THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Reportable

Case No: 20725/2014
In the matter between:

ANGLO PLATINUM MANAGEMENT SERVICES (PTY) LTD                APPELLANT

and

THE COMMISSIONER FOR THE SOUTH AFRICAN                         RESPONDENT
REVENUE SERVICE

Neutral Citation:
Anglo Platinum Management Services v SARS (20725/2014)
[2015] ZASCA 180 (30 November 2015)
Coram:
Cachalia, Leach, Tshiqi, Pillay and Mbha JJA
Heard:
5 November 2015
Delivered:
30 November 2015

Summary:
Income Tax Act 58 of 1962 – whether valid and binding salary sacrifice
agreement achieved.

___________________________________________________________________
ORDER
___________________________________________________________________

On appeal from: Tax Court, Johannesburg (Mavundla J sitting with two assessors
as court of first instance):

The appeal is upheld with costs, including the costs of two counsel.
The order of the Tax Court is set aside and replaced with the following:

‘The appeal is allowed.’

___________________________________________________________________
JUDGMENT
___________________________________________________________________

Cachalia JA (Leach, Tshiqi, Pillay and Mbha JJA concurring)

[1] This appeal involves a salary sacrifice scheme whereby the appellant, Anglo
Platinum Management Services (Pty) Ltd (the taxpayer), gave its employees an
opportunity to participate in what it believed, and still believes, was a legitimate
arrangement. The scheme involved its employees sacrificing or foregoing a portion
of their cash remuneration ‘packages’ in return for their use of company-owned
motor vehicles.

[2] The issue in the appeal is whether, for the years of assessment 2004 to 2008,
the use of the motor vehicles ought to be taxed at a reduced scale as a taxable
benefit under para (i) of the definition of ‘gross income’ in s 1 of the Income Tax Act
58 of 1962 (the Act) read with the Seventh Schedule, and para (b) of the definition of
‘remuneration’ in para 1 of the Fourth Schedule, as the taxpayer contends it should
be, or on the normal scale under para (c) of the definition instead, which is how the

Commissioner assessed the taxpayer. The Commissioner raised an assessment of
R11 543 041 after determining that the amounts the taxpayer allocated to the motor
vehicle scheme did not qualify to be dealt with as a valid and binding salary sacrifice
agreement as envisaged in para (i).

[3] It is necessary to set out the legislative framework applicable to the dispute
fully:
Paragraph (c) of the definition of ‘gross income’ in s 1 of the Act, upon which the
Commissioner relies, includes:
‘any amount, including any voluntary award, received or accrued in respect of services
rendered or to be rendered or any amount . . . received or accrued in respect of or by virtue
of any employment or the holding of any office:
Provided that –
(i)
the provisions of this paragraph shall not apply in respect of any benefit or advantage
in respect of which the provisions of paragraph (i) apply.’
Paragraph (i) of the definition of ‘gross income’ includes:
‘the cash equivalent, as determined under the provisions of the Seventh Schedule, of the
value during the year of assessment of any benefit or advantage granted in respect of
employment or to the holder of any office, being a taxable benefit as defined in the said
Schedule.’ (My emphasis)
Paragraph 2 of the Seventh Schedule provides as follows:
‘For the purposes of this Schedule and of paragraph (i) of the definition of ‘gross income’ in
section 1 of this Act, a taxable benefit shall be deemed to have been granted by an employer
to his employee in respect of the employee’s employment with the employer, if as a benefit
or advantage of or by virtue of such employment or as a reward for services rendered or to
be rendered by the employee to the employer –
. . .
(b)
the employee has been granted the right to use any asset . . . for his or her private or
domestic purposes either free of charge or for a consideration payable by the

employee which is less than the value of such use, as determined . . . under
paragraph 7(4) or (7) in the case of a motor vehicle.’ (My emphasis)
Paragraphs 3(1) and (2) of the Seventh Schedule provide that:
‘(1)
The cash equivalent of the value of a taxable benefit shall, for the purposes of
paragraph (i) of the definition of ‘gross income’ in section 1 of this Act, be determined
in accordance with the provisions of this Schedule by the employer by whom the
taxable benefit has been granted.
(2)
The Commissioner may, if such determination appears to him to be incorrect, re-
determine such cash equivalent upon the assessment of the liability for normal tax of
the employee to whom such taxable benefit has been granted.’
Before para (b) of the definition of ‘remuneration’ in para 1 of the Fourth Schedule,
which governed the employers’ liability to withhold from and to pay employees’ tax to
the tax authority, was amended, it included within its ambit:
‘any amount of income which is paid or is payable to any person by way of any salary, leave
pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension,
superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and
whether or not in respect of services rendered, including –
(a)
any amount referred to in paragraph . . . (c) . . .  of the definition of ‘gross income’ in
section one of this Act;
(b)
any amount required to be included in such person’s gross income under paragraph
(i) of that definition.’

