Most non-cash benefits given to employees in South Africa are taxable fringe benefits with a prescribed valuation formula, and the value is added to remuneration for PAYE. The main ones are company cars at 3.5% of cash cost a month, low-interest loans measured against the official rate of 7.75%, employer-provided accommodation, and free or subsidised assets and services.
The exemptions that survive are narrower than most employers assume — and the most valuable one, bursaries for employees' relatives, has conditions that are routinely missed.
The main taxable benefits
| Benefit | Broad valuation basis |
|---|---|
| Company car | 3.5% per month of cash cost including VAT, or 3.25% if under a maintenance plan when acquired |
| Low-interest or interest-free loan | The difference between interest at the official rate of 7.75% and interest actually charged |
| Employer-provided accommodation | A prescribed formula based on remuneration, with adjustments for the property |
| Free or cheap assets given to an employee | Generally market value, or cost to the employer |
| Free or subsidised services | Cost to the employer |
| Employer contributions to a medical scheme | Taxable, offset by the medical scheme fees tax credit |
| Meals and refreshments below cost | The difference between cost and what the employee paid |
| Gift vouchers and prizes | Generally the value |
The value is added to remuneration for PAYE purposes and must appear on the payslip and the IRP5.
Company cars
The most common, and the most misunderstood.
Taxable value: 3.5% per month of the cash cost of the vehicle including VAT. 3.25% where the vehicle was subject to a maintenance plan at the time the employer acquired it.
Worked example. A vehicle costing R560,000 including VAT, no maintenance plan.
| Amount | |
|---|---|
| Monthly fringe benefit | R19,600 |
| Included in remuneration for PAYE at 80% | R15,680 a month |
The 80% rule: 80% of the fringe benefit is included in remuneration for PAYE, reducing to 20% where the employer is satisfied that at least 80% of the vehicle's use is for business.
At assessment, the employee reduces the fringe benefit by the business-use ratio proven by logbook, and can also claim the cost of licence, insurance, maintenance and fuel relating to private travel where they bore those costs entirely themselves.
Why company cars are often less attractive than they look: R15,680 added to monthly remuneration at a 36% marginal rate costs the employee roughly R5,645 a month in PAYE. A travel allowance or reimbursement at R4.95 per business kilometre is frequently better for both parties.
See can you claim your car as a business expense.
Low-interest and interest-free loans
Taxable value: the difference between interest calculated at the official rate and the interest actually charged.
The official rate is 7.75% per annum from 1 December 2025.
Worked example. An interest-free loan of R300,000 to an employee for a full year.
Interest at 7.75%: R23,250
Interest charged: R0
Fringe benefit: R23,250 for the year, or R1,937.50 a month
The exemption worth knowing: a loan not exceeding a prescribed small amount, and certain loans to enable an employee to further their studies, are exempt. Confirm the current threshold before relying on it.
Note the overlap with director's loan accounts. Where the borrower is a shareholder rather than merely an employee, the same official rate is used to measure a deemed dividend under section 64E, which is a different and often larger problem. See what is a director's loan account.
Bursaries and study assistance
The most valuable exemption available to employers, and the one most often applied incorrectly.
Bursaries to employees for their own study are exempt where the employee agrees to reimburse the employer if they fail to complete the studies for reasons other than death, ill health or injury.
Bursaries to relatives of employees are exempt subject to two conditions:
The employee's remuneration must not exceed a prescribed threshold
The bursary amount must not exceed prescribed limits, which differ between basic education and higher education
The condition that voids it entirely: the exemption does not apply where the bursary is granted subject to an element of salary sacrifice — where the employee gives up existing remuneration in exchange for the bursary. Arrangements structured that way have been specifically targeted.
Confirm the current thresholds and limits before implementing a scheme. They are adjusted from time to time, and a scheme built on outdated figures produces a taxable benefit rather than an exempt one.
Medical scheme contributions
Employer contributions to a medical scheme are a taxable fringe benefit in the employee's hands.
Offset by the medical scheme fees tax credit, which for 2026/27 is:
| Per month | |
|---|---|
| Main member | R376 |
| First dependant | R376 |
| Each additional dependant | R254 |
The credit reduces tax, not taxable income, which makes it worth the same to every employee regardless of marginal rate.
What is genuinely not taxable
The list is shorter than employers hope.
