Good news for employers who offer transport service to employees
A 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 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, said the first private ruling was published in January and dealt with a company wishing to implement a transport scheme for its employees.
The company required its employees to start and end their working day at times when public transport was either unavailable or very limited. It offered two transport service types — shuttle service and a direct service.
The act provides that if any service — at the expense of the employer — has been offered to an employee for his/her 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," Botha said.
Deloitte associate director Jaco la Grange said 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 said. However, in cities, this created a bit of a challenge.
In the second general ruling, published in March, SARS had 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, said employers could 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," La Grange said.
In the ruling, SARS stated that the word "homes" was very specific and denoted a specific dwelling in which the employee resided or inhabited. "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 might be required to walk to the nearest accessible road to obtain the transport service, which could be kilometres away from his/her dwelling.
SARS acknowledged that an employer might arrange for an employee to be picked up from, or dropped off at, a central point between the employee’s home and place of employment.
An employer may also provide transport services for only part of the trip between the employee’s home and place of employment — such as picking them up from, and dropping them off at, a station or bus stop.
Botha said that from a practical perspective, the fact that no value was placed on transport services meant that no tax would be payable by those employees in receiving transport services, although it was still a fringe benefit.