guide for employers in respect of employees' tax … - guide for employers iro e… ·...

GUIDE FOR EMPLOYERS IN

RESPECT OF EMPLOYEES' TAX Document # AS-PAYE-05

Revision # 1

Effective 01.03.2007

PRINTED DOCUMENTS ARE NOT CONTROLLED DOCUMENTS

POL-TM-07 Revision 1 of 58

REVISION HISTORY REV DESCRIPTION OF CHANGE AUTHOR APPROVAL OWNER

0 Initial release R. Ford GM: Operational services

GM: Operational services

1 Add legal changes as announced during the 2007 year

Rhona Ford Head: Policy and Procedure

GM: Office of the COO

2 3 4

REFERENCE TO LEGISLATION & OTHER REFERENCES This procedure must be read with the following:

TYPE OF REFERENCE REFERENCE Legislation and Rules Administered by SARS:

Income Tax Act No. 58 of 1962: Sections 1, 5(3), 5(9), 5(10), 6, 7A, 8(1)(a) to (f), 8A, 8B, 8C, 10(1)(cN), 10(1)(nA), 10(1)(nB), 10(1)(nG), 10(1)(nH), 10(1)(o), 10(1)(q), 10(1)(x), 18(1), 18(2), 69(1), 74(1), 75A, 89bis(2), 89sex, 89ter; Fourth Schedule Paragraphs 1 to 16, 29 and 30; Seventh Schedule all Paragraphs and Interpretation Notes 3, 4, 8, 7, 14, 16, 17, 26 and 27 Skills Development Levies Act No. 9 of 1999: Sections 1 to 6 and 11 to 13 Unemployment Insurance Contributions Act No.4 of 2002: Sections 1, 3, 4, 5, 6, 7, 8, 10, 12, 13 and 14

Other Legislation: Children’s Act No. 33 of 1960: Section 89 Companies Act No. 61 of 1973: Chapter VI Marine Traffic Act No. 2 of 1981: Section 1 Skills Development Act No. 97 of 1998: Section 18(2) and (3) Social Assistance Act No. 13 of 2004: Sections 4, 5, 6, 9, and 10 Medical Schemes Act No. 131 of 1998: Section 67(1)(g)

International Instruments None

REFERENCE TO QUALITY DOCUMENTS This procedure must be read with the following quality documents:

DOCUMENT # DOCUMENT TITLE QUALITY REQUIREMENTS AS-SDL-01 Quick reference guide on SDL All AS-UIF-01 Quick reference guide on UIF All FIN-CH-02 SARS payment rules All AS-PAYE-05-A1 Example completing an EMP201 return All AS-PAYE-05-A2 List of codes applicable to employees’ tax

certificates All

AS-PAYE-05-A3 Validation rules for employees’ tax certificates All AS-PAYE-05-A4 Specifications for electronic employees’ tax

certificates All

AS-PAYE-05-A6 Calculation examples relating to remuneration All AS-PAYE-05-A7 Calculation examples relating to examples All AS-PAYE-05-A8 Calculation examples relating to fringe

benefits All

AS-PAYE-05-A9 Rates of tax All AS-PAYE-05-A10 Example using the deduction tables All AS-PAYE-05-A11 Rate per kilometre schedule All AS-PAYE-05-A12 Weekly tax deduction tables All AS-PAYE-05-A13 Fortnightly tax deduction tables All AS-PAYE-05-A14 Monthly tax deduction tables All AS-PAYE-05-A15 Annual tax deduction tables All AS-PAYE-05-F1 Personal Service Company All AS-PAYE-05-F2 Seasonal Workers All



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TABLE OF CONTENTS 1 PURPOSE ............................................................................................................................................... 4 2 SCOPE..................................................................................................................................................... 4 3 DEFINITIONS AND ACRONYMS............................................................................................................ 4 4 BACKGROUND ....................................................................................................................................... 8 5 GOVERNING LEGISLATION .................................................................................................................. 8 6 REGISTRATION...................................................................................................................................... 9 6.1 REGISTRATION AS AN EMPLOYER..................................................................................................... 9 6.2 BRANCHES REGISTERED SEPARATELY.......................................................................................... 10 6.3 CHANGE OF REGISTERED DETAILS................................................................................................. 10 7 RECORD KEEPING .............................................................................................................................. 10 7.1 RECORDS AND INFORMATION TO BE PROVIDED BY THE EMPLOYEE ....................................... 10 8 DETERMINING THE EMPLOYEES' TAX, SDL AND UIF LIABILITY ................................................... 11 8.1 ELEMENTS REQUIRED BEFORE EMPLOYEES' TAX, SDL AND UIF MAY BE DETERMINED ....... 11 8.2 REMUNERATION FOR EMPLOYEES' TAX PURPOSES.................................................................... 11 8.3 REMUNERATION FOR UIF CONTRIBUTION PURPOSES................................................................. 12 8.4 REMUNERATION FOR SDL PURPOSES............................................................................................ 12 8.5 ALLOWABLE DEDUCTION TO DETERMINE THE BALANCE OF REMUNERATION........................ 13 8.5.1 PENSION FUND CONTRIBUTIONS..................................................................................................... 13 8.5.2 RAF CONTRIBUTIONS......................................................................................................................... 13 8.5.3 INCOME PROTECTION POLICY PREMIUMS ..................................................................................... 13 8.5.4 MEDICAL SCHEME CONTRIBUTIONS................................................................................................ 14 8.6 EMPLOYEES' TAX DEDUCTION.......................................................................................................... 14 9 PAYMENT OF EMPLOYEES' TAX, SDL AND UIF............................................................................... 15 10 SITE ....................................................................................................................................................... 16 11 OFFENCES ........................................................................................................................................... 17 12 TAX DIRECTIVES (GRATUITIES, LUMP SUMS AND EXCEPTIONAL CIRCUMSTANCES) ............. 18 12.1 PURPOSE OF A TAX DIRECTIVE........................................................................................................ 18 12.2 GRATUITIES ON TERMINATION, IMPENDING TERMINATION OF SERVICES OR

RETRENCHMENT................................................................................................................................. 19 12.3 HARDSHIP DUE TO ILLNESS OR OTHER CIRCUMSTANCES ......................................................... 20 12.4 GAINS MADE IN RESPECT OF RIGHTS TO ACQUIRE MARKETABLE SECURITIES ..................... 20 12.5 BROAD-BASED EMPLOYEE SHARE PLAN........................................................................................ 21 12.6 VESTING OF EQUITY INSTRUMENTS................................................................................................ 21 12.7 ARBITRATION AWARDS...................................................................................................................... 22 12.8 LUMP SUM PAYMENTS FROM A PENSION, PROVIDENT OR RETIREMENT ANNUITY FUND..... 23 12.9 DIRECTORS OF PRIVATE COMPANIES / MEMBERS OF CLOSE CORPORATIONS...................... 23 13 TAX DEDUCTION TABLES................................................................................................................... 24 13.1 RATES OF TAX PRESCRIBED BY THE COMMISSIONER................................................................. 24 13.2 DIFFERENT VERSIONS OF TAX DEDUCTION PROGRAMS ............................................................ 24 14 CLASSIFICATION OF EMPLOYEES (WORKERS).............................................................................. 25 14.1 LABOUR BROKER................................................................................................................................ 25 14.2 PERSONAL SERVICE COMPANY OR PERSONAL SERVICE TRUST (EXCLUDING SPECIAL

