(Non-)cash employee benefits: when do you not deduct tax on them?
Many employers provide sports, recreation or cultural allowances for their employees. The reason is clear - to motivate their current or future employees. However, these benefits may also be subject to taxation.
Monetary or non-monetary - that's what it's all about
The tax treatment (both on the employee's and the employer's side) varies depending on the specific benefit. The correct approach is based on the wording of the Income Tax Act. Not only the purpose of the benefit, but also its form is important for assessing whether the income is exempt from tax. In most cases, the benefit takes a non-monetary form. But how to define it?
This was recently addressed by the Supreme Administrative Court ("SAC") in its Opinion No. 7 Ads 31/2021-28. In this case, the Court considered a situation where a company reimbursed its employees with a holiday voucher.
If the employer had reimbursed the holiday provider for the voucher, the employer could have benefited from a more favourable tax regime - the employee would therefore have received exempt income which would not have been subject to compulsory insurance.
However, in the situation examined by the SAC, the company paid the amount of the holiday directly to the employees on the basis of documented expenses. And in such a case, according to the State Government and the SAC , the exemption cannot be applied. In their view, in such a procedure, the benefit in question must be treated as monetary, i.e., taxable income.
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