We have recently received an unprecedented number of queries relating to companies wanting to give employees gift vouchers in lieu of having a Christmas lunch. This sounds entirely practical, especially considering the fact that we are currently still subject to COVID-19 protocols. Clients planning such a move have wanted to know what the PAYE implications of such a policy would be.
To understand what the legislation says in this regard Paragraphs 2(c) and 8 of the Seventh Schedule to the Income Tax Act would need to be looked at. These paragraphs state that the provision of free meals and meal vouchers constitute a taxable fringe benefit. However, no value is placed on a meal where it is supplied during business hours, extended business hours, or on a ‘special occasion’. The Act contains no definition of what constitutes a ‘special occasion’ though. It has been submitted that a birthday, secretaries day, year-end functions and meals at team-building events would likely qualify as ‘special occasions’. Gifts or gift vouchers for exceptional work or for working extra hours would be different though, as it would be difficult to explain that such a gift is not given in respect of services rendered or by virtue of employment.
Let’s go back and look at the logic behind the issuing of vouchers in lieu of a Christmas function, and see if there are any potential challenges. Firstly, would the vouchers relate to a ‘special occasion’ and secondly would they constitute a meal granted during working or extended working hours? I believe that a Christmas function would constitute a ‘special occasion’. The challenge that I see relates to the voucher itself. Does that voucher entitle the employee to a meal on site during business or extended business hours? In all the cases that have been posed to date the vouchers have not been meal specific vouchers and are redeemable against goods or services of the employees liking at a specific store or shopping centre. With the intention to scrap the Christmas / year-end function due to social distancing concerns, it is very unlikely that the employees would be together to enjoy these vouchers and that this would therefore constitute a ‘special occasion’.
This scenario has recently been unofficially posed to a senior SARS official to get their opinion in this regard. This official concurs with the opinion that the gift voucher would constitute a fringe benefit due to the fact that there is no ‘special occasion’ being celebrated. The employees are not enjoying any ‘special occasion’ benefits during work hours, at the work premises. The official is of the opinion that unless there is a Media Statement or Binding General Ruling declaring that special dispensation has been given for such a benefit to be excluded from fringe benefit tax, the value of such a voucher should be included in the employees’ taxable income.
After an extremely challenging 2021 we can now add this small loss to the series of disappointments and frustrations that most taxpayers have faced. Strap in tightly though, as the 2022 Budget is likely to bring more bad news for the struggling taxpayer.