TRUST).................................................................................................................................................. 26 14.3 INDEPENDENT CONTRACTOR........................................................................................................... 27 14.4 DIRECTORS OF PRIVATE COMPANIES / MEMBERS OF CLOSE CORPORATIONS...................... 27 14.5 STUDENTS AND SCHOLARS .............................................................................................................. 29 14.6 SEASONAL WORKERS........................................................................................................................ 29 14.7 EMPLOYEES 65 YEARS OR OLDER................................................................................................... 30 14.8 TEMPORARY EMPLOYEES WHO ARE FREQUENTLY EMPLOYED ................................................ 30 14.9 COMMISSION AGENTS........................................................................................................................ 30 15 CLASSIFICATION OF PAYMENTS ...................................................................................................... 31 15.1 STANDARD EMPLOYMENT................................................................................................................. 31 15.2 BACKDATED (ANTEDATED) SALARIES AND PENSIONS................................................................. 32 15.3 RESTRAINT OF TRADE PAYMENTS .................................................................................................. 32 15.4 LEAVE PAY ........................................................................................................................................... 32 15.5 SPECIAL REMUNERATION PAID TO PROTO TEAMS....................................................................... 33 15.6 ADVANCE SALARY .............................................................................................................................. 33 15.7 OVERTIME PAYMENTS ....................................................................................................................... 33 15.8 ANNUAL PAYMENTS............................................................................................................................ 33



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16 EXEMPTIONS ....................................................................................................................................... 34 16.1 UNIFORMS (SPECIAL UNIFORMS)..................................................................................................... 34 16.2 TRANSFER COSTS .............................................................................................................................. 34 16.3 SHARE SCHEMES................................................................................................................................ 35 16.4 BURSARIES AND SCHOLARSHIPS .................................................................................................... 35 16.5 EMPLOYMENT INCOME EXEMPTIONS.............................................................................................. 36 17 ALLOWANCES ...................................................................................................................................... 37 17.1 SUBSISTENCE ALLOWANCE.............................................................................................................. 37 17.2 TRAVEL ALLOWANCE ......................................................................................................................... 38 17.3 ALLOWANCE TO A HOLDER OF A PUBLIC OFFICE......................................................................... 40 18 FRINGE BENEFITS............................................................................................................................... 40 18.1 OBLIGATION OF EMPLOYER.............................................................................................................. 40 18.2 BENEFITS GRANTED TO RETIRED EMPLOYEES ............................................................................ 41 18.3 BENEFITS GRANTED TO RELATIVES OF EMPLOYEES AND OTHERS.......................................... 41 18.4 TAXABLE BENEFITS ............................................................................................................................ 41 19 EMPLOYEES' TAX CERTIFICATES [IRP 5, IRP5(A) AND IT 3(A)] ..................................................... 52 19.1 OBLIGATION OF EMPLOYER TO ISSUE EMPLOYEES' TAX CERTIFICATES................................. 52 19.2 MANUAL CERTIFICATES..................................................................................................................... 53 19.3 ELECTRONIC CERTIFICATES............................................................................................................. 54 19.4 DUPLICATE CERTIFICATES................................................................................................................ 54 19.5 CANCELLED CERTIFICATES .............................................................................................................. 54 19.6 UNUSED MANUAL CERTIFICATES..................................................................................................... 55 19.7 WHEN MUST AN IT 3(A) RETURN BE ISSUED .................................................................................. 55 20 RECONCILIATIONS (IRP 501) ............................................................................................................. 56 20.1 SUBMISSION OF A RECONCILIATION ............................................................................................... 56 20.2 CREDITS WITH THE FINALISATION OF A RECONCILIATION.......................................................... 56 20.3 CANCELLATION OF EMPLOYEES' TAX CERTIFICATES BY SARS ................................................. 56 20.4 COMPLETION OF THE IRP 501 RECONCILIATION STATEMENT .................................................... 56 21 QUALITY RECORDS............................................................................................................................. 57



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1 PURPOSE The purpose of this document is to assist employers in understanding their obligations relating to

Employees' tax, Skills Development Levy and Unemployment Insurance Fund contributions. 2 SCOPE This basic guide is issued in terms of Paragraph 9(1) of the Fourth Schedule to the Income Tax Act. It

prescribes the deduction tables applicable to employees and the manner in which the tables must be applied by the employer.

3 DEFINITIONS AND ACRONYMS 4th Schedule Fourth Schedule to the Income Tax Act. 7th Schedule Seventh Schedule to the Income Tax Act. Alternate period A period, whether of 12 months or not, commencing on the day following the last day of

the preceding alternate period in relation to the employer and ending on a date falling not more than 14 days before or after the last day of February, or such greater number of days as the Commissioner, having regard to the circumstances of the case, may allow.

Annual equivalent An amount equal to the sum of net remuneration multiplied by the ratio which a full year bears to the period in respect of which such net remuneration is payable.

Annual payment An amount of net remuneration that is, in accordance with the employee’s conditions of service or the employer’s practice, paid in a lump sum to the employee or it is an amount that is calculated without reference to a period.

Associated institution

In relation to an employer for taxable benefit purposes, means — where the employer is a company, any other company which is managed or

controlled directly or indirectly by substantially the same persons; or where the employer is not a company, any company which is managed or

controlled directly or indirectly by the employer or any partnership of which the employer is a member; or

any fund established mainly for providing benefits for employees or former employees, but excluding — funds established by trade unions and industrial councils; and funds established for post-graduate research which are not financed by the

employer. Backdated salary Salary, wage or similar remuneration payable by the employer to an employee but does

not include any bonus. Balance of remuneration

Any amount of remuneration after deducting the allowable deductions for employees' tax purposes.

Broad-based employee share plan

A plan in terms of which — equity shares are acquired from an employer by an employee, for consideration

which does not exceed the minimum consideration required by the Companies Act, 1973;

employees who participate in any other equity scheme of the employer are not entitled to participate and where at least 90% of all other employees who are employed by the employer on a permanent basis on the date of grant are entitled to participate;

the employees who acquire the equity shares are entitled to all dividends and full voting rights in relation to those equity shares; and

no restriction have been imposed in respect of the disposal of the equity shares, other than — a restriction imposed by legislation; a right of any person to acquire those equity shares from the person who

acquired the equity shares at market value; or a restriction in terms of which the person who acquired the equity shares

may not dispose of the equity shares for a period which may not extend beyond five years from the date of grant.

Cash equivalent For taxable benefit purposes, a cash equivalent shall be the value of the taxable benefit less any consideration (if applicable) given by the employee.



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CC Close corporation CCMA Commission for Conciliation, Mediation and Arbitration. Commissioner Commissioner for the South African Revenue Service. Consideration For taxable benefit purposes means any consideration given by an employee but does

not include any consideration in the form of services rendered by the employee. Employees' tax An amount of tax that an employer must deduct from all regular or periodic payments

(remuneration), paid or which becomes payable to an employee. Employee An employee for employees' tax purposes is defines as —

A natural person who receives remuneration or to whom remuneration accrues;

A person (including a company) who receives remuneration or to whom remuneration accrues by reason of services rendered by such person to or on behalf of a labour broker;

A labour broker; A person or class or category of persons whom the Minister of Finance by

notice in the Government Gazette declares to be an employee; A personal service company; A personal service trust; A director of a private company.

