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Fractional Ownership News
Are 'Time sharing' points transferable?Date: 28/09/2009
Article source: SARS
THE issue of employee benefits was considered in a recent judgement of the Cape Town Tax Court.
The taxpayer carried on a timeshare exchange business. Its members were able to ‘bank’ timeshare rights in exchange for points that they could then use to obtain timeshare rights at other resorts. The taxpayer granted a number of these points to its employees, which allowed them to utilise the resorts.
The South African Revenue Service (SARS) raised an employees’ tax assessment on the basis that the provision of points constituted a taxable benefit for the employees. SARS determined a market value for the points.
The taxpayer contended, firstly, that although the points constituted a deemed taxable benefit, they had no cash equivalent value. The taxpayer regarded itself as providing its employees with assets, in the form of points, rather than with holiday accommodation. The employees were not entitled to dispose of or profit from the points in any way.
These conditions were seen by the taxpayer as rendering the points worthless from a cash perspective.In this regard, reliance was placed on the oft-quoted judgement of Stander v Commissioner for Inland Revenue, which was decided on a similar basis. Unfortunately for the taxpayer, shortly before the hearing of its case, the Supreme Court of Appeal handed down judgement in the case of Commissioner for the South African Revenue Service v Brummeria Renaissance (Pty) Ltd.
In such judgement, the Court stated that the Stander case incorrectly reflected the law. It found that the fact that something cannot be turned into money, does not necessarily mean that it does not have a money value for tax purposes.
The Tax Court, relying on the Brummeria judgement, found that the benefits provided to the taxpayer’s employees had a money value. If they had not received them for nothing, they would have had to pay for them.
In the event that it was found that the taxpayer had provided its employees with holiday accommodation, the taxpayer argued that it did so for purposes of their employment duties. It was stated that the taxpayer’s employees needed experience of its resorts in able to better serve its members. The Tax Court found that, factually, this was not the case and that the benefit was actually a reward for services rendered. The Taxpayer’s appeal was therefore dismissed.