How a Long-Service Award Is Taxed in South Africa

A long-service award is taxed differently depending on its form. If your employer gives you an asset (a watch, a tablet, a piece of art) to mark long service, the first R5,000 of its value carries no value for tax, so only the amount above R5,000 is added to your income. If your employer instead pays you cash, there is no R5,000 reduction: the full amount is remuneration taxed at your marginal rate, with PAYE deducted like any salary.

That single distinction, asset versus cash, is what decides the tax. The rule sits in paragraph 5 of the Seventh Schedule to the Income Tax Act (the no-value amount is in paragraph 5(2)(b)) and is explained in SARS Interpretation Note 71.

The R5,000 no-value reduction (asset awards only)

Where an employer gives an employee an asset as a long-service award, the taxable value placed on that benefit is reduced by the lesser of two amounts: the cost to the employer of all such assets given to the employee for long service during the year of assessment, or R5,000. In practice the first R5,000 of value is not taxed, and anything above it is added to your taxable income.

Two points on the cap are easy to miss:

• It is an aggregate annual cap. The R5,000 applies to all qualifying long-service assets you receive in the same year of assessment combined, not R5,000 per item.
• It applies to the value of the benefit in kind. If the award is cash, paragraph 5 does not reduce anything.

What counts as "long service"

The reduction only applies to a genuine long-service award, and SARS ties that to a defined length of service (paragraph 5(4)). For the award to qualify, the asset must have been given for being in employment with the same employer for:

• an initial unbroken period of service of at least 15 years; or
• any subsequent unbroken period of service of not less than 10 years.

So the first qualifying period is 15 years of unbroken service. After that, the reduction can apply again only once you have completed a further unbroken 10-year period, counted from the last qualifying award, and not at fixed 25 or 35 year marks. An employee who first receives a qualifying award at 20 years must work another 10 years, to 30 years, before it can be applied again. An award for outstanding performance, or for any reason other than length of service, does not get the paragraph 5 reduction.

Why a cash award is just salary

Cash paid as a long-service award is remuneration. It falls into your gross income in full, PAYE is withheld on it, and it lands on your IRP5 like the rest of your pay. There is no R5,000 shelter, no deemed cost, and no special rate. The R5,000 reduction was written for a benefit given in kind, so the form of the award changes the tax even when the employer spends the same amount.

Worked example: a R7,500 tablet versus R7,500 cash

Take an employee who has been with the same employer for 20 years, which clears the 15-year initial period, so the award qualifies. Their taxable income puts them in the 31% marginal bracket (R370,501 to R512,800 for the 2026 year of assessment).

The employer gives a tablet worth R7,500 as the long-service award.

• Award value: R7,500
• Less the no-value amount: R5,000
• Taxable fringe benefit: R7,500 − R5,000 = R2,500
• Tax at 31%: R2,500 × 31% = R775

Now compare the same R7,500 paid in cash instead.

• Taxable amount: R7,500 (no reduction)
• Tax at 31%: R7,500 × 31% = R2,325

The tax on the cash award (R2,325) is R1,550 more than the tax on the tablet (R775), for the same R7,500 of employer spend. That gap is simply the 31% tax on the R5,000 that the asset award shelters and the cash award does not: R5,000 × 31% = R1,550.

The 31% rate here is the 2026 year of assessment individual rate for that bracket. If your income sits in a different bracket, use your own marginal rate; the structure of the calculation is the same.

Practical notes

The reduction is applied by the employer when it works out the cash equivalent of the fringe benefit for PAYE, so a correctly handled asset award should already reflect the R5,000 on your payslip and IRP5. If you received more than one qualifying long-service asset in the same year, check that the R5,000 was applied once across the total, not to each item. And if the award was cash, do not expect any reduction to appear: it should be taxed in full.

The worked example applies a single 31% rate for clarity. A large asset award stacks on top of your other income, so if you sit near a bracket edge the part above R5,000 can straddle two brackets and be taxed partly at the higher rate.

For how once-off amounts like this interact with your normal pay and PAYE, see our guide on how a bonus is taxed in South Africa, and you can test the marginal-rate arithmetic on your own numbers with the basic income tax calculator. A cash award behaves much like the lump sums covered in tax on a 13th cheque, while the asset side follows the same fringe-benefit machinery as a company car fringe benefit.