Details of the proposed changes to the Tax Law Amendment Bill and the Tax Administration Law Amendment Bill have recently been released for comment. We have taken the liberty of listing the matters that have an impact on the payroll environment.
Taxation of a long service award
The total non-taxable value of R 5 000 and all other qualifying criteria must continue to be met. It is however proposed that in future the award can be provided in cash, as opposed to a non-cash asset, as is required by the current legislation. This is a welcome change as the current requirements make the practicalities of achieving compliance difficult.
Clarifying the calculation of the fringe benefit in relation to employer contributions to a retirement fund
Where the employer contributes to a defined benefit fund the actual taxable benefit accruing to the employee is derived by using a specific formula. The self-insured risk-benefit which is included in the contribution is often “lost” when calculating the amount that the employee can use towards the calculation of the allowable deduction, thus allowing the employee a greater deduction than permitted. The proposal is to split the two amounts to ensure the value of the benefit for both the retirement fund and the self-insured risk-benefit can be determined and taxed accordingly.
Definition of an employee for ETI purposes.
It is proposed that the definition of an “employee” and a “qualifying employee” be changed to clearly specify that “work” must be performed in terms of an employment contract and that the employee must be documented in the employer’s records. This is to ensure that employers don’t claim for employees who don’t actually work for them. There has been a significant amount of fraud perpetuated in this area since the introduction of ETI and this proposed change has been a long time coming.
Transfer between retirement funds by members reaching 55 (or older)
There are certain instances where a tax liability arises when a fund member reaches retirement age and transfers their funds into a preservation fund. The intention is that any transfer to a similar fund should not be taxed. It is proposed that an amendment be made to address this and allow for the tax-free transfer of funds from a preservation fund into a similar fund by a member who has already reached normal retirement age. This is a welcomed proposal as it enables individuals to maximize their return by moving from one fund to another, without any unintended tax consequences.
The tax implications on a retirement fund when an individual ceases to be a tax resident
There are some proposed changes which will assist an individual in delaying the payment of the tax liability that arises when there has been a deemed “withdrawal” by the individual from the fund. It is proposed that the taxable benefit will only accrue to the individual when they receive the payment from the fund.
Penalties for non-submission of bi-annual PAYE reconciliations
There is a proposed new method for calculating the penalty due for this type of non-compliance. If the proposal is adopted, we will see higher penalties being issued. Employers will be forced to pay more attention to meeting deadlines and ensuring that they comply with the technical specifications of these returns.
At this point these are just proposals so we will keep a close eye on developments over the coming months. We anticipate being able to give specifics during the tax year-end seminars in March 2022.