JUDGMENT HANDED DOWN BY REVENUE APPEALS TRIBUNAL ON QUESTION OF EXEMPTION OF MEDICAL AID BENEFITS

JUDGMENT HANDED DOWN BY REVENUE APPEALS TRIBUNAL ON QUESTION OF EXEMPTION OF MEDICAL AID BENEFITS

JUDGMENT HANDED DOWN BY REVENUE APPEALS TRIBUNAL ON QUESTION OF EXEMPTION OF MEDICAL AID BENEFITS

1. In its public ruling on Fringe Benefits Tax issued in February 2011, the LRA had the following to say about the tax consequences of a medical aid benefit provided by an employer to an employee:

“If the employer pays or reimburses an employee for medical bills, hospitalization, medical scheme premiums, this constitutes a medical fringe benefit. As a social policy consideration, medical fringe benefit is exempt from FBT if all non-casual employees are entitled to equal amounts, in absolute terms. That is, if M500.00 per month is paid, then this should apply to all employees regardless of their levels in the employer’s organizational hierarchy. An entitlement based on a certain percentage for all employees is not on equal terms and therefore, (is) a taxable fringe benefit”.

2. The Revenue Appeals Tribunal has recently considered what the meaning of the phrase “on equal terms” is. The Tribunal held that the benefit is not taxable if it is made available to all employees even though all employees do not have to take up the full benefit. It went on to hold that a benefit in the same amount or a benefit of the same value (as contended by LRA) is not required in order for it to be exempt. In this regard:

“In our opinion where a benefit is provided on equal terms, it means that the same conditions are attached to the granting of the benefit – not that the same benefit or the same amount is given to all employees”.

3. It will have to be seen whether the LRA accepts this decision or whether it takes it on appeal. For the present, the public ruling that, in order to be exempt, premiums paid must be in the same amount is incorrect.

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