Taxation of benefits

Did you know that some benefits from employment are liable to Income Tax whilst other benefits are exempt?

Most benefits from employment that are provided by employers, in addition to one’s salary, are subject to Income Tax in terms of Section 8 (1) (f) of the Income Tax Act [Chapter 23:06]. The following is a summary of the main benefits that an employee may get and the taxation rules that will apply.

Generally, there are two types of benefits that an employee may get in addition to a salary:

  • Benefits-in-kind. These are benefits that an employee receives that cannot be converted into cash but have an ascertainable cash value. Examples include provision of a company car, loans given at a special rate or provision of accommodation.
  • Benefits (other than benefits-in-kind). Examples include vouchers, holidays, payment of an employee's bills and various cash incentives.

The rules applying to benefits-in-kind vary. Generally, the value of the benefit-in-kind is the cost to the employer of providing the benefit less any contribution made by the employee. Special rules apply to the following benefits-in-kind:

  • Motoring benefit
  • Loan benefit
  • Provision of accommodation

All employees who earn more than US$225.00 per month pay tax on the value of any benefits they receive unless if the benefit is exempt from tax.

The taxation of benefits is made literally on the value of the benefit to the employee or on the cost of providing the benefit to the employee. For example, if an employer provides an employee with a cash incentive of US$1,200.00, this is treated as income for tax purposes and is taxed using the monthly Pay As You Earn (PAYE) rates after adding the cash incentive to the monthly salary and making the necessary adjustments for allowable deductions and exemptions.

Benefits  exempt from tax

There are some benefits that an employee can receive that are not subject to tax. These include:

  • Allowances or value of any benefit, which is granted to any person in full time employment of the State as specified in a Statutory Instrument e.g. housing and transport allowances to civil servants.
  • The value of an allowance in respect of accommodation and transport, or the value of the grant of quarters or a residence to any member of staff of a mission hospital or rural clinic operated or sponsored by any religious body.
  • An amount accruing by way of a benefit in respect of the injury, sickness or death of a person which is paid to the person or his dependants or deceased estate:-
  • by a trade union; or
  • from a benefit fund; or
  • in terms of a policy of insurance covering accident, sickness or death; or
  • by a medical aid society.
  • The value of medical treatment and transport to obtain the same and Medical Aid Society subscriptions, paid by an employer on behalf of his employee or their dependants
  • The portion of entertainment allowance paid to an employee which is expended on the business of the employer.

This is not an exhaustive list and conditions often apply to exemptions and should therefore be checked with the Zimbabwe Revenue Authority.

 
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