[4] For present purposes the effect of these provisions is that where any amount
is received or accrued for services rendered by virtue of any employment, it is
included in the employee’s gross income under para (c) and is thus fully taxable.
However, the proviso in para (c) precludes any benefit, in respect of which the
provisions of para (i) apply, from being dealt with as having been received or
accrued for services in respect of any employment under para (c). Paragraph (i) of
the definition of ‘gross income’ includes the ‘cash equivalent’ as determined under
the Seventh Schedule, of the value of any benefit or advantage – henceforth referred
to simply as a benefit – granted to the employee as part of his employment. As I

have indicated, the benefit in issue in this case was the use of a company-owned
motor vehicle.

[5] So, if the benefit meets the requirements of the definition of ‘gross income’ in
para (i), it, and not para (c) applies. The employer, who grants the benefit to the
employee, must then determine the ‘cash equivalent’ of the value of the benefit
according to the Seventh Schedule, and having done so, may withhold and pay
employees’ tax on the cash equivalent as determined.

[6] In this matter the taxpayer determined the cash equivalent of the motor
vehicles and paid employees’ tax on this amount. It is not an issue in this appeal that
this determination was correctly done. What is in issue is whether the scheme
constituted a valid and binding salary sacrifice arrangement that gave rise to a cash
equivalent to be determined in accordance with the Seventh Schedule under para (i).

[7] The Tax Court, in which Mavundla J presided, seems to have misunderstood
the taxpayer’s case to be that because it had devised a legitimate salary sacrifice
scheme, which did not attract liability for income tax under para (c) of the definition of
‘gross income’, no tax liability on its part arose at all. It thus proceeded to adjudicate
the dispute without considering whether the relevant paragraphs of the Seventh
Schedule, para (i) of the definition of ‘gross income’, proviso (i) to para (c) and
para (b) of the definition of ‘remuneration’ in the Fourth Schedule, applied. And,
having overlooked these provisions, it seems to have approached the taxpayer’s
evidence on the unarticulated premise that the scheme was a sham, disguised to
conceal its true nature. It consequently dismissed the taxpayer’s appeal against the
assessment and ordered the taxpayer to pay the costs of the appeal, implicitly
finding that its grounds of appeal had been unreasonable.

[8] In this court, the Commissioner eschews reliance on the Tax Court’s
judgment. Instead he approaches the matter on a firmer and proper foundation that

in commercial practice and in the commercial world employers and employees are
entitled to structure salary packages in a tax efficient manner. And that salary
sacrifice arrangements, whereby employees sacrifice or forego a portion of their
cash salaries in return for some quid pro quo or fringe benefit from the employer that
reduces their tax liability, are perfectly lawful.

[9] In addition, the Commissioner does not contend that the scheme was a sham
or disguised to appear to be genuine, whereas in truth it was not. In other words he
does not invoke the substance over form doctrine. Instead his case is that the
taxpayer and its employees did not achieve what they purported to achieve, namely,
a valid and binding salary sacrifice agreement. And therefore, that the use of the
vehicles, was, in reality, a consideration the employees received as part of their
employment and formed part of their gross remuneration.

[10] It is a question of fact in each case whether a salary sacrifice agreement was
achieved. In this regard a court is not concerned with the subjective belief of the
parties to the agreement – no matter how genuine this belief may be – but with
whether the facts, objectively viewed, establish that this result was attained.1 It must
thus consider the oral and documentary evidence to assess the probabilities. The
taxpayer bears the burden of proving that the Commissioner’s decision to disallow its
objection to the assessments was wrong. And where, as in this case, the taxpayer’s
is the only oral evidence, it must be considered carefully in the light of the available
documentary evidence before a court is able to conclude whether or not the taxpayer
has discharged the onus.

