Tax and ETI Amendments 2017/2018 - Sage South...

Tax and ETI Amendments 2017/2018

Income Tax and ETI Amendments 2017/2018

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Contents 1 Employment Tax Incentive (ETI) Changes ....................................................................................... 2

1.1 Wage Qualifying Test ................................................................................................................... 2

1.1.1 Before March 2017 .................................................................................................. 2

1.1.2 From March 2017 .................................................................................................... 3

1.1.3 ‘Employed and Remunerated’ Hours .......................................................................... 4

1.1.4 Actual Wage ........................................................................................................... 5

1.1.5 Diagram to Illustrate the Wage Qualifying Test for Employees Without a Wage Regulating

Measure ................................................................................................................. 5

1.1.6 Wage Qualifying Test: Wage Regulating Measure vs. No Wage Regulating Measure ...... 6

1.2 Remuneration ............................................................................................................................... 8

1.2.1 Before March 2017 .................................................................................................. 8

1.2.2 From March 2017 .................................................................................................... 8

1.2.3 ‘Employed and Remunerated’ Hours .......................................................................... 8

1.2.4 Diagram to Illustrate the Calculation of Remuneration for All Employees (With and Without

a Wage Regulating Measure) .................................................................................. 10

1.3 Calculation of the ETI Amount .................................................................................................... 11

1.3.1 Before March 2017 ................................................................................................ 11

1.3.2 From March 2017 .................................................................................................. 11

1.4 Roll-Over and Reimbursement ................................................................................................... 12

2 Tax Changes ..................................................................................................................................... 13

2.1 Background................................................................................................................................. 13

2.2 Payroll Changes ......................................................................................................................... 13

2.2.1 ‘Remuneration Proxy’ ............................................................................................. 13

2.2.2 Employer Provided Bursaries .................................................................................. 13

2.2.3 Directors’ Deemed Remuneration ............................................................................ 14

2.2.4 RFI Definition ........................................................................................................ 14

2.2.5 Reimbursive Travel Allowance ................................................................................. 15

2.2.6 Certain Dividends Included in Remuneration ............................................................. 15

2.2.7 Value of ‘B’ in the Residential Accommodation Fringe Benefit Calculation .................... 16

2.3 Other Changes Not Affecting Payroll Directly ............................................................................ 16

2.3.1 Partner of a Partnership .......................................................................................... 16

2.3.2 Disallowing the tax exemption for Local Fund Lump Sums and Annuities ...................... 16

2.3.3 Learnership Tax Incentive ....................................................................................... 16

3 References ........................................................................................................................................ 17

Income Tax and ETI Amendments 2017/2018 of 17

1 Employment Tax Incentive (ETI) Changes

The Taxation Laws Amendment Act, 2016, promulgated on 19 January 2017 in Government Gazette

40562, extends ETI for another 2 years, ending on 28 February 2019. The Act contains the following

changes to ETI.

1.1 Wage Qualifying Test In order for an employee to qualify for ETI, he/she must pass the wage qualifying test which is one of the

qualifying criteria to establish if an employee is a qualifying employee (other qualifying criteria includes;

employed on or after 1 October 2013, 18 to 29 years old, valid RSA ID / Asylum Seeker Permit / Refugee

ID Number, not a domestic worker, not a connected person to the employer and monthly remuneration

must be less than R6 000).

‘Wage’ refers to the cash amount paid for ordinary hours of work. This is typically basic salary or basic

wage of the employee and excludes elements such as overtime, commission, bonus etc. and includes

any leave pay (such as pay for annual leave, sick leave, family leave etc.). The ‘wage’ the employee

earns should be at least the minimum wage according to the wage regulating measure (collective

agreement, bargaining council or sectoral determination) or R2 000 for a full month, which is at least 160

hours, if there is no wage regulating measure.

1.1.1 Before March 2017

If a wage regulating measure was applicable, then the monthly wage was compared to the

minimum monthly wage (it was understood that a rate per hour comparison was allowed as this was effectively the same as grossing-up the wage).

