Awards (Gifts) from Employers
ARE THEY TAXABLE?
Awards are often provided by employers to employees for certain acts in performing their day-to-day duties, often as a gesture of appreciation or recognition of outstanding performance.
Types of awards include:
- Performance Awards – awards provided to employees for exceeding certain performance levels
- Long-service Awards – awards provided to employees for being employed for a certain period of time considered as “long-service”
- Bravery Awards – awards provided to employees for a particular act of bravery
While awards are usually not related to specific services, they are still regarded as remuneration as defined in Schedule Four of the Act (“Remuneration is as any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered” paragraph 1, Schedule Four of the Act).
As such, these awards are subject to employees’ tax and the employer is required to withhold employees’ tax on payment of such awards.
The taxable value placed on awards depends on the type of award:
- In the case of a cash award, the value of the award will be the full cash value and employees’ tax should be withheld on this full value.
- In the case of a non-cash award, the value of the taxable benefit will be the open market value of the benefit received by the employee less any consideration paid by the employee for the asset (i.e. if the employee is awarded a computer with a value of R 14 000.00 and is required to pay R 4 000.00 to the employer in order to receive the award, the taxable benefit shall be R 10 000.00).
The following exceptions apply in calculating the employees’ tax due in the case of a non-cash award:
- Awards for long-service – If the employee is awarded a long-service award, the taxable benefit of the award shall be reduced by the lesser of R 5 000.00 and the value of the benefit. Note that long service in terms of Schedule Seven should at least be an unbroken period of 15 years the first time such award is granted and a 10-year unbroken period thereafter and only applies in the case of non-cash awards.
- Awards for bravery – Bravery awards are treated on a similar basis as long-service awards, however, 15 and 10-year period of unbroken employment does not apply.
Conclusion
Awards given by employers to employee are subject to employees’ tax and employers have a responsibility to withhold employees’ tax on such awards.
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