Tax and ETI Amendments 2017/2018

Transcription

1 Tax and ETI Amendments 2017/2018 Contents 1 Employment Tax Incentive (ETI) Changes Wage Qualifying Test Before March From March Employed and Remunerated Hours Actual Wage Diagram to Illustrate the Wage Qualifying Test for Employees Without a Wage Regulating Measure Wage Qualifying Test: Wage Regulating Measure vs. No Wage Regulating Measure Remuneration Before March From March Employed and Remunerated Hours Diagram to Illustrate the Calculation of Remuneration for All Employees (With and Without a Wage Regulating Measure) Calculation of the ETI Amount Before March From March Roll-Over and Reimbursement Tax Changes Background Payroll Changes Remuneration Proxy Employer Provided Bursaries Directors Deemed Remuneration RFI Definition Reimbursive Travel Allowance Certain Dividends Included in Remuneration Value of B in the Residential Accommodation Fringe Benefit Calculation Other Changes Not Affecting Payroll Directly Partner of a Partnership Disallowing the tax exemption for Local Fund Lump Sums and Annuities Learnership Tax Incentive References Income Tax and ETI Amendments 2017/2018 Page 1 of 17

2 1 Employment Tax Incentive (ETI) Changes The Taxation Laws Amendment Act, 2016, promulgated on 19 January 2017 in Government Gazette 40562, extends ETI for another 2 years, ending on 28 February The Act contains the following changes to ETI. 1.1 Wage Qualifying Test In order for an employee to qualify for ETI, he/she must pass the wage qualifying test which is one of the qualifying criteria to establish if an employee is a qualifying employee (other qualifying criteria includes; employed on or after 1 October 2013, 18 to 29 years old, valid RSA ID / Asylum Seeker Permit / Refugee ID Number, not a domestic worker, not a connected person to the employer and monthly remuneration must be less than R6 000). Wage refers to the cash amount paid for ordinary hours of work. This is typically basic salary or basic wage of the employee and excludes elements such as overtime, commission, bonus etc. and includes any leave pay (such as pay for annual leave, sick leave, family leave etc.). The wage the employee earns should be at least the minimum wage according to the wage regulating measure (collective agreement, bargaining council or sectoral determination) or R2 000 for a full month, which is at least 160 hours, if there is no wage regulating measure Before March 2017 If a wage regulating measure was applicable, then the monthly wage was compared to the minimum monthly wage (it was understood that a rate per hour comparison was allowed as this was effectively the same as grossing-up the wage). If no wage regulating measure was applicable the monthly wage was calculated in the following way: If the employee was employed for less than 160 hours per month, then a gross-up of the wage was performed to see how much the wage would have been for 160 hours. If the employee was employed for 160 hours or more, no gross-up of the wage was required. Hours employed referred to: Contractual normal hours (no overtime hours) in the case of a permanent employee for ETI purposes (those employees who work in terms of an employment contract that specifies a contractual predictability of regular work in the future. In other words, an employee with a standard amount of hours to work in a month). Actual total hours worked in the case of a temporary employee for ETI purposes (employee without a standard amount of hours to work in a month or an employee who works an irregular amount of hours, such as temps or casual workers). Actual normal hours employed for new and terminated employees. Please Note: The definitions for permanent and for temporary are not legal terms, but our own definitions we used to explain the legislation To simplify the calculation, from March 2015 the test was not based on the wage rate per month, but by applying a rate per hour comparison: The minimum wage rate per hour applied if there was a wage regulating measure, or If there was no wage regulating measure, an employee qualified if the wage rate per hour of the employee was equal to or more than R12.50 (R2 000/160 hours). Income Tax and ETI Amendments 2017/2018 Page 2 of 17

