In terms of the Seventh Schedule to the Income Tax Act a director of a company is also considered an “employee”. This is significant, since directors can therefore also be bound by the fringe benefit tax regime applicable to employees generally.
Paragraph (i) of the definition of “gross income” in the Income Tax Act specifically includes as an amount subject to income tax “the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of assessment of any benefit … granted in respect of employment or to the holder of any office…”
Clearly, benefits received by a director of a company would therefore rank for taxation in terms of this provision. The question remains therefore whether loans provided to such directors by the companies where they serve in this capacity would amount to such a taxable benefit, and further how such benefit should be quantified.
Paragraph 2(f) of the Seventh Schedule is unequivocal in its approach that a taxable fringe benefit exists where “… a debt … has been incurred by the employee [read director], whether in favour of the employer or in favour of any other person by arrangement with the employer or any associated institution in relation to the employer, and either-
(i) no interest is payable by the employee in respect of such debt; or
(ii) interest is payable by the employee in respect thereof at a rate of lower than the official rate of interest…”
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors & omissions excepted. (E&OE).