[Question] fringe benefit tax on a loan

[Mahendra]

Hi all,

Need some advice, as well as , direction to find documents pertaining to the following:

Fringe benefit tax on a loan for purposes of the payment by the employee of any consideration in respect of any qualifying equity share.

Is the loan was granted to a director for the sole purpose of acquiring shares in the company, is this taxable as a frindge benefit? Any other taxes or laws that apply to this?

Thanks, much appreciated...

[Mahendra]

Sorry, meant to read:

If a loan was granted to a director for the sole purpose of acquiring shares in the company, is this taxable as a frindge benefit? Any other taxes or laws that apply to this?

[CLIVE-TRIANGLE]

I think this is the relevant bit of the Act:

Seventh Schedule
Benefits or Advantages Derived by reason of Employment or the Holding of any Office
Benefits in respect of Interest on Loans

11)

a) The cash equivalent of the value of the taxable benefit derived in consequence of the grant of a loan to an employee in the circumstances contemplated in Paragraph 2 (f) shall be the amount of interest that would have been payable on the amount owing in respect of the loan in respect of the year of assessment if the employee had been obliged to pay interest on such amount during such year at the official rate of interest, less the amount of interest (if any) actually incurred by the employee in respect of the loan in respect of such year.

b) For the purposes of this Act--
i) a portion of the said cash equivalent shall be deemed to have accrued to the employee--
aa) where interest on the loan in question becomes payable by the employee at regular intervals, on each date during the year of assessment on which interest becomes so payable for a portion of such year;
bb) where interest on the loan in question becomes payable by the employee at irregular intervals or where interest on the loan is not payable by him, on the last day of each period during the year of assessment in respect of which any cash remuneration becomes payable by the employer to the employee; and
ii) the said portion shall be determined by calculating interest at the official rate of interest for the portion of the year referred to in subparagraph (2)(a)(i) or the period referred to in subparagraph (2)(a)(ii), as the case may be, and deducting therefrom so much of the amount of interest (if any) payable by him on the loan as relates to the said portion of a year or the said period, as the case may be: Provided that where the official rate of interest has been altered with effect from any date, any cash equivalent which is under item (a) deemed to have accrued to the employee on any date falling before the date on which such interest rate was so altered shall be determined as though such rate of interest had not been so altered.

c) With the consent of the Commissioner a different method of calculation of the said cash equivalent or portions thereof may be employed if the Commissioner is satisfied that such method achieves substantially the same result as the methods provided in subparagraphs (1) and (2).

d) No value shall be placed under this paragraph on the taxable benefit derived in consequence of--
i) the grant by any employer to his employee of any casual loan or loans if such loan or the aggregate of such loans does not exceed the sum of R3 000 at any relevant time; or
ii) the grant by any employer to his employee of any loan for the purpose of enabling that employee to further his own studies.

e) Where any amount, being the cash equivalent as determined under the provisions of this paragraph, of the value of a taxable benefit derived by any taxpayer in consequence of a loan granted to him, has been included in such taxpayer's taxable income in any year of assessment, such amount shall for the purposes of section 11(a) of this Act be deemed to be interest actually incurred by him in that year of assessment in respect of the said loan where such amount had it been actually incurred as interest, would have been incurred by the taxpayer in the production of his income.

[Mahendra]

Thanks for the info but I dont think it applies in regard to my question.

I am referring to loans awarded to an employee with the sole purpose of the employee acquiring shares from the said company that awarded the loan.

[Nickolai Naydenov]

Are you talking about preferred compensation maybe? Preferred compensation is a policynthat you take on a person's name that the company pays for a certain period of time which is tax deductable for the company but when the employee gets it he or she will pay tax on it.mplease explain exactly what you need and what the purpose is. If you like PM me all the details so I can help you accordingly.

[CLIVE-TRIANGLE]

Thanks for the info but I dont think it applies in regard to my question.

I am referring to loans awarded to an employee with the sole purpose of the employee acquiring shares from the said company that awarded the loan.

If this was a scheme, have a look at SAICA's analysis:

http://www.saica.co.za/integritax/2008/1614_Employees_share_schemes.htm

[Nickolai Naydenov]

http://www.hedron.co.za/the_income_tax_effects_of_members_debit.ppt