3 1.1.2 From March 2017 The legislation was amended to change the word from employed to employed and paid remuneration in order to clarify the applicable hours worked in the grossing up/grossing down calculation. The term employed has a different meaning to employed and paid remuneration and therefore some of the calculations are changing. Summary of the legislation for the wage qualifying test from March 2017: If a wage regulating measure is applicable: The wage paid should be compared to the minimum wage of the wage regulating measure in respect of that month, it is understood that a rate per hour comparison is allowed as this is effectively the same as grossing-up the wage. If no wage regulating measure is applicable: If an employee is employed and paid remuneration for less than 160 hours in a month, then gross-up the wage to 160 hours to determine if the monthly wage is R2 000 or more. If an employee is employed and paid remuneration for at least 160 hours in a month, no grossup of the wage is required to determine whether the monthly wage is R2 000 or more. The amended legislation allows for a rate per hour/week/month comparison for employees with a wage regulating measure, however the amended legislation does not provide for a gross-up calculation if a wage regulating measure is applicable, therefore our system will still perform a rate per hour comparison for employees with a wage regulating measure to apply the wage qualifying test. The wording of the legislation in respect of employees without a wage regulating measure has changed to indicate that a gross-up calculation should be done based on all hours employed and remunerated, and therefore we will not be performing a rate per hour comparison on employees without a wage regulating measure, the wage qualifying test must be applied strictly on a monthly basis (R2000 for a full month, which is at least 160 employed and remunerated hours). From March 2017, the following wage qualifying tests will be applied: Wage regulating measure (no change) Check if contractual/actual wage rate per hour of the employee is equal or more than the minimum wage rate per hour (according to the wage regulating measure) of the employee. No wage regulating measure If employed and remunerated hours are less than 160 hours a gross-up calculation will be done using the actual monthly wage to apply the wage qualifying test. Actual monthly wage / employed and remunerated hours x 160 If the employed and remunerated hours are 160 or more the actual monthly wage will be used to apply the wage qualifying test. If the actual monthly wage or grossed-up monthly wage for a full month (at least 160 hours) is R2000 or more, the employee will pass the wage qualifying test. If the actual monthly wage / grossed-up monthly wage for a full month (at least 160 hours) is less than R2000, the employee will fail the wage qualifying test and no ETI will calculate. In order to apply this test, the system must know the following: Employed and remunerated hours Actual wage for the month Income Tax and ETI Amendments 2017/2018 Page 3 of 17

4 1.1.3 Employed and Remunerated Hours Employed and remunerated hours are all actual hours the employee was employed and remunerated for. In other words, it should be the ordinary hours less any unpaid hours (such as unpaid leave hours, no work-no pay hours, strikes etc.) plus any additional hours (such as overtime hours, public holiday worked hours, hours worked on a Sunday etc.). Before March 2017 we distinguished between permanent employees (employees with a standard amount of hours to work in a month) and temporary employees (employees without a standard amount of hours to work in a month or employees who work an irregular amount of hours) in order to apply the employed hours. We used the employed hours to determine whether a gross-up of the wage should have been done. For explanatory purposes we will still distinguish between permanent, temporary, new and terminated employees. Permanent employees contractual/ordinary hours (average working hours per month according to the BCEA, calculated on a week or according to the employment contract) less any unpaid hours (such as unpaid leave hours, no work-no pay hours) plus any additional hours (such as overtime hours, public holiday worked hours, hours worked on a Sunday etc.). Temporary employees actual number of hours worked in the month (the calculation of hours will include ordinary hours plus additional hours of work, unpaid hours will automatically not be counted). New and terminated employees actual number of hours worked if employed after the first day of the month or terminated before the last day of the month (the calculation of hours will include ordinary hours plus additional hours less unpaid hours). It is our opinion that ordinary/contractual (average working hours per month) less unpaid hours plus additional hours can be used for permanent employees as this refers to the number of hours employed and remunerated during the month. Example 1 permanent monthly paid employee: The employment contract states that the employee s ordinary hours of work is 8 hours a day, 5 days a week (Monday to Friday) which is average working hours per month (in line with the BCEA). In the month of April, the employee took 30 hours unpaid leave (unpaid hours) and worked 3 hours overtime (additional hours). Employed and remunerated hours for the month: Contractual/ordinary hours unpaid hours + additional hours = = hours Example 2 permanent weekly paid employee: The employment contract states that the employee s ordinary hours of work is 8 hours a day, 5 days a week (Monday to Friday) which is 40 hours per week. The month of April has 4 weeks in the month. In the month of April, the employee took 30 hours unpaid leave (unpaid hours) and worked 3 hours overtime (additional hours). Employed and remuneration hours for the month: Contractual/ordinary hours unpaid hours + additional hours = (40 x 4) = 133 hours Income Tax and ETI Amendments 2017/2018 Page 4 of 17

