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Employees’ and Payroll Taxes
This session covers the latest developments in payroll taxation at a legislative, interpretative and operational level. It also
includes recurring pitfalls and issues of potential dispute.
Upcoming CPD Events
Refer to our website for all upcoming
dates
May
• VAT Risks and Issues in Business
Operations
June
• Tax Issues for company Operations
July
• Tax Issues for Individuals
September
• Trusts & Deceased Estates
October
• Tax Admin and Disputes in Practice
November
• 2018 Year-end Tax Update2018 SAIT CPD Requirements:
SARS Registered Tax Practitioners:
• 15 verifiable output Tax CPD hours
• 5 verifiable output Ethics and
Standards CPD hours
• 10 non-verifiable Tax CPD hours
Commerce, Industry, Academia and
Public Sector:
• 15 verifiable input Tax CPD hours
• 5 verifiable output Ethics and
Standards CPD hours
• 10 non-verifiable Tax CPD hours
Introduction and house rules
• About me
• Rules
• CPD event so don’t forget to sign the register
• Please ask questions
• Share your own experiences
• Tea break
• Approximately 10:30 am
• 20 minutes
• Close at 1:00 pmOutline
• Legislative considerations (current and proposed)
• 2018 Budget amendments and proposals
• Relocation allowances
• Retirement reform
• Foreign remuneration exemption
• New rulings and case law
• Tea break (at approximately 10:30am for 20 mins)
• Interpretative matters
• Gifts, awards and incentives
• Operational matters
• Tax directives
• Statements of Account
• Voluntary disclosure for PAYE matters
• Share schemes
Legislative considerations
Budget 2018Legislative considerations
2018 Budget overview
• Rate changes
• Tax brackets, rebates and thresholds
• Allowances and reimbursements
• Fringe benefits
• Government Gazettes
• Subsistence
• Travel
• Estate duty and donations tax
• Proposals
• Low cost housing finance
• Official rate of interest
• Medical aid credits
• Retirement funds
Legislative considerations
2018 Budget overviewLegislative considerations
2018 Budget overview
• Medical aid tax credits
• R 310 each per month in respect of the employee/member and the first dependent, plus
• R 209 per month in respect of each additional dependent
• Travel reimbursement
• R3,61 per kilometer
• Simplified tax method - PAYE changes
• Subsistence
• Local
• Incidentals – R128 per day
• Meals and incidentals – R416 per day
• Foreign – unchanged from last year
Legislative considerations
2018 Budget overview
• Fringe benefits
• Remuneration proxy for residential accommodation
• Government Gazettes
• Subsistence
• Unchanged for foreign travel
• Travel
• 2017 amendment to tax excess over SARS rate as remuneration
• 12,000kms
• Impact on payroll
• SARS codesLegislative considerations
2018 Budget overview
• Estate duty (effective 1 March 2018)
• Staggered tax rates depending on value of dutiable estate
• “Dutiable amount” = net value of estate less R3,5 million exemption
• Dutiable amount up to R30 million = 20%
• Dutiable amount above R30 million = 25%
• Donations tax (effective 1 March 2018)
• Equivalent amendment to avoid arbitrage between estate duty and donations tax
• Staggered tax rate depending on value of donations made
• Donations up to R30 million = 20%
• Donations above R30 million = 25%
Legislative considerations
2018 Budget overview
Proposals
• Low cost housing finance
• R250,000 remuneration
• R450,000 value
• Preferential interest rates
• Official rate of interest
• Current position
• Proposal
• Commercial lending rate
• Impact on employee benefitsLegislative considerations
2018 Budget overview
Proposals
• Medical tax credits
• Smaller increases in preparation for NHI
• Concern regarding double claiming of medical tax credits
• Retirement proposals
• Alignment of foreign funds with SA funds
• e.g. Allowing a deduction where there is a tax benefit
• Expansion of withdrawal option for emigration to include other retirement funds
• Currently only retirement annuity funds are covered
• Expansion of options for post-retirement transfers
• Currently only transfer to retirement annuity funds are permitted)
Legislative considerations
Relocation AllowancesLegislative considerations
Relocation allowances
Section 10(1)(nB)
• Amendment in 2015 effective 1 January 2016
• Commissioner’s discretion removed – one month’s basic salary as tax-free
• Can only cover:
• Transporting employee, family and possessions
• Costs incurred in sale of previous and in settling in permanent residential accommodation
• Hiring temporary accommodation for a period of less than 183 days
Legislative considerations
Relocation allowances
SARS Guide
• Removal of one month’s basic salary as a tax-free allowance
• Examples of expenses
• Bond registration and legal fees paid in respect of a new residence that has
• been purchased;
• Transfer duty paid in respect of the new residence;
• Cancellation fees paid for bond cancellation on previous residence; and
• Agent’s commission paid on sale of previous residence;
• New school uniforms;
• Replacement of curtains;
• Motor vehicle registration fees;
• Telephone, water and electricity connection.
