Vat on Fringe benefit - medical expenses

[*A*]

I have a question:

A company is currently paying expenses on behalf of their employees.
They are medical expenses (dental, doctors, medicines, scan, etc).
The company is not a registered medical service provider.

What is the Vat implications on the payment of the medical bill using the following scenario as an example:

The employee goes to a doctor and the doctor charges R114 (incl. Vat).
The bill is send to the company for payment. The company pays the doctor R114.00
The company is Vat Registered.

Questions:
1. Is the fringe benefit to the employee R114.00 or R100.00?
2. Because the employer is a registered Vat vendor, are they allowed to deduct the Vat from the employee (additional deduction screen on VIP will be created for this purpose)

It would be appreciated is you can substantiate your answers with reference to the Act(s).

[Justloadit]

I would assume that the fringe benefit amount would be VAT inclusive. Had the employee paid, it would include VAT.
Now I am not sure how you would deal with the VAT portion of the actual medical bill payment, my understanding of the VAT rules, are that you can not claim VAT as an input on expenses which do not generate direct income to the company. Please ensure that you get professional advice on this, as this can come back and bite you later on.

[geraldenek]

you can claim the VAT on the medical bill and the fringe benefit should exclude the VAT amount.

you can go to www.acts.co.za under the VAT act : Act 17(2)(vii)

[Dave A]

Just patching together what Geraldine refers to:

Notwithstanding anything in this Act to the contrary, a vendor, shall not be entitled to deduct from the sum of the amounts of output tax and refunds contemplated in section 16(3), any amount of input tax-
in respect of goods or services acquired by such vendor to the extent that such goods or services are acquired for the purposes of entertainment: Provided that this paragraph shall not apply where-
such goods or services are acquired by a vendor for an employee or office holder of such vendor, that are incidental to the admission into a medical care facility.

So Geraldine is clearly on the money in terms of claiming the input VAT.

What has me wondering on the declared fringe benefit side of this is I recall reading a comment on vehicle allowances a while ago - along the lines that the VAT must be included in the calculation of the value of the fringe benefit.

Any handy chapter and verse reference for that part of this? - just to make sure.

[geraldenek]

Dave, had to do a lot of reading on this

The only thing i can find is from SARS on medical cost fringe benefits : "Value to be placed on the benefit in terms of Paragraph 12B of the 7th Schedule shall be the amount incurred by the employer (directly or indirectly) in respect of any medical, dental and similar services, hospital services, nursing services or medicines in respect of that employee, his / her spouse, child or other relative or dependants." http://www.sars.gov.za/home.asp?pid=...0an%20employer

in this case the amount incurred was the excluding amount as this is what the employer paid.

as for mentioning the use of a motor vehicle - it is also calculated excluding vat see attached under number 2

[bammer]

Hi Dave, Geraldene

From a PAYE perspective, the term "determined value" was changed to include VAT when calculating the fringe benefit. However, when calculating the deemed output tax on the fringe benefit (s. 18(3) of VAT Act read with regulation 2835), the term "determined value" is used again but this time same includes excludes VAT.

It follows that you should include the VAT when calculating the fringe benefit but exclude same when determining the deemed output tax.

[bammer]

same includes VAT.

Typo, should be "excludes"

[Dave A]

Ok - Now I'm confused. Geraldene links to a document dated 2007. Has this situation changed since?

[bammer]

Hopefully this clear the air:

On 1 March 2011 the tax legislation relating to company cars provided to employees changed. The definition of “determined value” has been amended by omitting the exclusion of VAT in the determined value. The fringe benefit has to be calculated on 3,5%, unless the vehicle includes a maintenance plan, in which case the benefit is calculated on 3,25%. This is an amendment from the 2.5% basis for calculation used last year.

[geraldenek]

Hopefully this clear the air:

On 1 March 2011 the tax legislation relating to company cars provided to employees changed. The definition of “determined value” has been amended by omitting the exclusion of VAT in the determined value. The fringe benefit has to be calculated on 3,5%, unless the vehicle includes a maintenance plan, in which case the benefit is calculated on 3,25%. This is an amendment from the 2.5% basis for calculation used last year.

I do agree 100% that the motor vehicles have changed from 2012 tax year onwards because the employer can not claim the input VAT.

But with regards to *A* question - the vat should be excluded from the fringe benefit.

[Dave A]

Hopefully this clear the air:

On 1 March 2011 the tax legislation relating to company cars provided to employees changed. The definition of “determined value” has been amended by omitting the exclusion of VAT in the determined value. The fringe benefit has to be calculated on 3,5%, unless the vehicle includes a maintenance plan, in which case the benefit is calculated on 3,25%. This is an amendment from the 2.5% basis for calculation used last year.

That's an increase of nearly 50% on taxable value

I'm surprised there hasn't been riots

[geraldenek]

That's an increase of nearly 50% on taxable value

I'm surprised there hasn't been riots

It is the employee paying for this - don't think everyone is aware of this.