5 1.1.4 Actual Wage According to the Basic Conditions of Employment Act, actual wage will include the basic wage or salary (excluding fringe benefits and company contributions) paid to the employee for the month and excludes elements such as overtime, commission, bonus etc. Actual wage includes leave pay (such as annual leave, sick leave, family leave etc.). It is important that earning lines/components which form part of the employee s wage are separate from other earnings on the payroll Diagram to Illustrate the Wage Qualifying Test for Employees Without a Wage Regulating Measure No wage regulating measure *Hours less than 160 *Hours are 160 or more Gross-up calculation: Actual monthly wage / *hours x 160 Actual monthly wage Grossed-up wage is R2000 or more Grossed-up wage is less than R2000 Actual wage is R2000 or more Actual wage is less than R2000 Employee passes the wage qualifying test Employee fails the wage qualifying test, no ETI is calculated Employee passes the wage qualifying test Employee fails the wage qualifying test, no ETI is calculated *Hours refer to employed and remunerated hours. Income Tax and ETI Amendments 2017/2018 Page 5 of 17

6 1.1.6 Wage Qualifying Test: Wage Regulating Measure vs. No Wage Regulating Measure Wage qualifying test Wage regulating measure No wage regulating measure The actual wage rate per hour must be equal to or more than the minimum wage rate per hour specified according to the wage regulating measure for the employee to pass the wage qualifying test. Indicate/establish if the 'employed and remunerated' hours are less than 160. If the hours are 160 or more, actual monthly wage will be used. If the hours are less than 160, a gross-up calculation will be done on actual monthly wage. If the monthly actual / grossed-up wage is R2000 or more, the employee will pass the wage qualifying test. Please note it is the user s responsibility to process the correct employed and remunerated hours in order to correctly calculate and claim ETI. From March 2017, the wage qualifying test remains the same for employees with a wage regulating measure (rate per hour comparison actual wage rate per hour must be equal to or more than the minimum wage rate per hour according to the wage regulating measure). The wage qualifying test is only changing for employees without a wage regulating measure. Example 1 permanent monthly paid employee with no wage regulating measure The employment contract states that the employee s ordinary hours of work is 8 hours a day, 5 days a week (Monday to Friday) which is average working hours per month (in line with the BCEA). Employee A was appointed on 1 April Employee A meets all other qualifying criteria in terms of ETI. In the month of April employee A took 30 hours unpaid leave (unpaid hours) and worked 3 hours overtime (additional hours). Income Tax and ETI Amendments 2017/2018 Page 6 of 17

7 Payslip: Earnings Amount Salary R Overtime R Unpaid Leave R Commission R Total R Wage qualifying test: Receives at least R2000 wage for a full month (160 hours). Employed and remunerated hours: Contractual/ordinary hours unpaid hours + additional hours = = hours Monthly wage for 160 hours: Actual wage / employed and remunerated hours x 160 = (Salary unpaid leave) / x 160 = R2 100 R / x 160 = R Pass wage qualifying test as the wage for a full month is equal to or more than R Example 2 permanent weekly paid employee with a wage regulating measure The collective agreement states that the employee should be paid a minimum rate of R22.50 and that his ordinary hours of work is 45 hours a week. April has 5 weeks in the month. Employee A was appointed on 1 April Employee A meets all other qualifying criteria in terms of ETI. In the month of April employee A took 18 hours unpaid leave and worked 8 overtime hours (additional hours). The employer pays the employee R23.50 per hour. Payslip: Earnings Amount Wage R Overtime R Unpaid Leave R Sick Leave R Total R Wage qualifying test: Actual rate per hour equal to or more than the minimum rate per hour according to the wage regulating measure. =R23.50 is more than R22.50 Pass wage qualifying test as employee A s actual rate per hour is equal to or more than the minimum rate per hour according to the wage regulating measure. Income Tax and ETI Amendments 2017/2018 Page 7 of 17

