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Revised Disaster Management Tax Relief Bill and draft Disaster Management Tax Administration Relief Bill published on 1 May 2020

The South African Ministry of Finance published the revised draft Disaster Management Tax Relief Bill and draft Disaster Management Tax Administration Relief Bill on 1 May.

To view the Draft Bills, click on the link below:

https://www.sars.gov.za/Legal/Preparation-of-Legislation/Pages/Draft-Documents-for-Public-Comment.aspx

These revised Draft Bills contain the information i.r.o the further proposed tax relief measures as announced by the President.

Although not promulgated yet, these Draft Bills provide the necessary legislative amendments required to implement the Covid-19 tax relief measures.

Below is a summary of the changes that will affect employers and employees.

Take note: The software changes to accommodate the changes will be communicated once clarity has been received on issues mentioned below, and the product delivery teams are currently investigation and planning the next release due later in May 2020

ETI

Monthly Remuneration

If an employee was employed and remunerated for less than 160 hours in a month, no remuneration gross-up should be done to 160 hours and the actual remuneration should be used in all cases (irrespective of amount of employed and remunerated hours).

Please note that the ETI amount must still be pro-rated (see notes at “ETI Table” below) .

Effective date: 1 May 2020 – 31 July 2020

Only applicable for employers who are registered for employee’s tax on or before 1 March 2020.

 Example for qualifying employee:

 

 

Before May 2020 (and after July 2020)

From 1 May 2020 – 31 July 2020

Actual remuneration for the month

R2600

R2600

Employed and remunerated hours for the month

130

130

Monthly remuneration used to calculate the ETI amount

R3200 (R2600 / 130 x 160) – gross up required since employed and remunerated hours are less than 160

R2600 (no gross up required for this period)

Minimum Wage Test

The R2000 wage for a full month (i.e. at least 160 employed and remunerated hours) will not apply.

Effective date: 1 April 2020 – 31 July 2020

Only applicable for employers who are registered for employee’s tax on or before 1 March 2020. 

Minimum wage test before April and after July

Minimum wage test from 1 April – 31 July

  • The higher of-
  • the minimum rate per hour as specified by the wage regulating measure, or
  • the minimum rate per hour as specified in the National Minimum Wage Act.
  • If none of the above is applicable (i.e. no wage regulating measure or the employer is exempt from the National Minimum Wage Act) then the R2000 rule must be applied.
  • The higher of-
  • the minimum rate per hour as specified by the wage regulating measure, or
  • the minimum rate per hour as specified in the National Minimum Wage Act.

 

Notes: We have requested clarification on the following:

  • If there is no bargaining council and the employer is exempt from the NMWA, should the employer automatically compare the wages paid to the minimum wages in the National Minimum Wage Act (NMWA) in order for the employee to receive at least the minimum wage i.r.o ETI? Therefore, even though the employer is exempt from the National Minimum Wage Act, if the wages paid are less than the rates in the NMWA, the employee does not qualify? OR
  • If there is no bargaining council and the employer is exempt from the NMWA, does the employee automatically qualify irrespective of what wage amount is paid since there is no minimum wage to test against?

Qualifying Employee

The ‘date of engagement test’ (i.e. employed by employer or associated person on or after 1 October 2013) will be extended by adding:

“if that employee is not less than 18 years old and not more than 29 years old at the end of any month in respect of which the employment tax incentive is claimed, if the incentive has been claimed uninterrupted prior to 1 April 2020 in respect of that employee”.

Effective date: 1 April 2020 – 31 July 2020

Only applicable for employers who are registered for employee’s tax on or before 1 March 2020.

Notes: It is unclear what the intention of this proposed amendment is and clarification must be provided in this regard, for example:

  • The date of engagement test must not be applied for the extended age group of 30 – 65 years old, or
  • The date of engagement test must be applied unchanged for employees aged 18 – 29 years old who are still within the 24 months period.
  • It is also not clear what is meant with “uninterrupted”

ETI Table (changes indicated in orange)

Effective date: 1 April 2020 – 31 July 2020

Only applicable for employers who are registered for employee’s tax on or before 1 March 2020. 

Monthly remuneration

First 12 months

Next 12 months

Months exceeding 24 months/30–65 years of age

Apply to:

 

Qualifying employees aged 18 to 29 years old or who qualify according to the SEZ criteria.

Qualifying employees aged 18 to 29 years old or who qualify according to the SEZ criteria.

Qualifying employees aged 18 to 29 years old or who qualify according to the SEZ criteria who have already qualified for 24 months, or

qualifying employees aged 30 to 65 years old.

This column is only valid from 1 April 2020 – 31 July 2020

R0 – R1 999.99

R750 + (50% of monthly remuneration)

R750 + (25% of monthly remuneration)

R750

R2 000 – R4 499.99

R1 750

R1 250

R4 500 – R6 499.99

Formula: R1 750 - (87.5% x (monthly remuneration – R4 500))

Formula: R1 250 - (62.5% x (monthly remuneration – R4 500))

Formula: R750 - (37.5% x (monthly remuneration – R4 500))

Notes:

