Taxman eyes employee phone use
Taxable benefits can arise through the use of an instrument provided by an employer
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.
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