An Employee for UIF purposes is defines as any natural person who receives any remuneration or to whom remuneration accrues in respect of services rendered or to be rendered by that person but excluding an independent contractor.

An employee for taxable benefit purposes is defined as any person who receives remuneration or to whom remuneration accrues and includes any director of a company but excludes persons who retired before 1 March 1992 except for purposes of the provisions which deal with the payment of an employee’s debt or the release of an employee from an obligation to pay a debt.

Employer Any person who pays or is liable to pay a person an amount by way of remuneration including a person responsible for the payment of an amount by way of remuneration to a person under the provisions of a law or out of public funds or out of funds voted by parliament or Provincial Council.

Equity instrument An equity share in a company or a member’s interest in a close corporation, including an option to acquire such a share or member’s interest and any other financial instrument which is convertible to a share or member’s interest.

Gain A gain for purposes of a broad based employee share plan and qualifying equity instruments, means the amount by which any amount received by or accrued to the employee from the disposal exceeds the consideration given by the employee for the qualifying equity share, right or interest.

Holder of a public office

The President, Deputy President, a Minister, a Deputy Minister, a member of the National Assembly, a permanent delegate to the National Council of Provinces, a Premier, a member of an Executive Council or a member of a provincial legislature;

Any member of a municipal council, a traditional leader, a member of a provincial House of Traditional Leaders or a member of the Council of Traditional Leaders; and

A person occupying the office of president, chairman or chief executive officer of any non-profit organisation, shown to the satisfaction of the Commissioner to be organised on a national or regional basis to represent persons with a common interest and the funds of which are derived wholly or mainly from subscriptions from members or donations from the general public.

Labour broker An employee who, for reward, provides a client with other persons (or procures the persons) to render a service or to perform work for the client.

Long service For taxable benefit purposes means an initial unbroken period of service of not less than 15 years or any subsequent unbroken period of service of not less than 10 years.

Marketable security

Any security, stock, debenture, share, option or other interest capable of being sold in a share-market or exchange or otherwise

Market value In relation to an equity instrument — of a private company or a company that would be regarded as a private

company if it were incorporated under the Companies Act, 1973, means an amount determined as its value in terms of a method of valuation — o prescribed in the rules relating to the acquisition and disposal of that



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equity instrument; o which is regarded as a proxy for the market value of that equity

instrument for the purposes of those rules; and o used consistently to determine both the consideration for the

acquisition of that equity instrument and the price of the equity instrument repurchased from the employee after it has vested in that employee; or

of any other company, means the price which could be obtained upon the sale of that equity instrument between a willing buyer and a willing seller dealing freely at arm’s length in an open market and, in the cases of a restricted equity instrument, had the restriction to which that equity instrument is subject not existed.

In relation to an equity share means the price which could be obtained upon the sale of that equity share between a willing buyer and a willing seller dealing freely at arm’s length in an open market and without having regard to any restrictions imposed in respect of that equity share.

Month In relation to an employer for taxable benefit purposes means any twelve portions into which any calendar year is divided.

Net remuneration The balance of remuneration, excluding the following: Lump sum payments in terms of the Second Schedule to the Act paid by funds; Gratuities paid by the employer on termination of service due to old age, ill-health

or general reduction in personnel (retrenchment); Remuneration received by an employee who incurred deductible expenses in the

production of income (the quantum of expenses can only be determine on assessment);

Remuneration which is under the provisions of Section 7(2) deemed to be income that accrued to the spouse of the employee;

Remuneration not derived — from standard employment; or by way of an annuity provided or payable by a pension fund, provident fund

or benefit fund; Remuneration paid or payable to a director of a company or member of a close

corporation; Travel allowance which is subject to employees' tax (60% portion); An allowance granted to the holder of any public office, which is subject to

employees' tax (50% portion); and Remuneration derived by an employee in respect of which such employee is

entitled to set off an assessed loss under Section 20(1). Official rate of interest

The rate of interest fixed by the Minister from time to time by notice in the Gazette, where the loan is denominated in the currency of the Republic and a market related rate of interest, where the loan is denominated in a foreign currency.

PAYE Pay-As-You-Earn. Personal service company

An employee who offers his / her services to an employer through the medium of a private company / close corporation.

Personal service trust

An employee who offers his / her services to an employer through the medium of a trust.

Qualifying equity share

An equity share acquired in a tax year in terms of a broad-based employee share plan, where the market value of all equity shares, which were acquired by that employee in terms of that plan in that year and the two immediately preceding tax years does not in aggregate exceed R9 000.

RAF Retirement annuity fund. Recognised educational or research institution

A college or university as defined in Section 18A, or a school or any other educational or research institution wheresoever situated which is of a permanent nature, open to the public generally and offering a range of practical and academic courses.

Relative A relative as defined in Section 1 means in relation to any person — in the first degree: children (own, adopted and / or step) and parents; in the second degree: grandchildren, grandparents, brothers and sisters; in the third degree: great grandchildren, great grandparents, uncles, aunts,

nephews and nieces; his / her spouse and any of the spouse’s relatives related to the spouse in the



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same manner above; or the spouse of any relative referred to above.

Representative employer

Any public officer, liquidator, judicial manager, manager, secretary, officer, guardian, curator, administrator or other person having authority to pay remuneration on behalf of an employer.

Restricted equity instrument

An equity instrument — which is subject to any restriction (other than a restriction imposed by legislation)

that prevents the employee from freely disposing of that equity instrument at market value;

which is subject to any restriction that could result in the employee forfeiting ownership of that equity instrument otherwise than at market value;

if any person has retained the right to impose a restriction contemplated in the first two instances above, on the disposal of that equity instrument;

which is an option contemplated in the definition of equity instrument and where the equity instrument which can be acquired in terms of that option will be a restricted equity instrument;

which is a financial instrument contemplated in the definition of equity instrument and where the equity instrument to which that financial instrument can be converted will be a restricted equity instrument;

if the employer has at the time of acquisition by the employee of the equity instrument undertaken to: cancel the transaction under which that taxpayer acquired the equity

instrument; or repurchase that equity instrument from the employee at a price exceeding

its market value on the date of repurchase; or which is not deliverable to the taxpayer until the happening of an event, whether

fixed or contingent, other than the requirement to pay the consideration in respect of that equity instrument.

Retirement funding employment

Any remuneration of the employee that is taken into account in the determination of the contributions, made by an employee or by the employer on behalf of such employee, to a pension fund or provident fund.

SARS South African Revenue Service. SDL Skills Development Levy. SETA Sector Education and Training Authority. SITE Standard Income Tax on Employees. Standard employment

Any employment where an employee (including scholars and students), is required to render services to a single employer for a period of at least 22 hours in every full week provided that no regard shall be had to — Periods of temporary absence of the employee due to leave or exceptional

circumstances; or Any temporary reduction in working hours imposed by the employer, for instance

due to a reduction in the demand of the company’s product, the employer imposes a temporary working week of less than 22 hours.

Taxable benefit A benefit contemplated in the 7th Schedule, but excluding — any benefit, the amount or value of which is specifically exempt in terms of

Section 10; any benefit provided by a benefit fund in respect of medical, dental and similar

services; any lump sum benefit payable by a benefit, pension or provident fund, as defined

in the Act; and any benefit received by or accrued to a person stationed outside the Republic and

employed by any national or provincial sphere of government or any national or provincial public entity, which is substantially funded by Parliament, if they are attributable to that official’s services rendered outside the Republic.

