Getting married is a very special and joyous occasion for any bridal couple, as well as their family and friends. As many a bride will attest, it can also be a little bit stressful. Hopefully, however, tax won’t be one of the issues causing stress on the happy day.
Of course, great care is always taken by the couple’s family and friends in selecting appropriate wedding gifts.
In some cases, the bride or groom may be the senior executive / CEO / director of a corporate entity, or could be related to such a person, and it would then not be uncommon for the company to arrange for a wedding gift to be presented to the happy couple. The question arises what the tax implications of such a gift would be in the hands of the company, and / or the executive concerned. Where the gift is relatively immaterial, it would probably be accounted for as a routine staff welfare expense, e.g. similar to the cost of flowers sent to an employee on occasion of the birth of a new baby, or in case of a bereavement. In such cases the gift would normally not be regarded as a taxable benefit in the hands of the recipient. In ITC 701 (1950) 17 SATC 108(N) it was held that reasonable birthday or other gifts to an employee cannot be said to be in respect of services rendered as it is an act of generosity and the rendering of services is purely incidental.
Should the wedding gift however be more significant, e.g. where the company is sponsoring the cost of the entire event, or of the honeymoon trip undertaken by the newlyweds, then proper consideration should be given to the tax implications thereof. Failure to pay close attention to the tax implications of such costs could easily result in an additional and unnecessary element of stress. The well documented Gupta family wedding held at Sun City a few years ago is a case in point.
It should be noted that the relevant tax principles should remain the same, whether the cost of the wedding gift is regarded as immaterial or otherwise. Each case must however be judged on its own facts and circumstances.
If the company puts the expense through its books as a donation, it is clear that the amount cannot be claimed as a tax deduction in the hands of the company. In terms of section 23(b) of the Income Tax Act, the deduction of domestic or private expenses is expressly prohibited. There can be no doubt that the cost of a wedding, or a honeymoon trip, would for tax purposes be regarded as a private expense. Thus, it would have to be added back in the hands of the company. It would also not be regarded as an amount laid out or expended by the company for the purposes of trade as required by section 23(g) of the Income Tax Act.
On the other hand the company could simply declare and pay a taxable cash bonus to the receipient, or to its employee who is a relative of the recipient, which should at least then secure the tax deduction in the hands of the company.
In the case of a donation, the Income Tax Act specifies that donations tax of 20% is payable on any any gratuitous disposal of property including any gratuitous waiver or renunciation of a right, where the sum of the values of all casual gifts made by a company exceeds R 10 000 per annum.
Regardless of the treatment of the expense as a tax deduction or otherwise in the hands of the company, a further consideration is the tax treatment of the wedding gift in the hands of the bride / groom, should one of them be an employee of the company, or in the hands of the family member of the bridal couple who may be an employee of the company, e.g., the father of the bride.
Para (c) of the definition of “gross income” in section 1 of the Income Tax Act includes “any amount, including any voluntary award, received or accrued in respect of services rendered or to be rendered, in respect of any employment or the holding of any office” in the income of the recipient.
The definition of “remuneration” in the Fourth Schedule to the Income Tax Act includes “any amount of income which is paid or is payable to any person ..... whether in cash or otherwise, and whether or not in respect of services rendered”.
“Employee” is defined as “any person who receives any remuneration”.
Para 2(1)(a) then requires every employer who pays or becomes liable to pay any amount by way of remuneration to any employee, to deduct employees’ tax (“PAYE”) from any amount so paid.
Thus, the wedding gift could be regarded as “gross income” in the hands of the recipient, which makes it taxable, and in addition as “remuneration”, which makes it subject to the deduction of PAYE.
In terms of para 5 of the Seventh Schedule, where an asset has been acquired by an employee ..... the cash equivalent of the value of the taxable benefit shall be so much of the value of such asset ..... as exceeds the value of any consideration given by the employee for such asset.
Para 5(2) of the Seventh Schedule further makes it clear that where the asset in question is movable property and was acquired by the employer in order to dispose of it to the employee, the value to be placed thereon shall be the cost thereof to the employer.
This means that the recipient of the wedding gift if he or she is an employee of the company incurring the cost of the gift, or the company employee who is a relative of the recipient, will be subject to PAYE on the value, i.e., the cost to the company of acquiring the gift.
In terms of par 16(1) of the Seventh Schedule, “an employee shall be deemed to have been granted a taxable benefit in respect of his employment with an employer if as a benefit or advantage of or by virtue of the employee’s employment with the employer or as a reward for services rendered or to be rendered by the employee-
- the employer has granted a benefit or advantage (whether directly or indirectly) to a relative of the employee.....; or
- anything is done by the employer under any agreement, transaction or arrangement so as to confer any benefit or advantage upon any person other than the employee (whether directly or indirectly),and such benefit or advantage, if it had been granted directly by the employer to the employee, would have constituted a taxable benefit contemplated in paragraph 2.”
The net effect of all of the above is that where the company buys and presents a wedding gift to an employee, the employee will be taxed on the value of the benefit received, which is determined as being the cost to the company of acquiring the gift. The amount will also be subject to the deduction of PAYE. Similarly, should a wedding gift be presented to a relative of an employee, e.g. to the child of a director of the company, the director will be taxed as though it was given directly to him / her, with the associated PAYE implications.
Reliance could however be put on the judgement of the Special Tax Court in ITC 701 where it was held that reasonable birthday or other gifts to an employee cannot be said to be in respect of services rendered as it is an act of generosity and the rendering of services is purely incidental.
It is a moot point whether the company would be entitled to claim a deduction for the costs incurred in the case where the full amount is taxed as remuneration in the hands of the recipient, or the company employee who is a relative of the recipient. It is presumed that this will in fact be the case, on the grounds that the company could be argued as having paid a cash bonus to the recipient, the proceeds of which were used to incur the expenditure.
Tax professionals should therefore exercise due care when advising client companies where transactions of this nature have occurred, or are planned. It should be stressed that the correct tax principles should consistently be applied and that the size of the amounts concerned is irrelevant. Once again, each case must however be judged on its own facts and circumstances.
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