South African Reward Association. Tax Update Budget 2018/19

Transcription

1 South African Reward Association Tax Update Budget 2018/19

2 Events Tax and Cost to Company Workshop What happens after package determined (art vs. science) 14 & 15 August Johannesburg

3 Tax Morality

4 National Health Insurance No Budget Announcement

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6 Retirement Reform & Social Security Promulgated 01 March 2019 (3 rd time) Thorny issue of compulsory preservation

7 Who Pays?

8 Tax Tables

9 Higher Tax Due to Incorrect Inflationary Adjustment (Inflation 5,3%)

10 Assumed Total Kilometers 20,000 and Business Kilometers 15,000 Travel Allowance Claim Adjustment

11 Medical Aid Credits Over the next three years, below-inflation increases in medical tax credits will help government to fund the rollout of national health insurance. The medical tax credit will be reviewed after the Davis Tax Committee presents its recommendations.

12 Example (Shared)

13 Employee Personal Inflation Increase 15% (01 April 2018) VAT exemptions removed and increase ad valorem duty (01 April 2018). There 19 zero-rated food items (include dried beans, samp, maize meal and rice) to be reduced. Fuel price

14 More Wealthy or Healthy, More VAT The 19 zero-rated food items are only meant to cover basic food items. As of 1 April 2018, government proposes to amend the VAT Act (1991) to reflect the original policy intent that only brown bread and whole wheat brown bread will be zero-rated. Products such as rye or low GI bread, which in South Africa are much more expensive and tend to be consumed by richer households, will not be zero-rated.

15 Ad Valorem Increase Effective 1 April 2018, the maximum ad valorem excise duty for motor vehicles will be increased from 25 per cent to 30 per cent. The classification of cellular telephones will be updated to include smart phones to ensure they attract ad valorem excise duties. In addition, the ad valorem excise duty rates, now at 5 per cent and 7 per cent, will be increased to 7 per cent and 9 per cent, ensuring that households spending more on luxury goods contribute proportionately more to revenue Government will also consult on a proposal to replace the flat rate for cellphones with a progressive rate structure based on the value of the phone.

16 Fuel Price (04 April 2018) Employee Personal Inflation Increase

17 Standard Adjustments New Subsistence Table (01 March 2018). Incidental costs R128 per day Meals and Incidental R416 per day Updated per country list (highest appears Angola USD303 per day) Housing abatement increase from R to R (company owned housing). Official interest rate will be 7.75% (soon to increase)

18 Unchanged Retirement Withdrawal Rates Capital Gains 18% Retirement withdrawal rates (normal vs retrenchment / death)

19 Budget Specific Tax Amendments

20 Fruitless and Wasteful Expenditure To ensure proper governance of public entities and encourage accountability, government proposes that losses or expenditure classified as fruitless and wasteful will not qualify for a tax deduction.

21 Splitting Medical Credits The medical tax credit consists of two components: medical scheme fees for approved medical scheme contributions and additional medical expenses for out-of-pocket medical payments. Government is concerned that some taxpayers may be excessively benefiting from this rebate, specifically in instances where multiple taxpayers contribute toward the medical scheme or expenses of another person (for example, adult children jointly contributing to their elderly mother s medical scheme). Where taxpayers carry a share of the medical scheme, contribution or medical cost, it is proposed that the medical tax credit should also be apportioned between the various contributors.

22 Removing of fringe benefit for preferential interest rates to employees for housing In 2014, legislative changes were made to remove the fringe benefit that previously applied to employees with remuneration below R for the acquisition of low-cost housing with a value below R In line with government policy to promote the provision of housing, it is proposed that the relief from this fringe benefit tax be extended to loans at preferential interest rates, which are solely for housing use, made to employees who satisfy the same remuneration criteria for loans with a value of less than R Note Important Announcement for Employee Housing Scheme Low Interest Loans now allowed with no fringe benefit tax Craig Rocher s Savings Calculation = R592,223 (R450,000 10% 20 years)

23 South African Expatriates Working Abroad Tax treatment of contributions to retirement funds situated outside South Africa: The Income Tax Act currently exempts all retirement benefits from a foreign source for employment rendered outside of South Africa from taxation. The interaction of this exemption with double taxation agreements and other provisions of the Income Tax Act will be reviewed to ensure that the principle of allowing deductible contributions only incases where benefits are taxable isupheld. Note Important change impacting many South African expatriates working internationally. Must look at retirement fund implications.

