Rendering of transport services by employers – more observations

Employers may provide employees with a transport service from their homes to the place of their employment. Such transport services constitute a taxable benefit in the hands of the employee (paragraph 2(e) of the Seventh Schedule) but may attract no value where certain requirements have been met (paragraph 10(2)(b) of the Seventh Schedule).

For purposes of the no-value provision, the transport services rendered by the employer directly, will fall squarely within the provision.

There were, however, some uncertainty as to the application of the no-value provision in instances where the employer does not provide the transport services directly, but indirectly through third-party service providers. In this regard, the South African Revenue Service (“SARS”) issued Binding General Ruling 50[1] as well as Interpretation Note 111 on 18 March 2019.

In BGR 50, it was made clear that it will be acceptable for an employer to outsource the transport service to a specific transport service provider under certain specified conditions. Firstly, the employer must clearly state the transport service is provided exclusively to employees on the basis of predetermined routes or conditions. Secondly, the employees cannot in any manner request such transport service from the service provider on an ad hoc basis and lastly, the contract for providing the transport service must be between the employer and the transport service provider. The employee is therefore not a party to the contract.

Paragraph 10(2)(b) will, however, not apply to the provision of and access to general public transport on the basis that such transport service would not be by the employer exclusively to the employees of that employer. Where the employer, therefore, encourages employees to make use of public transport and pay the expense incurred (for example, monthly or weekly train or bus tickets), it will constitute a taxable benefit for purposes of paragraph 2(e) of the Seventh Schedule, the value of which to be determined under paragraph 10(1)(b).

It is important to note that employees that are temporarily placed on secondment in a different city with transport services being provided in the form of return flights between the employee’s home and the place of secondary secondment is a business expense for the employer and is not used by the employee for his private or domestic purposes. Paragraph 2(e) of the Seventh Schedule will therefore not apply and there will be no taxable benefit for the employee.

Employers are therefore encouraged to consider BGR 50 together with the examples set out in Interpretation Note 111 to determine the tax consequences of rendering transport services to its employees to the extent that it provides some guidance on how SARS would interpret these provisions.

[1] Under section 89 of the Tax Administration Act, No 28 of 2011

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