Taxation Laws Amendment Bill 2013 (TLAB)

Taxation Laws Amendment Bill 2013 (TLAB)

Legislation, Tax

National Treasury released the TLAB during July and from a payroll perspective we will only really be impacted by a few items, namely:

Company Cars (rented by the employer)
Storing of the Fringe Benefit value of a company car (rented by the company as opposed to being purchased) in a new code on the IRP5. The new code 3816 was included on the IPR5 for the Aug submission.

Income Protection Policies
Employer paid premiums are, in future, to be taxed as a fringe benefit as the premium is no longer deductible. Premiums paid by the individual (i.e. a natural person) iro life, disability, severe illness will no longer be deductible if they are aimed at income protection. Pay outs on life, disability and severe illness policies will be tax free irrespective of whether or not the pay-out is in the form of a lump sum or an annuity.

The following IRP5 codes will be applicable until February 2015:
Code 3801 – Fringe Benefit for Employer paid premiums (if Employer owned policy)
Code 3808 – Fringe Benefit for Employer paid premiums (if Employee owned policy)
Code 4018 – Deduction for Employee paid premiums.
From March 2015, Code 4018 will no longer be applicable.

Bursaries and Scholarships
The qualifying annual earnings limit is to be increased to R 250 000 (up from R 100 000) for bursaries and scholarships granted to relatives of an employee. To assist in the establishing the employees’ remuneration upfront a new “proxy remuneration” concept has been introduced (which is effectively the employees annual remuneration as at the end of the previous tax year). This is the remuneration factor that can be used when establishing if the employee meets the remuneration criteria below which the employee is exempt from fringe benefit tax on the bursary. The value of the tax free bursary has been increased to R30, 000 for further education schemes (i.e. above matric/grade 12). This became effective from March 2013.

Retirement Reforms
The proposed reforms that are to be introduced are based on the proposal we have already seen in 2012 and again in the Budget of 2013. They primarily deal with the tax treatment of contributions (Employer and Employee) as well as the process of aligning Pension Funds, Provident Funds and RA’s. Essentially, any contribution made by an Employer to a fund will be taxed as a fringe benefit in the hands of the individual. There will be a deductible amount (Employee and Employer combined) of up to 27.5 % of the greater of taxable income or remuneration subject to an annual cap of R350,000. These reforms will impact some individuals more than others – but not that significantly. There are also a few items to be finalised regarding protection of vested rights, the tax implications when transferring from one fund to another, the impact on persons aged under 55 VS those over 55 (new entrants) during the transition period, etc. We recently attended an interesting talk by National Treasury on these issues and there are a few very tricky and complicated scenarios which need to be further investigated and finalised, so there is still a need for additional consultation regarding this change. Implementation is now planned for March 2015.

Employer-provided Accommodation
This refers to where the Employer actually “gives” the employee accommodation (e.g. transfer of ownership of a low cost house). Here again the definition of how remuneration (i.e. the R250,000 p/a) is made up is sometimes left to interpretation (e.g. does it include or exclude a portion, or all, of the travel allowance?) and also what remuneration figure must be used when working out the fringe benefit tax on such a transfer. This has now been dealt with, as has the issue of when the employees’ remuneration increases during the year to an extent that his new remuneration puts him over the qualifying limit. The concept of the “proxy remuneration” (i.e. as per the Bursary schemes) must be applied here as well.

Valuation of the Fringe Benefit for Defined Benefit Purposes
There have been some changes regarding replacing values for the previous years’ assessment with new values applicable for the new assessment year, which will provide a huge amount of effort from everyone in the “chain”. The PAGSA has requested some further clarity on the formula to be used and how it should be implemented.

Employee Share Schemes
There are some proposals which deal with how to handle the re-characterisation of income (i.e. to address tax avoidance issues). This typically happens when dividends are paid (as opposed to remuneration) in respect of services rendered and as such tax is not paid on the income (i.e. it’s seen as dividends and as a result the tax due is less than had it been declared as ordinary income). There are some changes that are on the cards here which should be finalised in the new year.

A few items we are still awaiting clarity on include:

  • The final format for postal addresses as they will need to appear on the employee’s tax certificate from next year.
  • Confirmation of the new validation rules for codes 3702 and code 3703 (i.e. travel re-imbursive codes).
  • List of Special Economic Zones (SEZ) to be used in the management of the new Employment Tax Incentive Scheme.
  • New codes on the tax certificate to store the R30,000 bursary threshold.

Also, the rights of Asylum Seekers have been in the spotlight recently in terms of how they are able to access government services and as such there are various departments of government (i.e. SARS, Dept. of Labour, etc.) that need to determine (and agree a standard) how these individuals need to be uniquely identified (i.e. they need some form of Asylum Seeker ID number) for if and when they receive benefits from the UIF, or are put on to the ETI scheme.