RSA: Legislative Changes Affecting Payroll

Background: In 2017, changes were made to the Taxation Laws Amendment Act, 2017, in order to grant bargaining councils an opportunity to become tax compliant with the provisions of the Act, a certain level of relief was provided for non-compliant bargaining councils in respect of employees’ tax that should have been withheld from their members between 1 March 2012 and 28 February 2017. However, going forward, bargaining councils are expected to be fully compliant.

 

In line with Government’s policy to encourage tax compliance, Government had public consultations with various bargaining councils and as a result a general consensus emerged that compliance with tax legislation can be accommodated through the PAYE system by the employer in respect of contributions made for the benefit of the employees (who are members of a bargaining council) to the funds/schemes administered by the bargaining councils.

 

From 1 March 2019, employer contributions to a scheme or fund administered by the bargaining councils for the benefit of the employee constitutes a taxable fringe benefit in the hands of the employee and must be subject to PAYE. These provisions are not applicable to the extent that the contribution is being made to a retirement fund as the taxation of those contributions are already specifically catered for in the Act.

 

In the event of bulk contributions made by the employer on behalf of employees to the funds/schemes administered by the bargaining council and the employer is unable to attribute specific contributions to specific employees, the taxable fringe benefit is calculated in respect of the total contributions paid by the employer divided by the number of employees on behalf of which the contributions are paid.

 

Since the employee contribution is made from ‘after tax money’ and the employer contribution is taxed as a fringe benefit, any payments made by the schemes/funds administered by the bargaining councils to the employee is tax free, except to the extent that the pay-out is from a retirement fund.

 

Tax certificate reporting change: There are two new IRP5 codes to report these contributions:

 

4584 - Employer’s bargaining council contributions paid for the benefit of the employee, and

 

3833 - Value of taxable benefit i.r.o. employer’s bargaining council contributions paid for the benefit of the employee.

 

 

The fringe benefit value must be included in remuneration for the purpose of UIF, SDL, ETI and remuneration used to calculate the allowable tax deduction limit for contributions towards a retirement fund.

 

Set-up in the payroll: These IRP5 codes will only be made available in our next release for the Periodic Reconciliation Run at the end of August.

 

For now, go to Payroll > Definitions > Deduction Definitions and add the Taxable Company Contribution lines with IRP5 code 3601.

 

This code can be changed later in the year when the new IRP5 codes are made available.

Currently, in order to motivate employers to equip their low-income earning employees through home ownership, employer provided immovable property is exempt from tax if the employee’s remuneration proxy does not exceed R250 000, the market value of the immovable property does not exceed R450 000 and the employee is not a connected person in relation to the employer.

 

From March 2019, in line with Government’s policy to further encourage the provision of housing for low income-earners, the tax exemption also applies on a loan granted to the employee in order to acquire immovable property.

 

From March 2019, there is no fringe benefit on the low/interest free loan, if the loan:

 

• does not exceed R450 000,

• was assumed for the purpose to acquire immovable property,

• the market value of the immovable property acquired does not exceed R450 000 in relation to the year of assessment during which the loan was granted,

• the remuneration proxy of the employee does not exceed R250 000 in relation to the year in which the loan was granted, and

• the employee is not a connected person in relation to the employer.

 

Tax certificate reporting change: There is a new exempt fringe benefit code to report this exempt value:

 

• 3834 - Low or no interest loan to purchase immovable residential property (Non-taxable benefit).

 

Set-up in the payroll: This IRP5 code will only be made available in our next release for the Periodic Reconciliation Run at the end of August.

 

For now, go to Payroll > Definitions > Calculation Field Definitions and add the Non-taxable benefit line without an IRP5 code.

 

This code can be changed later in the year when the new IRP5 codes are made available.

Background: According to the definition of ‘remuneration’ as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act,

 

80% of a travel allowance should be included in remuneration, unless the employer is satisfied that at least 80% of the use of the motor vehicle for the year of assessment will be for business purposes, then only 20% of the travel allowance should be included in remuneration, and

 

80% of the taxable benefit (cash equivalent value) of the use of a company car fringe benefit should be included in remuneration, unless the employer is satisfied that at least 80% of the use of the motor vehicle for the year of assessment will be for business purposes, then only 20% of the taxable benefit (cash equivalent value) of the use of a company car fringe benefit should be included in remuneration.

 

Therefore, the legislation only allows for 80% or 20% of the travel allowance or use of company car fringe benefit value to be included in remuneration.