[11] So, to succeed in this appeal, the taxpayer must establish, on the evidence of
Mr Dolf Broodryk, who testified on its behalf, and the documents on which it relies,
that a genuine salary sacrifice was concluded as a matter of fact. It would thus have
to show that the employees’ remuneration packages were structured in a manner

1 Erf 3183/1 Ladysmith (Pty) Ltd & another v Commissioner for Inland Revenue 1996 (3) SA 942 (A)
at 950I-951C.

that they received their remuneration partly by way of cash and the balance by way
of a fringe benefit; and that the taxpayer unconditionally assumed liability for
payments and contributions for the motor vehicles that were part of the scheme,
thereby releasing its employees from any such obligation. In other words by
foregoing part of their remuneration package in return for the use of a motor vehicle,
the employees divested themselves of their right to this amount of money. The
implication of such divestment is that the amount would not have been received or
accrued for services to be rendered by the employees as contemplated in para (c) of
the definition of ‘gross income’.

[12] I now consider the evidence. Mr Broodryk, who devised the scheme for the
taxpayer, was taken through the documents and explained to the Tax Court how the
scheme worked. The relevant documents are:
Policy and Procedures of the Motor Vehicle Scheme (‘the policy document’);
The Motor Vehicle Use Agreement (‘the MVA’);
The Notional Instalment Sale Agreement (‘the NISA’);
The Annual Total Package Allocation Agreement (‘the AA’);
The Notional Account.

[13] The employees, he explained, had to complete the AA indicating how they
wished their ‘cost to the company’ remuneration packages to be structured flexibly
as between cash and other benefits, which included the use of a motor vehicle. This
choice was available to new and to existing employees when they were offered
annual increases.

[14] Once an employee had chosen to participate in the scheme and had selected
a vehicle of his choice, the taxpayer purchased it, and paid the dealer in cash. It then
entered the vehicle in its asset register, and claimed depreciation on it. The vehicle

was registered in the employee’s name, but the taxpayer owned the vehicle until the
employee had settled the finance obligation and paid the related fringe benefit tax on
it. The cost of the purchase was recovered from the employee through a monthly
deduction – predetermined at the time he elected to participate in the scheme – from
the portion of his salary he had to forego in return for the use of the vehicle.

[15] If this was all there was to the scheme there would have been no dispute
between the taxpayer and the taxing authority regarding its efficacy. This is because
the cost of the motor vehicle would have been deducted from each employee’s
monthly salary in return for its use. Under para 2 of the Seventh Schedule the
taxpayer would thus be deemed to have given a taxable benefit to the employee. In
terms of para 3(1) of the Seventh Schedule the taxpayer would then have
determined the cash equivalent of the value of the motor vehicle as contemplated in
para 7 of the Seventh Schedule, for the purposes of paragraph (i) of the definition of
‘gross income’. This was correctly done in this case.

[16] It is the manner in which the scheme was implemented: in particular the
entitlement of the employees to claim an amount of credit in the notional account,
which I discuss below, and their contractual obligation to pay insurance premiums on
the motor vehicles that lie at the heart of this dispute. The Commissioner contends
that the entitlement to this credit and the obligation to pay the premiums are
inconsistent with a genuine salary sacrifice scheme as, in substance, the employees
retain their power over their salary packages.

[17] The method used to recover the cost of the motor vehicle, was the subject of
considerable disagreement between the taxpayer and the Commissioner. The
evidence was that the taxpayer and the relevant employees entered into a NISA, as
envisaged in the policy document. This served as a mechanism whereby ‘notional
interest’ on the amount paid to the car-dealer would be calculated over the period of
the operation of the scheme, for example 48 months.

[18] In the Tax Court, the Commissioner contended that this agreement amounted
to the taxpayer extending a credit facility to the employees, which was ultimately
deducted from their monthly salary. But it is important to understand that the interest
so calculated was not actual interest since the taxpayer had paid for the vehicle in
cash. It was instead a theoretical calculation of what the vehicle would have cost the
taxpayer had it purchased the vehicle on credit; hence the description of the interest
as ‘notional’. The taxpayer added this notional interest to the capital cost of the motor
vehicle. Before us, the Commissioner, correctly in my view, did not persist with this
contention.

[19] So, if the taxpayer had financed the vehicle through a finance house, instead
of paying for it in cash, this amount – capital plus notional interest – would have been
the ‘real’ cost. The taxpayer included this ‘real’ amount in the calculation of the salary
sacrifice it recovered through monthly deductions from its employees’ salaries.