8 1.2 Remuneration Monthly remuneration (taxable earnings, taxable perks and taxable company contributions) is used to calculate the employment tax incentive amount Before March 2017 A gross-up of remuneration was performed if the employee was employed for less than 160 hours a month. In other words, if the person was employed for less than 160 hours then a gross-up of remuneration was done to calculate what the person would have earned for a full month (a full month is seen as 160 hours). A full month s remuneration was used to calculate the ETI value. Gross-up calculation: Remuneration earned / hours employed x 160. Hours employed referred to: Contractual normal hours (no overtime hours) in the case of a permanent employee for ETI purposes (those employees who work in terms of an employment contract that specifies a contractual predictability of regular work in the future. In other words, an employee with a standard amount of hours to work in a month.). Actual total hours worked in the case of a temporary employee for ETI purposes (employee without a standard amount of hours to work in a month or an employee who works an irregular amount of hours, such as temps or casual workers). Actual normal hours employed for new and terminated employees. Please Note: The definitions for permanent and for temporary are not legal terms, but our own definitions we used to explain the legislation From March 2017 A gross-up of remuneration should be performed if the employee is employed and paid remuneration for less than 160 hours a month (for employees with and without wage regulating measure): If an employee is employed and paid remuneration for 160 hours or more in a month, then the actual amount of remuneration paid to the employee in a month (no gross-up calculation) is used. If an employee is employed and paid remuneration for less than 160 hours in a month the monthly remuneration is calculated as follows: Remuneration earned in the month / employed and remunerated hours x Employed and Remunerated Hours Employed and remunerated hours are all actual hours the employee was employed and remunerated for. In other words, it should be the ordinary hours less any unpaid hours (such as unpaid leave hours, no work-no pay hours, strikes etc.) plus any additional hours (such as overtime hours, public holidays worked hours, hours worked on a Sunday.). Before March 2017 we distinguished between permanent employees (employees with a standard amount of hours to work in a month) and temporary employees (employees without a standard amount of hours to work in a month or employees who work an irregular amount of hours) in order to apply the employed hours. We used the employed hours to determine whether a gross-up of the wage should have been done. For explanatory purposes we will still distinguish between permanent, temporary, new and terminated employees. Permanent employees contractual/ordinary hours (average working hours per month according to the BCEA, calculated on a week or according to the employment contract) less any unpaid hours (such as unpaid leave hours, no work-no pay hours) plus any additional hours (such as overtime hours, public holiday worked hours, hours worked on a Sunday.). Income Tax and ETI Amendments 2017/2018 Page 8 of 17

9 Temporary employees actual number of hours worked in the month (the calculation of hours will include ordinary hours plus additional hours of work, unpaid hours will automatically not be counted). New and terminated employees actual number of hours worked if employed after the first day of the month or terminated before the last day of the month (the calculation of hours will include ordinary hours plus additional hours less unpaid hours). It is our opinion that ordinary/contractual (average working hours per month), less unpaid hours plus additional hours can be used for permanent employees as this refers to the number of hours employed and remunerated during the month. Application of employed and remunerated hours in terms of remuneration If the employed and remunerated hours are less than 160, the system will do a gross-up calculation of the remuneration: Actual remuneration / employed and remunerated hours x 160 If the employed and remuneration hours are 160 or more, the system will use actual remuneration. The actual/grossed-up remuneration for the full month has to be less than R6000 for the employee to qualify. If the remuneration for the full month is R6000 or more, the employee will not qualify and no ETI amount will calculate. See section for examples on how to calculate employed and remunerated hours. Income Tax and ETI Amendments 2017/2018 Page 9 of 17

10 1.2.4 Diagram to Illustrate the Calculation of Remuneration for All Employees (With and Without a Wage Regulating Measure) 'Employed and remunerated' hours *Hours less than 160 *Hours are 160 or more Gross-up calculation: Actual monthly remuneration / *hours x 160 Actual monthly remuneration Grossed-up remuneration is R6000 or more Grossed-up remuneration is less than R6000 Actual remuneration is R6000 or more Actual remuneration is less than R6000 No ETI amount is calculated Continue to calculate ETI amount No ETI amount is calculated Continue to calculate ETI amount *Hours refer to employed and remunerated hours. Income Tax and ETI Amendments 2017/2018 Page 10 of 17

