GG-LOGICS · LOGIC-MODELS™

The Phantom Rent
Paragraph 9

Residential accommodation as a fringe benefit · See It. Understand It. Improve It.
Seventh Schedule, Income Tax Act · para 2(d) & 9
IRP5 code 3805 · 2027 year of assessment
THE FOUNDING LOGIC

Price the employee, not the property

The formula has never asked what the house is worth. It asks what you earn — remuneration proxy in, phantom rent out. Two colleagues in identical houses pay different tax.

THE ARM'S-LENGTH RELIEF

Cost caps the phantom

Where the employer rents the home from an unconnected landlord, the benefit may be the employer's actual cost if lower than the formula — reality gets a veto over the fiction.

1 MAR 2026

The abatement moves with the threshold

B tracks the primary tax threshold: R99 000 for the 2027 year (up from R95 750). Below-threshold earners generate no phantom rent at all.

Interactive Logic-Model™

SARS never appraises the house.
It appraises the payslip.

Free or cheap housing from an employer is taxed as if the employee received rent — but the "rent" is manufactured by formula: (A − B) × C/100 × D/12. A is the remuneration proxy (broadly, last year's remuneration), B an abatement tied to the tax threshold, C a quality dial of 17–19, D the months of use. The property's market value appears nowhere.

1 · Choose an employee

2 · The levers

Broadly: remuneration from this employer in the PRECEDING year
Consideration paid reduces the benefit

3 · The quality dial (C)

At least 4 roomsBelow 4 rooms, C stays at 17
NO
YES
Furnished by employer
NO
YES
Power / fuel supplied
NO
YES

4 · Status switches

Rented from unconnected landlordArm's-length cost may cap the formula
NO
YES
Controls the (private) employer companyOr holds an option to acquire the home: B → 0
NO
YES
Inbound expatriate — first 24 monthsNo value, if rent ≤ R25 000 pm & conditions met
NO
YES
17
the base dial
<4 rooms, or bare shell
18
4+ rooms AND
furnished OR powered
19
4+ rooms AND
furnished AND powered
The formula's phantom rent
(A − B) × C/100 × D/12
THIS VALUE APPLIES
Employer's actual cost
Only in play when rented from an unconnected landlord
THIS VALUE APPLIES
Taxable benefit · IRP5 code 3805
NO VALUE — the phantom is switched off

Inbound expatriate away from their usual residence outside the Republic: no taxable value for the first 24 months, provided the accommodation does not exceed R25 000 per month (and the employee was not in SA for more than 90 days in the preceding year). Month 25 — the formula wakes up.

Logic Insight

Where no phantom arises

Three escape hatches — and one trap

ESCAPE 01

Away on business

Accommodation while the employee is away from their usual residence for work — the site camp, the audit-week hotel — carries no value. It is the employer's cost of doing business, not the employee's enrichment.

ESCAPE 02

The expat window

Inbound secondees: 24 months, R25 000/month ceiling, conditions attached. A generous runway — with a cliff edge. Diarise month 25 before payroll discovers it for you.

THE TRAP

Holiday homes are different

The para 9 formula prices residential accommodation. The company beach house for a week is valued at the employer's cost (if rented) or the prevailing daily rate — often far harsher than the formula.

Teaching simplifications. A is strictly the "remuneration proxy" as defined — remuneration from the employer for the preceding year of assessment, annualised where the employee was not employed for the full preceding year; this model treats it as a single slider. B = R99 000 for the 2027 year per the Budget 2026 announcement (R95 750 prior), and falls to zero where the employee (or spouse) controls the private-company employer or holds an option or right of pre-emption to acquire the accommodation. The arm's-length cost cap applies where the employer rents from an unconnected person — but per the SARS guide, where employer-arranged accommodation is customary and necessary for the kind of employment, provided for bona fide business purposes away from an employee-owned interest, the formula applies regardless of cost. Employee-paid consideration shown here as a simple monthly offset. Verify current figures against the Act, the SARS PAYE guide and the promulgated Rates Bill before relying on them.