Non-compliant Bargaining Councils – Taxable Levy

Bargaining Councils provide various funds for their members including, but not limited to, sick, holiday and retirement funds. Employers contribute to these funds on behalf of those of their employees who are members of the Bargaining Council, and in some cases, the employee-members also contribute to the fund or funds.

For many years, the contributions to, and the pay-outs by, some bargaining councils have not been taxed correctly. After a lengthy investigation, amendments were made to the Income Tax Act, referred to as “Bargaining Council Tax Relief”, in order to give a measure of tax relief to these councils for their historical non-compliance with the intention of turning them into compliant taxpayers in the future, and to provide new taxation rules from 1 March 2019.

Prior to 1 March 2019:

Non-compliant Bargaining Councils must pay a levy of 10% of the total PAYE that should have been deducted from all payments made by them to their members during the period from 1 March 2012 to 28 February 2017.

Post 1 March 2019:

Employer-paid premiums to Bargaining Councils in respect of a scheme or fund as contemplated in section 28 (1) (g) of the Labour Relations Act, as well as payments by Bargaining Councils to members, are now aligned with the principles of the tax rules that govern employer-paid contributions to retirement funds.

In line with this principle, the taxation rules for contributions to funds administered by Bargaining Councils are as follows:

1. Employer-paid contributions for the benefit of employees will constitute a taxable fringe benefit.
   
2. The value of the taxable fringe benefit will be the value of the employer-paid contribution.
   
3. Employee-paid contributions are not tax deductible.
   
4. If these rules are complied with, payments made by the funds to their members are tax free.

These rules are effective from 1 March 2019.

Note that if the fund administered by the Bargaining Council is a retirement fund, the taxation rules for retirement funds that are effective from 1 March 2016 (and that provide for a tax deduction to reduce the taxable benefit value), must be applied.

Tax Certificates:

The employee-paid contribution is not used for PAYE calculations and is not reported. The employer-paid contribution and the taxable benefit must be reported as follows.