2017 Employees & Payroll Withholding

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1 2017 Employees & Payroll Withholding Presented by Rob Cooper Rob Cooper is the Director of Legislation at Sage VIP Payroll & HR. As one of the company s founders, he has an in-depth understanding of the impact of legislation on the HR and payroll software industry. Over the last 20 years, his focus has been on the diverse legislation that governs the employment and payroll industry. Rob is a founding member and the current chairman of the Payroll Authors Group of South Africa, a body that liaises with statutory bodies on behalf of payroll system suppliers, and is a respected presenter at seminars and workshops around the country.

2 Programme: 08:15 08:55 Registration 09:00 10: Employees & Payroll Withholding 10:30 10:50 Tea Break (20 mins) 10:50 13: Employees & Payroll Withholding 13:00 Conclusion

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11 27. Section 11 of the Income Tax Act, 1962, is hereby amended (b) by the substitution in paragraph (i)(bb)of the proviso to paragraph (k) for item (B) of the following item: (B) taxable income (other than in respect of any retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit and severance benefit) as determined before allowing any deduction under this paragraph and section 18A; ; and (c) by the addition in to the proviso to paragraph (k) after paragraph (iv) of the following paragraph: (v) any deduction in terms of this paragraph must apply for the purpose of determining the total amount of taxable income, before any deduction in terms of section 18A or the inclusion of any taxable capital gain of the person, whether derived from the carrying on of any trade or otherwise;. 8

12 The amendment to paragraph 12D of the Seventh Schedule: (b) by the substitution in subparagraph (1) in the definition of retirement funding income for paragraph (a) of the following paragraph: (a) in relation to any employee or the holder of an office (including a member of a body of persons whether or not established by or in terms of any law) who in respect of his or her employment derives any income constituting remuneration as defined in paragraph 1 of the Fourth Schedule and who is a member of or, as an employee, contributes to a pension fund or provident fund established for the benefit of employees of the employer, from whom such income is derived, [that part of the employee s said income as] the income that is taken into account in the determination of the contributions made by the employer or the pension fund or provident fund for the benefit of the employee to such pension fund or provident fund in terms of the rules of the fund; or. 9

13 Section 11(k)(i) Deduction for contributions to any retirement fund: The total deduction to be allowed in terms of this paragraph must not in the year of assessment exceed the lesser of (aa) R ; or (bb) 27,5% of

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15 Settling-in Relocation expenses in the Future If the employer agrees to assist with any one or more of the three categories of relocation expenses (transport, settling-in and alternative accommodation), there are three options 1. Pay the suppliers directly (no fringe benefit because these expenses are exempt) 2. Reimburse the employee if the employee has paid directly and supplies proof of the expenses 3. Pay a taxable relocation allowance and report as code 3713 (Taxable Allowance). Employees who pay for these expenses directly cannot claim them on assessment there is no deduction provision available. 12

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17 The Formula method uses the formula: (A B) x C/100 x D/12 Where: A = the remuneration proxy B = R (the tax threshold for an under 65 year old taxpayer for 2015) C = 17 unless the accommodation consists of at least 4 rooms and - = 18 if unfurnished and power or fuel is supplied by the employer = 18 if furnished and no power or fuel is supplied by the employer = 19 if furnished and power or fuel is supplied by the employer D = the number of months that the employee is entitled to the accommodation Use the lesser of the Formula method and the Expenditure method if - o the full ownership of the accommodation does not vest in the employer, and o the employer provides accommodation obtained at arm s length from an unconnected person 14

18 Tax Certificate codes for Bursaries Both the exempt and the non-exempt portion of the bursary must be in the payroll for the fringe benefit calculation of the portion that was not exempted, and for tax certificate reporting Code 3809 (Basic education bursary taxable) Code 3815 (Basic education bursary non-taxable) Code 3820 (Higher education bursary taxable) Code 3821 (Higher education bursary non-taxable). 15

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20 Note In order to evaluate the learnership incentive more effectively in the future, National Treasury and SARS are discussing the best way in which to collect more information on claims and learners. The intention is to make this reporting compulsory for claimants of the learnership tax incentive. When the Unemployment Insurance Amendment Act becomes effective (see discussion in a later Chapter in this workbook), contributions will have to be paid for all learners, and these individuals will then be able to claim unemployment benefits. 17

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22 An equity instrument is defined in section 8C(7) as: " a share or member's interest in a company, and includes- an option to acquire such share, part of a share or member's interest; any financial instrument that is convertible to a share or member's interest; and any contractual right or obligation the value of which is determined directly or indirectly with reference to a share or member's interest" A restricted equity instrument is an: Equity instrument that is restricted in a manner that prevents the individual from freely disposing of that equity instrument at market value, or which is not deliverable to the taxpayer until a specified event is satisfied. 19

23 The underlying problem as described by the Explanatory Memorandum: Section 8C is based on the implicit assumption that the full value of the equity shares underlying a restricted equity instrument will vest in the employee when the restrictions fall away. 20

