We are fast approaching the silly season and companies will start to consider whether to proceed with a traditional staff Christmas party, or give employees either a hamper or gift voucher in lieu of having a Christmas lunch. This approach has gained a significant amount of traction recently, and we have started to receive enquiries from clients wanting 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.
So, 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 onsite during business or extended business hours? In all the cases that have been posed to date the vouchers have not been meal specific vouchers but redeemable against goods or services of the employees liking at a specific store or shopping centre. If it is the intention of employers to scrap the Christmas function, 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 been unofficially posed to a senior SARS official to get their opinion in this regard. The official concurs with the opinion that the gift voucher would constitute a fringe benefit since there is no ‘special occasion’ being celebrated. The employees would also not be 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 another challenging year, this could possibly be added to the disappointments and frustrations that most taxpayers have faced. With SARS looking to increase tax revenue collection, strap in tightly, as the 2023 budget is likely to bring more bad news for the struggling taxpayer.
If you have any more questions, please reach out! Chat to Dave on 031-5827410 or [email protected].