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| Editor's Note |
In this edition, we provide guidance on the taxation of company car fringe benefits and the process to follow in deciding on whether to deduct employees tax from independent contractors. We also draw attention to the recently released ETI guide by SARS.
There is an extension notice for the lodging of annual return of earnings for COIDA to the Compensation Commissioner. The extension is to 31 October.
Finally, for interest, we remark on the recent Tax Ombudsman report that SARS is systematically and intentionally delaying refunds.
As usual, should you require any further detail on any of these topics, please feel free to contact us. |
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| Table of Contents |
1. Final Reminder - COIDA Annual Return of Earnings - Final Deadline 31 October 2017
2. SARS Guide - Employment Tax Incentive
3. Company Car - Fringe Benefit Determination Process
4. Employee vs Independent Contractor? When to deduct employee's tax.
5. Tax Ombudsman Report - SARS delaying payments of refunds.
6. Contact HRTorQue |
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| 1. Final Reminder - COIDA Annual Return of Earnings |
| Author: Jonathan Aitken (courtesy of PAGSA) |
The Compensation Commissioner has issued a final reminder for the submission of outstanding Return of Earnings for 2017.
An estimated return based on estimate earnings can now be submitted before the 31 October 2017.
On or before the 30th April 2017 (as extended by the recent notice) you are required to submit your Return of Earnings (ROE) submission to the Department of Labour, as is legislated under the Compensation For Occupational Injuries And Diseases Act (No. 30 of 1993). Each registered business must submit a separate return.
This Act replaces the Workmen's Compensation Act and provides for compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees in the course of their employment, and for death resulting from injuries and diseases. The benefits are paid from the Compensation Fund, which gets its money from compulsory contributions paid by employers. All employers carrying out business within the Republic of South Africa are required to register.
If you have not requested this service from us in the past and require us to complete and submit this return on your behalf, please contact us on [email protected]. If we have submitted for you in the past then we will complete your return and send you the figures before submission. The cost for this service is R702.00 per return (excl. VAT). |
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| 2. SARS - Employment Tax Incentive Guide |
| Author: Jonathan Aitken |
In September SARS issued a draft guide to claiming Employment Tax Incentive (ETI). This is well worth reading. While ETI is a valuable tool for employers it is also one of the highest risk areas. If an employer makes a mistake then suddenly they can face a big bill for the PAYE they should have paid plus 10% penalties and interest. By the time a bill is received the amount can be significant and has the potential to cause liquidity issues.
The challenge with ETI is that systems (SARS and third party) have had their challenges and employers are sometimes faced with a bill even when they believe they have followed the rules correctly. It is important in these situations for employers to have kept proper records and to have confidence they can defend their claims. |
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| 3. Company Car - Fringe Benefit Determination Process |
| Author: Dave Beattie |
If the company is providing a company financed vehicle to an employee for business and private use please follow the attached decision-making process:
Step 1
Is the vehicle acquired under an operating or finance lease?
If it is an operating lease then proceed to step 2. If it is a finance lease then proceed to step 3.
Step 2 - Operating Lease
If you believe it to be an operating lease can you confirm that it meets the following requirements:
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The employer must lease the vehicle from a lessor in the ordinary course of the lessor's business (not being a banking, financial services or insurance business); |
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The vehicle must be available to lease to the general public for a period of less than a month; |
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The costs of maintaining the vehicle (including any repairs to the vehicle necessary due to normal wear and tear) must be borne by the lessor; and |
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Subject to the claim a lessor may have against a lessee for failing to take proper care of the vehicle, the risk of loss or destruction of the vehicle must not be assumed by the lessee. |
If the vehicle is confirmed to have been acquired under an operating lease (rental) the fringe benefit is based on the monthly rental and fuel cost to the employer.