If no wage regulating measure was applicable the monthly wage was calculated in the following

way: If the employee was employed for less than 160 hours per month, then a gross-up of the wage

was performed to see how much the wage would have been for 160 hours.

If the employee was employed for 160 hours or more, no gross-up of the wage was required.

Hours employed referred to:

Contractual normal hours (no overtime hours) in the case of a ‘permanent’ employee for ETI purposes (those employees who work in terms of an employment contract that specifies a contractual predictability of regular work in the future. In other words, an employee with a standard amount of hours to work in a month).

Actual total hours worked in the case of a ‘temporary’ employee for ETI purposes (employee without a standard amount of hours to work in a month or an employee who works an irregular amount of hours, such as temps or casual workers).

Actual normal hours employed for new and terminated employees.

Please Note: The definitions for ‘permanent’ and for ‘temporary’ are not legal terms, but our

own definitions we used to explain the legislation

To simplify the calculation, from March 2015 the test was not based on the wage rate per month, but by applying a rate per hour comparison:

The minimum wage rate per hour applied if there was a wage regulating measure, or

If there was no wage regulating measure, an employee qualified if the wage rate per hour of the employee was equal to or more than R12.50 (R2 000/160 hours).


1.1.2 From March 2017 The legislation was amended to change the word from ‘employed’ to ‘employed and paid remuneration’ in

order to clarify the applicable hours worked in the grossing up/grossing down calculation.

The term ‘employed’ has a different meaning to ‘employed and paid remuneration’ and therefore some of

the calculations are changing.

Summary of the legislation for the wage qualifying test from March 2017:

If a wage regulating measure is applicable:

The wage paid should be compared to the minimum wage of the wage regulating measure in respect of that month, it is understood that a rate per hour comparison is allowed as this is effectively the same as grossing-up the wage.

If no wage regulating measure is applicable:

If an employee is ‘employed and paid remuneration’ for less than 160 hours in a month, then

gross-up the wage to 160 hours to determine if the monthly wage is R2 000 or more.

If an employee is ‘employed and paid remuneration’ for at least 160 hours in a month, no gross-

up of the wage is required to determine whether the monthly wage is R2 000 or more.

The amended legislation allows for a rate per hour/week/month comparison for employees with a wage

regulating measure, however the amended legislation does not provide for a gross-up calculation if a

wage regulating measure is applicable, therefore our system will still perform a rate per hour comparison

for employees with a wage regulating measure to apply the wage qualifying test.

The wording of the legislation in respect of employees without a wage regulating measure has changed to

indicate that a gross-up calculation should be done based on all hours ‘employed and remunerated’, and

therefore we will not be performing a rate per hour comparison on employees without a wage regulating

measure, the wage qualifying test must be applied strictly on a monthly basis (R2000 for a full month,

which is at least 160 ‘employed and remunerated’ hours).

From March 2017, the following wage qualifying tests will be applied:

Wage regulating measure (no change)

Check if contractual/actual wage rate per hour of the employee is equal or more than the minimum wage

rate per hour (according to the wage regulating measure) of the employee.

No wage regulating measure

If ‘employed and remunerated’ hours are less than 160 hours a gross-up calculation will be done using

the actual monthly wage to apply the wage qualifying test.

Actual monthly wage / ‘employed and remunerated’ hours x 160

If the ‘employed and remunerated’ hours are 160 or more the actual monthly wage will be used to apply

the wage qualifying test.

If the actual monthly wage or grossed-up monthly wage for a full month (at least 160 hours) is R2000 or

more, the employee will pass the wage qualifying test. If the actual monthly wage / grossed-up monthly

wage for a full month (at least 160 hours) is less than R2000, the employee will fail the wage qualifying

test and no ETI will calculate.

In order to apply this test, the system must know the following:

‘Employed and remunerated’ hours

Actual wage for the month


1.1.3 ‘Employed and Remunerated’ Hours ‘Employed and remunerated’ hours are all actual hours the employee was ‘employed and remunerated’

for. In other words, it should be the ordinary hours less any unpaid hours (such as unpaid leave hours, no

work-no pay hours, strikes etc.) plus any additional hours (such as overtime hours, public holiday worked

hours, hours worked on a Sunday etc.).

