Tax on year-end gifts for employees

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December has arrived, and with Christmas around the corner, many employers are left in a pickle when deciding on gestures of good faith and appreciation for their employees.

After a gruelling financial year for most employers, caused by COVID-19’s unforgiving effect on the economy, most employers are steering clear from the financial burdens that accompany an annual Christmas party, and are opting to provide their employees with gifts, which may include vouchers to employees’ favourite restaurants etc.

Albeit an act of generosity by the employers, taxpayers should be made aware of the possible tax implications that may arise as a result of receiving such gifts.

Gifts by virtue of your employment

In determining the tax implications of gifts received, it is important to distinguish between gifts that are received by virtue of your employment and gifts that are received outside your scope of employment; the former being taxable, whereas the latter will be exempt from tax.

Gifts from employers are considered to be by virtue of their employment, unless there is some extraneous factor which severs the tie between the conferring of the gift and your employment, such as a birthday, anniversary, raffle, or competition where you win the gift by chance.

Determining the value of the gift

Pursuant to this analysis, where it is found that the gift is taxable, the value of the gift must be ascertained in terms of the Income Tax Act ultimately to determine the employee’s tax liability.

There may be instances where a nil value may be assigned to the gift, thereby extinguishing the employee’s tax liability. Some examples are gifts conferred where the employer incurs no cost, or where the gift is utilised by the employees for business purposes. These simple scenarios are subject to much more complex considerations and should be fully discussed with a tax professional to determine the tax implications.

Make sure that you and your employer are aware of the tax implications when dealing with these generosities this Christmas season.


Roxanna Naidoo | Admitted Attorney | Tax Consulting SA | mail me |


 



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