11 1.3 Calculation of the ETI Amount Before March 2017 The ETI amount was grossed-down (pro-rated) if the employed hours were less than 160 hours: Full monthly ETI amount / 160 hours x employed hours. If the employed hours were 160 hours or more, the full monthly ETI amount was calculated From March 2017 The ETI amount will be grossed-down (pro-rated) if the employed and remunerated hours (previously referred to as employed hours) are less than 160 hours: Full monthly ETI amount / 160 x employed and remunerated hours. If the employed and remunerated hours are 160 hours or more the full monthly ETI amount will calculate. Example 1 permanent monthly paid employee with no wage regulating measure The employment contract states that the employee s ordinary hours of work is 8 hours a day, 5 days a week (Monday to Friday) which is average working hours per month (in line with the BCEA). Employee A was appointed on 1 April Employee A meets all other qualifying criteria in terms of ETI. In the month of April employee A took 30 hours unpaid leave (unpaid hours) and worked 3 hours overtime (additional hours). Employee A s actual wage for April is R Employee A s actual remuneration for April is R Employed and remunerated hours: Ordinary hours unpaid hours + additional hours = = Wage qualifying test: Receives at least R2000 wage for a full month (160 hours). Actual wage / employed and remunerated hours x 160 = R / x 160 = R Pass the wage qualifying test as the wage for a full month is equal to or more than R Remuneration: Remuneration for the full month (160 hours) less than R Actual remuneration / employed and remunerated hours x 160 = R3 700 / x 160 = R Continue to calculate the ETI amount as the remuneration for a full month is less than R Calculation of ETI amount: = R1 000 [0.5 x (monthly remuneration R4 000)] / 160 x = R1 000 [0.5 x (R R4 000)] / 160 x Pro-rata (gross-down) ETI amount ( employed and remunerated hours less than 160 hours): ETI amount / 160 x employed and remunerated hours = R / 160 x =R Final ETI amount for the month of April. Example 2 temporary weekly paid employee with a wage regulating measure The collective agreement states that the employee should be paid a minimum rate of R22.50 Employee A was appointed on 1 April Employee A meets all other qualifying criteria in terms of ETI. In the month of April employee A worked 158 ordinary hours and 5 overtime hours (additional hours). The employer pays the employee R23.50 per hour. Employee A s actual wage for April is R Income Tax and ETI Amendments 2017/2018 Page 11 of 17

12 Employee A s actual remuneration for April is R Employed and remunerated hours: Ordinary hours + additional hours = = 163 Wage qualifying test: actual rate per hour equal to or more than the minimum rate per hour according to the wage regulating measure. = R23.50 is more than R22.50 Pass wage qualifying test as employee A s actual rate per hour is equal to or more than the minimum rate per hour according to the wage regulating measure. Remuneration: Remuneration for the full month (160 hours) less than R = R Continue to calculate the ETI amount as the remuneration for a full month is less than R Calculation of ETI amount = R1 000 [0.5 x (monthly remuneration R4 000)] = R1 000 [0.5 x (R4 528 R4 000)] = R Final ETI amount for the month of April, the ETI amount will not be pro-rated (grossed-down) as the employed and remunerated hours are 160 or more. 1.4 Roll-Over and Reimbursement Before March 2017 if the employer was tax compliant, the ETI due to the employer (after the 6 month cycle) would have been reimbursed at some stage during the next 6 month cycle. An ETI refund would only be paid if an employer was tax compliant. This means that all tax returns must have been submitted and there should have been no outstanding tax debt when the employer s reconciliation documents (EMP501 and IRP5/IT3(a)s) were received and processed by SARS. If the employer was not tax compliant, the excess amount would have been reimbursed when the employer became tax compliant. If the employer failed to be tax compliant within the next six months, the excess amount would have been permanently lost. From 2017 onwards this is still applicable. From March 2017 if the employer does not claim the ETI amount they are entitled to within the 6 month cycle (for example they forgot to or any other case), then the ETI will be nil (0.00) after the 6 month cycle and the employer will not receive ETI as a refund and cannot back-date the ETI claims if the 6 month cycle has elapsed. This is only applicable when the employer did not claim the ETI amount they are entitled to. If the employer does not claim the ETI amount due to the fact that the ETI amount exceeds the employees tax due for the month or due to the fact that the employer is not tax compliant, then the ETI brought forward amount will still be 0.00 in the months following the 6 month cycle (March and September) but the employer will still be eligible to claim the excess ETI amount as a refund after the 6 month cycle (only if the employer is compliant). It is our understanding that this is what is implied with the amendments in the legislation. We are in the process of confirming whether our interpretation is in line with SARS s. Income Tax and ETI Amendments 2017/2018 Page 12 of 17

