Taxable benefit arises when an employer grants any service to an employee, which is at the expenses of the employer. Paragraph 2 of the Seventh schedule expressively defines what is a taxable benefit. By its application, the employer providing transport services to its employees, should give rise to a taxable benefit. However, paragraph 10(2)(b) of the Seventh Schedule to the Income Tax Act states that:
(2) No value shall be placed under this paragraph on—
(b) any transport service rendered by any employer to his employees in general for the conveyance of such employees from their homes to the place of their employment and vice versa;
On the 18 March 2019 SARS issued BGR 50 and Interpretation Note 111, both clarifying the provisions contained therein, as there is uncertainty on how to apply the no-value principle.
The focus is on the transport service which must be rendered by the employer, in order for the no-value provision to apply.
It is important to differentiate between the employer, who directly provides the transport service to the employees, or another person, such as general public transport.
In the ruling SARS made it clear that the employer may directly, or indirectly provide transport service to its employees. The no-value provision will apply in the following circumstances where the transport service is not rendered directly by the employer (in that it is outsourced to a specific transport service provider):
(i) the transport service is provided exclusively to employees on the basis of predetermined routes or conditions;
(ii) the employees cannot in any manner request such transport service from the service provider on an ad hoc basis; and
(iii) the contract for providing the transport service is between the employer and the transport service provider, and the employee is not a party to the contract.
This is an addition to BGR 42 from 22 March 2017, ruling that “Transport services provided to employees to and from any collection or drop-off point en route to or from the employees’ homes and place of employment is accepted to fall within the provisions of paragraph 10(2)(b). No value will, therefore, be placed on these transport services.”
Interpretation Note 111 however does not discuss the meaning of transport between “home and place of employment (and vice versa)” as outlined in BGR 42.
If the employer merely pays the expense incurred for a general public transport (such as a taxi, train or bus service), which is a transport service that is neither rendered by the employer, nor exclusive, this would not meet the no-value provisions in paragraph 10(2)(b), unless the transport service is outsourced to a specific transport service provider and meets the conditions as laid out in BGR 50, and will therefore be a taxable benefit in the hands of the employee.
BGR 50 applies for tax periods commencing on 1 March 2019, until it is withdrawn, amended or the relevant legislation is amended.