• Does not include:
• Payments to reimburse the employee for loss on the sale of a previous residence during transfer; and / or
• Architect’s fees for the design or alteration of a new residenceLegislative considerations
Relocation allowances
Subsequent ruling
• BPR 286
• Confirms new position
• A “settling-in” allowance does not qualify for the exemption under section 10(1)(nB)
• A “settling-in” allowance will constitute remuneration under the Fourth Schedule and will be subject to
employees’ tax
Legislative considerations
Foreign remuneration exemptionForeign remuneration exemption
Background
Initial proposal as per the DTLAB - Repeal of the foreign remuneration exemption – section 10(1)(o)(ii) of the
ITA in its entirety
Some background…
• Introduced when RBT was introduced in Jan 2001
• Not have an extensive Treaty network
• 16 years later = Treaty network with 78 countries
• Domestic law mechanism aimed at avoiding double taxation [61 continuous days + 184 days in aggregate]
regarded as unnecessary
• # promoting double non-taxation
• Low tax rate jurisdictions and No tax jurisdictions are targeted
• Effective date as initially proposed in the DTLAB = 1 March 2019 … this has now changed to 1 March 2020
Foreign remuneration exemption
Background cont…
Draft Response document issued by NT provided the following:
• In the case of lower to middle class outbound expatriates, the impact on finance and remittances to family
members has been considered.
• New proposal is not to repeal the section in its entirety but to introduce specific requirements for
exemption to apply.
• Provided the days’ requirements (61 continuous + 184 days in aggregate are met), and the foreign
remuneration does not exceed R1 million, the exemption will apply.
• The R1 million exemption is aimed at taking cognisance of the cost of living in various countries (which
cost is not allowed as a Foreign Tax Credit).
• Allowing a 3 year period for current contracts to ‘wean out’ – new proposed date = 1 March 2020 (i.e. 2021
tax year).Foreign remuneration exemption
Background cont…
• Employers to do their homework - formalise tax status / contracts etc. over a period of 3 years until 2021
• The comment regarding the encouragement to break SA residence status was not accepted but noted – it is
encouraged that SA residents working abroad formalise their tax positions
• The comment in regard to the increased cost of employment of SA residents was noted but indicated that the
capped exemption of R1 million foreign remuneration would alleviate the tax costs
• The comment that Social security and pension contributions in host country should to be taken into account
as part of the FTC is not accepted on the basis that payments from foreign social security systems is not
taxable. The payout is not taxable, therefore a deduction for contributions and payments is not possible.
Foreign remuneration exemption
Challenges
• R1 million capped foreign remuneration exemption – what is included? Section 8C – share gains / fringe
benefits e.g. cost of housing
• Reference is made to ‘foreign remuneration’ – it is unclear whether the remuneration must be recharged or
paid by the host entity?
• Fringe benefit tax – paid by the employer in certain countries e.g. Australia/Kenya – would this be allowed
to be offset as a foreign tax credit (FTC)?
