SAFT Funding paid to employees – taxable or not taxable?

SAFT Funding paid to employees – taxable or not taxable?

Coronavirus Reliefs

The Covid-19 pandemic is certainly a world event that will go down in history as having an unprecedented impact on world economies, businesses at all levels and the fabric of society in general. The financial impact of the pandemic in South Africa could not have come at a worse time. The economy is struggling due to a growth rate of less than 1%, high unemployment levels, poor tax revenue collection levels and a currency that is taking a hammering on the world stage. We as South Africans are a hardy bunch though and in times of hardship we see people from all walks of life come together to contribute to relief initiatives. We see this with feeding initiatives and care for the vulnerable sectors of our society. At a corporate level we have seen big business pull together to create funding initiatives to assist SMMEs with operational funding. One of these initiatives is the South African Future Trust (SAFT), established by Nicky and Jonathan Oppenheimer. This fund makes funds available to South African businesses impacted by the coronavirus from 3 April 2020.

The main aim of the SAFT is to mitigate the immediate economic impact of the Covid-19 crisis by keeping companies in business and protecting jobs, in order to fast track South Africa’s economic recovery after this pandemic. The trust will extend direct financial support to employees of South African Small, Medium and Micro-sized businesses who are at risk of losing their jobs or will suffer a loss of income because of Covid-19.

SMMEs need to apply through one of the four major banks (ABSA, Standard, Nedbank and FNB). To qualify for such loan funding SMMEs will need to meet the following criteria:

  • Annual turnover below R25 million
  • Must have been trading for at least 24 months
  • It must have been a sustainable business at 29 February 2020
  • It must have been adversely affected by the Covid-19 outbreak

Once approved the funding will be distributed via SAFT, and will be paid out directly to the businesses employees as interest-free loans:

  • Employees themselves will not be liable to pay the money back, but the company will be
  • There is no minimum monthly payment requirement; the loan only needs to be repaid at the end of the period
  • There will be no interest payable for a five-year (60 month) period, and the loan is subordinated to other pre-existing loan agreements
  • Should the business be unable to repay the loan, SAFT will work closely with them to ensure that repayment plans are in place, which are sustainable for their business

It is suggested that any payments made by SAFT to the employees will be tax-free. Employees will receive R 750 a week for 15 weeks.

Whilst the applicable literature states that the weekly payments will not be taxable, there are a number of issues to look at before you can safely come to that conclusion. These include:

  • Is the loan granted due to the employer / employee relationship and therefore potentially subject to fringe benefit implications?
  • Is the loan effectively ‘remuneration’ as defined in the Income Tax Act?
  • Would the fact that the company receives this loan interest-free for at least 60 months impact on tax considerations?
  • Would the weekly payments be regarded as a ‘benefit’ and therefore tax-free as per the legislation that exempts UIF benefits?

We would therefore encourage employers to look carefully at these payments and how they put them through payroll.

As mentioned earlier we are in unique times and legislation is very rarely drafted to cater for all eventualities. We are, however, on a daily basis seeing more and more information made available on such matters. We will continue to liaise with the Payroll Authors Group of South Africa and SARS regarding developments on such issues and will publish any important information in this regard on this forum, as and when it becomes available.