Before March 2017 we distinguished between permanent employees (employees with a standard amount

of hours to work in a month) and temporary employees (employees without a standard amount of hours to

work in a month or employees who work an irregular amount of hours) in order to apply the ‘employed’

hours. We used the ‘employed’ hours to determine whether a gross-up of the wage should have been

done.

For explanatory purposes we will still distinguish between permanent, temporary, new and terminated

employees.

Permanent employees – contractual/ordinary hours (average working hours per month according to the BCEA, calculated on a 4.3333 week or according to the employment contract) less any unpaid hours (such as unpaid leave hours, no work-no pay hours) plus any additional hours (such as overtime hours, public holiday worked hours, hours worked on a Sunday etc.).

Temporary employees – actual number of hours worked in the month (the calculation of hours will include ordinary hours plus additional hours of work, unpaid hours will automatically not be counted).

New and terminated employees – actual number of hours worked if employed after the first day of the month or terminated before the last day of the month (the calculation of hours will include ordinary hours plus additional hours less unpaid hours).

It is our opinion that ordinary/contractual (average working hours per month) less unpaid hours plus

additional hours can be used for permanent employees as this refers to the number of hours

‘employed and remunerated’ during the month.

Example 1 – permanent monthly paid employee:

The employment contract states that the employee’s ordinary hours of work is 8 hours a day, 5 days a

week (Monday to Friday) which is 173.3333 average working hours per month (in line with the BCEA).

In the month of April, the employee took 30 hours unpaid leave (unpaid hours) and worked 3 hours

overtime (additional hours).

‘Employed and remunerated’ hours for the month: Contractual/ordinary hours – unpaid hours + additional hours = 173.3333 – 30 + 3 = 146.3333 hours

Example 2 – permanent weekly paid employee:


week (Monday to Friday) which is 40 hours per week.

The month of April has 4 weeks in the month.

In the month of April, the employee took 30 hours unpaid leave (unpaid hours) and worked 3 hours

overtime (additional hours).

‘Employed and remuneration’ hours for the month: Contractual/ordinary hours – unpaid hours + additional hours = (40 x 4) – 30 + 3 = 133 hours


1.1.4 Actual Wage According to the Basic Conditions of Employment Act, actual wage will include the basic wage or salary

(excluding fringe benefits and company contributions) paid to the employee for the month and excludes

elements such as overtime, commission, bonus etc. Actual wage includes leave pay (such as annual

leave, sick leave, family leave etc.). It is important that earning lines/components which form part of the

employee’s wage are separate from other earnings on the payroll.

1.1.5 Diagram to Illustrate the Wage Qualifying Test for Employees Without a Wage Regulating Measure

*Hours refer to ‘employed and remunerated’ hours.


*Hours less than 160

Gross-up calculation:

Actual monthly wage / *hours x 160

Grossed-up wage is R2000 or more

Employee passes the wage qualifying test

Grossed-up wage is less than R2000

Employee fails the wage qualifying test, no ETI is calculated

*Hours are 160 or more

Actual monthly wage

Actual wage is R2000 or more

Employee passes the wage qualifying test

Actual wage is less than R2000

Employee fails the wage qualifying test, no ETI is calculated


1.1.6 Wage Qualifying Test: Wage Regulating Measure vs. No Wage Regulating Measure

Please note it is the user’s responsibility to process the correct ‘employed and remunerated’ hours

in order to correctly calculate and claim ETI.

From March 2017, the wage qualifying test remains the same for employees with a wage regulating

measure (rate per hour comparison – actual ‘wage’ rate per hour must be equal to or more than the

minimum wage rate per hour according to the wage regulating measure). The wage qualifying test is

only changing for employees without a wage regulating measure.

Example 1 – permanent monthly paid employee with no wage regulating measure



Employee A was appointed on 1 April 2017. Employee A meets all other qualifying criteria in terms of ETI.

In the month of April employee A took 30 hours unpaid leave (unpaid hours) and worked 3 hours overtime

(additional hours).

