Relaxation of the Validation Rules for Code 4587 – s10(1)(o) foreign income exemption

(Source: PAGSA; SARS)

 Background

The Minister of Finance announced in the Budget Review on 26 February 2020 that the foreign employment income exemption would be increased from R1,0 million to R1,25 million with effect from 1 March 2020, and this was given effect in the draft ‘Rates Bill’ that was issued on the same day.

To provide for the new foreign employment income requirements, the PAYE BRS was changed to include a new code 4587 described as “Section 10(1)(o)(ii) exemption taken into account by the employer for PAYE purposes”.

The notes in the PAYE BRS version 19.4 clarify that what must be reported in code 4587 is the remuneration as defined by section 10(1)(o)(ii) that the employer has determined is exempt in terms of the requirements of section10(1)(o)(ii).

The relevant portion of section 10(1)(o)(ii) reads as follows:

“There shall be exempt from normal tax any form of remuneration to the extent to which that remuneration does not exceed 1,25million Rand in respect of a year of assessment is received or accrues to any employee during any year of assessment by way of salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance including any amount referred to in paragraph (i) of the definition of gross income in section 1 or an amount referred to in section 8, 8B or 8C, in respect of services rendered outside the Republic by that employee for or on behalf of any employer if that employee was outside the Republic-“ …

In terms of section 10(1)(o)(ii), only the following foreign remuneration types can be exempt:

1. Salary
2. Leave pay
3. Wage
4. Overtime pay
5. Bonus
6. Gratuity
7. Commission
8. Fee
9. Emolument
10. (General) allowances
11. Taxable fringe benefits (section 1: gross income paragraph(i))
12. (Special) allowances (section 8: travel, subsistence, and public office allowances)
13. Amounts derived from broad-based employee share plans (section 8B)
14. Amounts received in respect of a share vesting (section 8C).

Code 4587 Validation Rules

Code 4587 (Section 10(1)(o)(ii) exemption taken into account by the employer for PAYE purposes) was added to the PAYE BRS earlier in 2020 and is included in the current version 19.4 with effect from the 2020/21 tax year onwards.

Employers must report the total remuneration as defined by section 10(1)(o)(ii) that the employer has taken into account in the current tax year for PAYE calculation and withholding purposes.

Due to uncertainty regarding the validation rules, the PAGSA requested that SARS relax the application of the validation rules for code 4587for the August 2020 mid-year tax certificate submissions.

Code 4587 Validation Relaxation

SARS have agreed to relax the code 4587 validation rules, confirmed in the following notice.

NOTICE TO STAKEHOLDER/EMPLOYERS

Information Code 4587 –Section 10(1)(o)(ii) exemption taken into account by the employer for PAYE purposes: Relaxation of validation rules for August 2020 (202008) Employer Interim Reconciliation

SARS acknowledges concerns raised by payrolls that the application of the current validation rules for code 4587 may result in certain employers not being able to submit their interim IRP5/IT3(a) certificate information.

These validation rules as specified in the SARS Business Requirements Specification: PAYE Employer Reconciliation (2020 Release) version 19.4 will be relaxed for the August 2020 Employer Interim Reconciliation submission.

The relaxation of the validation rules will be implemented during the weekend of 19 September 2020 and the affected employers are requested not to submit their Interim Reconciliation documents before Monday, 21 September 2020.

These validation rules will be reviewed and clearly defined to provide clarity.

An updated SARS Business Requirements Specification: PAYE Employer Reconciliation (2020 Release) will be issued shortly and the amended validation rules willbe implemented towards the end of 2020.

Note that any February 2021 (202102) submission that is submitted before the implementation of the revised validations will be processed in accordance with the relaxed validation rules for code 4587.