According to paragraphs 2(f) and 11 of the Seventh Schedule to the Income Tax Act, when an employee incurs debt to their employer and either no interest is charged or the interest rate is below the official rate of interest, the difference between the interest calculated at the official rate of interest and the employer's interest rate (if any) is treated as a taxable fringe benefit.
This fringe benefit must be processed in payroll and reported on the tax certificate against SARS source code 3801 (general fringe benefits).
The official rate of interest, as defined in section 1(1) of the Income Tax Act, is the South African repurchase rate (repo rate) plus 100 basis points (1%). Updates to the official rate of interest apply from the first day of the month following any change in the repo rate.
Following the repo rate decrease from 8.00% to 7.75% on 22 November 2024, the official rate of interest will adjust to 8.75%, effective 1 December 2024.
For further details, visit: South African Reserve Bank – Current Market Rates.