The “official rate of interest” used by the tax authorities was cut by 50 basis points to 8,5% with immediate effect, the South African National Treasury said in a media statement on Wednesday.
The cut followed the 50 basis-points reduction to 7,5% in the South African Reserve Bank’s repo rate, announced on August 12.
The fringe benefit provisions in the Seventh Schedule to the Income Tax Act, 1962, provide that a taxable fringe benefit arises where an employee obtains a loan from his or her employer in terms of which no interest is charged or a rate less than the “official rate of interest” is charged.
The fringe benefit is calculated as the difference between the amount that would have been payable on the loan if interest was charged at the “official rate of interest” and the amount actually paid by the employee.
Government Notice No 1 024, giving effect to the decrease of the official rate of interest, has been published in Gazette No 26 742, dated September 1 2004.
South Africa’s National Treasury on Tuesday said that the retail bond rates will be lowered by 100 basis points on September 1 for the first time since they were launched on May 24 2004.
The Treasury said the two-year retail bond will have a fixed interest rate of 8,25% from 9,25% previously; the three-year bond’s interest rate will be 8,5% from 9,5%; and the five-year bond will have a fixed interest rate of 9% from 10%. Interest will be paid only on March 31 and September 30.
The reduction is due to the rally in capital market yields from late April 2004, when the retail bond rates were priced.
The retail bond was announced in the February 18 Budget with the pricing done on May 14, even though the official launch date was May 24. Since then the retail bonds have attracted more than R500-million in savings. — I-Net Bridge