During the last three months of 2018 and into January 2019, South Africa introduced a number of legislative changes that will have a direct impact on how payroll is processed in the country.
President Cyril Ramaphosa signed three Bills into law in January 2019 alone. These comprised the:
- Taxation Laws Amendment Act, 2018 (Act No 23 of 2018) (2018 TLAA);
- Tax Administration Laws Amendment Act, 2018 (Act No 22 of 2018) (2018 TALAA);
- Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2018 (Act No. 21 of 2018) (2018 Rates Act).
These Acts give legislative effect to the tax proposals outlined by the then Minister of Finance Malusi Gigaba in his annual National Budget Speech, which was delivered on 21 February 2018.
TLAA 2018 changes
The main changes in the 2018 TLAA legislation that could affect payroll are outlined below:
Clarification of the tax treatment and obligations of funds managed by Bargaining Councils
The history of this amendment began in 2017 when changes were made to the Taxation Laws Amendment Act No.17 of 2017. The aim was to afford Bargaining Councils an opportunity to regularise their tax affairs and become compliant with the provisions of the Act.
The relief, which was referred to as “Bargaining Council tax relief”, covered Bargaining Councils that had not deducted tax from all payments made to their members between 1 March 2012 and 28 February 2017. The understanding was that moving forward, Bargaining Councils would not be afforded any legislative relief.
The 2018 TLAA, which is due to come into effect 1 March 2019, now confirms that employer contributions to funds administered by Bargaining Councils for the benefit of employees should constitute a taxable fringe benefit for staff members. This fringe benefit should also be subject to Pay as you Earn (PAYE) regulations, the sum of which should be withheld by employers. The value of the taxable fringe benefit equals the contribution made by the employer on behalf of the employee.
Addressing Medical Tax Credit anomalies
The Income Tax Act makes provision for a prescribed amount of monthly medical scheme contributions that qualify as a medical tax credit (Section 6A). The value of the medical tax credit gradually increases depending on the number of dependents covered under the plan.
Amendments have been made to the Act to allow taxpayers who pay towards the medical scheme contribution of dependants - such as children who are included in their parent’s medical expenses - tax credits for medical scheme fees based on their contributions to that scheme.
The amendment, which came into force as of 1 March 2018, means that tax credits will be based on the number of years of assessment that began on or after that date.
Removal of taxable benefits on low or interest-free loans granted to low-income employees for low-cost housing
In summary, it does not amount to a fringe benefit if an employee acquires a house from their employer at a discount in a situation where all of three of the following criteria are met:
- The market value of the property does not exceed R450, 000 (US$33,776);
- An employee’s remuneration does not exceed R250,000 (US$18,765);
- The employee is not connected to their employer.
These amendments are due to come into force on 1 March 2019.
Extension of the Employment Tax Incentive
The Employment Tax Incentive (ETI) scheme has been extended for another 10 years until 28 February 2029.
Other legislative changes
Other legislative changes that will affect payroll and require payroll software to be upgraded include:
- Rate update on interest-free/low interest loans
The income tax rates on interest-free or low interest loans was increased to 7.75% from 7.5%, a change that came into effect on 1 December 2018
- No-value provisions relating to transport services provided by employers
A draft interpretation note and draft binding general ruling was distributed for comment, with the final date for input set at mid-January. Both documents seek to remove any uncertainties around the taxability of transport services provided by an employer for the benefit of their employees.
The issue centres on the fact that employers can choose to provide employees with a transportation service from their homes to their place of employment. These transport services amount to a taxable benefit for staff, but this benefit may be of “no value” if certain requirements have been met.
The “no value” provision will apply based on paragraph 10(2)(b) of the 7th schedule, as long as the transport services are provided by the employer themselves rather than someone else as laid out in paragraph 2(e) of the 7th Schedule. The illustration below summarises the situation:
Paragraph 2(e) of 7th Schedule versus Paragraph 10(2) (b) of 7th Schedule
In the second example where an employer provides transport services directly to staff, if the service is outsourced to a third party it must be made clear in the service conditions that this service has been provided exclusively to employees based on a predetermined route, or under defined conditions.
Staff cannot request a transport service from the service provider on an ad hoc basis, and the contract for providing the transport service must be signed between the employer and the transport service provider. In other words, an employee cannot use the same transport service provider for a private function.
If all these conditions are met, the value of the transport service provided to employees will attract no value.
Conclusion
With South Africa’s annual budget update tabled for later in 2019, it is likely that further legislative changes will be announced in February. All of these changes must be supported by your software to ensure that payroll remains compliant.
Sharon Tayfield is a senior manager, with extensive experience in global outsourcing and a special interest in payroll. She has undertaken senior management roles at a range of multinational companies, including a wholly-owned subsidiary of Anglo America where she was financial director. Prior to her current role, Sharon was chief operating officer for a payroll service company specialising in outsourced services to Africa and the UK.
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During the last three months of 2018 and into January 2019, South Africa introduced a number of legislative changes that will have a direct impact on how payroll is processed in the country.
