The taxation of employer-provided low cost housing: A step in the right direction, but not yet a leap for mankind…


As part of Government’s anti-poverty objectives, Government is seeking to provide low-income South African’s with low cost housing and more specifically, ownership of residential property. In this regard, Government appears to be supportive of employers who provide low cost housing to low-income employees with the aim of enabling these employees with the opportunity to acquire ownership of the housing. This is specifically the case in industries where companies operate in remote areas and/or require employees to live away from their ordinary place of residence, like the mining industry. It is common that employers which operate in these industries provide affordable low cost accommodation to their employees. To make it affordable for low-income employees to acquire ownership of residential property it is often necessary to transfer the property to low-income employees below market value.

In recent years, Government has granted certain tax incentives to employers that provide accommodation to their employees, to the extent that they transfer ownership of the accommodation at below market value prices to such low-income employees. However, the tax implications arising for the employees often do not coincide with the incentives provided to the employers. Due to increased pressure from employees and workers unions on employers regarding remuneration, employers are unlikely to implement any transaction which would negatively impact employees from an earnings perspective. Thus, the current tax implications for the employees have arguably  prohibited many employers from implementing tax effective  affordable housing plans. As this is counterproductive to Government’s objective, the tax treatment of below market value transfers to employees has now been addressed to an extent, which I explain more fully below.

Proposed changes to the current tax regime

Currently, the below market value transfer of residential property to an employee may result in a fringe benefit to the employee and accordingly, taxable in the hands of the employee.  It is proposed that from 1 March 2014, no tax will be payable on the below market value transfer if-

  • The employee earned less than R250 000 remuneration (which includes salary, bonus, fringe benefits, over time etc.) in the preceding year of assessment in which the acquisition takes place. A special rule applies where the employee was not in the employment for the full year of assessment, which effectively is a gross up of the salary;
  • The market value of the property does not exceed R450 000.  This is by way of an amendment of paragraph 5 of the Seventh Schedule to the Income Tax Act No. 58 of 1962 by the addition of subparagraph 3A and the new definition of “remuneration proxy” in section 1.

So the proposed changes are definitely a step in the right direction, but not yet a leap for mankind…

Missing steps

Low-income earning employees generally would require loans to fund the acquisition of residential property. In this regard, employers would stand in and provide the necessary loans with no or low interest payable. However, loans provided by employers to employees at a rate below the official rate of interest are also taxable as a fringe benefit. This tax treatment remains unchanged.

As discussed above, Government has adopted certain tax incentives to employers in light of its objective stated above. For example, favourable tax treatment exists for employers that provide interest-free loans to employees where the employee acquired residential housing from the employer in certain circumstances. However, the interest-free loans to employees may result in tax payable by the employee who received the interest free-loan from his employer. This unfavourable tax consequence is merely one of the few adverse tax consequences arising in relation to these employer provided housing schemes.


Government is providing incentive measures in respect of below market value transfers of residential property from an employer to its employees. However, the transactions that flow commonly from the transfer of residential property, for example the advance of low interest bearing loans, continue to attract employees’ tax and other adverse tax consequences. Therefore, unless all of the tax consequences are addressed in the relevant tax legislation, the unchanged tax regime will hinder any positive outcome which Government was hoping to achieve with the proposed changes to the tax legislation discussed above.

Therefore, although the legislative change discussed above is a step in the right direction, further legislative changes are required. In the interim, it is advisable to consult with your tax advisor when embarking on providing housing to employees or transferring ownership of housing below market value to employees to ensure that it does not result in an unforeseen tax liability, whether for the employer or the employee.

Kristel van Rensburg – Director