Budget 2017: Tax changes affecting payroll

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As from next month, certain changes to the Taxation Laws Amendment Act, 2016 as well as the Tax Administration Laws Amendment Act, 2016 which was promulgated on 19 January 2017, will come into effect.

Following yesterday’s Budget Speech, accounting and business management software company Sage summarised some of the most important changes affecting payroll:

As from March, remuneration proxy will be remuneration defined in paragraph 1 of the Fourth Schedule of the Income Tax Act, 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 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 R400 000 (changed from R250 000).

• If the remuneration proxy does not exceed R400 000 (changed from R250 000), then the first R15 000 (changed from R10 000) 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 R400 000 (changed from R250 000), then the first R40 000 (changed from R30 000) 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 2016.

Also from March, director’s deemed remuneration will be repealed and directors of private companies (and members of closed corporations) will only be taxed on their actual remuneration.

Retirement Funding Income (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 fringe benefit and a public office allowance on which the employer or pension fund or provident fund contribution towards the pension/provident fund is based on. To clarify the amended legislation:

• RFI will include 100% of a travel allowance or use of a motor vehicle fringe benefit, and 100% of a public office allowance and not only the taxable value anymore.

• To ensure RFI is calculated (if applicable), when the fund itself contributes 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.

Retirement benefits received by South African residents are only exempt from tax as from March, 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.

Employment Tax Incentive (ETI) are extended for another two years, ending on 28 February 2019. The wording of the Act was changed from ‘employed’ to ‘employed and remunerated’ and therefore clarified which hours should be used to determine the:

• monthly remuneration;

• the gross-up of the wage if no wage regulating measure is applicable and;

• the calculation of the ETI amount. The hours to be used in the three calculations as mentioned above, will be all employed hours (ordinary hours), including additional hours (such as overtime, hours worked on a Sunday or Public Holiday), but excluding any unpaid hours (such as unpaid leave, no-work-no pay hours etc.).

For more information click here (Tax and ETI Amendments 2017/2018 ) and here (amendments and tax tables).