Employer-Provided Housing: the Fringe Benefit Tax in South Africa

When your employer gives you a place to live free or below its value, SARS taxes the benefit using a formula rather than the market rent. The rental value for the year is (A minus B) times C over 100 times D over 12, where A is broadly your previous year's pay, B is an abatement of R99,000, C is a factor of 17, 18 or 19, and D is the number of full months you occupied the place. You are then taxed on that rental value less any rent you actually pay. In some cases, such as accommodation you occupy while working away from home, the benefit carries no value at all.

Two people in identical flats can end up taxed on very different amounts, because paragraph 9 of the Seventh Schedule keys the benefit to each person's pay rather than to the property. That is the point to grasp before the arithmetic.

The formula, piece by piece

The paragraph 9 rental value is:

(A - B) x C/100 x D/12

• A is your remuneration proxy: broadly your remuneration for the previous tax year, excluding the value of the accommodation itself. If you were not employed for the full previous year, it is grossed up to a full year.
• B is an abatement of R99,000, the figure currently set in paragraph 9. It reduces to zero in two cases: where the employer is a private company that you or your spouse control, or where you, your spouse or your minor child have an option or right to buy the accommodation. In those cases the whole of A feeds the formula.
• C is 17 as standard. Where the home has at least four rooms, it rises to 18 if the home is either unfurnished with power or fuel supplied by the employer, or furnished without power or fuel, and to 19 if the home is furnished and power or fuel is supplied. A home of fewer than four rooms stays at 17.
• D is the number of full months in the tax year you were entitled to occupy the place.

You are taxed on the rental value the formula produces, less any rent you pay the employer. The benefit reflects on your IRP5 under code 3805.

A worked example

Lerato's remuneration proxy from last year is R240,000. Her employer owns a furnished flat with four rooms and pays for the electricity, so C is 19. She lives there for the full tax year and pays no rent.

(R240,000 - R99,000) x 19/100 x 12/12 = R141,000 x 0.19 x 1 = R26,790 for the year, about R2,232.50 a month

That R26,790 is added to Lerato's taxable income. If she pays the employer R1,000 a month in rent, that is R12,000 for the year, and the taxable benefit drops to R26,790 minus R12,000, which is R14,790.

If the same flat were smaller than four rooms, C would be 17 rather than 19, and the annual value would be R141,000 times 0.17, which is R23,970. Furniture and employer-paid power move the factor from 17 to 19. Because the R99,000 abatement comes off first, the taxable benefit lands well under a full year's market rent for a flat like this.

When there is no value

Paragraph 9 places no value on accommodation supplied away from your usual home while you are away performing your duties. So if your employer houses you at a project site or a branch in another town while your ordinary residence is elsewhere, that accommodation is generally not a taxable benefit. Accommodation outside South Africa is also given no value for up to two years, subject to a presence test and a monthly cap set out in the SARS guide. Accommodation you occupy only because you are working away from home is treated as part of doing the job, so it is left out of the tax net.

If your employer provides a car instead of, or on top of, a place to live, that benefit is valued off the vehicle's cost rather than your pay, as the article on the company car fringe benefit explains, while short work trips away from home are handled by the subsistence allowance rules rather than paragraph 9. To see what the housing benefit does to your take-home tax, add it as income in the basic income tax calculator; the guide on how your bonus is taxed shows how benefits like this combine with your salary.