Wage qualifying test

Wage regulating measure

The actual wage rate per hour must be equal to or more than the minimum wage rate per

hour specified according to the wage regulating measure for the employee to pass

the wage qualifying test.


Indicate/establish if the 'employed and remunerated' hours are less than 160. If

the hours are 160 or more, actual monthly wage will be used. If the hours are less than 160, a gross-up calculation will be done on

actual monthly wage.

If the monthly actual / grossed-up wage is R2000

or more, the employee will pass the wage qualifying

test.


Payslip:

Earnings Amount

Salary R2 100.00

Overtime R 560 .00

Unpaid Leave R 220.00

Commission R1 800.00

Total R4 240.00

Wage qualifying test: Receives at least R2000 wage for a full month (160 hours).

‘Employed and remunerated’ hours:

Contractual/ordinary hours – unpaid hours + additional hours

= 173.3333 – 30 + 3

= 146.3333 hours

Monthly wage for 160 hours:

Actual wage / ‘employed and remunerated’ hours x 160

= (Salary – unpaid leave) / 146.3333 x 160

= R2 100 – R220.00 / 146.3333 x 160

= R2056.00

Pass wage qualifying test as the wage for a full month is equal to or more than R2 000.

Example 2 – permanent weekly paid employee with a wage regulating measure

The collective agreement states that the employee should be paid a minimum rate of R22.50 and that his

ordinary hours of work is 45 hours a week. April has 5 weeks in the month.


In the month of April employee A took 18 hours unpaid leave and worked 8 overtime hours (additional

hours).

The employer pays the employee R23.50 per hour.

Payslip:

Earnings Amount

Wage R4 230.00

Overtime R 282 .00

Unpaid Leave R 432.00

Sick Leave R 634.00

Total R4 714.00

Wage qualifying test:

Actual rate per hour equal to or more than the minimum rate per hour according to the wage regulating

measure.

=R23.50 is more than R22.50

Pass wage qualifying test as employee A’s actual rate per hour is equal to or more than the minimum rate

per hour according to the wage regulating measure.


1.2 Remuneration Monthly remuneration (taxable earnings, taxable perks and taxable company contributions) is used to

calculate the employment tax incentive amount.

1.2.1 Before March 2017 A gross-up of remuneration was performed if the employee was employed for less than 160 hours a

month. In other words, if the person was employed for less than 160 hours then a ‘gross-up’ of

remuneration was done to calculate what the person would have earned for a full month (a full month is

seen as 160 hours). A full month’s remuneration was used to calculate the ETI value.

Gross-up calculation: Remuneration earned / hours employed x 160.

Hours employed referred to:

Contractual normal hours (no overtime hours) in the case of a ‘permanent’ employee for ETI purposes (those employees who work in terms of an employment contract that specifies a contractual predictability of regular work in the future. In other words, an employee with a standard amount of hours to work in a month.).

Actual total hours worked in the case of a ‘temporary’ employee for ETI purposes (employee without a standard amount of hours to work in a month or an employee who works an irregular amount of hours, such as temps or casual workers).

Actual normal hours employed for new and terminated employees.

Please Note: The definitions for ‘permanent’ and for ‘temporary’ are not legal terms, but our

own definitions we used to explain the legislation

1.2.2 From March 2017 A gross-up of remuneration should be performed if the employee is ‘employed and paid remuneration’

for less than 160 hours a month (for employees with and without wage regulating measure):

If an employee is ‘employed and paid remuneration’ for 160 hours or more in a month, then the actual amount of remuneration paid to the employee in a month (no gross-up calculation) is used.

If an employee is ‘employed and paid remuneration’ for less than 160 hours in a month the monthly remuneration is calculated as follows: Remuneration earned in the month / ‘employed and remunerated’ hours x 160.

1.2.3 ‘Employed and Remunerated’ Hours ‘Employed and remunerated’ hours are all actual hours the employee was ‘employed and remunerated’

for. In other words, it should be the ordinary hours less any unpaid hours (such as unpaid leave hours, no

work-no pay hours, strikes etc.) plus any additional hours (such as overtime hours, public holidays

worked hours, hours worked on a Sunday.).

