Home » Columns » School fees benefit triggers employees’ tax

School fees benefit triggers employees’ tax

Publishing Date : 14 May, 2019

JONATHAN HORE

Last week, I wrote about the tax that is triggered by interest-free loans or loans advanced by employers to employees at low interest rates. I also stated that the employees are taxed primarily because they would have enjoyed an advantage, which arises due to the employer-employee relationship they have with their employers.



I also mentioned that the benefit is then added to the salary and tax is determined on the total remuneration earned. I want to discuss how different school fees arrangements also trigger tax in today’s article. As usual, words importing the masculine shall be deemed to include the feminine.


WHAT TAX IS THIS?

Before I expand on how exactly the school fees may trigger tax, it is important to first expand on what sort of tax we are talking about today. Whenever we talk of employer-employee relationships, the tax that arises in such scenarios is called Pay As You Earn (PAYE) or employees’ tax. This is a tax that an employer deducts from both monetary and non-monetary remuneration earned by employees.


Notice that monetary remuneration is real money paid to employees whilst non-monetary remuneration is what is alternatively called free benefits, fringe benefits, benefits-in-kind or advantages. In such instances, the employees do not receive money but enjoy an advantage due to an arrangement put in place by an employer.

HOW TAX & SCHOOL FEES MIX

The following are the different school fees arrangements that are common and how they trigger tax:

Fees paid to school: The most common arrangement regarding school fees is one where employers cater for employees’ school fee bills, which they pay directly to the school. What this means is that the employees are relieved of paying fees for their children, which certainly results in a taxable benefit. The benefit that is taxed in the employees’ hands is the equivalence of the amount paid by the employer to the school. For example, if an employee earns a salary of P 40 000 and his employer pays fees of P25 000 for the whole year in a particular month, that employee is taxed on P 65 000 in that month;

Transportation: Some employers also cater for the flights or transportation costs of their employees’ children. Such passage benefit is taxed as the employees would have enjoyed an advantage. However, there is a section in the Income Tax Act which exempts a passage benefit from tax in case it is contractual. In other words, as long as the passage benefit is included in employees’ contracts, no tax arises. If this tickles you, you may need professional advice to get it right;

School fee discounts: Some employers, especially educational institutions such as universities, colleges and schools allow their employees and their employees’ children to access educational services at such institutions either for free or at subsidized rates. Such arrangements certainly trigger tax in the sense that the employees enjoy a benefit that they would otherwise not have if they were not employed by their employers. The tax is determined on the difference between what any other students pays and what the employees’ children pay. For example, if school fees per term is P 12 000 and an employee’s child pays P 2 000, then the employee enjoys a benefit of P10 000, which must be taxed.


Refunds: Some employers allow employees to embark on a course of their choice, after which the employees get a refund from the employer upon successful completion of the course. If the courses are for the benefit of the employees, i.e. not mandatory for the employees to take the course in order for them to perform better at work, then the employees will be deriving a private benefit.


Further, most employees who get trained by employers are bonded for some period and that is a sign that the training was not necessarily for the sole benefit of the employees but also for the employer. In the latter case, there is usually no taxable benefit as such courses are initiated and highly regulated by the employer. Tax arises in cases where the courses are optional and not embarked on to further the employer’s business.

THE END OF THE MATTER

To wrap up, let me state that it is not possible to enumerate all the school fees arrangements that employers may have in place for employees. However, all that needs to be kept in mind is that the employees are supposed to be taxed on the benefit they enjoy from any such arrangements. Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax Whatsapp group, send me a text on the cell number below.


Jonathan Hore writes on behalf of Aupracon Tax Specialists and feedback can be relayed to  HYPERLINK "mailto:jhore@aupracontax.co.bw" jhore@aupracontax.co.bw or 7181 5836. This article is of a general nature and is not meant to address particular matters of any person.

Cartoon

Polls

Do you think the courts will help put the UDC, BMD impasse within reasonable time ahead of the 2019 General Election?

banner_14.jpg
banner_12.jpg

POPULER BRANDS