Fringe benefits – MEDICAL SCHEME CONTRIBUTIONS PAID BY AN EMPLOYER

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Reference to the Act: Sections 6A and 18(5) and paragraphs 2(i) and 12A of the 7th Schedule Meaning: A taxable benefit shall be deemed to have been granted where the employer contributes, directly or indirectly, to a medical scheme on behalf of an employee and his/her dependants.

Value to be placed on the benefit: The amount of the contribution or payment by the employer (directly or indirectly) to a medical scheme for the benefit of the employee and dependants of such employee for any period.

The ‘no value’ fringe benefit in respect of medical scheme contributions paid by the employer on behalf of the employee who is 65 years and older and who has not retired will be repealed. This means that, the amount of contributions paid by the employer on behalf of an employee who is 65 years and older and has not retired from that employer, will be a taxable fringe benefit.

However, when an employee has retired from an employer, irrespective of the age of the employee, and the employer continues to pay contributions on behalf of that retired employee, the ‘no value ‘fringe benefit still applies. For the updated description of certain codes, introduction of new codes and re-activation of codes previously de-activated for certificate reporting purposes effective 1 March 2012.

Appropriate portion cannot be attributed to the relevant employee In cases where the contribution or payment is made by the employer in such a manner that an appropriate portion thereof cannot be attributed to the relevant employee, in other words, where the employer makes a lump sum payment to the scheme in respect of all employees or a class of employees, the amount of that contribution or payment in relation to that employee and his / her dependants is deemed to be an amount equal to the total contribution or payment by the employer to the scheme during the relevant period for the benefit of all employees and their dependants divided by the number of employees in respect of whom the contribution or payment is made.

If the Commissioner is in any case satisfied that the apportionment of the contribution or payment amongst all employees does not reasonably represent a fair apportionment of that contribution or payment amongst the employees, he / she may direct that the apportionment be made in such other manner as to him / her appears fair and reasonable to him / her. No value shall be placed on the benefit, if the payment by the employer is made on behalf of — – a pensioner (a person who by reason of superannuation, ill-health or other infirmity retired from the employ of such employer); – the dependants of a pensioner after the death of the pensioner, (if such pensioner retired from the employ of such employer by reason of superannuation, ill-health or other infirmity); – the dependants of a deceased employee after such employee’s death, if such deceased employee was in the employ of the employer on the date of death; or – an employee who is 65 years or older.

Employees’ tax — Employees’ tax must be deducted during the month in which the benefit accrues. IRP 5 details – The cash equivalent of the benefit must be reflected under code 3810; and under code 4005 (medical scheme contributions paid by the employee) as it is deemed in terms of Section 18(5) to have been paid by the employee if the benefit was included in the employee’s remuneration.