Before March 2017 we distinguished between permanent employees (employees with a standard amount

of hours to work in a month) and temporary employees (employees without a standard amount of hours to

work in a month or employees who work an irregular amount of hours) in order to apply the ‘employed’

hours. We used the ‘employed’ hours to determine whether a gross-up of the wage should have been

done.

For explanatory purposes we will still distinguish between permanent, temporary, new and terminated

employees.

Permanent employees – contractual/ordinary hours (average working hours per month according to the BCEA, calculated on a 4.3333 week or according to the employment contract) less any unpaid hours (such as unpaid leave hours, no work-no pay hours) plus any additional hours (such as overtime hours, public holiday worked hours, hours worked on a Sunday.).


Temporary employees – actual number of hours worked in the month (the calculation of hours will include ordinary hours plus additional hours of work, unpaid hours will automatically not be counted).

New and terminated employees – actual number of hours worked if employed after the first day of the month or terminated before the last day of the month (the calculation of hours will include ordinary hours plus additional hours less unpaid hours).

It is our opinion that ordinary/contractual (average working hours per month), less unpaid hours plus

additional hours can be used for permanent employees as this refers to the number of hours ‘employed

and remunerated’ during the month.

Application of ‘employed and remunerated’ hours in terms of remuneration

If the ‘employed and remunerated’ hours are less than 160, the system will do a gross-up

calculation of the remuneration:

Actual remuneration / ‘employed and remunerated’ hours x 160

If the ‘employed and remuneration hours’ are 160 or more, the system will use actual

remuneration.

The actual/grossed-up remuneration for the full month has to be less than R6000 for the

employee to qualify. If the remuneration for the full month is R6000 or more, the employee will not

qualify and no ETI amount will calculate.

See section 1.1.3 for examples on how to calculate ‘employed and remunerated’ hours.


1.2.4 Diagram to Illustrate the Calculation of Remuneration for All Employees (With and Without a Wage Regulating Measure)

*Hours refer to ‘employed and remunerated’ hours.

'Employed and remunerated' hours

*Hours less than 160

Gross-up calculation:

Actual monthly remuneration /

*hours x 160

Grossed-up remuneration is R6000 or more

No ETI amount is calculated

Grossed-up remuneration is less

than R6000

Continue to calculate ETI amount

*Hours are 160 or more

Actual monthly remuneration

Actual remuneration is R6000 or more

No ETI amount is calculated

Actual remuneration is less than R6000

Continue to calculate ETI amount


1.3 Calculation of the ETI Amount

1.3.1 Before March 2017 The ETI amount was grossed-down (pro-rated) if the ‘employed’ hours were less than 160 hours:

Full monthly ETI amount / 160 hours x ‘employed’ hours.

If the ‘employed’ hours were 160 hours or more, the full monthly ETI amount was calculated.

1.3.2 From March 2017 The ETI amount will be grossed-down (pro-rated) if the ‘employed and remunerated’ hours (previously

referred to as ‘employed’ hours) are less than 160 hours:

Full monthly ETI amount / 160 x ‘employed and remunerated’ hours.

If the ‘employed and remunerated’ hours are 160 hours or more the full monthly ETI amount will calculate.

Example 1 – permanent monthly paid employee with no wage regulating measure




In the month of April employee A took 30 hours unpaid leave (unpaid hours) and worked 3 hours overtime

(additional hours).

Employee A’s actual wage for April is R1 900.00.

Employee A’s actual remuneration for April is R3 700.00.

‘Employed and remunerated’ hours: Ordinary hours – unpaid hours + additional hours = 173.3333 – 30 + 3 = 146.3333 Wage qualifying test: Receives at least R2000 wage for a full month (160 hours). Actual wage / ‘employed and remunerated’ hours x 160 = R1 900.00 / 146.3333 x 160 = R2 076.80 Pass the wage qualifying test as the wage for a full month is equal to or more than R2 000. Remuneration: Remuneration for the full month (160 hours) less than R6 000.00. Actual remuneration / ‘employed and remunerated’ hours x 160 = R3 700 / 146.3333 x 160 = R4044.80 Continue to calculate the ETI amount as the remuneration for a full month is less than R6 000. Calculation of ETI amount: = R1 000 – [0.5 x (monthly remuneration – R4 000)] / 160 x 146.3333 = R1 000 – [0.5 x (R4044.80 – R4 000)] / 160 x 146.3333 Pro-rata (gross-down) ETI amount (‘employed and remunerated’ hours less than 160 hours): ETI amount / 160 x ‘employed and remunerated’ hours = R977.60 / 160 x 146.3333 =R894.10 Final ETI amount for the month of April.

