Sars loses fringe benefits case

Johannesburg - In a recent court case, the South African Revenue Service (Sars) argued that there is potential for a climate of abuse by employers when they determine the cash value of fringe benefits for employees.

But unfortunately for Sars, the Cape High Court ruled in favour of the employer.

The case dealt with the cash value of fringe benefits.

The issue was whether the employer withheld the correct amount of employees' tax in respect of timeshare points it provided as fringe benefits to its employees.

The contention by RCI was that even if it used an incorrect amount for the purposes of the Income Tax Act, Sars is entitled to recover the outstanding tax on such fringe benefit income only from the employee, not the employer.

So, even if RCI had incorrectly calculated the tax due, it had no liability - end of case.

In its defence, Sars said it was particularly concerned that this would require the tax man to "go after" each employee individually as opposed to a single employer, which would obviously be much more cumbersome.

It also suggested that employers could evade employees' tax through unsatisfactory determination of the liability, which would create a climate for tax abuse.

The policy arguments did not have much effect on the court, which upheld RCI's contention.

Hylton Cameron, senior tax manager at Grant Thornton, agreed with the judgment.

"However, while the practice falls into the scope of the law, it is not a great planning technique for an employer to deliberately understate fringe benefit tax, as the tax will be due in any case when the employee is assessed," he said.

"While an employee may appreciate the timing benefit, in practice South Africans aren't renowned for saving to pay Sars later; they simply spend it and then on assessment suddenly need to find extra cash somewhere else."

Fin24.com