Tax period In relation to any employer, as a period of 12 months ending on the last day of February of the relevant tax year or at the option of the employer, an alternate period, in respect of which remuneration is paid or has become due.

in relation to an employee, a tax year (1 March to 28 / 29 February of the next year) or any unbroken period during the tax year — during which the employee was employed by one employer in the Republic

in standard employment; or



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during which any annuity was paid or became payable to him / her by one employer; or

such period as the Commissioner considers appropriate in the circumstances, where the Commissioner has in relation to the employment of any employee, issued a ruling to the employer.

UI Commissioner Unemployment Insurance Commissioner. UIC Act Unemployment Insurance Contributions Act. UIF Unemployment Insurance Fund. Unrestricted equity instrument

An equity instrument which is not a restricted equity instrument.

4 BACKGROUND What is employees' tax

Where an employer pays remuneration to an employee, the employer must deduct employees'

tax from the remuneration and pay the tax deducted to SARS on a monthly basis. In most instances, the employer is obliged to issue each employee with an employees' tax certificate (IRP 5) which reflects, amongst other detail, the employees' tax deducted. This employees' tax has to be split between SITE and PAYE. These subjects are fully dealt with later in this guide. In addition thereto, the employer is obliged to submit an annual reconciliation (IRP 501) to the SARS office.

In terms of Paragraph 3 of the 4th Schedule employees' tax receives preference over any other deduction, regardless of what any other Act or agreement requires.

Any reference to the start date and end date of a tax period as 1 March and 28 / 29 February in this guide will include the start date and end date of an alternate period. An alternate period is normally determined at the option of the employer which may be exercised in relation to all employees or any class of employee. Where an employer adopts the so-called alternate period, any remuneration paid to an employee during such alternate period is regarded as having been paid to him / her during the corresponding tax year.

What is SDL

This is a compulsory levy scheme for the purposes of funding education and training as

envisaged in the Skills Development Act, 1998. This levy came into operation on 1 April 2000 and is payable on a monthly basis.

What are UIF contributions

This is a compulsory contribution to fund unemployment benefits. The contributions deducted

and payable by employers have been collected by SARS since 1 April 2002 and are paid over to the UIF that is managed by the UI Commissioner.

Difference between SITE, PAYE and Employees' tax

Employees' tax is deducted during the tax period. SITE is a form of employees' tax that is

applicable only on the annualised net remuneration up to R60 000. In terms of Paragraph 11B(2)(a) and (b) of the 4th Schedule, the determination of SITE is done at the end of the tax period and may represent only a portion of the employees' tax deducted during the year. The balance of employees' tax after determining the SITE portion as well as the employees' tax on remuneration other than net remuneration, represents PAYE.

Liability of representative employer — The representative employer is not relieved from any liability,

responsibility or duty of the employer and is therefore subject to the same duties, responsibilities and liabilities as the employer.

5 GOVERNING LEGISLATION The Paragraphs of the Fourth and Seventh Schedule and Sections referred to in this publication are

governed by the Income Tax Act. References to the Skills Development Levies Act and Unemployment Insurance Contributions Act are specifically indicated.



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6 REGISTRATION 6.1 REGISTRATION AS AN EMPLOYER Paragraph 15(1) of the 4th Schedule prescribes that an employer must apply for registration with SARS

within 14 days after he / she becomes an employer unless none of the employees is liable for normal tax. Application to register as an employer must be made on an EMP 101 form.

Registration for SDL purposes — Section 5 of the SDL Act prescribes that where an employer is

liable to pay the levy, the employer must register as an employer with SARS and must indicate the jurisdiction of the SETA within which the employer must be classified. Although some employers are exempt from the payment of the levy, these employers are not absolved from registration.

The following employers are exempt from paying the SDL in terms of Section 4 of the SDL

Act — o Any public service employer in the national or provincial sphere of Government. (These

employers must budget for an amount equal to the levies payable for training and education of their employees).

o Any national or provincial public entity if 80% or more of its expenditure is paid directly or indirectly from funds voted by Parliament. (These employers must budget for an amount equal to the levies payable for training and education of their employees).

o Any public benefit organisation, exempt from the payment of income tax in terms of Section 10(1)(cN), which solely carries on certain welfare, humanitarian, health care, religion, belief or philosophy public benefit activities or solely provides funds to such a public benefit organisation and to whom a letter of exemption has been issued by the SARS Tax Exemption Unit.

o Any municipality in respect of which a certificate of exemption is issued by the Minister of Labour.

o Any employer who's total remuneration subject to SDL (leviable amount) paid / payable to all its employees over the next 12 month period will not exceed R500 000.

With effect from 1 August 2005 the employer is not required to register as an employer for SDL purposes if there are during any month reasonable grounds for believing that the total leviable amount paid or payable by that employer to all its employees during the following 12 month period will not exceed R500 000 even though such employer is liable to register with SARS for employees' tax purposes.

Registration for UIF contribution purposes — Section 10 of the UIC Act prescribes that where an

employer is liable to pay the UIF contribution, the employer must register with SARS or the UIF office (whichever is applicable to such employer) for the payment of the contributions.

The following employers who are not exempt from contributing to the fund, must register with

the UI Commissioner — o an employer who is not required to register for employees' tax purposes at SARS; o an employer who has not registered voluntarily as an employer for employees' tax

purposes at SARS; and o an employer who is not liable for the payment of SDL.

Section 4 of the UIC Act prescribes that an employer / employee is NOT REQUIRED to contribute in the following circumstances — o an employee and his / her employer, where such employee is employed by the employer

for less than 24 hours a month; o an employee and his / her employer, where the employee receives remuneration under

contract of employment contemplated in Section 18(2) of the Skills Development Act; o employees and employers in the national and provincial spheres of Government who are

officers or employees as defined in Section 1(1) of the Public Service Act 1994, and their employers; and

o an employee and his / her employer where that employee has entered the Republic for the purpose of carrying out a contract of service, apprenticeship or learnership within the Republic if upon termination thereof the employer is required by law or by the contract of service, apprenticeship or learnership (as the case may be) or by any other agreement or



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undertaking to repatriate that person, or if that person is so required to leave the Republic;

6.2 BRANCHES REGISTERED SEPARATELY Paragraph 11B(1) of the 4th Schedule prescribes that where an employer has for registration purposes

applied for separate registration of branches of his / her undertaking, each such branch shall be deemed to be a separate employer. Application to register a branch separately from the main branch must be made on an EMP 102 form.

Where an employee is transferred between branches, the branch where the employee has worked

until date of transfer must issue an IRP 5 for the period 1 March (or date of commencement of employment if such date was after 1 March) up to the day preceding the transfer. The branch to which the employee was transferred must issue a further IRP 5 to cover the period from date of transfer up to the end of February (or other date, e.g. where the employee’s service was terminated).

6.3 CHANGE OF REGISTERED DETAILS Paragraph 15(3) of the 4th Schedule prescribes that an employer must inform SARS in writing within

14 days of any change in registered particulars (e.g. change of name, address or when he / she no longer operates as an employer).

7 RECORD KEEPING Paragraph 14(1) of the 4th Schedule, Section 13 of the SDL Act and Section 14 of the UIC Act

prescribes that every employer must keep a record of all remuneration paid, employees' tax deducted in respect of each employee and SDL and UIF contributions. This register must contain personal particulars as well as financial details of each employee.