Example 2 – temporary weekly paid employee with a wage regulating measure

The collective agreement states that the employee should be paid a minimum rate of R22.50


In the month of April employee A worked 158 ordinary hours and 5 overtime hours (additional hours).

The employer pays the employee R23.50 per hour.

Employee A’s actual wage for April is R3 713.00.


Employee A’s actual remuneration for April is R4 528.00.

‘Employed and remunerated’ hours: Ordinary hours + additional hours = 158 + 5 = 163 Wage qualifying test: actual rate per hour equal to or more than the minimum rate per hour according to the wage regulating measure. = R23.50 is more than R22.50

Pass wage qualifying test as employee A’s actual rate per hour is equal to or more than the minimum rate

per hour according to the wage regulating measure.

Remuneration: Remuneration for the full month (160 hours) less than R6 000. = R4 528.00 Continue to calculate the ETI amount as the remuneration for a full month is less than R6 000. Calculation of ETI amount = R1 000 – [0.5 x (monthly remuneration – R4 000)] = R1 000 – [0.5 x (R4 528 – R4 000)] = R736.00 Final ETI amount for the month of April, the ETI amount will not be pro-rated (grossed-down) as the ‘employed and remunerated’ hours are 160 or more.

1.4 Roll-Over and Reimbursement Before March 2017 if the employer was tax compliant, the ETI due to the employer (after the 6 month

cycle) would have been reimbursed at some stage during the next 6 month cycle. An ETI refund would

only be paid if an employer was tax compliant. This means that all tax returns must have been submitted

and there should have been no outstanding tax debt when the employer’s reconciliation documents

(EMP501 and IRP5/IT3(a)s) were received and processed by SARS. If the employer was not tax

compliant, the excess amount would have been reimbursed when the employer became tax compliant. If

the employer failed to be tax compliant within the next six months, the excess amount would have been

permanently lost. From 2017 onwards this is still applicable.

From March 2017 if the employer does not claim the ETI amount they are entitled to within the 6 month

cycle (for example they forgot to or any other case), then the ETI will be nil (0.00) after the 6 month cycle

and the employer will not receive ETI as a refund and cannot back-date the ETI claims if the 6 month

cycle has elapsed. This is only applicable when the employer did not claim the ETI amount they are

entitled to.

If the employer does not claim the ETI amount due to the fact that the ETI amount exceeds the

employees’ tax due for the month or due to the fact that the employer is not tax compliant, then the ETI

brought forward amount will still be 0.00 in the months following the 6 month cycle (March and

September) but the employer will still be eligible to claim the excess ETI amount as a refund after the 6

month cycle (only if the employer is compliant).

It is our understanding that this is what is implied with the amendments in the legislation. We are in the

process of confirming whether our interpretation is in line with SARS’s.


2 Tax Changes

2.1 Background The Taxation Laws Amendment Act, 2016 and the Tax Administration Amendment Act, 2016 were

promulgated on 19 January 2017 in Government Gazette 40562 and 40563. It contains the following

changes as of March 2017, except where mentioned otherwise.

2.2 Payroll Changes

2.2.1 ‘Remuneration Proxy’ Currently the ‘remuneration proxy’ is used in 3 areas of employment tax:

The tax exemption rules for bursaries granted to a relative of an employee by an employer.

The acquisition of immovable property.

The residential accommodation fringe benefit value.

Before March 2017 ‘remuneration proxy’ was defined as Fourth Schedule remuneration but excluding the

residential accommodation fringe benefit value.