13 2 Tax Changes 2.1 Background The Taxation Laws Amendment Act, 2016 and the Tax Administration Amendment Act, 2016 were promulgated on 19 January 2017 in Government Gazette and It contains the following changes as of March 2017, except where mentioned otherwise. 2.2 Payroll Changes Remuneration Proxy Currently the remuneration proxy is used in 3 areas of employment tax: The tax exemption rules for bursaries granted to a relative of an employee by an employer. The acquisition of immovable property. The residential accommodation fringe benefit value. Before March 2017 remuneration proxy was defined as Fourth Schedule remuneration but excluding the residential accommodation fringe benefit value. Change: From March 2017, remuneration proxy will be remuneration defined in paragraph 1 of the Fourth Schedule and will only exclude the residential accommodation fringe benefit value when calculating the residential accommodation fringe benefit. Remuneration proxy will include the residential accommodation fringe benefit value when calculating - the tax exemption for bursaries granted to a relative of an employee by an employer and the acquisition of immovable property Employer Provided Bursaries A scholarship or bursary granted by the employer (or associated institution in relation to the employer) to a relative of an employee was subject to the following conditions: The scholarship or bursary was not exempt if the remuneration proxy exceeded R If the remuneration proxy did not exceed R , then the first R of a scholarship or bursary in respect of grade R to grade twelve or a qualification to which an NQF level from 1 up to and including 4 has been allocated was exempt from normal tax. Change: If the remuneration proxy did not exceed R , then the first R of a scholarship or bursary in respect of a qualification to which an NQF level from 5 up to and including 10 has been allocated was exempt from normal tax. Backdated to March 2016, the exemption thresholds for bursaries granted by the employer (or associated institution in relation to the employer) to a relative of an employee have increased to the following amounts: The scholarship or bursary is not exempt if the remuneration proxy exceeds R Income Tax and ETI Amendments 2017/2018 Page 13 of 17

14 If the remuneration proxy does not exceed R , then the first R of a scholarship or bursary in respect of grade R to grade twelve or a qualification to which an NQF level from 1 up to and including 4 has been allocated is exempt from normal tax. If the remuneration proxy does not exceed R , then the first R of a scholarship or bursary in respect of a qualification to which an NQF level from 5 up to and including 10 has been allocated is exempt from normal tax. The new thresholds must be backdated to March Directors Deemed Remuneration Before March 2017 directors of private companies (and members of closed corporations) were taxed on the greater of actual or deemed remuneration. Deemed remuneration was calculated as the - previous year s remuneration, or if not available - the year prior to the previous year s remuneration plus 20%, or if not available - Change: an amount acquired by applying for a SARS directive. From March 2017, deemed remuneration will be repealed and directors of private companies (and members of closed corporations) will only be taxed on their actual remuneration RFI Definition Currently employer contributions towards a defined benefit or hybrid fund on behalf of the employee results in a fringe benefit amount calculated using the formula: X = (A X B) C, where- o o o A is the fund member category factor (indicated on the Contribution Certificate) B is the employee s RFI amount, and C is total employee contribution amount (excluding voluntary/additional and buyback/arrears contributions). Before March 2017 RFI (retirement funding income) referred to remuneration as defined in the Fourth Schedule (which included only the taxable % of a travel allowance, company car and a public office allowance) on which the employer contribution towards the pension/provident fund was based on. Therefore RFI only included the 20%/80% or 100% of a travel allowance or company car and 50% of a public office allowance. Remuneration can be different from employee to employee, depending on the taxable % of travel allowance which resulted in a situation where two members of the same fund (defined benefit or hybrid) with the same contribution values had a different RFI value and therefore a different fringe benefit value. Changes: From March 2017, RFI will be defined as income (taxable earnings + taxable perks + taxable company contributions), however it will include the full value of a travel allowance, company car and a public office Income Tax and ETI Amendments 2017/2018 Page 14 of 17