  • April:
    • Gross-up remuneration if employed and remunerated hours are less than 160.
    • ETI amounts for column 1 and 2 (first 24 months) must be pro-rated if employed and remunerated hours are less than 160.
  • May/June/July:
    • Do not Gross-up remuneration if employed and remunerated hours are less than 160.
    • ETI amounts for column 1 and 2 (first 24 months) must be pro-rated if employed and remunerated hours are less than 160.
  • The amounts calculated in column 3 (more than 24 months/30-65 years old) should not be pro-rated if the employed and remunerated hours are less than 160 (we have again requested if this is the intention).
  • Currently (if a qualifying employee passes the minimum wage test) and the remuneration value is 0.00 (due to other negative remuneration values), then it is possible that ETI will calculate in the first bracket of R0 – R1999.99. We have requested clarification whether this is the intention.
  • Important note:
    • There have been a few question from employers who want to apply the increased ETI values in April 2020 as set out in the above information.
    • Due to the release of the draft Bills on 1 May 2020 and the changes and issues requiring clarity from the statutory entities, delivery of statutory compliant software to accommodate the changes will only be later in May 2020.
    • Further information i.r.o the backdating of April will be provided. The additional amounts for April may be claimed on any EMP201 in this 6-month reconciliation period, i.e. May – August.
    • All information will be published on Sage City, and will be included with the update software later in May 2020.

 

PAYE

Employee Donations to the ‘Solidarity Fund’

According to the Fourth Schedule to the ITA, a bona fide donation made by the employer on behalf of the employee for which the employer will be issued a receipt as contemplated in section 18A(2)(a) will be allowed as a tax deduction, limited to 5% of balance of remuneration before taking into account the tax deduction of donations. 

To alleviate the cashflow difficulties of employees where their employers contribute to the Solidarity Fund on their behalf (for which they will be issued an receipt as contemplated in section 18A(2)(a) of the ITA), Government is proposing a special relief measure by temporarily increasing the current 5% tax limit.

An additional limit will be available (depending on the employee’s circumstances), namely –

  • A maximum limit of 33.3% of that remuneration per month for three months from 1 April to 31 July, or
  • A maximum limit of 16.66% of that remuneration per month for six months from 1 April to 31 September

“Solidarity Fund” means the Solidarity Response Fund, registered with the Companies and Intellectual Property Commission as a non-profit company under registration number 2020/179561/08;

This is only applicable to contributions to the Solidarity Fund – this will be reported against the new IRP5 code 4055.

Any other donation is still limited to 5% - this will be reported against IRP5 code 4030 (it must be clarified in the BRS whether a donation to the Solidarity Fund for which a portion of this 5% tax deduction was claimed, must also be reflected against code 4030).

Notes:

  • Currently the details of the exact calculation is unclear and clarity must be provided in this regard.
  • It is unclear whether a cumulative calculation will be allowed or whether a monthly calculation must be applied.
  • Once we have clarification/confirmation, it will be communicated.

Deferral of payment of PAYE for qualifying employers

A  qualifying employer that is a tax resident (or representative) that is registered for employee’s tax by 1 March 2020, will be allowed to pay only 65% of the employee’s tax withheld/deducted without SARS imposing penalties and interest for the late payment thereof. Therefore, the PAYE payable can be reduced by 35% and only 65% will be payable.

Effective date: 1 April 2020 – 31 July 2020

The remaining 35% must be paid to SARS in 6 equal monthly instalments commencing on 7 September 2020 and ending on 5 February 2021. If these payments are not made before the deadline, SARS will impose penalties and interest.

The employer must still declare the full PAYE liability as calculated by the system. SARS will impose penalties if they discover that the employer has understated the PAYE liability for any of the 4 months of f the employer does not qualify for this relief.

“Qualifying employer” is a company, partnership, individual or trust –

  • that is a taxpayer as defined in section 151 of the Tax Administration Act that conducts trade,
  • that has a gross income of R100 million or less during the year of assessment ending on or after 1 April 2020 but before 1 April 2021.
  • whose gross income for the year of assessment does not include more than 20% in aggregate of interest, dividends, foreign dividends, royalties, rental from letting fixed property, annuities and any remuneration received from an employer, and
  • that is tax compliant as referred to in section 256(3) of the Tax Administration Act when relying on a deferral under this Act, provided that
    • the gross income of a partnership for this purpose is the aggregate of the partner’s gross income from the partnership, and
    • the 3rd bullet above must be read without the reference to rental from letting fixed property, if the primary trading activity of the company, trust, partnership or individual is the letting of fixed properties and substantially the whole of the gross income is rental from fixed property.

Please refer to the SARS FAQ for information on the administrative requirements i.r.o the deferred PAYE.

Amounts received/accrued from Covid-19 disaster relief organisation excluded from remuneration.

Any amount paid by a Covid-19 disaster relief organisation on behalf of an employer is excluded from remuneration and therefore not subject to PAYE, UIF, SDL etc, but will be subject to income tax on assessment. 

“COVID-19 disaster relief organisation” means any non-profit company as defined in section 1 of the Companies Act, 2008, any trust, or any association of persons that has been incorporated, formed or established in the Republic that carries on activities for the purposes of disaster relief in respect of the COVID-19 pandemic, declared a national disaster on 15 March 2020 by the Minister of Cooperative Governance and Traditional Affairs under section 27(1) of the Disaster Management Act, 2002. 

Effective date: Applies in respect of any amount received from a Covid-19 disaster relief organisation from 1 April 2020 – 31 July 2020 

Notes: Currently it is unclear which IRP5 code should be used to report this and further clarity must be provided by SARS. Until we get clarification, you can use IRP5 code 3602 (excluded from PAYE, UIF, SDL etc.)

 

SDL

SDL contribution holiday

Employers who are registered for SLD will be exempt from the SDL liability and payment of the SDL contribution.

Effective date: 1 May 2020 – 31 August 2020

According to the SARS FAQ, the SDL liability amount will automatically default to 0.00 on the EMP201 return for the 4-month period.