Paragraph 14(4) of the 4th Schedule prescribes that these records must be maintained in such form,

including any electronic form, as may be prescribed by the Commissioner. Paragraph 30(1)(i) of the 4th Schedule prescribes that records must be kept for a period of five years

from the date of the last entry and must be available for inspection purposes by SARS officials. Employers who supply the tax certificate information on an electronic medium or electronically, must also keep such records for the prescribed period.

7.1 RECORDS AND INFORMATION TO BE PROVIDED BY THE EMPLOYEE The employee must supply the following particulars to his / her employer to ensure that the employer’s

records are correct —

Surname and full names; Address; Identity number or passport number and date of birth; Income Tax reference number (if any); Proof of age; and Written declaration where required.

Written declaration by employee

Paragraph 11B(1) of the 4th Schedule, definition of standard employment: An employee is

deemed to be in standard employment where — o an employee is not required to render services to the employer for at least 22 hours in

every completed week; and o the employee furnishes the employer with a written declaration stating that he / she does

not or will not render services to another employer during the corresponding period. However, where a written declaration is not furnished, the services of the employee will not be

regarded as standard employment and the 25% deduction will apply. (Refer also to Standard Employment in paragraph 15.1).



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8 DETERMINING THE EMPLOYEES' TAX, SDL AND UIF LIABILITY 8.1 ELEMENTS REQUIRED BEFORE EMPLOYEES' TAX, SDL AND UIF MAY BE

DETERMINED The Fourth Schedule requires the presence of three elements before employees' tax and UIF

contributions may be deducted, namely, an employer paying remuneration to an employee. The employer also must form a dominant impression of the employment relationship to be able to

classify the worker efficiently in order to determine the rate which must be applied to deduct employees' tax from the remuneration of the specific employee.

The annual equivalent needs to be used when an employee's tax period is shorter than a full tax year

in order to determine the amount of employees' tax deductible. 8.2 REMUNERATION FOR EMPLOYEES' TAX PURPOSES Paragraph 1 of the 4th Schedule defines remuneration as any amount of income which is paid or is

payable to any person whether in cash or otherwise and whether or not in respect of services rendered.

Examples of remuneration — Remuneration will include salary, fee, bonus, wage, gratuity, pension,

leave encashment, emolument, voluntary award, commission, annuity, stipend, remuneration for overtime, superannuation allowance, retirement allowance, lump sum payment, director's remuneration, etc.

The following are specifically included as remuneration:

restraint of trade payments; an amount, including a voluntary award, received or accrued in commutation of amounts due in

terms of a contract of employment or service; an amount received or accrued in respect of the relinquishment, termination, loss, repudiation,

cancellation or variation of an office or employment or of an appointment; An allowance or advance paid to an employee in respect of accommodation, meals or other

incidental costs while the employee is by reason of the duties of his / her office obliged to spend at least one night away from his / her usual place of residence in the Republic is deemed to become payable to the employee in the following month in respect of services rendered. This deeming provision applies where such an allowance or advance was paid to an employee during any month in respect of a night away from his / her usual place of residence and that employee has not by the last day of the following month either spent the night away from his / her usual place of residence or refunded that allowance or advance to the employer;

50% of an allowance paid to a holder of a public office; 60% of an allowance or advance in respect of the expense of travelling for business purposes

(excluding an allowance paid for actual distance travelled for business purposes, at a rate not exceeding the rate per kilometre fixed by the Minister of Finance in the Government Gazette);

fringe benefits received in terms of the 7th Schedule; a gratuity received by or accrued to a person from his / her employer because such person

obtained a university degree or diploma or has been successful in an examination; any gain determined in terms of Section 8B, which must be included in that person’s income

under that section (broad-based equity share plan); and any gain determined in terms of Section 8C which is required to be included in the income of

that person. The following are specifically excluded from remuneration and consequently no employees' tax is

deductible:

Amounts paid to common law independent contractors, but excluding amounts paid to independent contractors who are subject to the control or supervision of any person as to the



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manner in which their duties are performed or as to the hours of work or if the amounts paid or payable to them are payable at regular daily, weekly, monthly or other intervals; o This exclusion does not apply to —

any person who receives any remuneration or to whom any remuneration accrues by reason of any services rendered by such person to or on behalf of a labour broker;

any labour broker; any personal service company; any personal service trust; or a person who is not ordinarily resident in South Africa.

Any pension or additional pension under the Social Assistance Act. Any disability grant or additional or supplementary allowance under the Social Assistance Act. Any grant or contribution under the provisions of Section 89 of the Children’s Act. Amounts paid to an employee, wholly in reimbursement of expenditures actually incurred by

such employee (i.e. expenses incurred on behalf of the employer on an agency basis), in the course of employment.

Any allowance or advance in terms of an order of divorce or decree of judicial separation or agreement of separation.

Employees' tax must be calculated on the balance of remuneration (remuneration for employees' tax

purposes less any allowable deductions). 8.3 REMUNERATION FOR UIF CONTRIBUTION PURPOSES Section 1 of the UIC Act defines remuneration as remuneration for employees' tax purposes, but

excludes any amount paid or payable to an employee:

by way of pension, superannuation allowance or retiring allowance; that constitutes an amount contemplated in Paragraphs (a), (cA), (d), (e) or (eA) of the definition

of gross income in Section 1 of the Income Tax Act — o by way of annuity [par (a)]; o as compensation for any restraint of trade [par (cA)]; o any amount, including a voluntary award received or accrued in respect of the

relinquishment, termination, loss, repudiation, cancellation or variation of any office or employment or of any appointment [par (d)];

o lump sum benefits from any pension fund, provident fund or retirement annuity fund [par (e)]; or

o lump sum benefits from a pension fund (where the rules provide that on retirement a portion of the benefit has to be taken in the form of an annuity, etc.) [par (eA)]; and

by way of commission. The UIF contribution must be calculated on the remuneration for UIF purposes.

8.4 REMUNERATION FOR SDL PURPOSES Section 3(5) of the SDL Act defines remuneration as remuneration for employees' tax purposes, but

excludes the following amounts from remuneration for purposes of determining the leviable amount:

an amount paid or payable to any labour broker or any person declared by the Minister of Finance by notice in the Government Gazette as an employee to whom a certificate of exemption has been issued by SARS;

an amount paid or payable to any person by way of pension, superannuation allowance or retiring allowance;

an amount contemplated in Paragraphs (a), (d), (e) or (eA) of the definition of gross income in Section 1 of the Income Tax Act — o by way of annuity [par (a)]; o any amount, including a voluntary award received or accrued in respect of the

relinquishment, termination, loss, repudiation, cancellation or variation of any office or employment or of any appointment [par (d)];

o lump sum benefits from any pension fund, provident fund or retirement annuity fund [par (e)]; or



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o lump sum benefits from a pension fund (where the rules provide that on retirement a portion of the benefit has to be taken in the form of an annuity, etc.) [par (eA)]; and

an amount payable to a learner in terms of a contract of employment contemplated in Section 18(3) of the Skills Development Act.

SDL leviable amount — As the basis for the calculation of the levy is to a large extent based on the

employees' tax calculation, the remuneration on which the levy will be calculated is determined with reference to the balance of remuneration for employees' tax purposes. Although remuneration paid to an employee may be below the tax threshold for employees' tax purposes, the employer is still liable for payment of SDL on such remuneration.

