Background

Some employers give their employees fringe benefits in addition to the normal pay as a way of motivating them. As postulated by Dorstein on page 568 “a benefit is something that has saved an employee from taking out of his pocket” and should be brought into gross income of an employee in accordance with the provisions set out in s8 (1) (f) of the Income Tax (Chapter 23:06). According to this section benefits or advantages include board, cash allowance, the enjoyment of corporeal or incorporeal property, the occupation of quarters or of a residence,  the use of furniture or of a motor vehicle; including payment of an employee’s private journey (known as passage benefit) etc. A “Passage benefit” covers the cost borne by an employer for any journey undertaken by an employee, his spouse or child to take up employment, on termination of employment or any other journey in so far as it is not made for the purpose of a business transaction of the employer. In short it covers relocation benefit and holidays of employees and their families whose cost are borne by the employer. 

Law and Interpretation

Section 8 (1) (f) of the Income Tax Act has stated gross income  as including “an amount equal to the value of an advantage or benefit in respect of employment, service, office or other gainful occupation or in connection with the taking up or termination of employment, service, office or other gainful occupation: Provided that— (i)  an amount equal to the value of the grant of a passage benefit as defined in subparagraph (i) of paragraph (a) of the definition of that term in this paragraph shall not be included in the gross income of an employee if no other passage benefit as defined in that subparagraph has been granted to the employee by the same employer; (ii) an amount equal to the value of the grant of a passage benefit as defined in subparagraph (ii) of paragraph (a) of the definition of that term in this paragraph shall not be included in the gross income of an employee if no other passage benefit as defined in that subparagraph has been granted to the employee by the same employer.”. Essentially the section excludes from gross income of an employee the cost of the first journey undertaken by an employee on taking up employment and upon termination of employment with each employer, if such costs are borne by the employer or its associate. These are the cost of moving an employee and his family and their goods to their new location (for example, transportation of the employee, his family and their belongings to their new location). Settling expenses such as accommodation of the employee and family in a hotel or guest lodge upon arrival, but not a prolonged stay in the hotel or lodge, falls within the ambit of a passage benefit and so are repatriation expenses. The exemption is applicable to both resident and non-resident persons.

If the cost is borne by an employee and reimbursed to him, the exemption would still apply. Our view is that moving expenses are limited to the costs of moving the employee and his family, household goods and personal effects to the new residence (including in transit or foreign-move storage expenses) and travel and lodging costs during the move. Although this may be debatable in other forums, our view is that it does not include meal expenses, expenses incurred while searching for a new home after obtaining employment; costs of selling the old residence (or settling a lease) or purchasing (or acquiring a lease on) a new home and temporary lodging at the new location after obtaining employment. Where these are borne by the employer, they present taxable income in the hands of the employee. All private trips of an employee and his family member(s) when sponsored by his/her employer are taxed to him/her, but business related trips are non-taxable. If the employee is accompanied by his or her spouse on business trip, and the employers reimburse their travel expenses, that payment is a taxable benefit to the employee unless the spouse was engaged primarily in business activities on behalf of the employers during that trip. A business trip appears not to cover cases where an employee is required because of the nature of his work to stay in a place or a site for a prolonged period such that that place becomes his usual place of work for instance cases where buyers of tobacco are required to be at a certain place for a prolonged period. It is also trite at law that, where an employer pays or reimburses the personal expenses for an employee, the amount paid or reimbursed is to be treated as part of the employee’s remuneration and taxed accordingly.

Conclusion

Companies that wish to have passage benefit as part of an incentive that they give to employees must ensure that they have a passage benefit policy that is clearly defined in such a way that it does not constitute a taxable benefit to which the company must include on the payroll. They must ensure that the first trip in consideration of employment or upon termination of employment and not any other trip thereafter are clearly defined in its passage benefit policy manual. Any further benefit other than a passage benefit and business trips will be taxable in the hands of the employee and as the employer it has the mandate of ensuring that those amounts are included in the payroll. Care must be taken not to exempt trips where employees are required in terms of their contractual terms to be in certain places for a prolonged period such that such place can be regarded as the employee’s usual place of work.