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South Africa: Amendments to Proposed Tax Relief Measures (published 19/05/2020)

National Treasury and SARS published a second draft Disaster Management Tax Relief Bill on 19 May 2020.

This revised draft Bill contains the information i.r.o the further proposed tax relief measures as announced by the President .

To view the responded documents click on the link below:

https://www.sars.gov.za/Legal/Preparation-of-Legislation/Pages/Response-Documents.aspx 

Although not promulgated yet, this draft Bill provides the necessary legislative amendments required to implement the Covid-19 tax relief measures.

This article only explains the compliance changes, and is currently with our Product Development teams to implement the latest changes (which differs from the Revised Disaster Management Tax Relief Bill and draft Disaster Management Tax Administration Relief Bill published on 1 May 2020)

Changes to the previous draft bill are highlighted in red.

ETI

Please note that all the ETI changes are only applicable for employers registered for PAYE on/before 1 March 2020. Therefore, employers who registered after 1 March 2020 can claim normal ETI according to the normal ETI rules but not additional ETI as per the new rules below.

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), therefore it is vital that all employed and remunerated hours are correctly processed/indicated (ordinary/contractual, unpaid and additional hours) for all employees to ensure the correct ETI calculation is applied.

Effective date: 1 May 2020 – 31 July 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 for a 3-month period.

Effective date: 1 May 2020 – 31 July 2020  (not April anymore as previously communicated) 

Minimum wage test before May and after July

Minimum wage test from 1 May – 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 bargaining council or the employer is exempt from the National Minimum Wage Act) then the R2000 rule must be applied.
  • May not be less than-
  • 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:

  • The wording ‘higher of’ has been removed. This will not have an impact on the system since the ‘higher of’ check is not done by the system and it is the user’s responsibility to process the correct minimum wage rate per hour to apply the correct minimum wage hourly comparison.
  • If the R2000 minimum wage rule applies for an employee, the employee will not qualify for ETI unless the user defines the national minimum wage or wage regulating measure rate per hour. If the user makes no change (i.e. do not change to a rate per hour comparison and the R2000 rule settings are left unchanged) then no ETI will calculate.

 

Qualifying Employee

The ‘date of employment’ qualifying criteria of ‘employed on/after 1 October 2013 by the employer or associated person’ has been removed.

Therefore the following groups of employees will qualify for additional ETI.

Columns 1 and 2 (see ETI table below):

  1. Qualifying employee aged 18 to 29 years old on the last day of the calendar month who was employed on or after 1 October 2013 .
  2. Qualifying employee who qualifies according to the SEZ criteria, irrespective of date employed.

Column 3 (see ETI table below):

  1. Qualifying employee aged 18 to 29 years old on the last day of the calendar month who was employed on or after 1 October 2013 who has already qualified 24 times.
  2. Qualifying employee who qualifies according to the SEZ criteria (irrespective of date of employment) who has already qualified 24 times.
  3. Qualifying employee aged 18 to 29 years old on the last day of the calendar month who was employed before 1 October 2013.
  4. Qualifying employee aged 30 to 65 years old on the last day of the calendar month (irrespective of date of employment).

Please see ‘ETI table’ for more information.

Effective date: 1 April 2020 – 31 July 2020

Notes: We have asked the PAGSA to confirm whether our interpretation of the ‘date engaged’ amendment is correct.

 

ETI Table

Effective date: 1 April 2020 – 31 July 2020 

Monthly remuneration

First 12 months

Next 12 months

Months exceeding 24 months/employed before 1 October 2013/ 30–65 years of age

Apply to:

 

-Qualifying employees aged 18 to 29 years old employed on/after 1 October 2013, or

-qualifying employees who qualify according to the SEZ criteria, irrespective of date engaged

-Qualifying employees aged 18 to 29 years old employed on/after 1 October 2013, or

-qualifying employees who qualify according to the SEZ criteria, irrespective of date engaged

-Qualifying employee aged 18 to 29 years old who was employed on/after 1 October 2013 and has already qualified 24 months, or

-or qualifying employee who qualifies according to the SEZ criteria, irrespective of date engaged, who has already qualified for 24 months, or

-qualifying employee aged 18 to 29 years old who was employed before 1 October 2013, or

-qualifying employees aged 30 to 65 years old, irrespective of date engaged.

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

R0 – R1 999.99

87.5% of monthly remuneration

62.5% of monthly remuneration

37.5% of monthly remuneration

R2 000 – R4 499.99

R1 750

R1 250

  R750

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, 2 and 3 must be pro-rated if employed and remunerated hours are less than 160 (previously column 3 should not have been pro-rated, which means employers might have over claimed).
  • May/June/July:
    • No Gross-up of remuneration if employed and remunerated hours are less than 160.
    • ETI amounts for column 1, 2 and 3 must be pro-rated if employed and remunerated hours are less than 160. Therefore it is vital that the ‘employed and remunerated hours’ (ordinary/contractual, unpaid and additional hours) must be captured/indicated in the system for all employees (including employees who qualify according to the 3rd column).
  • Further information i.r.o 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. It is possible that the new ETI amounts for April may be less than what was originally claimed (due to the change in the table and the fact that the 3rd column must be pro-rated). In this case the employer must restate the EMP201 for April and pay the difference to SARS.
  • Please note that we have asked the PAGSA to confirm whether our interpretation of the ‘date engaged’ amendment is correct (as mentioned above).

 

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 June, 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: The PAGSA confirmed the following with SARS:

 

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.

 Notes: 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

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