Change:

From March 2017, ‘remuneration proxy’ will be remuneration defined in paragraph 1 of the Fourth

Schedule and will only exclude the residential accommodation fringe benefit value when calculating the

residential accommodation fringe benefit.

‘Remuneration proxy’ will include the residential accommodation fringe benefit value when calculating -

the tax exemption for bursaries granted to a relative of an employee by an employer and

the acquisition of immovable property.

2.2.2 Employer Provided Bursaries A scholarship or bursary granted by the employer (or associated institution in relation to the employer) to

a relative of an employee was subject to the following conditions:

The scholarship or bursary was not exempt if the remuneration proxy exceeded R250 000

If the remuneration proxy did not exceed R250 000, then the first R10 000 of a scholarship or

bursary in respect of grade R to grade twelve or a qualification to which an NQF level from 1 up

to and including 4 has been allocated was exempt from normal tax.

If the remuneration proxy did not exceed R250 000, then the first R30 000 of a scholarship or

bursary in respect of a qualification to which an NQF level from 5 up to and including 10 has

been allocated was exempt from normal tax.

Change:

Backdated to March 2016, the exemption thresholds for bursaries granted by the employer (or associated

institution in relation to the employer) to a relative of an employee have increased to the following

amounts:

The scholarship or bursary is not exempt if the remuneration proxy exceeds R400 000.


If the remuneration proxy does not exceed R400 000, then the first R15 000 of a scholarship or

bursary in respect of grade R to grade twelve or a qualification to which an NQF level from 1 up

to and including 4 has been allocated is exempt from normal tax.

If the remuneration proxy does not exceed R400 000, then the first R40 000 of a scholarship or

bursary in respect of a qualification to which an NQF level from 5 up to and including 10 has

been allocated is exempt from normal tax.

The new thresholds must be backdated to March 2016

2.2.3 Directors’ Deemed Remuneration Before March 2017 directors of private companies (and members of closed corporations) were taxed on

the greater of actual or deemed remuneration.

Deemed remuneration was calculated as the -

previous year’s remuneration, or if not available -

the year prior to the previous year’s remuneration plus 20%, or if not available -

an amount acquired by applying for a SARS directive.

Change:

From March 2017, deemed remuneration will be repealed and directors of private companies (and

members of closed corporations) will only be taxed on their actual remuneration.

2.2.4 RFI Definition Currently employer contributions towards a defined benefit or hybrid fund on behalf of the employee

results in –

a fringe benefit amount calculated using the formula: X = (A X B) – C, where-

o A is the fund member category factor (indicated on the Contribution Certificate)

o B is the employee’s RFI amount, and

o C is total employee contribution amount (excluding voluntary/additional and buy-

back/arrears contributions).

Before March 2017 RFI (retirement funding income) referred to remuneration as defined in the Fourth

Schedule (which included only the taxable % of a travel allowance, company car and a public office

allowance) on which the employer contribution towards the pension/provident fund was based on.

Therefore RFI only included the 20%/80% or 100% of a travel allowance or company car and 50% of a

public office allowance.

Remuneration can be different from employee to employee, depending on the taxable % of travel

allowance which resulted in a situation where two members of the same fund (defined benefit or hybrid)

with the same contribution values had a different RFI value and therefore a different fringe benefit value.

Changes:

From March 2017, RFI will be defined as income (taxable earnings + taxable perks + taxable company

contributions), however it will include the full value of a travel allowance, company car and a public office


allowance on which the employer or pension fund or provident fund contribution towards the

pension/provident fund is based on.

To clarify the new proposed legislation:

RFI will include 100% of a travel allowance or use of a motor vehicle perk and 100% of a public

office allowance and not only the taxable value anymore.

To ensure RFI is calculated when the fund itself contributes the retirement fund contribution on

behalf of the members/employees to the fund. This means there will also be a fringe benefit

amount even though it is the fund that actually contributes.