• Difference in tax years – how will the FTC be determined
• Countries where there is no tax return filing/assessment – to be eligible for an FTC there must be no right
of recovery of such tax - will the payslip reflecting the tax paid suffice? How will the final tax be
determined?Foreign remuneration exemption
Proposed workarounds
• Review assignment policies to determine business needs
• Re-classify assignments taking into account:
• Early career expats – may decide to localise thereby cease SA residence status
• Short-termers – less time spent in host location – avoid double taxation (provided the salary costs are
not recharged and economic employer remains the SA entity)
• Medium-termers – consider elements of pay and benefits provided – tax optimisation review process
(fringe benefits)
• Long-termers – localisation / cease SA residence status
• Localised career expatriates – cease SA residence status
Foreign remuneration exemption
Proposed workarounds
• Split payroll arrangements –
Example: Employee assigned to Zambia where the tax rate is 35%. If 50% of the salary is borne in SA
and 50% in Zambia, the tax liability is likely to be:
• 45% x 50% of the salary processed in SA
• 45% x 50% of the salary processed in Zambia
• Less: 35% of the tax already paid in Zambia (FTC)
• Only 10% of the 50% of the host country salary will be payable by way of provisional tax. [Employee is
required to register as a provisional taxpayer]
• This is due to PAYE being operated by the employer who pays or becomes liable to pay remuneration.Legislative considerations
Rulings and case law
Legislative considerations
Rulings, interpretation notes and cases
Income Tax Notices
• Budget related notices
• Travel
• Subsistence
• Other notices
• Employer filing season – dates
Binding General Rulings
• BGR 47 – meaning of “month” for ETI purposes
Binding Private Rulings
• BPR 262 – Employer provided transport service
• BPR 290 - Distribution of shares to employee share scheme participants
• BPR 291 - Deemed expenditure on meals and refreshments
• BPR 293 – Disposal of shares by a non-resident shareholderLegislative considerations Rulings, interpretation notes and cases Interpretation notes • IN 35 (Issue 4) – Personal service providers and labour brokers • IN 17 (Issue 4) – Independent contractors • Draft IN 15 (Issue 5) – Exercise of discretion in case of late objection or appeal (comments closed) Guides • Guide on medical tax credits • Draft guide on understatement penalties (comments closed) BRS • August 2018 – PAYE Employer Reconciliation Legislative considerations Rulings, interpretation notes and cases Cases - Tax Court IT13726 • Tax Administration Act case dealing with audits and letters of findings under sections 40 and 42 • The matter dealt with a retrenchment and severance benefit that SARS regarded as not a proper retrenchment and sought to tax as normal remuneration. • The “audit” that SARS conducted was a desk audit (or verification) where they relied on the information submitted by the applicant as supporting documentation to which SARS had simply raised an additional assessment. • Court held that SARS had not given the applicant notice of an audit and had not given the applicant the right of reply by failing to issue a letter of findings before raising an additional assessment. The Court therefore set aside the assessment. • “The respondent’s non-compliance with sections 40 and 42 of the TAA clearly offends both the Constitution and the principle of legality.”
Interpretation
Gifts, awards and incentives
Interpretation
Gifts, awards and incentives
Types of gifts, awards and incentives
• Cash based (money, vouchers?, loyalty points e.g. eBucks, Voyager Miles?)
• Non-cash based (trips, items, assets, services)
Legislation
• Income Tax Act > “Gross income” definition – subject to tax
• Para (c) – services rendered
• Para (i) – seventh schedule
• Exemptions – e.g. long service awards, bursaries etc.
• Fourth Schedule > “Remuneration” definition – subject to PAYE
• Salary, wage, leave pay, overtime, bonus, gratuity etc.
• Whether or not in respect of services rendered
• Includes gross income paras (c) and (i)Interpretation
Gifts, awards and incentives
Legislation
• Seventh Schedule > taxable fringe benefits
• A taxable benefit shall be deemed to have been provided if such benefit is provided to the employee:
• As a benefit or advantage of; or
• By virtue of such employment; or
• As a reward for services rendered or to be rendered.