[20] Mr Broodryk testified that the taxpayer prepared ‘notional accounts’ it sent to
its employees who chose the taxable benefit of the use of their motor vehicles.
These accounts, which I have indicated lie at the heart of this dispute, set out the
‘optimal value’ of the motor vehicle, defined as the ‘theoretical representation’ of the
capital amount outstanding at the end of each month determined according to the
reducing cap method. This was part of the methodology used to determine the actual
value of the motor vehicle, taking into account the finance costs from the NISA. In
addition to being represented as part of the capital cost of the motor vehicle, notional
interest was recorded separately in the notional accounts.

[21] The accounts also detailed actual payments the taxpayer made for
maintenance and running expenses, insurance premiums and licensing fees. These
payments were debited to the notional account, as was the notional interest. The
predetermined monthly deduction from the employees’ salary appeared from month
to month as a credit in the notional account.

[22] The evidence, both documentary and oral, was that, from time to time, there
would be a shortfall in the notional account where the actual expenditure plus
notional interest exceeded the amounts credited to an employee through the monthly
deduction. Where this occurred, the outstanding amounts would be recovered from
the employee. Where, however, the amount credited to the employee exceeded the
expenditure, the policy allowed the employee to withdraw the money from the credit
available once every quarter. Any amount so withdrawn was, subject to normal
taxation, part of his gross income.

[23] What emerges from Mr Broodryk’s evidence is that the notional accounts
were for the taxpayer’s internal recordkeeping – to keep track of the cost of providing
the taxable benefit to its employees – and not for any other purpose. Its aim was to
correlate the amounts that became available through the salary sacrifice with the
taxpayer’s own actual expenditure plus notional interest.

[24] In response to a question from the presiding judge in the Tax Court as to
whether the accounts were fictitious, Mr Broodryk answered in the affirmative, which
the Tax Court seems to have misconstrued as a concession that there was
something untoward in their creation and management. The Commissioner
vigorously contests the characterisation of these accounts as fictitious or notional. It
was submitted on his behalf that the use of either of these terms was an unjustified
gloss on the true role of both the NISA and the notional accounts because they were
part and parcel of the exercise of calculating the actual amount that the employees –
not the taxpayer – were required to pay each month to cover the costs of the
scheme. The notional accounts, it was contended, therefore recorded real facts – not
fictional amounts.

[25] Two of the ‘real facts’ so recorded were the insurance premiums for the
vehicles debited to the notional account and the monthly amount overspent or
underspent for each employee, as mentioned above. The Commissioner points
particularly to these features of the scheme as being inconsistent with a genuine

salary sacrifice. It is therefore important to properly understand the evidence in this
regard.

[26] There appears to be no dispute between the parties that the policy entitled
each employee to withdraw the credit – the amount underspent – in the notional
account every quarter. If the amount was not withdrawn it would be rolled over into
the following month or quarter. At the end of the financial year this amount would be
paid to the employee if there was still a credit balance subject, to normal income tax.

[27] Mr Broodryk’s testimony in this regard was that the employee could elect
whether or not to withdraw the money quarterly. Under cross-examination he was
pressed to concede that what he referred to as an election was in truth a contractual
right to claim the credit, which would be irreconcilable with an antecedent divestment
of the right to the money making up the sacrificed portion. But Mr Broodryk stood his
ground reiterating that the policy gave the employee an election, a response counsel
for the Commissioner sought to stigmatise as being evasive.

[28] I accept that the employees had a right to claim any credit in accordance with
the policy. The import of Broodryk’s evidence was simply that they could elect not to
claim it quarterly in which case they could still claim whatever credit remained at the
end of the financial year. But the fact remains that the amounts that became
available to be claimed quarterly were both unanticipated and insignificant simply
because it was not possible to predetermine future running expenses and notional
interest for the motor vehicles. The running costs varied from month to month and
from employee to employee.

[29] And, as I have mentioned, when there were small amounts owing by
employees, they paid in the difference, and conversely, they were entitled to claim
the credit, subject to normal taxation, when such amounts were owed to them. In this
way the taxpayer was able to ensure, as Mr Broodryk put it, that the cost of the

benefit (to the taxpayer) was ‘in sync’ with the predetermined amount that was
allocated to the scheme. So, the fact that these insignificant and unanticipated
amounts could (not would) become available to the employee in the future because
of inevitable future adjustments to the predetermined cost of the benefit cannot and
does not detract from the efficacy of the scheme.2

[30] One may test this by asking what the Commissioner’s response would have
been if the scheme was able to achieve a perfect symmetry between the cost of the
benefit and the amount the employee gave up, which is what the scheme in
substance sought to achieve? The answer is evident; he would have accepted that
this was a genuine salary sacrifice. I see no reason why on the facts of this case we
should come to a different conclusion.

