Residential accommodation and expatriate employees
By Jaco Le Gange, Associate Director, Deloitte
Deloitte Budget 2012 Expectations
Johannesburg, 23 January 2012 - One of the common benefits provided by employers to their expatriate employees is residential accommodation, which is considered a taxable benefit. The, so-called, rental value of the benefit will be subjected to tax.
The rental value of residential accommodation provided by an employer to employees is, in the case of rental property, based on the greater of an amount determined with reference to a formula and the actual rental and related expenditure paid by the employer. In this regard, two main issues have come to the fore:
Firstly, the above mentioned formula is based on a percentage of remuneration and we have found that it results in a disproportionately high taxable benefit which, in most cases, exceeds the economic benefit enjoyed by the employee, and may bear little relation to the market related rental of the accommodation and the cost of the associated utilities. In other words, a person may be taxable on a higher rental value than another employee, merely because he/she earned higher remuneration in the previous tax year, even though the employee concerned is provided with inferior accommodation.
Secondly, the current structure of the determination of residential accommodation seems to be based on the premise that a single residential unit is provided per employee. Thus where accommodation is shared, a distortion takes place leading to a duplication of the taxable rental value of the benefit provided. We are noticing an increase in the provision of residential accommodation on a shared basis.
Generally speaking, where an employee is dissatisfied with the value of a taxable benefit, he / she may approach SARS and request that the benefit be re-valued. Where it appears to the Commissioner that the benefit should be adjusted, the Commissioner may issue a directive to the employer as to the manner in which such determination should be made. The employer is then obliged to act upon that directive. Specifically, where the Commissioner is satisfied that the rental value of the accommodation is less than the rental value determined in accordance with the formula, he may determine the rental value at such lower amount as to him appears fair and reasonable.
We wish to note that, although SARS has introduced a process to review applications for directives as discussed above, increasing the ease with which the directive can be obtained, this is still a cumbersome process, which increases the tax and administrative compliance costs of employers.
It is our suggestion that references to the formula be deleted in cases where the property is rented by an employer, and the rental agreement has been concluded on an arm’s length basis - the rental value of providing the residential accommodation should be merely the cost to the employer. Where the property is owned by the employer or an associated institution in relation to the employer the rental value of providing the residential accommodation should be stated as being the higher of the cost to the employer of providing the residential accommodation and the arm’s length (i.e. market value) of the residential accommodation benefit provided.
Furthermore, we suggest that an automatic apportionment of the rental value be introduced.