Fringe Benefit (Seventh Schedule)
Also known as: Taxable Benefit, Seventh Schedule Benefit, Non-Cash Benefit.
What is Fringe Benefit?
A fringe benefit is a non-cash benefit received by an employee by virtue of employment and taxed under the Seventh Schedule to the Income Tax Act 58 of 1962. Examples include company cars, employer-provided housing, low-interest loans, and free or subsidised services. Each benefit is valued under a prescribed formula and added to taxable income.
Drafted and reviewed by
Attorney & Founder, My-Contracts.co.za · Legal Practice Council of South Africa (LPC F17333)
Definition and context
The Seventh Schedule to the Income Tax Act 58 of 1962 is the master catalogue of fringe benefits. Paragraphs 2 to 12D of the Schedule list every category of taxable benefit and, for each, prescribe the valuation formula the employer must use to calculate the cash equivalent added to the employee\'s taxable income. Paragraph 7 (use of company-owned motor vehicle) values the benefit at 3.5% of determined value per month, reducible to 3.25% where there is a maintenance plan. Paragraph 11 (low-interest loans) values the benefit at the difference between the official rate of interest and the rate actually charged. Paragraph 5 (residential accommodation) applies a rental formula against the employee\'s remuneration, subject to reductions for jobs requiring the accommodation (remote mining, diplomatic postings).
The employer must gross up the fringe benefit into the employee\'s remuneration for PAYE, SDL, and UIF purposes on the monthly EMP201, and reconcile on the IRP5 at year-end. Getting the valuation wrong exposes the employer to underpayment of PAYE with penalties (up to 200%) and interest under the Tax Administration Act 28 of 2011. Getting the employment contract wrong — failing to disclose the benefit, failing to record it as part of remuneration for BCEA-purpose calculations — creates secondary exposure at the CCMA when severance, leave pay, or notice pay is calculated on a "remuneration" base that excludes the benefit the employee was receiving.
Fringe benefits also interact with the Section 34 BCEA deduction limits: the employer cannot unilaterally deduct the cash equivalent of a fringe benefit from the employee\'s cash remuneration without written consent. Well-drafted Employment Contracts, Vehicle and Equipment Agreements, and Employee Loan Agreements disclose the benefit, record the valuation mechanism, and secure the consent needed for any recovery — aligning the Income Tax Act, the Seventh Schedule, and the BCEA into a single compliant framework.
Where this term lives in law
Income Tax Act 58 of 1962
Sections: Seventh Schedule, 1 (definition of "gross income")
The principal statute governing the taxation of individuals and companies in South Africa.
Basic Conditions of Employment Act 75 of 1997
Sections: 34
Sets minimum employment standards including working hours, leave, and termination requirements.
Tax Administration Act 28 of 2011
Governs the administration of tax laws by SARS, including tax-clearance status and compliance.
Frequently asked questions
How is a company car taxed as a fringe benefit?
Under Paragraph 7 of the Seventh Schedule to the Income Tax Act, the monthly fringe-benefit value of a company-owned vehicle is 3.5% of the vehicle's determined value (broadly, its cost including VAT). Where the vehicle is subject to a maintenance plan at acquisition, the rate reduces to 3.25%. The employee may reduce the taxable benefit by 80% if the vehicle is used more than 80% for business purposes, evidenced by a contemporaneous logbook. The monthly benefit is added to remuneration for PAYE, SDL, and UIF on the EMP201.
Are employer-provided loans taxable?
Yes, if the loan is granted at less than the official rate of interest. Paragraph 11 of the Seventh Schedule calculates the fringe benefit as the interest that would have been payable at the official rate less the interest actually charged to the employee. The official rate is linked to the SARB repo rate plus 1% and is adjusted by SARS from time to time. Loans to acquire shares in the employer, for qualifying study purposes, or of R3 000 or less are excluded. Every My-Contracts Employee Loan Agreement should cite Paragraph 11 and calculate the annual fringe benefit explicitly.
Does a fringe benefit count as remuneration for BCEA purposes?
Yes, for statutory calculations that depend on "remuneration" as defined in Section 1 of the BCEA — notice pay under Section 37, severance under Section 41, and leave pay under Section 20. The definition includes payment in kind other than reimbursements. So the monthly value of a company car, residential accommodation, or similar benefit forms part of the remuneration base. Employers frequently under-calculate severance and notice by excluding fringe benefits, and the CCMA regularly corrects that on commissioner's award.
Can an employer deduct the fringe-benefit value from salary?
Not unilaterally. Section 34 of the BCEA prohibits deductions from remuneration without the employee's written consent or authorisation by law, court order, or collective agreement. The PAYE on the fringe benefit is a statutory deduction under the Fourth Schedule to the Income Tax Act and is therefore permitted. But any contribution the employee agrees to make towards the benefit (for example, contributing to fuel or maintenance of a company car) must be documented in writing — typically in the Employment Contract or a Vehicle and Equipment Agreement.
Contract templates using this term
2 templates reference Fringe Benefit (Seventh Schedule).