8.5 ALLOWABLE DEDUCTION TO DETERMINE THE BALANCE OF

REMUNERATION 8.5.1 PENSION FUND CONTRIBUTIONS Paragraph 2(4)(a) of the 4th Schedule prescribes that the employer must deduct current and arrear

contributions, within the limits contemplated in Section 11(k), by the employee to an approved pension fund which the employer is entitled or required to deduct from the employee's remuneration.

Section 11(k) limit the allowable deduction to the following:

Current contributions — An annual deduction limited to the greatest of:

o R1 750; or o 7,5% of the remuneration received during the year from retirement funding employment.

Arrear contributions — An annual deduction limited to R1800. 8.5.2 RAF CONTRIBUTIONS Paragraph 2(4)(a) of the 4th Schedule prescribes that the employer must deduct current and arrear

contributions, within the limits contemplated in Section 11(n), by the employee to an approved RAF which the employer is entitled or required to deduct from the employee's remuneration.

Paragraph 2(4)(b) of the 4th Schedule prescribes that the employer may at his / her option deduct

current and arrear RAF contributions, within the limits contemplated in Section 11(n), which the employee has paid directly to the Fund, provided that proof of payment has been furnished to the employer.

Section 11(n) limit the allowable deduction to the following:

Current contributions — An annual deduction limited to the greatest of:

o R1 750; o R3 500 less allowable current pension fund contributions; or o 15% of the remuneration received during the year from non- retirement funding

employment. Arrear contributions — An annual deduction limited to R1800.

8.5.3 INCOME PROTECTION POLICY PREMIUMS Paragraph 2(4)(c) of the 4th Schedule prescribes that the employer may at his / her option deduct any

premium paid by the employee in respect of which proof of payment has been furnished to the employer in terms of an insurance policy —

to the extent that it covers that employee against the loss of income as a result of illness, injury,

disability or unemployment; and in respect of which all amounts payable in terms of that policy constitute or will constitute

income as defined.



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8.5.4 MEDICAL SCHEME CONTRIBUTIONS Employee 65 years or older — Paragraph 2(4)(d) of the 4th Schedule prescribes that the employer

may at his / her option deduct any contribution made by the employee to a registered medical scheme as contemplated in Section 18(1)(a) in respect of which proof of payment has been furnished to the employer.

Employee under 65 years — Paragraph 2(4)(e) of the 4th Schedule prescribes that the employer

may at his / her option deduct any contribution made by the employee to a registered medical scheme as contemplated in Section 18(1)(a) as does not exceed the amount contemplated in Section 18(2)(c)(i) in respect of which proof of payment has been furnished to the employer.

The allowable amount is determined as follows:

o Capped amount: R530 for each month in the tax year in respect of which those contributions were

made solely with respect to the benefits of the employee; R1 060 for each month in the tax year in respect of which those contributions were

made with respect to the benefits of the employee and one dependant; or where those contributions were made with respect to the employee and more than

one dependant, R1 060 in respect of the employee and one dependant plus R320 for every additional dependant for each month in the tax year in respect of which those contributions were made.

o Reduced amount — The capped amount must be REDUCED by any amount contributed by the employer which has not been included as a taxable benefit in the remuneration of the employee (see medical contributions paid by the employer under the fringe benefit section).

Section 18(5) deems contributions paid by the employer which have been included in the

remuneration of the employee as a fringe benefit to have been paid by the employee. Where an employer employs a new employee who was in employment with another employer in the

same month, it is the responsibility of the second employer to ensure that only one contribution is made to a medical scheme in respect of that specific month.

In order to determine the capped amount which may be used for a specific month, the employer must

obtain the information relating to the beneficiaries covered by the medical scheme from the relevant medical scheme.

8.6 EMPLOYEES' TAX DEDUCTION Paragraph 2(1), 2(4) and 2(5)(c) of the 4th Schedule prescribe that employees' tax must be deducted

from any amount that is paid by way of remuneration. The deduction is calculated on the balance of remuneration after the deduction of all allowable deductions.

An employer and employee may under no circumstances conclude an agreement whereby the

employer undertakes not to deduct or withhold employees' tax or UIF contributions. Such an agreement is void in terms of Paragraph 7 of the 4th Schedule.

Employees' tax MUST be deducted from remuneration paid to an employee even though such person is

registered as a provisional taxpayer with SARS. This provision also applies to directors of private companies and members of close corporations.

Voluntary employees' tax deduction —Paragraph 2(2) of the 4th Schedule prescribes that an

employer may deduct a greater amount of employees' tax on receipt of a written request from an employee. For various reasons, employees may find that they have to pay in fairly large amounts upon receipt of their assessments. To reduce the amount payable on assessment or avoid having to pay in an additional amount, such employees may request (in writing) their employers to deduct from their remuneration a greater amount of employees' tax than is required.

The employer must remit the amount deducted to SARS with his / her monthly EMP 201 return. IRP 5 certificate must be completed as follows:



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o The voluntary over-deduction field must be indicated with a Y for yes. o Any voluntary employees' tax deducted does not represent SITE and must be reflected

as PAYE. Estimated assessment

Paragraph 12 of the 4th Schedule, Section 13 of the SDL Act and Section 14 of the UIC Act

prescribes that the Commissioner may estimate the amount of employees' tax, SDL or UIF contributions due by the employer — o where the employer fails to deduct or withhold the correct amount of employees' tax or

UIF contributions (excluding SDL as the employer is not allowed to deduct it from the employee); or

o where the employer fails to pay over the employees' tax, SDL or UIF contribution due. Paragraph 13(3) of the 4th Schedule prescribe that any estimate of the amount of employees'

tax, SDL or UIF contributions payable by the employer is subject to objection and appeal. 9 PAYMENT OF EMPLOYEES' TAX, SDL AND UIF Paragraph 2(1) of the 4th Schedule, Section 6 of the SDL Act and Section 8 of the UIC Act prescribes

that the employees' tax and UIF contributions as well as SDL must be paid over to SARS within 7 days after the end of the month during which the amount was deducted.

Section 89sex prescribes that where the seventh day falls on a Saturday, Sunday or public holiday,

the payment must be made not later than the last business day prior to such day. These cut-off dates apply to SDL and UIF contributions as well.

Paragraph 14(2) of the 4th Schedule, Section 6(2) of the SDL Act and Section 8(2) of the UIC Act

prescribes that the employer must submit a declaration / statement in such form as the Commissioner may prescribe when making any payment. The prescribed EMP 201 return is automatically supplied to the employer for payment purposes each month. Only in instances where the return is not received in time for payment purposes, a note must accompany the payment with the following information —

Name, postal address and contact telephone number of employer; Reference number, starting with 7, L or U; Month to which the payment relates (e.g. November 2006); and Amount of the payment enclosed.

An EMP 201 not received in time by an employer will not be accepted as an excuse for the late

payment of employees' tax, SDL and UIF contributions. Payments of employees' tax, SDL and UIF contributions MUST be reflected correctly and

separately on the EMP 201 form in order to avoid the incorrect allocation of these payments and the unnecessary issue of final demands.

Paragraph 5(1) of the 4th Schedule and Section 7(4) of the UIC Act prescribes that an employer who

fails to deduct or withhold the full amount of employees' tax and UIF contributions is personally liable for the shortfall.

