Where an employer provides its employee with residential accommodation, either free of charge or for a rental consideration payable by the employee, which is less than the rental value of such accommodation, a taxable benefit is deemed to have been granted by the employer to his employee.

The value of the taxable benefit for the employer-provided accommodation is determined in relation to the 'rental value' representing the value of the use of the accommodation.  Currently, the rental value is calculated according to the specific formula contained in paragraph 9(3) of the Seventh Schedule to the Income Tax Act, No 58 of 1962 (Act), otherwise referred to as the 'remuneration proxy' and the period that the employee used the accommodation.  Alternatively, the 'rental value' can also be calculated by taking into account the aggregate of the total rentals payable and other associated costs or the portion of the accommodation costs borne by the employer that pertains to the use by the employee.

However, the Minister has proposed in the 2014 Budget Speech that the method of valuation of the fringe benefit resulting from employer-provided accommodation be reviewed so that the rental value is no longer determined in accordance with a specific formula or varying circumstances but that the 'rental value' is determined with reference to the actual market value of the use of the accommodation. 

In this regard it is important to note the effect of the proposals made by the Minister, namely: 

• Firstly, where the employer rents accommodation from an unconnected third party, it is proposed that the value of the taxable benefit should be the cost to the employer in providing the accommodation; and
• Secondly, the Seventh Schedule to the Act currently does not make provision for the apportionment where employees share employer-provided accommodation. 

The Minister therefore proposes that some form of apportionment be considered where one has to determine the taxable benefit in instances where employees have to share the employer-provided accommodation.

Proposed relief to benefit Public-private partnerships

Public-private partnerships (PPPs) generally refer to contracts between a public sector institution/municipality and a private party, in which the private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project. 

The government will normally be responsible for making the land available so as to support public-sector infrastructure projects while maintaining state ownership of the land on which the project takes place.

The success of PPPs is dependent on the financial viability of these projects and incentives and/or deductions for improvements in urban development zones and industrial policy projects.  Currently the provisions of the Income Tax Act, No 58 of 1962 (Act) hinder the success of PPPs in that they require ownership of the land before any depreciation or allowances can be claimed for improvements on that land.  Accordingly, the private parties who do not own the land on which the projects take place are not entitled to claim any incentives.

Accordingly, the Minister, in the 2014 Budget Speech, proposed that relief be afforded to improve the financial viability of these projects. In addition, the Minister has stated that the requirement of land ownership limits the incentive for improvements in urban development zones and industrial policy projects. The merits of allowing deductions where the taxpayer is not the owner of the land will therefore be considered.

The proposed changes announced by the Minister will bring relief to benefit the private-sector participants, while maintaining state land ownership.

Written by Nicole Paulsen, Associate, Tax, Cliffe Dekker Hofmeyr