By Bruce Russell, Tax Consultant, Grant Thornton Cape
Employers provide their employees with telecommunication devices and services to enable them to work more efficiently. While the intention may be that these will be used solely for business purposes, there is often an element of private use of the devices, airtime and data.
If an employer provides an employee with a device and it is either, owned by the employer, or provided by means of a contract the employer has with a service provider, a fringe benefit arises for the private use of the device and telecommunication services. However, where devices and telecommunication services are mainly used for business purposes, no value is assigned to these fringe benefits. South African courts have interpreted the word “mainly” to be a quantitative measure of more than 50%. Therefore, if the employee’s business use of the device and/or related telecommunication services is more than 50% of the total use, the employee is relieved from any income tax liability.
Administrative burden relieved
Employers that provide such devices and telecommunication services (“employer-provided platforms”) are faced with difficulties and administrative burdens to collate the necessary information and documentation to substantiate the fringe benefit tax each month. However, SARS released Interpretation Note No. 77 on 4 March 2014 and it provides taxpayers guidance to better understand and possibly reduce this burden.
SARS interprets that no one solution exists in providing the necessary proof of business use. Relevant aspects must be ascertained and measured on a case-by-case basis, taking into account the device’s capabilities and functionality and the various ways in which an employee uses the device.
SARS recognises that a detailed analysis of business use of airtime and data may not be necessary for all employer-provided platforms. SARS will consider the relevant facts and circumstances to evaluate how close the use of the employer-provided platform is to the employee’s job specifications and responsibilities. The Interpretation Note identifies the following examples of facts and circumstances that can be evaluated in ascertaining this connection:
- The nature of the employee’s work;
- The employee’s duties;
- The qualifying criteria before being granted use of the employer-provided platform; and
- The conditions or terms under which the employer-provided platform may be used.
In some instances, it is clear that the nature of the employee’s work and his or her duties mean that the employer-provided platform is used mainly for business purposes. By way of example, it is evident that tablets used by sales representatives (who are required to work eight hours a day in a five day working week) to capture customer’s orders, are used mainly for business purposes. However, can the same be said for mobile phones provided by the employer to the same sales representatives? In this case the documented terms and conditions for use of the mobile phone may specify that the phone can only be used for business calls and further specifies disciplinary action for failing to comply. In evaluating the collective of a sale representative’s nature of work, his or her duties and the terms and conditions for use of the mobile phone, it could be substantiated that the mobile phone is used mainly for business purposes.
Unfortunately, the burden of prove that employer-provided platforms are used mainly for business purposes rests with the employer and employee and therefore due consideration should be given to individual circumstances.
Thankfully, Interpretation Note No. 77 provides the some guidance, which can reduce the compliance burden for employers and employees. Examples of facts and circumstances are provided to evaluate whether employer-provided platforms are mainly used for business purposes. The Interpretation Note also recognises that when these facts and circumstances clearly show that employer-provided platforms are mainly used for business purposes, employers and employees can be relieved from the monthly burden of collecting itemised bills and other documentation to substantiate that no tax has been withheld for these fringe benefits.