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By Amanda Visser

Moneyweb: Journalist


Tax and employee transport

How Sars will deal with the no-value provision in the Income Tax Act.


The lack of adequate public transport has forced many companies to provide transport services to their employees – either free or for less than the actual cost of getting them to and back from work.

In terms of the Income Tax Act, this service is considered a taxable (fringe) benefit in the hands of the employee, but no value may be placed on the benefit if certain requirements are met.

However, there has been uncertainty as to how the South African Revenue Service (Sars) applies the no-value provision in the Act.

To give clarity and certainty, Sars has published two binding rulings this year to set out how it intends on dealing with the issue. Binding private or general rulings clarify how the Sars commissioner would interpret and apply the provisions of the tax laws relating to a specific proposed transaction.

Louis Botha, tax associate at Cliffe Dekker Hofmeyr, says the first private ruling was published in January and dealt with a company wishing to implement a transport scheme for its employees.

The company requires its employees to start and end their working day at times when public transport is either unavailable or very limited. It offered two transport service types – shuttle service and a direct service.

The Act provides if any service – at the expense of the employer – has been offered to an employee for their private or domestic purposes it is deemed to be a fringe benefit.

“In terms of South African tax law, expenses incurred in travelling between one’s home and place of employment are considered to be expenses of a domestic and personal nature,” says Botha.

Deloitte associate director Jaco la Grange says the no-value provision was initially intended for mines and industries where workers were transported to and from work.

“It worked rather well where all the workers stayed close together (such as the mining hostels),” he says.

However, in cities this created a bit of a challenge.

In the second general ruling, published in March, Sars has given clarity on the meaning of transporting employees from their ‘homes’ to their workplace.

La Grange – also chair of the personal income tax committee of the South African Institute of Tax Professionals – says employers can now offer the benefit tax free to their employees, without having to transport them to and from work.

The transport can now be to any transport node en route to their home or workplace such as the Gautrain station, bus stops or taxi ranks.

“I think this is a welcome development, especially since it assists workers who cannot afford their own transport. It also assists in making public transport a more viable option, as compared to private transport,” says La Grange.

In the ruling, Sars states that the word ‘homes’ is very specific and denotes a specific dwelling in which the employee resides or inhabits. “The question that arises is whether, from an interpretive perspective, the word ‘home’ should be restricted to the exact position of an employee’s specific dwelling,” Sars notes.

An employee could live in a block of flats, on a farm, or in a rural area with little or no accessible roads. The employee may be required to walk to the nearest accessible road to obtain the transport service -which could be kilometres away from his or her dwelling.

Sars acknowledges that an employer may arrange for employees to be collected from or dropped off at a central point between the employees’ homes and place of employment.

An employer may also provide transport services for only part of the trip between the employees’ homes and place of employment – such as picking them up and dropping them off from a station or bus stop.

Botha says from a practical perspective, the fact that no value is placed on transport services means that no tax will be payable by these employees in receiving transport services, although it is still a fringe benefit.

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