A few important amendments have been made to the Taxation Laws Amendment Act, 2021 and the Tax Administration Laws Amendment Act, 2021 that affect both employers and employees. Changes were also made to the Basic Conditions of Employment Act (BCEA) earning threshold and the National Minimum Wage rates.
Here are the amendments, effective from 1 March 2022 unless mentioned otherwise, that might affect you:
PAYE withholding from annuities/pension
As it stands, if a taxpayer is entitled to a monthly annuity from a pension fund, it is taxable in the hands of the taxpayer and is subject to a PAYE withholding by the fund.
Should the taxpayer have another source of income, for example, a salary, that income is added to the annuity amount to calculate the final tax liability on assessment. Usually, the taxpayer’s tax liability exceeds the PAYE withholding, resulting in an additional tax liability on an assessment that could cause cash flow problems for the taxpayer.
To alleviate this burden, the Income Tax Act was amended to allow SARS to give the fund/insurer a fixed rate to determine the amount of PAYE to withhold for those taxpayers who receive other remuneration in addition to an annuity. An employer doesn’t apply for a directive – it is automatically applied by SARS using the latest data at its disposal. This rate is applicable for the entire tax year unless the taxpayer’s circumstances change.
A pensioner may request that additional PAYE or the original PAYE rate still be withheld, in which case the employer may comply.
* This applies to payrolls of funds or insurers (under the Insurance Act) which are used to pay annuities to pensioners – therefore, not employers in general.
Long service awards
Long service awards are a popular way for employers to show that they value the commitment and loyalty of their employees. Previously, these awards were only tax-exempt if they took the form of assets not exceeding the value of R5,000. Should the value exceed that, the excess becomes subject to PAYE.
“Long service” is defined as an initial uninterrupted period of service of 15 years and any ensuing unbroken period of service of at least 10 years. Employers often provide a range of benefits in exchange for long service, but if the award is not in the form of an asset, it does not qualify for the exemption.
To cater for a wider variety of extended service awards, these may now be received in the form of:
- cash, and/or
- the right to the use of an asset, and/or
- acquisition of an asset, and/or
- free or cheap services
All of the above will be exempt if the total value does not exceed R5,000.
Retirement fund fringe benefit – the risk component
If a retirement fund is a defined contribution fund, the value of the fringe benefit equals the amount contributed by the employer. If the fund contained a risk component, it was classified as a ‘defined benefit fund’, and the taxable fringe benefit value was calculated using a formula.
An anomaly arose when a retirement fund provided both a retirement benefit in relation to a ‘defined contribution component’ and a risk-benefit. To address this, from March 2022, these risk benefits will be classified as a ‘defined contribution component’
This means that retirement funds that provide defined contribution component retirement benefits and risk benefits can account for the fringe benefit based on the actual contribution. As a result, the value of the risk premiums under self-insured risk benefits will be calculated based on the actual contribution made by the employer.
Employers must confirm whether their type of fund will now be seen as a ‘defined contribution fund’ and make the necessary adjustments to the system (if applicable) because this will affect the fringe benefit calculation.
ETI: Changes to employee definition and qualifying criteria
Previously, ‘employee’ was defined as a ‘natural person who works for another person and receives, or is entitled to receive, remuneration from that other person but does not include an independent contractor.
Now, it’s a natural person who:
- works for another person and who in any other manner assists in carrying on or conducting the business of that other person,
- receives, or is entitled to receive, remuneration from that other person, and
- is documented in the records of that other person as envisaged in the record-keeping provisions in Section 31 of the BCEA but does not include an independent contractor.
From March, a further provision is added to qualify for ETI.
“Provided that the employee is not, in fulfilling the conditions of their employment contract during any month, mainly involved in the activity of studying, unless the employer and employee have entered into a learning programme as defined in Section 1 of the Skills Development Act, 1998 (Act No. 97 of 1998), and, in determining the time spent studying in proportion to the total time for which the employee is employed, the time must be based on actual hours spent studying and employed.’’
As such, from March 2022, an employee will be required to ‘work’ for an employer and should not mainly be involved in the activity of studying (unless it is a learnership agreement), and the employee must be documented in the employer’s records according to the provisions of the BCEA for the employer to claim ETI for that employee.
Changes not affecting the system
Not all changes affect the system. Here are those that don’t:
Learnership Tax Incentive
While initially set to end on 1 April 2022, the Minister of Finance extended it by two years. The end date is now set for April 2024.
Tax Certificates and Penalties
Previously, SARS could impose penalties on an employer if they under-deducted PAYE and, as a result, under-paid SARS due to understating fringe benefits on the tax certificates. SARS could also level penalties against an employer who did not reflect the benefit and the cash equivalent of the value thereof on the tax certificate. As of March, this double penalty is removed.
Penalty for non-submission of EMP501 declaration
If an employer fails to submit an EMP501 declaration, SARS may level penalties of a percentage of the employee’s tax for the period covered by the return. If SARS does not have the PAYE total, this penalty will be raised retrospectively upon submission of the reconciliation. As of 1 March 2022, SARS may raise an estimated penalty based on available data, which can be adjusted once the actual employee taxes have been submitted.
Other important tax amendments
Further notable amendments include the BCEA earning threshold increase from R211,569.30 per annum to R224,080.48 per annum.
The National Minimum Wage has also increased from:
- 69 to R23.19 per hour
- 69 to R23.19 per hour for farmworkers
- 09 to R23.19 per hour for domestic workers
- 93 to R12.75 per hour for workers employed on an expanded public works programme
New rates are indicated in Schedule 2 of the Government Gazette for workers who have concluded learnership agreements contemplated in Section 17 of the Skills Development Act.
This impacts the ETI because one of the requirements for an employee to qualify is that they must earn at least minimum wage.
March sees the enforcement of many a tax amendment, and keeping abreast of these changes add to payroll and compliance complexity. Having a cloud-based SaaS payroll and HR solution goes a long way in reducing complexity and mitigating non-compliance risks.