24 Section 10(1)(k)(i) exempts dividends from income tax (in which case they are subject to a dividends tax of 15% (20% from 22 February 2017)), but a proviso excludes nine categories of dividends from exemption. By no longer being exempt from income, these nine categories of dividends are therefore included in income and subject to income tax. Three of the nine categories of dividends have now been added to the definition of remuneration: Any amount received by or accrued to that person by way of a dividend contemplated in- (i) paragraph (dd) of the proviso to section 10(1)(k)(i); (ii) paragraph (ii) of the proviso to section 10(1)(k)(i); (iii) paragraph (jj) of the proviso to section 10(1)(k)(i); The three categories of dividends that are now included in remuneration are paragraphs (dd), (ii) and (jj) of the proviso to section 10(1)(k)(i). 21

25 Key questions to ask to determine if there is a risk of possible dividend inclusion in remuneration 1. Are the dividends being paid on non-equity shares or hybrid equity instruments, or to beneficiaries of a trust holding such shares or instruments? 2. Are the dividends being paid in respect of employment to persons holding anything other than shares or restricted equity instruments? 3. Are the dividends being paid to the holders of restricted equity instruments, and those dividends relate to a share buy-back or redemption, or a company winding up? 4. Is the dividend being paid in the form of an equity instrument? If you answer yes to any of these questions, then you will need to consider the rules very carefully, as the dividend may be subject to PAYE instead of dividends tax. This needs to be picked up early, so that dividends tax is not deducted from the payment of the dividend. The above rules provided courtesy of Dan Foster, who is a director of Webber Wentzel Attorneys 22

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27 SARS BGR 40: Independence is central to the NED s role and is interpreted to mean the absence of undue influence and bias. The independent role of the NED results in SARS considering an NED to be a director who is not involved in the daily management or operations of a company, but simply attends, provides objective judgment, and votes at board meetings. Income Tax Act definition: director, in relation to a close corporation, means any person who in respect of such close corporation holds any office or performs any functions similar to the office or functions of a director of a company other than a close corporation; 24

28 remuneration means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, etc. but not including any amount paid in respect of services rendered by any person (other than a person who is not a resident ) in the course of any trade carried on by him independently of the person by whom such amount is paid : Provided that a person shall not be deemed to carry on a trade independently if the services are required to be performed mainly at the premises of the person by whom such amount is paid and the person who rendered the services is subject to the control or supervision of any other person as to the manner in which his or her duties are performed or as to his hours of work: Provided further 25

29 Fourth Schedule Employee Definition: employee means (a) any person who receives any remuneration (g) any director of a private company who is not included in terms of paragraph (a); 26

30 Fourth Schedule Employee Definition: employee means (a) any person who receives any remuneration (g) any director of a private company who is not included in terms of paragraph (a); 27

31 Note the following when planning the implementation of the requirements of the BGRs - 1. NEDs who accounted for VAT prior to 1 st June 2017: If PAYE was withheld, can review their PAYE withholding before 28 th February If PAYE was not withheld, need take no action this is correct in terms of the BGRs. 2. NEDs who did not account for VAT prior to 1 st June 2017 and who should have: If PAYE was withheld, NEDs will not be required to account for VAT in respect of director s fees received prior to 1 June 2017 (SARS notice on 14 th February 2016). If PAYE was not withheld, it was not clear at the time of writing whether SARS will take action retrospectively. With this last uncertainty in mind, NEDs and their employers must decide whether or not to start PAYE withholding until 1 June 2017 (the NED can request voluntary withholding of PAYE), as this will ensure that the NED will not be penalised for not accounting for VAT. 28

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33 (a) where an employer employs and pays remuneration to a qualifying employee for at least 160 hours in a month, means the amount paid or payable to the qualifying employee by the employer in respect of a month; or (b) where an employer employs a qualifying employee and pays remuneration to that employee for less than 160 hours in a month, means an amount calculated in terms of section 7(5);. (i) where the employee is employed and paid remuneration for at least 160 hours in a month, the amount of R2 000 in respect of a month; or (ii) where the employee is employed and paid remuneration for less than 160 hours in a month, an amount that bears to the amount of R2 000 the same ratio as 160 hours bears to the number of hours that the employee was employed for by that employer in that month.. 30

34 If the payroll is processed monthly, then for permanent employees, the employed hours should be the average working hours per month. For example for a 40-hour week, the average hours per month are 173 hours (8 x 5 x 4,33 = 173,33). For a 45-hour week, they are 195 hours (45 x 4,3333). Note that the method of calculating the average working hours per month is based on section 35(3) of the Basic Conditions of Employment Act that specifies that the ratio between weeks and months is four and one-third on average over a year (mathematically this factor is calculated by dividing 52 weeks by 12 months). If the payroll is processed weekly or fortnightly, then for permanent employees, the employed hours are the number of hours per week multiplied by the number of weeks in the month. The principle is that it is the number of weeks in the month that determines the total amount paid for the month. For an 8-hour day, 5-day week employment arrangement, the employed hours per month will be: 160 hours (for a 4-week month) 200 hours (for a 5-week month). 31

35 The Basic Conditions of Employment Act defines wage as: the amount of money paid or payable to an employee in respect of ordinary hours of work or, if they are shorter, the hours an employee ordinarily works in a day or week; 32

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46 The history of changes to the top personal tax marginal rate: 50% in 1987 (for 12 years) 45% in 1999 (for four years) 40% in 2003 (for 13 years) 41% in 2016 (for 1 years) 45% in 2017 (for? years ) 43

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