Your cellphone allowance may be subject to tax as a fringe benefit

If your employer provides you with a cellphone, or you receive a fixed cellphone allowance, this may constitute a fringe benefit, and there may be tax consequences for you and your employer.

Esther van Schalkwyk, a senior tax consultant at BDO South Africa, says allowances or the use of employer-provided cellphones may constitute a taxable fringe benefit. The benefit would have to form part of your taxable income, from which tax is withheld by your employer for payment to the South African Revenue Service.

Van Schalkwyk says two distinct taxable benefits may arise: your right to use your employer’s asset (in this case, the cellphone) for private purposes and/or your use of free or cheap services at the employer’s cost for private purposes.

“The provision of free or cheap services arises where an employee uses a telecommunication network at the employer’s cost – for example, for calls or data downloads,” she says.

• Right to use an asset. The taxable benefit is the value of the private use less anything you might pay your employer to use the asset and any amount you spend on repairs and maintenance.

If the employer leases the asset from a third party, the value of private use is the rental the employer pays the third party for the period of use. If the asset is owned by the employer, the value of the private use is 15 percent a year of the lesser of the cost or the market value of the asset.

However, there is an exception, Van Schalkwyk says. “Where the private use is incidental to the business use, the value of private use is nil.” Essentially, in the case of a cellphone, if you use it mainly (more than half of the time) for business purposes, no value is placed on the private use and no taxable benefit arises.

“Employers are advised to document the terms of use for company cellphones in a formal policy document. If it can be shown that the employee uses the cellphone to perform the particular job and is required to use the cellphone mainly for the purposes of the employer’s business, SARS will generally accept that no value be placed on the private use,” Van Schalkwyk says.

• The use of free or cheap services. The taxable benefit is the cost to the employer of the services, less anything you might pay, limited to the portion attributable to your private use, Van Schalkwyk says. Again, if the services are used mainly (more than half of the time) for business purposes, no value is placed on the private use and no taxable benefit arises. And if a telecommunication service, such as downloading data on WhatsApp or viewing YouTube, is provided to employees for enjoyment solely at their place of work, no value is placed on the use.

Van Schalkwyk says that, instead of providing you with a cellphone or giving you a predetermined cellphone allowance not linked to business expenditure, your company should simply compensate you for using your own cellphone for business purposes. “In these circumstances, employees typically receive a cellphone allowance or a reimbursement for actual business expenditure incurred on behalf of the employer.

“[Such a] reimbursement should not be included in the employee’s taxable income or be subject to employees’ tax. The employee will be required to prove to the employer that the expenditure was, in fact, incurred for business purposes. This can be achieved by way of itemised billing statements.”