Louis Marais and Partners Chartered Accountants (S.A.)

In appropriate circumstances an employer and an employee could make an arrangement that could be tax advantageous to the employee. It would seem that this tax-saving opportunity is often overlooked.

In terms of section 10(1)(nB) of the Income Tax Act (the Act), a benefit that an employee may have enjoyed by reason of the fact that his employer has borne certain expenditure incurred

• in consequence of his relocation from one place of employment to another, or
• on his appointment or his termination of employment may be exempt from normal tax.

In terms of this provision, when an employer has borne the following expenses they will be exempt from normal tax:

• The transportation of the employee, members of his household and personal goods from his previous place of residence to his new place of residence.
• Costs as the Commissioner may allow that have been incurred by the employee on the sale of his previous residence and in settling in permanent residential accommodation at his new place of residence.
• The cost of hiring temporary residential accommodation for the employee and members of his household during a period that ends 183 days after his transfer took place or after his date of appointment.

It is immaterial whether the employer pays the creditor directly or reimburses the employee for the above expenses.

But it should be noted that transfer that does not necessitate a change of residence does not fall within the ambit of this concession.

The following items are exempt from tax if the employer reimburses the employee for the actual expenditure incurred. They must be reflected under the code 3714 on his IRP 5 certificate:

• Bond registration and legal fees.
• Transfer duty.
• Cancellation of bond expenses.
• Agent’s commission on the sale of his previous residence.

To simplify administration, the Commissioner accepts and treats as tax free an amount equal to one month’s basic salary if it is paid to the employee to cover settling-in costs (excluding those related to transport, temporary accommodation and the purchase and sale of his residence).

Settling-in costs include the following. They must be reflected on the IRP 5 certificate under code 3714:

• New school uniforms.
• Replacement of curtains.
• Motor vehicle registration fees.
• Telephone, water and electricity connection fees.

But if payment is made by the employer for the following two items, they will constitute taxable benefits in the hands of the employee concerned. They will be subject to the deduction of employees’ tax and must be reflected on the IRP 5 certificate under code 3713:

• Payment to reimburse the employee for a loss suffered on the sale of a previous residence resulting from his transfer.
• Architect’s fees for the design or alteration of a new residence.

It is important that the correct codes are used to record the exempt amount and the taxable amount:

• If the expenditure is exempt from normal tax the amount must be reflected under code 3714 on the IRP 5 certificate.
• In instances when the expenditure is taxable the amount must be reflected under code 3713 on the IRP 5 certificate.

Although the exemption applies to settling-in expenses in the employee’s new place of residence, it does not cover compensation paid for the additional cost of buying a residence in a more-expensive city.

An employer may have a practice of paying for an employee’s transport costs to a new location as part of a ‘look-see’ trip to assess whether he wants to move. It is the Commissioner’s view that these so-called look-see trips do not fall within the ambit of the exemption under section 10(1)(nB) relating to transfer expenses borne by the employer. Since these expenses are incurred for the employee to assess and determine the suitability of the new work and home environment, they are of a private or domestic nature.