During these uncertain and challenging times, it’s welcoming to receive a token of appreciation from your employer ahead of the festive season.
However, the South African Revenue Service (Sars) may expect to share in your good fortune when your company rewards you with a gift voucher, use of company property for the holidays, or something for your spouse or children.
Let’s take a look at the tax implications of some of the gifts your employer may give you:
1. A voucher
If your employer offers you a gift voucher instead of cash as an end-of-year gratuity, it will be taxed at the same rate as if it was cash.
2. A physical gift
Sars will see it as a taxable benefit if your company gives you an item that could be seen as an asset – for example, a mobile phone or a watch. The gift will usually be taxed based on the market value, but in some cases, it may be taxed based on the cost to your employer who should tax you on the applicable value on the payroll. This applies whether the gift or prize is for good performance. If your company provides a gift for your child or spouse rather than you, you’ll still need to pay tax on it.
3. Holiday accommodation
If your employer allows you to use a property it owns for your holiday, the taxable value is the amount for which the accommodation could be rented out to non-employees. If the company could rent the property out for R1 000 per day, then you must be taxed on a R1 000 benefit for each day you stay in the holiday property.
The taxable benefit will be adjusted if you pay something towards your stay. If the property could be rented for R1 000 a day and you pay R500 a day, the taxable benefit will be R500 for each day you use it. If your company rents rather than owns the property it allows you to use, the taxable value will be the cost to the employer.
4. Bus or plane tickets
Your employer might decide to give you flight or long-haul bus tickets instead of a cash bonus. Sars treats this as a free or cheap service, and the taxable benefit for the employee is the cost to the employer.
5. Year-end bonus
If you receive an end-of-year bonus, it is taxed at the same rate as other remuneration. The bonus will be added to your annual salary to determine the rate at which you should be taxed on the payroll. This will determine the amount of tax you should pay for the full tax year.
From there, your employer can subtract your usual annual pay-as-you-earn (PAYE) tax deductions, based on monthly remuneration, from the total to determine how much tax you should pay on your bonus and your PAYE for the month.
This means that sometimes the bonus can push you into a higher tax bracket, and that portion of your income will be taxed at a higher rate.
Yolandi Esterhuizen is a registered tax practitioner and director of product compliance at Sage Africa & Middle East.