Following a discussion on the Facebook Fat Wallet Community, we decided to dedicate this month’s blog to an example of taxable fringe benefits (aka perks tax).
J is under 65 and unmarried. He earns a gross monthly cash salary of R20,000. His company pays R500 per month for his mobile phone and contributes to his retirement annuity on a 1:1 basis. J contributes R1,500 and so does his company.
| Monthly | Annual | |
| Full salary | 22,000.00 | 264,000.00 |
| – Cash | 20,000.00 | 240,000.00 |
| – Retirement Annuity | 1,500.00 | 18,000.00 |
| – Cell phone allowance | 500.00 | 6,000.00 |
| Retirement deduction | ||
| – J | (1,500.00) | (18,000.00) |
| – ABC | (1,500.00) | (18,000.00) |
| Total Taxable Income | 19,000.00 | 228,000.00 |
| Tax as per the tax tables | 3,634.33 | 43,612.00 |
| Rebate | (1,185.00) | (14,220.00) |
| Total Tax Payable | 2,449.33 | 29,392.00 |
Although J only receives R20,000 cash per month, the amount that should be used for tax purposes is R22,000 per month. John is allowed the retirement annuity deduction of R3,000 per month to reduce his taxable income to R19 000 per month.
The Income Tax Act has a detailed treatment of each of the types of fringe benefits available. The cash equivalent amount of your benefit is added to your income and taxed according to the income tax tables.
The tax payable on the cash portion of R20,000 will typically be indicated separately from the tax payable on the fringe benefit portion of R2,000. The rules relating to the two portions of the “salary” differs and it does not mean that you are taxed on the same amount twice.
If J did not inform his company of his R1,500 retirement annuity contribution, he would only get the RA deduction when he files his tax return.
Top tip: If you make additional contributions to any retirement annuity, inform your company to get the tax benefit monthly. Your company would require proof of payment before giving you the tax benefit.
Some exemptions on fringe benefit taxes do exist, but we have not considered them for purposes of this example.
Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts share their tips and explanations on tax issues. In July our Tax Elves had help from rising star and aspiring tax elf Ernst Jordaan.
Learn everything you need to know about tax, from deductions you never knew about to retirement savings and capital gains. The first Tuesday of every month is Tax Tuesday. Don’t miss it!
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