 

Before March 2019, our systems made provision to include 100% of the travel allowance or use of company car fringe benefit value in remuneration where employees only used the allowance/company car to travel for private purposes. However, in line with the current legislation and amendments made to the SARS PAYE BRS (Business Requirements Specifications V18.0.0), the 100% inclusion option will no longer be available.

 

From March 2019, the 100% inclusion option is no longer available.

 

PLEASE NOTE: This will have a direct impact on remuneration for the purposes of UIF, SDL, ETI and remuneration used to calculate the allowable tax deduction limit for contributions towards a retirement fund.

 

This will have a direct impact on remuneration for the purposes of UIF, SDL, ETI and remuneration used to calculate the allowable tax deduction limit for contributions towards a retirement fund.

 

From March 2019, only 80% or 20% of a travel allowance (IRP5 code 3701) or use of company car fringe benefit (IRP5 code 3802/3816) is included in remuneration for the purposes of PAYE, UIF, SDL, ETI and remuneration used to calculate the allowable tax deduction limit for contributions towards a retirement fund.

 

Set-up in payroll: You cannot select 100%, the only options are 20% and 80%.

 

If there are employees who requested the employer (via written confirmation) to tax 100% of the travel allowance/use of company car benefit, you must calculate the value and withhold it as additional PAYE.

From March 2019:

 

• any overtime payments must be reported against IRP5 code 3607,

• the employer must indicate if the employer enjoys diplomatic indemnity,

• the employer must indicate if the employee requested the employer (via written confirmation) to withhold additional tax (i.e. over deduction of PAYE),

• the employer must indicate if employee’s tax was calculated at a fixed rate as a result of non-standard employment (employees’ tax deducted at a fixed rate of 25%). Please note that this does not apply to a fixed % directive,

• employer’s pension fund contributions paid for the benefit of an employee or former employee who has retired from the fund and qualifies for the “no value” provisions in the Seventh Schedule, must be reported against IRP5 code 4585,

• employer’s provident fund contributions paid for the benefit of an employee or former employee who has retired from the fund and qualifies for the “no value” provisions in the Seventh Schedule, must be reported against IRP5 code 4586,

• new source code 7009 (ETI SEZ Code) has been implemented to provide adequately for a ‘multiple SEZ’ option on a monthly basis (code 7009 will replace codes 2083 and 3264), and

• nature of person ‘C’ (Director of a private company/member of a CC) is no longer applicable.

 

Set-up in the payroll: The IRP5 changes will only be made available in our next release for the Periodic Reconciliation Run at the end of August.

 

The Minister of Finance has proposed an increase to the employment tax incentive remuneration bands in the 2019 budget speech which were also published in the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, 2019.

 

Even though this amendment has not been enacted yet, the Payroll Authors Group of South Africa (PAGSA) confirmed with National Treasury that the effective date for this change is 1 March 2019.

 

The increase has been applied to the second and third employment tax incentive remuneration bands:

 

Before March 2019:

 

Monthly remuneration	First 12 months	Next 12 months
R0 – R1 999.99	50% of monthly remuneration	25% of monthly remuneration
R2 000 – R3 999.99	R1 000	R500
R4 000 – R5 999.99	Formula: R1 000 – (0.5 x (monthly remuneration – R4 000))	Formula: R500 – (0.25 x (monthly remuneration – R4 000))

 

As from March 2019:

 

Monthly remuneration	First 12 months	Next 12 months
R0 – R1 999.99	50% of monthly remuneration	25% of monthly remuneration
R2 000 – R4 499.99	R1 000	R500
R4 500 – R6499.99	Formula: R1 000 – (0.5 x (monthly remuneration – R4 500))	Formula: R500 – (0.25 x (monthly remuneration – R4 500))

 

 

NOTE: The employment tax incentive has been extended for a further 10 years until 29 February 2029.

 

The definition of ‘employee’ as defined in section 1 of the Employment Tax Incentive Act has changed to clarify that effective 26 July 2018, ETI can be claimed by the employer who pays remuneration to the qualifying employee in the case of an agreement between the labour broker/Temporary Employment Service provider (TES) and the client.

The fringe benefits interest-free or low-interest loan (official rate) of 7.75% p.a. remains unchanged.

The value of “B” has been published in the ‘Rates and Monetary Amounts and Amendment of revenue Laws Bill’ to be amended to the new tax threshold of R79 000.

The Minister of Labour published Government Gazette No. 42092, increasing the OID earnings threshold to R458 520 per annum with effect from 1 March 2019 (2019/2020 year of assessment).

 

The OID Report and Submission file has been amended accordingly.