24 South African Expatriates Working Abroad Align tax treatment of preservation funds upon emigration Upon formal emigration an individual is able to withdraw the full value of their retirement annuity, after paying the applicable taxes. Government will consider aligning the tax treatment of different types of retirement fund withdrawals in such circumstances. Note Risk and cost assessment for South Africans abroad (surprising how many non compliant!) Additional tax cost was main reason for postponing new law to 01 March Employer comments for not just expatriates, but even localised hires who are expatriates.

25 Fund Transfers It is proposed that transfers to pension preservation and provident preservation funds be catered for in the legislation. Rectifying tax anomalies on the transfer of retirement funds: The transfer of fund amounts between, or within, retirement funds at the same employer has inadvertently led to a tax liability for members, due to the current wording of the legislation. In principle, there should be no additional tax consequence for members if the transfers refer to amounts that have already been contributed to the retirement fund. Legislative amendments will be retrospectively introduced to correct these unintended tax liabilities.

26 Adjusting Official Rate of Interest The official rate of interest is the current repurchase rate plus 100 basis points (7.75 per cent). This rate is used to quantify the fringe benefit of low interest rate loans provided by employers and the amount of a donation for low interest loans to trusts by connected persons. Given that interest rates lower than prime are now uncommon, it is proposed that the official rate be increased to a level closer to the prime rate of interest. This would allow the benefit of lower rates to be measured with reference to a rate that approximates the rate offered by commercial banks to low-risk clients.) Who is still doing this? National Credit Regulator (NCR) compliance barrier.

27 Important New Developments Past Year

28 UIF No longer tax exempt 01 March employees under a contract of employment contemplated in section 18 (2) of the Skills Development Act, 1998 (Act 97 of 1998), and their employers (Learnership exemption) an employee and his or her employer, where that employee has entered the Republic for the purpose of carrying out a contract of service, apprenticeship or learnership within the Republic if upon the termination thereof the employer is required by law or by the contract of service, apprenticeship or learnership, as the case may be, or by any other agreement or undertaking, to repatriate that person, or if that person is so required to leave the Republic (Expatriate exemption) Note Registration for expatriates Many employers get learnership claims incorrect

29 ETI Binding General Ruling 44, 13 October 2017, Meaning of 160 hours for purposes of section 4(1)(b). Binding General Ruling 47, 05 March 2018, Meaning of monthly remuneration for employers remunerating employees on a weekly or fortnightly basis.

30 Subsistence Ruling 291 (24 January 2018)

31 Relocation Costs BPR 186 Settling-in Allowance, 22 November 2017 (confirms once-off repealed) Exempt Bond registration and legal fees paid in respect of a new residence that has been purchased; Transfer duty paid in respect of the new residence; Cancellation fees paid for bond cancellation on previous residence; and Agent s commission paid on sale of previous residence New school uniforms; Replacement of curtains; Motor vehicle registration fees; and Telephone, water and electricity connection. Now taxable (no more allowances) Payments to reimburse the employee for loss on the sale of a previous residence during transfer; and Architect s fees for the design or alteration of a new residence.

32 Approved Section 18A PBO s PBO%27s.aspx 18,995 entities

33 2019 IRP5 Codes on Important Items The following codes must be applied for 2018/19 (August 2018 and February 2019) submissions New Codes The new exemption thresholds for bursaries or scholarships provided by employers to assist disabled persons One new code to report the dividend category which is defined to be remuneration In respect of travel reimbursements, the reporting rules for two of the existing codes have been changed, and a new code has been added.

