A new draft interpretation note has recently been introduced by SARS to deal with the use of employer-provided cellular phones, computer equipment or employer-funded telecommunications services. This new interpretation note deals with the following benefits:
- Private use by an employee of employer-provided telecommunications equipment (e.g. cell phones) or computer equipment (e.g. laptop) and;
- Any allowance or reimbursement granted by the employer in respect of the employee’s privately owned equipment or service contract which is used for business purposes.
In terms of the Seventh Schedule to the Income Tax Act, no value is placed on the private use of an asset consisting of telephone or computer equipment which the employee uses mainly for the purposes of the employer’s business. The word ‘mainly’ has been interpreted by the courts to mean use of more than 50%. If the business use is therefore more than 50% then no value will be placed on the private use of that asset.
It is important to note that SARS will conduct their own investigation into whether the asset is being used mainly for business purposes. They will include the nature of the employees work, qualifying criteria for entitlement to use of the asset and the conditions of use of the grant. The onus is on the employer and employee to prove that the particular asset is required due to the nature of the employee’s employment and that it will be used mainly for business purposes. If an employee incurs expenses on behalf of the employer and proof of such expenses are provided to the employer, such amounts can be excluded from taxable income. If however, the employee receives an allowance this allowance must be included in the taxable income of the employee.
Interestingly the draft interpretation note also sets out a formula which SARS will accept to determine the cost of free minutes where the contract includes a free cellular phone, and deals with the tax treatment of split-billing arrangements. The draft interpretation note makes it clear that employers are responsible for ensuring that the assets / services are used mainly for business purposes. Failure to do this will result in the use being declared a fringe benefit and this value being included in the employee’s remuneration for Employees’ Tax purposes.