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Tax Talk - Taxation of Fringe Benefits
In this series of articles, Cameron Kotzé the Tax Partner at Ernst and Young discusses some topical tax issues for our readers.
THE definition of gross income specifically includes the value of
any benefit or advantage a person receives as a result of being
employed.
These rules do not apply to individuals who are self-employed or
independent tradesman who are not subject to control as to the
times at which they will perform their services and who are not
paid on a regular monthly, weekly or daily basis or to
non-executive directors who receive only director's fees for
attending board meetings.
The values of a range of benefits are contained in a schedule
that has been issued by the Commissioner of Inland Revenue.
All employees and directors of public companies are subject to
employees' tax each month on the value of the benefits accruing
each month.
Executive directors of private companies need not have
employees' tax deducted from their remuneration unless specifically
required by the Receiver of Revenue.
Therefore, there is no requirement to withhold employees' tax on
the value of fringe benefits accruing to executive directors.
The Income Tax Act provides for the inclusion of any benefit
received in respect of employment.
It is the intention of the legislator to include all benefits
imaginable that an employee could receive as a result of being
employed.
If the value of a benefit provided to an employee is not found
in the schedule, there is a catch-all paragraph that requires the
employer to obtain the value of the benefit from the Receiver of
Revenue.
Some of the more common benefits that an employee can receive
include a company car, housing allowance, travel allowance and an
entertainment allowance.
Section 14(1) of the Income Tax Act provides that where an
employee receives an allowance for purposes of incurring expenses
on behalf of the employer, only so much of the allowance that has
not been expended for the purpose granted is included in the
employee's income for tax purposes.
There is accordingly no requirement to withhold employees' tax
on a travel allowance or entertainment allowance in terms of the
law.
The Receiver of Revenue has issued a practice note (3 of 2001)
that confirms this view unless the allowance is clearly excessive
in relation to the employee's gross package.
In practice it is appropriate that an employee considers how
much expenses will be incurred that can be deducted from the
allowance received to determine whether a portion of the allowance
should not be taxed through the payroll.
If an allowance has not been subjected to income tax and there
are not sufficient expenses to reduce the allowance to zero, a tax
liability arises on the unused portion of the allowance which must
be settled on June 30 each year.
June 30 each year must be a day that most individuals in Namibia
should diarise.
This is the day that you have to square off with the Receiver of
Revenue if you owe him income tax and the day you have to submit
your tax return to the Receiver of Revenue.
Should readers have queries, they are invited to send them to
cameron.kotze@za.ey.com
These rules do not apply to individuals who are self-employed or
independent tradesman who are not subject to control as to the
times at which they will perform their services and who are not
paid on a regular monthly, weekly or daily basis or to
non-executive directors who receive only director's fees for
attending board meetings.The values of a range of benefits are
contained in a schedule that has been issued by the Commissioner of
Inland Revenue.All employees and directors of public companies are
subject to employees' tax each month on the value of the benefits
accruing each month.Executive directors of private companies need
not have employees' tax deducted from their remuneration unless
specifically required by the Receiver of Revenue.Therefore, there
is no requirement to withhold employees' tax on the value of fringe
benefits accruing to executive directors.The Income Tax Act
provides for the inclusion of any benefit received in respect of
employment.It is the intention of the legislator to include all
benefits imaginable that an employee could receive as a result of
being employed.If the value of a benefit provided to an employee is
not found in the schedule, there is a catch-all paragraph that
requires the employer to obtain the value of the benefit from the
Receiver of Revenue.Some of the more common benefits that an
employee can receive include a company car, housing allowance,
travel allowance and an entertainment allowance.Section 14(1) of
the Income Tax Act provides that where an employee receives an
allowance for purposes of incurring expenses on behalf of the
employer, only so much of the allowance that has not been expended
for the purpose granted is included in the employee's income for
tax purposes.There is accordingly no requirement to withhold
employees' tax on a travel allowance or entertainment allowance in
terms of the law.The Receiver of Revenue has issued a practice note
(3 of 2001) that confirms this view unless the allowance is clearly
excessive in relation to the employee's gross package.In practice
it is appropriate that an employee considers how much expenses will
be incurred that can be deducted from the allowance received to
determine whether a portion of the allowance should not be taxed
through the payroll.If an allowance has not been subjected to
income tax and there are not sufficient expenses to reduce the
allowance to zero, a tax liability arises on the unused portion of
the allowance which must be settled on June 30 each year.June 30
each year must be a day that most individuals in Namibia should
diarise.This is the day that you have to square off with the
Receiver of Revenue if you owe him income tax and the day you have
to submit your tax return to the Receiver of Revenue. Should
readers have queries, they are invited to send them to
cameron.kotze@za.ey.com