Step 3 - Finance Lease
If the lease is a finance lease the fringe benefit will be calculated as follows:
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Company to supply the 'determined value' of such vehicle. This value is the retail market value including VAT (but excluding finance charges and interest) |
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On a monthly basis, the employee having right of use of such vehicle will be taxed as follows: |
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'Determined value' x 3.5% x 80% where the vehicle is not acquired with a maintenance plan (and the monthly business travel undertaken is less than 80% of the total travel. 20% is applied where the monthly business travel exceeds 80% of the total travel). |
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'Determine value' x 3.25% x 80% (or 20% where business travel exceeds 80% of the total travel) where the vehicle is acquired with a maintenance plan. |
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In both cases the calculated fringe benefit is reduced by any consideration paid by the employee towards the cost of the vehicle.
Please note that to determine what method to use in calculating the taxable fringe benefit for the car you must first check whether the lease agreement is an operating or a finance lease. The rentals plus petrol method is only used for operating leases. For finance leases the retail market value at the time the employer obtained the vehicle must be used.
Please contact your payroll team or [email protected] for further information in this regard. |
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| 4. Employee vs Independent Contractor? When to deduct employee's tax. |
| Author: Jonathan Aitken |
SARS Interpretation Note 35 and SARS Interpretation Note 17 give guidance on the tests to be passed to distinguish between an independent contractor and an employee and in which circumstances employees tax (PAYE) should be deducted.
IN17 contains a flow chart illustrating the decision making process. In summary, the tests are as follows:
| Question |
Deduct Employee's
Tax (PAYE)? |
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| Is the person a labour broker or are they remunerated by a labour broker? |
Yes |
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| Is the person a personal service provider? |
Yes |
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Does the person meet all of the below criteria (if the answer is no to any of these questions then PAYE needs to be deducted)?
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Are they resident in South Africa? |
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Do they have more than three employees of their own? |
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Can you confirm the person does not have to deliver the service mainly at the client's premises and that control and supervision by the client is not present? |
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Is the dominant impression that of an independent contractor? |
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No |
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5. Tax Ombudsman Report on SARS Delaying Payment of Refunds
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| Author: Jonathan Aitken |
In September the Tax Ombudsman released their report on their investigation as to whether there was evidence to support the view that SARS were intentionally delaying the repayment of refunds to individuals.
The Tax Ombudsman's report concluded that there was sufficient evidence to suggest SARS were delaying refund payments on purpose.
This is not a surprise. Over the past twelve to eighteen months we have received a number of complaints from clients. The reasons provided for late payments have been similar to those outlined by the ombudsman and include:
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The taxpayer or tax practitioner submits all the supporting documentation required by SARS via e-filing. The case is resolved after a couple of weeks and a 'completion' letter received. The taxpayer expects to receive their tax refund within a week or two but this does not happen. Contact is made with SARS and the taxpayer / tax practitioner is told that there is a 'special stopper' on the account. The taxpayer is told they must come in personally with their proof of address, ID, banking details and all the supporting documentation used to complete their return. The reason provided for this is the high probability of fraud on the taxpayer's account. |
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Tax returns are submitted with there being no request for verification. Taxpayers then receive a verification request some weeks later. Supporting documentation has then to be uploaded to SARS and in the process delaying the release of a potential refund by 3-4 weeks. |
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Taxpayers after meeting all compliance requirements find that they do not receive their tax refund. After enquiring with SARS they are told that their banking details need to be validated. The taxpayer then must personally go into SARS to perform this process. This is particularly irksome where banking details have not changed and have been on the system for many years. |
We wish there were a simple way to fix this. Alas the only way is to go into a SARS branch and try and address this directly. |
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| 6. Contact HRTorQue |
Durban
Phone: 031 564 1155 • Email: [email protected] • Website: www.hrtorque.co.za
Address: 163 Umhlanga Rocks Drive, Durban North, KwaZulu-Natal
Johannesburg
Ground Floor, West Wing, 6 Kikuyu Road, Sunninghill, 2191 |
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