34 Bursary Codes Normal Bursaries Exempt Basic Education: 3815 Exempt Further Education: 3821

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36 QUALIFICATION DESCRIPTION BURSARY TAX LIMIT PER CHILD PER ANNUM School Grade R - Grade 12 R20 000,00 NQF 1 General Certificate R20 000,00 NQF 2 Elementary Certificate R20 000,00 NQF 3 Intermediate Certificate R20 000,00 NQF 4 National Certificate R20 000,00 NQF 5 Higher Certificate R20 000,00 NQF 6 Diploma/Advanced Certificate R20 000,00 NQF 7 Bachelor's Degree/Advanced Diploma R60 000,00 NQF 8 Bachelor Honours Degree/ Postgraduate Diploma R60 000,00 NQF 9 Master's Degree R60 000,00 NQF 10 Doctoral Degree (Professional) R60 000,00

37 Example #1

38 Example #2

39 Rem Guys Always Do The Calculation

40 Dividends As Normal Remuneration Effective from 1 March 2017, amendments were made to the Income Tax Act to introduce anti avoidance measures dealing with schemes where restricted shares in terms of section 8C are allocated to employees through employee share based incentive schemes. As a remedy, the 1 March 2017 amendments added three categories of dividends that are Employment related to the definition of remuneration, and a fourth category has now been added as paragraph (g)(iv) to the definition of remuneration from 1 March The new dividend category must be reported on a tax certificate as Code Employers must apply for directives (application form (IRP3(s)) that specify the PAYE that must be withheld from dividends that are not exempt (paragraph (dd), (ii), (jj) and (kk) of the proviso of section 10(1)(k)(i)) Payroll Authors Group

41 Employee Travel Reimbursement Subject to PAYE Employees tax and reimbursement of travel expenses To facilitate and simplify the calculation and administration of employees tax, it is proposed that only the portion of the travel expenses reimbursed by an employer that exceeds the rate or distance fixed by the Minister of Finance by notice in the Gazette in terms of the current law should be regarded as remuneration for purposes of determining employees tax. Code 3703 still applicable but for all travel Everyone should keep a logbook (?) No more up to 12,000km tax free reimbursement Below limit everything is exempt, but no travel allowance and must be below limit

42 Example

43 Employee Travel Reimbursement Subject to PAYE No code 3701 (travel allowance / fuel card) and 3703 allowed Should normal employees have travel allowance? Only reimbursement = tax free Allowance = can claim against cost of vehicle Calculate! Company vehicle remains mathematically best option for above 60% - 65% business travel. No brainer where above 80% business?

44 NED Fees PAYE and VAT Binding General Ruling (Issue 2) on VAT for Non- Executive Directors Are allowed to work through company (SCA case) Financial statements VAT and PAYE FAQ on BGR 40 & 41 (19 August 2017) Consider information note

45 R350,000 limit (not increased) Commentary in the TLAB 1017 The proposed spreading of the R350,000 annual cap on retirement fund contributions for PAYE purposes means that a person who exceeds the R29,167 monthly cap in a single month but not in others will not be able to benefit from unused amounts in the other months. R remains unchanged R29, per monthly maximum

46 Example

47 Important Items Coming Year

48 Tax Court Cases Coming Year Employee Gifts (wedding, birthdays, conference bags, secretary days) Tax return professional fees and expatriate tax calculations fringe benefit tax (KPMG)

49 Voluntary vs Involuntary Retrenchment Have you terminated any employees 2017/18 due to operational requirements. What is voluntary (full tax) vs. involuntary retrenchment (R500,000 exemption table)? Remains uncertain SARS considering policy. IT13726 (Port Elizabeth Tax Court) Judge Elna Revelas (retrenchment or dismissal)

50 Expatriates are not happy Amending foreign employment income-tax exemption in respect of South African residents 183-and-60 day rule saved 01 March 2020 only 1 st R1m exempt Then normal tax and tax credits (where applicable) Fringe benefits & Allowances not exempt Currency differences no tax relief financial emigration clear way to break tax residency

51 Thank You