Starting line up
It is quite the spectacle. Whether it’s the Cricket, Rugby or Football World Cup, the buzz and excitement of a host of countries coming together to compete for what is the ultimate top honour in that sporting discipline, carries with it a frenzy of activity. Spectators come out in their droves to attend what is, effectively, the modern gladiatorial contest.
A big factor in the excitement of any world cup is the offer by companies of world cup packages to their staff. For some, simply a ticket to an event, while others receive a full hospitality package inclusive of meals, accommodation, flights and an entertainment allowance.
Let’s single out the Football World Cup that took place in Russia last year. Many companies held competitions, incentives and raffles to allow their staff the opportunity to travel abroad and watch the beautiful game. Other employers send their employees as chaperones to make use of the opportunity to wine and dine their clients.
Sounds idyllic, but, of course, the saying that “there is no such thing as a free lunch” may very well apply to these situations.
For those who went to the World Cup on the company’s dime, tax may well have been due. Simply put and frustrating for most, is the fact that SARS is owed its dues for some of those who went to Russia. A touch of complexity, however, is that others might well owe nothing.
I’d love to say that a blanket approach could be applied and quite simply determine that all individuals from one side of the World cup coin owe taxes and those on the opposite side do not. Unfortunately, it is not so simple as the toss of a coin, nor in fact would the coin necessarily land with a side up or down. In fact, this particular tax coin would keep spinning without some analysis.
Heads you owe, tails…maybe still
There are those of you reading right now who are probably about ready to call me out for fear mongering. How can you be liable for tax for simply attending the World Cup? It makes absolutely no sense and is probably just a bold attempt at kicking the beehive, right?
Well, no. You see, when you get something for free (or at a low cost) from your employer, it may have a myriad of implications.
For those who are unfamiliar with fringe benefit tax may be in for a surprise. The thing is that SARS does not easily believe in shear generosity of employers and may want to tax your free-ride to the World Cup as a part of your income.
Visual Assistant Referee (VAR)
Ordinarily, SARS would allow you to receive gifts, prizes or charity up to a value of R100 000 per year without taking a slice of the pie, but where your employer is the one who bestows you with such gratuities, the exemption may not be applicable.
Where you receive any benefit in respect of or by virtue of your employment, the Seventh Schedule to the ITA gets triggered and your employer may be required to include the value of said benefit in your taxable income. Meaning, where you are fortunate enough to receive an all expenses paid trip to Russia, your employer would be obligated to withhold a considerable amount of PAYE from your next paycheque.
The Seventh Schedule is a powerful weapon in SARS’ arsenal and its ambit is sufficiently wide to make virtually any item with a monetary value taxable in your hands.
In terms of your once-in-a-lifetime holiday to Russia, your flight ticket, game ticket and accommodation would undoubtedly be taxed under the Seventh Schedule. Meals and refreshments are not completely exempt either, so you may have to consider what the tax at your marginal rate would be on that Budweiser(s) you enjoy at the stadium.
The Seventh Schedule, however, does make provision for many instances where these benefits would not be taxed. This may be the case where these expenses are incurred for business purposes, but not always.
The type of benefit you receive and why you receive it would determine if it should be taxed and how the value of the benefit must be determined. The nuances in making these determinations, however, can be more difficult than reaching the final.
Off the Bench
With the above in mind, what should you do? Sure, you could decide it’s not really your problem as an employee and that your company should sort it out. As a company, you might be thinking that say nothing and do nothing is the right approach for you.
Sure. That’s a possibility. And sure, SARS might never be any the wiser.
But a growing trend in SARS payroll audits may just mean that you will be caught off-side. With a growing deficit in collections versus targets, SARS’ tax base barrel will undergo some serious scraping. As a reminder, SARS may decide to approach a company for outstanding taxes, given that SARS typically knows where the money is.
The prudent taxpayer, employee, employer and World Cup attendee, will need to consider (or rather has no choice but to consider) a review of their tax affairs. Simply put, if you’re nervous at this stage, you may well have good reason to be. So, review your tax affairs, employees and employers alike.
My advice is, bring someone “off the bench” to do this for you. Sometimes an impact sub can make all the difference.
But, don’t only focus on the first half performance, adopt a solid strategy to ensure that you win the match.
Now you sit with the situation where you are unsure as to where you sit in the eyes of SARS. And while hindsight is 20/20, you need to look into the future. This year, South Africa takes part in two World Cups. Two World Cups where they stand a good chance of winning, provided one of the teams can shed an unwanted tag and rise to the occasion.
That’s two World Cups of tickets, accommodations, entertainment allowances and air travel. Two sets of tax liabilities. Two sets of planning that needs to occur.
Like any team attending the World Cup, where you fail to prepare adequately, you will find yourself on the wrong side of a loss. A tax loss. And those carry with them penalties that rub salt in the wound.
Setting up your wall
Well, what should be done?
That depends on where you sit, doesn’t it?
Are you a company who has already sent your employees overseas for last years’ World Cup? Or are you sending them in the future? Perhaps to the Cricket or the Rugby.
If you have a past transgression, consider consulting with a professional who can handle a Voluntary Disclosure Programme (“VDP”) application effectively. You’ll probably need a payroll audit too, in order to build a case for the VDP.
Where the future is concerned, you may want to get the opinion of a tax professional on whether or not you may incur a future liability. All scenarios will need to be considered so the right professional is key.
Either way, you will need to set up a wall of defenders. There are specialists in the sporting world and teams rely in them heavily. Why not do the same for business?