Bank payments

Electronic payments can be made directly into SARS banking accounts at First National Bank,

Absa Bank, Nedbank or Standard Bank or via the Internet banking facilities. In all instances it is imperative that the correct payment reference information is provided to ensure that tax payments can be identified and correctly allocated upon receipt by SARS.

Two items are essential in order to ensure that payments are processed correctly, namely: o SARS beneficiary account ID; and o A 19-digit bank payment reference number. This enables the allocation of such payment

to a specific tax type and period. Please refer to SARS' website www.sars.gov.za for further information and details relating to

bank payment limits and bank payment reference number structuring.



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Allocation of payments

Section 89bis(A) prescribes that where any payment is made by an employer in respect of employees' tax, such payment will be allocated in the following order: o in respect of penalty; o in respect of interest, to the extent to which the payment exceeds the amount of penalty;

and o in respect of employees' tax or additional penalty, to the extent to which the payment

exceeds the amount of penalty and interest. Where there is a shortfall after the allocation of penalties and interest and the outstanding tax

has not been covered in full, interest will continue to accrue on the outstanding tax. These rules are also applicable to SDL and UIF contribution payments.

Penalties and interest

Section 89bis(2), Section 11 of the SDL Act and Section 12 of the UIC Act prescribes that

interest shall be payable at the prescribed rate if any amount of employees' tax, SDL or UIF contributions is not paid in full within the prescribed period for payment of such amount.

Paragraph 6(2) of the 4th Schedule, Section 12(1) of the SDL Act and Section 13(1) of the UIC Act prescribes that a penalty equal to 10% in addition to the interest, will be imposed on late payments or outstanding amounts.

Paragraph 6(2A) of the 4th Schedule, Section 12(3) of the SDL Act and Section 13(2) of the UIC Act prescribes that where the employer fails to pay the relevant amount with intent to evade his / her obligation, the employer may be liable to pay a penalty not exceeding an amount equal to twice the amount of employees' tax, SDL or UIF contributions which the employer so failed to pay.

10 SITE SITE is the abbreviation for Standard Income Tax on Employees. SITE is not an additional tax but is

merely an alternative method of determining liability for normal tax and was introduced to ensure that the tax deducted by an employer should equate to the employee's actual normal tax liability.

SITE represents nothing more than payments towards an employee's normal tax liability and in cases

of employees subject only to SITE, the tax actually deducted from their remuneration by their employers, equates to their normal tax liability.

Paragraph 11B(2) of the 4th Schedule prescribes that the SITE liability of an employee must be

determined by the employer at the end of the employee’s tax period or at the end of the tax year. Paragraph 11B(5)(a) of the 4th Schedule prescribes that the employer is obliged to refund the excess

deducted to the employee where the employees' tax required to be deducted at the end of a tax period consists solely of SITE and the total amount of tax actually deducted exceeds such SITE required to be deducted. However, where the employees' tax required to be deducted does not consist solely of SITE, the excess deducted must be shown as PAYE on the IRP 5 and the employer is not permitted to refund the PAYE to the employee.

Recalculation of SITE by SARS —Paragraph 11B(4) of the 4th Schedule prescribes that SITE may

be recalculated by SARS in the following circumstances:

where the employee is entitled to the deduction of pension and / or retirement annuity fund contributions and such contributions were not taken into account by the employer in the determination of SITE; or

where an employee is under the age of 65 years and medical expenses as an aggregate exceeds 7,5% of taxable income; or

where the employee paid medical scheme contributions which were not taken into account by the employer in the determination of SITE; or

where the employee is entitled to the deduction of any premium in terms of an insurance policy and such premiums were not taken into account by the employer in the determination of SITE (see Income Protection Policy Premium in paragraph 8.5.3).



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Paragraph 11B(2A) of the 4th Schedule prescribes that where the employer finds at the end of an employee’s tax period that the SITE liability does not differ by more than R5.00 from the total amount of employees' tax deducted during the year, the employer may, at his / her option, deem the total amount deducted to be the correct amount of SITE determined.

Paragraph 11B(7)(c) of the 4th Schedule prescribes that if the employer makes use of his / her own

methods to determine the employees' tax liability, for example a computer program, and the difference does not deviate by more than 2% of the SITE liability, the amount may be deemed to be correct. This provision only applies —

where it relates to employees whose employees' tax represents SITE only; where the employees' tax has been correctly deducted in accordance with the tax deduction

tables, tax deduction program SARSTAX 2000 or the statutory rates of tax; and if a shortfall or excess occurs as a result of the use of methods other than the tax deduction

tables or tax deduction program SARSTAX 2000 and the difference is not more or less than 2%, then the difference need not to be recovered or refunded, as the case may be.

11 OFFENCES Paragraph 30(1) of the 4th Schedule prescribes that any person will be guilty of an offence and liable

on conviction to a fine or imprisonment where he / she —

fails to deduct employees' tax from remuneration or to pay the tax to the Commissioner within the prescribed period;

uses or applies employees' tax deducted or withheld, for purposes other than the payment of such amount to the Commissioner;

permits a false IRP 5 certificate to be issued or knowingly is in possession of or uses a false IRP 5 certificate;

alters an IRP 5 certificate issued by any other person, purports to be the employee named on any IRP 5 certificate or obtains a credit for his / her own advantage or benefit in respect of employees' tax deducted or withheld from another person’s remuneration;

not being an employer and without authority from an employer issues or causes to be issued, any document purporting to be an IRP 5 certificate;

without just cause fails to comply with an income tax directive issued by the Commissioner; furnishes false information or misleads his / her employer regarding the amount of employees'

tax to be deducted in his / her case; fails to deliver IRP 5 certificates to employees or former employees within the prescribed

periods; fails to comply with any condition prescribed by the Commissioner in regard to the manner in

which IRP 5 certificates may be used, the surrender of unused stocks of certificates, accounting for used, unused and spoiled IRP 5 certificates when required by the Commissioner to do so or to surrender unused IRP 5 certificates when ceasing to be an employer;

fails to comply with the conditions for using a mechanised system for printing IRP 5 certificates to be issued to employees or former employees;

fails to maintain a record of remuneration paid and tax deducted there from or to retain such record for a period of five years from the date of the last entry therein;

fails to apply for registration as an employer; fails to notify the Commissioner of a change of address; fails to notify the Commissioner that he / she has ceased to be an employer; fails to comply with a written request for information; or defaults in rendering a return.

Penal clause

An employer guilty of an offence may be fined or sentenced to imprisonment for a period not

exceeding twelve months. Section 75A prescribes that the Commissioner may, notwithstanding the Secrecy provisions’,

from time to time publish the particulars relating to any offence committed by any person, where such person has been convicted of any offence in terms of the Income Tax Act. Such publication may specify the — o name and address of the offender;



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o particulars of the offence; o tax year or tax period during which the offence occurred; o amount or estimated amount of the tax or additional tax involved; and o particulars of the fine or sentence imposed.

12 TAX DIRECTIVES (GRATUITIES, LUMP SUMS AND EXCEPTIONAL

CIRCUMSTANCES) 12.1 PURPOSE OF A TAX DIRECTIVE Paragraph 9(1) of the 4th Schedule prescribes that a tax directive (IRP 3) is issued by SARS to instruct

the employer / fund how to deduct employees' tax from certain payments where the prescribed tax tables do not cater for certain remuneration or other payments.

Tax calculations according to the tax directive should be regarded as a mere estimate as some

employees may find that they still have to pay in substantial amounts or that a credit may be due to them once the final liability has been determined on assessment.