Example of RFI before and from March 2017:

Example: Pension CC is based on Salary and Travel (80% taxable)

Description Total earnings of

employee

RFI (before March

2017)

RFI (from March

2017)

Salary R20 000 R20 000 R20 000

Travel (80% taxable) R2 000 R1 600 R2 000

Bonus R50 000

Total R72 000 R21 600 R22 000

2.2.5 Reimbursive Travel Allowance From March 2017 the simplified method for business kilometres travelled in the application of section

8(1)(b)(ii) of the Income Tax Act is as follows:

Report the reimbursive travel allowance on the tax certificate against code 3703 if:

the rate of reimbursement is less than the prescribed rate, and

less than 12 000 business kilometres (previously 8 000 business kilometres) are reimbursed in the tax year, and

no travel allowance is paid in addition to the reimbursed amount.

Report the reimbursive travel allowance on the tax certificate against code 3702 if:

the rate of reimbursement exceeds the prescribed rate, or

more than 12 000 business kilometres (previously 8 000 business kilometres) are reimbursed in the tax year, or

a travel allowance is paid in addition to the reimbursed amount.

2.2.6 Certain Dividends Included in Remuneration From March 2017, the definition of remuneration is expanded to include certain dividends from restricted

equity instruments (section 8C shares).

PAYE should be deducted from dividends as specified in paragraph (dd), (ii) and (jj) of the proviso of

section 10(1)(k)(i).

Currently it is unclear if the employer should also apply for a directive, but we assume the PAYE amount

will be acquired by applying for a directive, the same manner in which the employer should currently

apply for a section 8C share amount when vesting and/or on any return of capital. We will, however,

communicate the information once we have final confirmation.

There is also a possibility that SARS will create a new IRP5 code/s for these dividends. Once SARS has

released the new PAYE Business Requirement Specifications document, we will be able to confirm this.


Please note that this amount will be included in the SDL, UIF, ETI remuneration and remuneration for the

purpose of calculating the tax benefit for contributions towards retirement funds.

We advise employers to consult their auditor or a tax consultant to confirm whether the dividends from

restricted equity instruments are exempt or included in remuneration.

2.2.7 Value of ‘B’ in the Residential Accommodation Fringe Benefit Calculation Please note that the value of ‘B’ for the purpose of calculating the fringe benefit value for free or cheap

residential accommodation was not mentioned in the 2017 budget speech. However, R75 750 is the new

tax threshold and is usually the value of ‘B’ in the calculation.

Note that this value has not yet been promulgated.

2.3 Other Changes Not Affecting Payroll Directly

2.3.1 Partner of a Partnership

From 19 January 2017, for the purpose of the Seventh Schedule (fringe benefits), a partner in a

partnership must be deemed to be an employee of the partnership.

2.3.2 Disallowing the tax exemption for Local Fund Lump Sums and Annuities Before March 2017 the Act made provision to exempt receipts of retirement benefit amounts that accrued

to the employee during a period of employment outside South Africa, irrespective of where the fund was

registered, even though the employee was eligible to receive a tax deduction on contributions made to a

South African retirement fund.

Change

From March 2017 retirement benefits received by South African residents (relating to employment outside

South Africa) are only exempt from tax if it is paid by a foreign retirement fund.

This will apply to retirement funds other than a “pension fund”, “pension preservation fund”, “provident

fund”, “provident preservation fund” and/or “retirement annuity” as defined in section 1 of the Income Tax

Act.

2.3.3 Learnership Tax Incentive From October 2016, the incentive is extended to registered learnership agreement entered into before 1

April 2022.

To encourage training from NQF level 1 to NQF level 6 (grade 9 to an advance certificate/national

diploma) the annual allowance changed accordingly:

Learner Category NQF Level Previous Annual

Allowance

New Annual

Allowance

Without disability NQF 1-6 R30 000 R40 000

NQF 7-10 R30 000 R20 000

With Disability NQF 1-6 R50 000 R60 000

NQF 7-10 R50 000 R50 000


3 References

Employment Tax Incentive Act, 2013.

Taxation Laws Amendment Act, 2016.

Explanatory Memorandum on the Taxation Laws Amendment Bill of 2016.

SARS Non-Binding Private Opinion dated 9 February 2017.

PAGSA News Flash 2017-06.

Tax and ETI Amendments 2017/2018 - Sage South...

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