15 allowance on which the employer or pension fund or provident fund contribution towards the pension/provident fund is based on. To clarify the new proposed legislation: RFI will include 100% of a travel allowance or use of a motor vehicle perk and 100% of a public office allowance and not only the taxable value anymore. To ensure RFI is calculated when the fund itself contributes the retirement fund contribution on behalf of the members/employees to the fund. This means there will also be a fringe benefit amount even though it is the fund that actually contributes. Example of RFI before and from March 2017: Description Example: Pension CC is based on Salary and Travel (80% taxable) Total earnings of employee RFI (before March 2017) RFI (from March 2017) Salary R R R Travel (80% taxable) R2 000 R1 600 R2 000 Bonus R Total R R R Reimbursive Travel Allowance From March 2017 the simplified method for business kilometres travelled in the application of section 8(1)(b)(ii) of the Income Tax Act is as follows: Report the reimbursive travel allowance on the tax certificate against code 3703 if: the rate of reimbursement is less than the prescribed rate, and less than business kilometres (previously business kilometres) are reimbursed in the tax year, and no travel allowance is paid in addition to the reimbursed amount. Report the reimbursive travel allowance on the tax certificate against code 3702 if: the rate of reimbursement exceeds the prescribed rate, or more than business kilometres (previously business kilometres) are reimbursed in the tax year, or a travel allowance is paid in addition to the reimbursed amount Certain Dividends Included in Remuneration From March 2017, the definition of remuneration is expanded to include certain dividends from restricted equity instruments (section 8C shares). PAYE should be deducted from dividends as specified in paragraph (dd), (ii) and (jj) of the proviso of section 10(1)(k)(i). Currently it is unclear if the employer should also apply for a directive, but we assume the PAYE amount will be acquired by applying for a directive, the same manner in which the employer should currently apply for a section 8C share amount when vesting and/or on any return of capital. We will, however, communicate the information once we have final confirmation. There is also a possibility that SARS will create a new IRP5 code/s for these dividends. Once SARS has released the new PAYE Business Requirement Specifications document, we will be able to confirm this. Income Tax and ETI Amendments 2017/2018 Page 15 of 17

16 Please note that this amount will be included in the SDL, UIF, ETI remuneration and remuneration for the purpose of calculating the tax benefit for contributions towards retirement funds. We advise employers to consult their auditor or a tax consultant to confirm whether the dividends from restricted equity instruments are exempt or included in remuneration Value of B in the Residential Accommodation Fringe Benefit Calculation Please note that the value of B for the purpose of calculating the fringe benefit value for free or cheap residential accommodation was not mentioned in the 2017 budget speech. However, R is the new tax threshold and is usually the value of B in the calculation. Note that this value has not yet been promulgated. 2.3 Other Changes Not Affecting Payroll Directly Partner of a Partnership From 19 January 2017, for the purpose of the Seventh Schedule (fringe benefits), a partner in a partnership must be deemed to be an employee of the partnership Disallowing the tax exemption for Local Fund Lump Sums and Annuities Before March 2017 the Act made provision to exempt receipts of retirement benefit amounts that accrued to the employee during a period of employment outside South Africa, irrespective of where the fund was registered, even though the employee was eligible to receive a tax deduction on contributions made to a South African retirement fund. Change From March 2017 retirement benefits received by South African residents (relating to employment outside South Africa) are only exempt from tax if it is paid by a foreign retirement fund. This will apply to retirement funds other than a pension fund, pension preservation fund, provident fund, provident preservation fund and/or retirement annuity as defined in section 1 of the Income Tax Act Learnership Tax Incentive From October 2016, the incentive is extended to registered learnership agreement entered into before 1 April To encourage training from NQF level 1 to NQF level 6 (grade 9 to an advance certificate/national diploma) the annual allowance changed accordingly: Learner Category NQF Level Previous Annual Allowance New Annual Allowance Without disability NQF 1-6 R R NQF 7-10 R R With Disability NQF 1-6 R R NQF 7-10 R R Income Tax and ETI Amendments 2017/2018 Page 16 of 17

17 3 References Employment Tax Incentive Act, Taxation Laws Amendment Act, Explanatory Memorandum on the Taxation Laws Amendment Bill of SARS Non-Binding Private Opinion dated 9 February PAGSA News Flash Income Tax and ETI Amendments 2017/2018 Page 17 of 17