Fringe Benefit

[Audrey H]

Hi,

I'm looking for assistance. We have employees who received low/interest free loans from the company, which were taxed correctly as a fringe benefit. The value of the benefit reflects on the IRP5 under "Income Received" with code 3801. How should one process this benefit value in Pastel Xpress?

[Dave A]

If no money changed hands, there's nothing to capture in the management accounts.

[Audrey H]

Thanks Dave. This is how understand it too. However, when we received our draft Annual Financial Statements our auditors had debited the relevant Mebers' Remuneration account with the benefit value (which reflects on the IRP5 under "Income Received" with source code 3801) and credited the loan account with the same amount. They say the IRP5 amounts have to reconcile with the management accounts otherwise SARS will query why there is a difference. I don't know what I am missing. Is there some way that these benefit amounts need to be reflected in the AFS? Surely not...?They have done the same for the fringe benefit of free/cheap accommodation.

[CLIVE-TRIANGLE]

and credited the loan account with the same amount

So now they are owed it again

[Dave A]

As Clive indicates, the auditors probably should have captured the credit side of this entry against interest received in the company's financial statements, which would have made more sense.

But in that case, given that the company actually charged the interest, it would not have been a fringe benefit.
The way I understand it, the fringe benefit value is the portion of interest that "should have been charged" (according to SARS's rules on interest), but wasn't.

p.s. Perhaps I should have said "money or value" earlier).

[CLIVE-TRIANGLE]

Audrey, there are instances where a company is required to submit an additional return; a supplementary declaration SD14.

One if the issues is that the company is required to reconcile the total payroll cost in it's income statement with the total leviable amount as per IRP5s issued. Your accounting officer has done that and noted the reconciling differences you mentioned. All that would be required is that these be noted on the SD14.

As Dave notes, if anything the credit should be against the related expenses.

But, there is actually no accounting basis or justification for these entries. The result of it will be an overstatement of operating expenses (or overstatement of interest received, and a corresponding mis-statement of profit and income tax.

[Audrey H]

Thank you so much!
Zero interest was charged by the company for the loan. I am going to suggest that they correct the AFS and the company will complete the SD14 to account for the differences.

[dellatjie]

Yes, I agree with Clive, all that SARS wants is a proper explanation of the reconciling differences in the IT14SD.