Changes to the Long Service Award Requirement – Effective 1 March 2022
PAGSA Newsflash 2022-03 discussed the general (simpler) changes made by the 2021 tax amendment Acts that were published on 19 January 2022 and indicated that there are two complicated amendments that the PAGSA has been discussing with the authorities for some time to get clarity. One of the two problematic amendments that we have been discussing with SARS is the changes to the taxation rules for qualifying Long Service Awards, and the correct method of reporting this information on tax certificates, and we have today received the SARS opinion on the issues. Background to Long Service Awards
Paragraphs 2(a) and 5 of the Seventh Schedule of the Income Tax Act provide that when an employee acquires an asset from an employer either for no consideration or for a consideration which is less than the value of the asset, a taxable fringe benefit arises. Depending on the circumstances, the value is either the cost to the employer, or the market value. Generally, for long service awards, the value is the cost to the employer. However, if an employer gives an asset is to an employee in recognition of long service and the conditions for ‘long service’ are met (discussed below), the fringe benefit value can be reduced by the lower of the asset value and R5 000. The Budget Review of 2021 noted that in practice some employers reward employees for long service in a variety of forms other than the acquisition of an asset and proposed that the taxable value of these other forms of awards should in total also be reduced by up to R5 000 on condition that the ‘long service’ conditions are met. These proposals were turned into draft amendments, issued for comment in July 2021, and were promulgated in the final Taxation Laws Amendment Act on 19 January 2022. The ‘Long Service’ Conditions
The ‘Long service’ conditions are specified in paragraph 5(4) of the Seventh Schedule as being:
An initial unbroken period of service of not less than 15 years, or
Any subsequent unbroken period of service for the same employer of not less than 10 years. The reduction in the fringe benefit value does not apply automatically at intervals of 15, 25, 35 etc. years of service. Employees who received their initial long service award after, for example, 17 years of service, must wait for a further 10 years (i.e. after 27 years of work for the same employer), before the reduction of the value of the fringe benefit can be applied again. The ‘Long Service’ Amendments – Effective from 1 March 2022
The final amendments are included in the appendix to this Newsflash for your convenience. In short, the types of awards for long service whose taxable value can be reduced by up to R5 000 from 1 March 2022 are listed below coupled to a reference to the applicable legislation:
Existing type of award available prior to, and from 1 March 2022
1.Acquisition of an Asset at Less than Actual value [Seventh Schedule par 5(2)(b)]
New types of awards available from 1 March 2022
2.Right of Use of an Asset [Seventh Schedule par 6(4)(d)]
3.Free or Cheap Services [Seventh Schedule par 10(2)(c)]
4.Cash [“gross income” in section 1 of the Income Tax Act, par (c) and proviso (vii)]
Note the following regarding the above types of long service awards available to employers from 1 March 2022:
1.Point 1 above is not new (as far as I can determine, this provision has been in the Act since 1985)
2.Points 2, 3, and 4 are the new forms of award that are available from 1 March 2022
3.Points 1, 2, and 3 are fringe benefits
4.Point 4 is an award paid in cash. These changes are all welcome and probably legitimise what some employers have been doing in practice for years, but they do raise some complications. The addition of points 2 and 3, being fringe benefits, is not a radical departure from the principle that we have been familiar with for many years but allowing a cash payment as a long service award, is a radical departure. But this departure from the rule is only if the long service conditions are met. that are also cash payments. Guess what.

A Long Service Cash Award given to an employee that complies with the initial 15 years and any subsequent 10 years unbroken period of service requirement – par (vii) of the proviso under par (c) of “gross income” in section 1 of the Income Tax Act should be reported under IRP5 code (code) 3622 (3672 for foreign services income) from the 2023 tax year. Prior to the 2023 tax year a cash value was not allowed as a long service award for the R5000.00 non taxable reduction. The value of the portion of the long service award included in IRP5 code (code) 3622 (3672 for foreign services income) must be added under IRP5 code (code 3696) only if the sum of 3622/3672 and 3835/3885 does not exceed R5,000. If it exceeds R5000.00 the value should be included under IRP5 code (code) 3699 on the employee tax certificate.

A Long Service Award given to an employee that complies with the initial 15 years and any subsequent 10 years unbroken periods of service requirement should be reported under IRP5 code (code) 3835 (3885 for foreign services income) from the 2023 tax year. The value of the portion of the long service award included in IRP5 code (code) 3835 (3885 for foreign services income) must be added under IRP5 code (code 3696) only if the sum of 3622/3672 and 3835/3885 does not exceed R5,000. If it exceeds R5000.00 the value should be included under IRP5 code (code) 3699 on the employee tax certificate.