Budget 2012 and gifts awarded to employees
By Jaco Le Grange, Associate Director, Deloitte Tax
Deloitte Budget 2012 Expectations
Background and Law
Johannesburg, 23 January 2012 - When a gift is provided to an employee by an employer, the 7th Schedule to the Income Tax Act, No 58 of 1962 (“the Act”) determines that the gift constitutes a taxable benefit in the employee’s hands.
The value of the fringe benefit will be the cash equivalent, for example the cost to the employer, of the gift less any consideration paid by the employee.
Most employers provide, from time to time, small gifts to employees, which are, in some cases, branded items. For example, at strategy sessions pens or T-shirts with the employer’s logo on may be provided to the employees, or employees may receive small gifts on their birthdays or holiday hampers at the end of year.
In most cases, the value of these type of gifts is nominal and processing them via the payroll is an administrative burden. In addition, the provision of the gifts is mostly a gesture of goodwill, and not to disguise remuneration. The taxing of the gifts in the hands of employees thus creates negative responses, not only vis-à-vis the employer but also in respect of the fairness of the tax system.
The 2010 Tax Laws Amendment Act included an exemption for certain gifts provided to employees during the 2010 FIFA World Cup. The exception was limited to R750 per employee for the aggregate value of the gifts provided.
We recommend that the same principle that was followed in relation to gifts for purposes of the 2010 FIFA World Cup, be extended to all gifts / assets given to employees by employers, namely an exemption up to a relatively small amount, for example R750 per annum in aggregate.