Technology has been the great enabler in recent times – cellphones and computers have transformed the way we live and work. They are one of the highest contributors to productivity in the economy, so how do we maximise them to ensure we get the maximum benefit out of them without incurring administrative costs or tax to our business or staff?
Your three options – and the one to choose
There are three ways we can use them:
Your employee owns the device and claims back expenditure incurred in the course of carrying out his/her trade. The disadvantages of this are:
- You should agree to the use of this, preferably in writing should there be a SARS query
- The reimbursable expenses must be substantiated e.g. the submission of a cell phone account
- It must be clear to SARS that expenses claimed are in the production of income
The disadvantages of this are it is clearly an administrative burden on the company and your employee has to bear some cost.
Your employee gets a cellphone and computer allowance.
This will be taxable in the hands of your employee less the amount he/she can demonstrate is used as part of his/her job. As with the case above, there will be a similar administrative load on both the company and your employee.
Your company owns the asset and allows your employee the use of the asset.
Sars in 2008, as part of the amendments made to tax legislation, stated that provided the cellphone or computer was “mainly” used in the production of income, the taxable fringe benefit would be shown at zero value i.e. there would be no tax in the hands of the employee. There has been debate about what “mainly” means. In a recent draft note issued by SARS, this has been clarified to be more than 50%.
The aim of this is to simplify administration by the company and employee and reduce the tax burden on the employee (the company can claim the tax deductions). This is a forward thinking move by SARS. Once it has been shown that certain of your employees (or class/es of employees) use these devices more than 50% for business, there is no tax consideration for employees, nor additional administration for your company or employees.
The only other consideration is whether your employee will suffer economic loss because he/she doesn’t own the asset. In the case of cellphones or computers there is no loss to your employee as these are assets that lose market value very quickly due to the pace of technological change.
The bottom line
In summary, provided the “more than 50%” requirement is met, it makes sense for your company to own the cellphone or computer. It reduces administration and tax burdens for both you and your employees.
* This article originally appeared in CA(SA)DotNews and is reproduced with the authority of DotNews and Harry Curtis & Co. Chartered Accountants (SA), tel: 021 762 0255, email: firstname.lastname@example.org and website: www.harrycurtis.co.za.