[31] So, properly understood, the credit to which an employee became entitled
when he elected to participate in the scheme was not unconditional. It was a
contingent right, exercisable at a later date and on the occurrence of an uncertain
future event: a quarterly credit balance in the notional account. If the event did not
materialise there was no right to be exercised and until it was exercised there could
not have been an accrual of this income as contemplated in para (c) of the definition
of ‘gross income’. The Commissioner’s contention that the employees retained their
right to claim such moneys ‘on demand’ and therefore did not unconditionally divest
themselves of this right rests on the incorrect premise that the right had vested when
the AA was concluded, whereas it was in truth a contingent right.3

[32] Similarly, in regard to the insurance premiums for the motor vehicles, counsel
for the Commissioner attempted to demonstrate, by reference to the documents, that
payments debited to the notional account were deducted from the employee’s
monthly salary and were not part of a salary sacrifice. In this respect the policy

2 Compare with ITC 1682 62 SATC 380 at 401E-F.
3 See Family Benefit Friendly Society v Commissioner for Inland Revenue 1995 (4) SA 120 (T) 125A-
C; Mooi v Secretary for Inland Revenue 1972 (1) SA 675 (A) 683F-H.

document provided that the employees had to insure their cars and the premiums
would be reflected as having been deducted from their notional accounts. The MVA
also said that employees would be liable for the payment of the premiums.

[33] But under robust cross-examination Mr Broodryk insisted that the taxpayer,
and not the employees, was liable for the premiums; the employees only needed to
ensure the premiums were paid. The taxpayer, he maintained, therefore assumed
this obligation and paid for the premiums from the salary sacrifice. In this instance
too, counsel for the Commissioner criticised his response harshly as being at odds
with the documents.

[34] Again, I think the criticism of Mr Broodryk’s evidence was unfair: First, the AA,
which was the agreement confirming the employee’s total package, specifically says
that the taxpayer – not the employee – is liable for insurance costs. Secondly, Mr
Broodryk’s uncontested testimony was that the taxpayer assumed this obligation and
paid for the premiums from the amount the employee had foregone. Thirdly, even
though the documents appear to be equivocal as to whether the taxpayer or
employee had this obligation, the parties implemented their agreements as
Mr Broodryk explained they had done. In other words they intended the taxpayer to
be liable for these costs, despite what some of the documents said. The
Commissioner, who is a stranger to these agreements, cannot gainsay this
evidence.4

[35] To conclude: the parties sought to fund a taxable benefit from a salary
sacrifice. They were entitled to do so in accordance with the relevant provisions of
the Act. And they achieved this through the scheme they agreed on and
implemented. The following features of the scheme indicate that it was properly
designed and implemented: The taxpayer purchased the motor vehicles, owned and
claimed depreciation on them. The recovery of their total cost, including their running

4 Rane Investments Trust v Commissioner, South African Revenue Service 2003 (6) SA 332 (SCA)
346 para 27.

expenses was obtained from the salary sacrifice, not from the employees. In return
for the amount they had foregone the employees received a taxable benefit; ie, the
use of the vehicles.

[36] Neither the employees’ right to claim a credit, which the Commissioner argued
was inimical to an antecedent divestment of a right, nor the provisions of some of the
agreements making the employees responsible for insurance premiums on the motor
vehicles undermines the efficacy of the scheme. The credit claimable arose from a
small unpredicted and unanticipated future contingency, and the insurance
premiums were in fact paid for by the taxpayer. Therefore, the Commissioner’s
argument that the use of the vehicles was in reality a consideration received by each
employee as part of their employment and thus taxable under para (c) of the
definition ‘gross income’, as opposed to para (i) as a taxable benefit by virtue of a
valid salary sacrifice, must fail.

[37] In the result the appeal is upheld. The following order is made:
The appeal is upheld with costs, including the costs of two counsel.
The order of the Tax Court is set aside and replaced with the following:

‘The appeal is allowed.’

___________________
A CACHALIA
JUDGE OF APPEAL

APPEARANCES

For Appellant:
T S Emslie SC

Instructed by:

Webber Wentzel, Johannesburg

Honey Attorneys, Bloemfontein

For Respondent:
D M Fine SC (with him H A Mpshe)

Instructed by:

The State Attorney, Pretoria

The State Attorney, Bloemfontein