• Benefits:
• Assets at lower than value
• Right of use of asset (including vehicles)
• Meals or refreshments
• Residential accommodation (including holiday accommodation)
• Free or cheap services
• Subsidies
Interpretation
Gifts, awards and incentives
Legislation
• Benefits continued:
• Low interest loans
• Settlement of debt
• Contributions to benefit funds
• Medical, dental or similar services
• Insurance policies
• Contributions to retirement funds
• Value of benefit
• Cash equivalent
• Nil valueInterpretation
Gifts, awards and incentives
Assets at less than actual value
• Value of asset less consideration paid = benefit
• Value of asset
• Market value; or
• Cost to employer (if trading stock)
• Exclusions
• R5,000 long service or bravery (NB: does not include cash)
• SARS guide on long service – treatment of vouchers
• 15 years and 10 year intervals thereafter
• Examples
• Gifts - Baby shower, wedding, secretaries day, birthday
• Team build gifts
• Year end function gifts
• Hampers and flowers – Sorbet, Netflorist
Interpretation
Gifts, awards and incentives
Meals and refreshments (includes meal and refreshment vouchers)
• Meals, refreshments or vouchers for meals and refreshment provided free of charge or at a rate lower than the value
• Value of benefit less consideration paid = benefit
• Value of benefit
• Cost to employer
• Exclusions (wording?)
• Canteen, cafeteria or dining room – patronized mainly by employees or on the business premises of the
employer;
• Provided during working hours, extended working hours or on a special occasion;
• Client entertainment for business reasons.
• Examples
• Staff lunches for meeting targets
• Year end function
• Salary sacrifice?Interpretation
Gifts, awards and incentives
Residential accommodation (incl holiday accommodation)
• Provided with accommodation either free of charge or at a consideration less than the rental value
• Value of benefit less consideration paid = benefit
• Value of benefit
• Rental payable plus amounts for meals, refreshments or other services
• Exclusions
• Required to be away from usual place of residence for the purposes of performing duties
• Exclusion does not apply where there is a change in terms and conditions of employment
• Examples
• Breakaways or team builds
• Incentive trips
Interpretation
Gifts, awards and incentives
Free or cheap services
• Service to employee, at the expense of the employer, for private or domestic purposes
• Value of benefit less consideration paid = benefit
• Value of benefit
• Travel – lowest fare if in business of conveyance
• Cost to employer, in other cases
• BPR 262 – transport services for the conveyance of employees in general
• Exclusions
• Required to be away from usual place of residence for the purposes of performing duties
• Examples
• Breakaways or team builds
• Incentive tripsOperational Matters
Operational matters
Tax directives
• Retrenchment
• Voluntary
• Involuntary
• Commission earners
• Employer
• Employee
• Share schemes
• SARS codes
• 3718 versus 3707 [Section 8A / Section 8C gains]Operational matters
Statements of account
• Adjustments
• Journals
• Credits
• TCC impact
• Resubmissions
Operational matters
Voluntary disclosure program - PAYE
• Section 225 to 233 of the Tax Administration Act
• Permanent VDP
• Requirements for access to VDP (Section 227)
• Voluntary
• Default (“similar”, 5 year period)
• Full and complete
• Column 2 behavior (substantial understatement = behavior?)
• Cannot result in a refund
• Prescribed form and manner
• Prescription?
• Process
• Act requires the VDP agreement to indicate approval of the application
• Agreement, assessment, pay
• Practice
• Pay, assessment, agreement [procedural unfairness]Operational matters
Share schemes
• Mobile employees
• Principle of apportionment of share scheme gains
• Various methodologies applied
• Per day [all days]
• Per workday
• Per assignment
• Tax return and tax directive
• Days in each country
• Work days in each country
• Mismatch between apportionment methodologies
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