President Cyril Ramaphosa signed three Bills into law in January 2019 alone. These comprised the:
- Taxation Laws Amendment Act, 2018 (Act No 23 of 2018) (2018 TLAA);
- Tax Administration Laws Amendment Act, 2018 (Act No 22 of 2018) (2018 TALAA);
- Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2018 (Act No. 21 of 2018) (2018 Rates Act).
These Acts give legislative effect to the tax proposals outlined by the then Minister of Finance Malusi Gigaba in his annual National Budget Speech, which was delivered on 21 February 2018.
TLAA 2018 changes
The main changes in the 2018 TLAA legislation that could affect payroll are outlined below:
Clarification of the tax treatment and obligations of funds managed by Bargaining Councils
The history of this amendment began in 2017 when changes were made to the Taxation Laws Amendment Act No.17 of 2017. The aim was to afford Bargaining Councils an opportunity to regularise their tax affairs and become compliant with the provisions of the Act.
The relief, which was referred to as “Bargaining Council tax relief”, covered Bargaining Councils that had not deducted tax from all payments made to their members between 1 March 2012 and 28 February 2017. The understanding was that moving forward, Bargaining Councils would not be afforded any legislative relief.
The 2018 TLAA, which is due to come into effect 1 March 2019, now confirms that employer contributions to funds administered by Bargaining Councils for the benefit of employees should constitute a taxable fringe benefit for staff members. This fringe benefit should also be subject to Pay as you Earn (PAYE) regulations, the sum of which should be withheld by employers. The value of the taxable fringe benefit equals the contribution made by the employer on behalf of the employee.
Addressing Medical Tax Credit anomalies
The Income Tax Act makes provision for a prescribed amount of monthly medical scheme contributions that qualify as a medical tax credit (Section 6A). The value of the medical tax credit gradually increases depending on the number of dependents covered under the plan.
Amendments have been made to the Act to allow taxpayers who pay towards the medical scheme contribution of dependants - such as children who are included in their parent’s medical expenses - tax credits for medical scheme fees based on their contributions to that scheme.
The amendment, which came into force as of 1 March 2018, means that tax credits will be based on the number of years of assessment that began on or after that date.
Removal of taxable benefits on low or interest-free loans granted to low-income employees for low-cost housing
In summary, it does not amount to a fringe benefit if an employee acquires a house from their employer at a discount in a situation where all of three of the following criteria are met:
- The market value of the property does not exceed R450, 000 (US$33,776);
- An employee’s remuneration does not exceed R250,000 (US$18,765);
- The employee is not connected to their employer.
These amendments are due to come into force on 1 March 2019.
Extension of the Employment Tax Incentive
The Employment Tax Incentive (ETI) scheme has been extended for another 10 years until 28 February 2029.
Other legislative changes
Other legislative changes that will affect payroll and require payroll software to be upgraded include:
- Rate update on interest-free/low interest loans
The income tax rates on interest-free or low interest loans was increased to 7.75% from 7.5%, a change that came into effect on 1 December 2018
- No-value provisions relating to transport services provided by employers
A draft interpretation note and draft binding general ruling was distributed for comment, with the final date for input set at mid-January. Both documents seek to remove any uncertainties around the taxability of transport services provided by an employer for the benefit of their employees.
The issue centres on the fact that employers can choose to provide employees with a transportation service from their homes to their place of employment. These transport services amount to a taxable benefit for staff, but this benefit may be of “no value” if certain requirements have been met.
The “no value” provision will apply based on paragraph 10(2)(b) of the 7th schedule, as long as the transport services are provided by the employer themselves rather than someone else as laid out in paragraph 2(e) of the 7th Schedule. The illustration below summarises the situation:
Paragraph 2(e) of 7th Schedule versus Paragraph 10(2) (b) of 7th Schedule
In the second example where an employer provides transport services directly to staff, if the service is outsourced to a third party it must be made clear in the service conditions that this service has been provided exclusively to employees based on a predetermined route, or under defined conditions.
Staff cannot request a transport service from the service provider on an ad hoc basis, and the contract for providing the transport service must be signed between the employer and the transport service provider. In other words, an employee cannot use the same transport service provider for a private function.
If all these conditions are met, the value of the transport service provided to employees will attract no value.
Conclusion
With South Africa’s annual budget update tabled for later in 2019, it is likely that further legislative changes will be announced in February. All of these changes must be supported by your software to ensure that payroll remains compliant.
Sharon Tayfield is a senior manager, with extensive experience in global outsourcing and a special interest in payroll. She has undertaken senior management roles at a range of multinational companies, including a wholly-owned subsidiary of Anglo America where she was financial director. Prior to her current role, Sharon was chief operating officer for a payroll service company specialising in outsourced services to Africa and the UK.
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South Africa introduces new minimum wage
Retirement reforms in South Africa: Is this the end of long delays?
How to process lump sum payments in South Africa
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