Reimbursements of actual business expenses properly incurred and substantiated — this is a reimbursement, not a benefit.
Reimbursive travel up to R4.95 per business kilometre for 2026/27, with a logbook.
Subsistence on overnight business travel within the deemed amounts — R595 a day for meals and incidental costs, or R184 a day for incidentals only.
Protective clothing and uniforms that are a condition of employment and not suitable for ordinary wear.
Long service awards in defined circumstances and within prescribed limits.
Employer contributions to a retirement fund are treated as a taxable fringe benefit but are simultaneously deductible by the employee within the 27.5% and R430,000 limits — so for most employees the net effect is neutral or positive.
Bona fide business entertainment where the employee is not receiving a personal benefit.
Getting it right in payroll
Every taxable benefit must appear on the payslip and the IRP5, under the correct source code. Getting the code wrong causes EMP501 reconciliation problems and incorrect employee assessments.
The three that go wrong most often:
1. Company cars not on payroll at all. The vehicle is provided, nobody adds the fringe benefit, and it surfaces at reconciliation or on audit — with the PAYE, penalties and interest falling on the employer.
2. The 80/20 split applied incorrectly. The reduction to 20% requires the employer to be satisfied that at least 80% of use is for business, which in practice means a logbook.
3. Loans to employees ignored. An interest-free advance is a fringe benefit from day one, not when someone remembers.
The practical control: review the fringe benefit position annually, at the same time you update the tax tables in March. Anything the business provides to staff that is not cash should be tested.
Frequently asked questions
What fringe benefits are taxable in South Africa? Most non-cash benefits, including company cars, low-interest or interest-free loans, employer-provided accommodation, free or cheap assets and services, employer medical scheme contributions, subsidised meals, and gift vouchers. Each has a prescribed valuation formula and the value is added to remuneration for PAYE.
How is a company car taxed in South Africa? As a fringe benefit valued at 3.5% per month of the cash cost including VAT, or 3.25% where the vehicle was under a maintenance plan when the employer acquired it. 80% of that value is included in remuneration for PAYE, reducing to 20% where at least 80% of use is for business.
What is the official rate of interest for employee loans? 7.75% per annum from 1 December 2025. The fringe benefit is the difference between interest calculated at that rate and the interest actually charged on the loan.
Are employer medical aid contributions taxable? Yes, they are a taxable fringe benefit in the employee's hands, offset by the medical scheme fees tax credit of R376 a month for each of the first two people covered and R254 for each additional dependant in 2026/27.
Are bursaries to employees' children tax free? They can be, subject to the employee's remuneration not exceeding a prescribed threshold and the bursary not exceeding prescribed limits. The exemption does not apply where the bursary involves an element of salary sacrifice, and the thresholds should be confirmed before implementing a scheme.
Is a travel allowance a fringe benefit? No, it is an allowance rather than a fringe benefit, but it is taxed — 80% is included in remuneration for PAYE, reducing to 20% where at least 80% of vehicle use is for business, with the employee claiming the actual business deduction at assessment based on a logbook.
What benefits are not taxable in South Africa? Reimbursements of substantiated business expenses, reimbursive travel up to R4.95 per business kilometre with a logbook, subsistence within the deemed amounts of R595 a day for meals and incidentals or R184 for incidentals only, protective clothing and uniforms, and long service awards within prescribed limits.
What happens if I do not put a fringe benefit through payroll? The employer becomes liable for the PAYE that should have been deducted, plus penalties and interest at 10.25% per annum. It typically surfaces at an EMP501 reconciliation or in a payroll audit, by which point it may span several years.
Review the benefits, once a year
Fringe benefits go wrong quietly. A car is provided, a loan is advanced, a phone contract is put in the company's name — and none of it reaches payroll until a reconciliation or an audit finds it.
Smartbook reviews the fringe benefit position as part of payroll setup and annually in March, values each benefit correctly, and reports it under the right source code so the EMP501 reconciles.
Last reviewed: 26 July 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Figures are for the 2026/27 tax year. Bursary thresholds, loan exemption limits and accommodation formulas are prescribed and adjusted periodically — confirm current figures before implementing a scheme. Worked examples are illustrative.
Primary sources: SARS — Budget 2026 Frequently Asked Questions · SARS — Budget Tax Guide 2026 · SARS — Pay As You Earn · SARS — Guide for Employers in respect of Fringe Benefits