must be a close link be­tween the grant of use of the as­set and the em­ploy­ees’ job re­spon­si­bil­i­ties.”

In the event that the as­set is not used mainly for work pur­poses as de­scribed above, the em­ployer will be re­quired to cal­cu­late the value of the tax­able ben­e­fit. With re­gard to as­sets, the value of the tax­able ben­e­fit would be equal to ei­ther the rental cost or the 15% cal­cu­lated amount or the cost to the em­ployer, less any con­sid­er­a­tion paid by the em­ployee.

In the case of telecom­mu­ni­ca­tion ser­vices, the value of the tax­able ben­e­fit would be the cost to the em­ployer of ren­der­ing or hav­ing the ser­vice ren­dered. This is sub­ject to the ex­tent it is used for pri­vate or do­mes­tic pur­poses less any amounts paid by the em­ployee for such ser­vice.

Pic­ture: THINKSTOCK

FOR WORK OR PLAY?

The ra­tio­nale be­hind the pro­vi­sion of tele­phone or tele­phone equip­ment by an em­ployer is so that it may be used for work pur­poses. How­ever, such as­sets are of­ten used by em­ploy­ees out­side the of­fice for pri­vate and do­mes­tic use.

The sev­enth sched­ule of the act treated such use as a tax­able ben­e­fit

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