The following rules relate to a tax directive —

A tax directive is only valid for the tax year or period stated thereon. Employers may not act upon photocopies of directives. Employers may under no circumstances deviate from the instructions of the directive. Tax directives issued to electronic clients via the SARS Interface are valid directives. Employers must apply the percentage of employees' tax as indicated on the directive prior to

taking into account allowable deductions for employees' tax purposes (e.g. pension, retirement annuity fund contributions, etc).

Tax directives must be applied for in all the circumstances explained in the following paragraphs.

Application forms [IRP 3(a), IRP 3(b), IRP 3(c) and IRP 3(d)] are available on the SARS website and at the SARS offices.

Reasons and application forms for tax directives

Application forms have been developed for purposes of applying for a specific tax directive and

all these application forms are available on SARS website www.sars.gov.za. Form A & D, Form B and Form C serve as an example of the form layout. Fund administrators must add their own logo and address when submitting the applications forms to SARS offices.

When applying for a tax directive, the employer / fund administrator must ensure that the correct application form is used according to the reason for the exit from the fund / employer’s service and nature of the amount payable to the employee / member of the fund. o IRP 3(a) – Gratuities paid by employer (e.g. death / retirement / retirement due to ill

health, superannuation & other / retrenchment / share options without obligation / in service payment within 5 years of retirement / other).

o IRP 3(b) – Employees' tax to be deducted at a fixed percentage (e.g. commission agents / personal service company / personal service trust).

o IRP 3(c) – Employees' tax to be deducted at a fixed amount (e.g. Paragraph 11 of the 4th Schedule (hardship) / assessed loss carried forward).

o IRP 3(d) – Determine deemed remuneration to be used to deduct employees' tax (e.g. Paragraph 11 of the 4th Schedule (hardship) / Paragraph 11C(1)(ii)(bb) of the 4th Schedule).

o Form A & D – Lump sums paid by pension and / or provident fund. (e.g. death / ill health / retirement / provident fund – deemed retirement / unclaimed benefit).

o Form B – Lump sums paid by pension and / or provident fund on resignation / withdrawal / winding up / transfer / Section 1, Paragraph (eA) of the definition of gross income transfer or payment / surplus apportionment / unclaimed benefit).

o Form C – Lump sums paid by a RAF to a member (e.g. death before retirement / death after retirement / ill health / retirement / transfer from one RAF to another / unclaimed benefit).



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Minimum information required on the application form

To avoid a delay in the issuing of a directive, the following minimum information is required on

the application form: o Tax year; o Personal detail of the employee / member of the fund —

Surname and full names; Date of birth and ID number or other unique number (e.g. passport number, work

permit number or non-resident identity number); Annual income (e.g. annual equivalent of current tax year’s income or the total

remuneration for the last 12 months); Physical address and postal code; and Postal address and postal code;

o Income tax reference number [if the income tax reference number was not entered, the reason for non-registration (e.g. SITE, unemployed) must be supplied];

o Name of employer or fund; o Postal address and postal code of employer / fund; and o Reason for directive (the relevant reason must be marked on the application form).

Form A & D / B / C application forms (minimum information required): o The fund approval number (number starting with 18204 plus 6 numeric values); o The PAYE number of the fund ; o The membership number or policy number; o Type of fund (pension / provident / retirement annuity); o Fund created reason (approved fund, public sector fund or other); o Date of accrual; o Date on which the member became a member of the fund; o Gross amount of lump sum payment (including the amount deemed to be accrued in

respect of Paragraph 2B of the Second Schedule); o Gross amount of total benefit / total value of full annuity; o Amount attributed to a non-member’s spouse in respect of a divorce order; o The relevant questions on form A & D must be answered to indicate if the calculation of

the benefit is in terms of employment or membership; and o Indication on form A & D if —

funds are available to provide the member with an annuity; or will the funds be transferred to an insurer to provide a living annuity (name of

insurer and the amount transferred must be provided). IRP 3(a) / (b) / (c) / (d) application forms (minimum information required):

o The PAYE number of the employer; o Date of accrual; and o Gross amount of lump sum payment.

The relevant income and expense statement and / or other relevant documentation must accompany the application form if the IRP 3(b) / (c) / (d) application forms are submitted.

Employers or fund administrators may submit manual application forms to SARS office or submit the application forms electronically via an interface agent or register as an agent on the SARS website www.efiling.gov.za.

12.2 GRATUITIES ON TERMINATION, IMPENDING TERMINATION OF SERVICES OR

RETRENCHMENT A gratuity is an amount, voluntary or otherwise, paid to an employee by an employer in respect of the

termination of service. The most common examples are —

Normal termination of service as a result of resignation or discharge; Retirement or death; and Termination of service as a result of retrenchment.

An IRP 3(a) application form, which is obtainable from SARS, must be submitted in respect of the

above.



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Normal termination of service — The gratuity paid by an employer to an employee is treated as an annual payment (for example, service bonus) and the applicable formula is used for the calculation of employees' tax. A SITE calculation must be done at the end of the tax period to determine the SITE and the gratuities must be reflected on the IRP 5 certificate under code 3907.

Dismissal or retrenchment — Where, on dismissal or retrenchment, an employee is entitled to an

amount which refers to the period that the employer is obliged to give the employee notice of such termination of service, in other words, the employer pays the employee an amount equal to the salary the employee would have earned if such employee had worked for the full notice period, the amount (notice pay) will not qualify for the exemption in terms of Sections 7A(4A) or 10(1)(x) and notice pay must not be entered on the IRP 3(a) application form as part of the lump sum amount. A tax directive must be obtained from the SARS office or where the employee is on register. The gratuity due to retrenchment, retirement, etc. must be reflected on the IRP 5 certificate under code 3901 and the tax attributed to the lump sum must be reflected as PAYE.

Exemption — Any amount in cash or in kind, received by or accrued to an employee or the

holder of any office by way of bonus, gratuity or compensation (including payment for accumulated leave and redundancy payment) because of the termination of his / her services or because of the impending termination of his / her services within five years, is exempt from tax to the extent of a cumulative amount of R30 000 provided that — o the person to whom it is paid has attained the age of 55; or o the termination or impending termination of such person’s services is due to

superannuation, ill-health or other infirmity; or o the termination of the person’s services is as a result of the employer having ceased

trading or where he / she has affected a general reduction in personnel or a reduction in personnel of a particular class.

The exemption does not apply where the employer is a company and the employee concerned was at any time a director of the company or at any time held more than 5% of the company’s issued share capital.

Only lump sum payments in the five years preceding the retirement (termination of the employee’s

services) or retrenchment (reducing staff numbers) or payments which falls together with the retirement (termination), will be taken into account for purposes of the exemption. A further requirement is that the first of such payments (in the case of leave payments) must be in respect of all leave to the employee’s credit at that stage.

12.3 HARDSHIP DUE TO ILLNESS OR OTHER CIRCUMSTANCES Paragraph 11 of the 4th Schedule prescribes that the Commissioner may, having regard to the

circumstances of the case, issue a directive authorising the employer to refrain from deducting any employees' tax or to deduct a specified amount to alleviate hardship due to illness or other circumstances or to correct an error in the calculation of employees' tax.

Set off an assessed loss — In cases where an employee has losses from sources of income such as

farming, business, rental, etc. that exceeds remuneration income and therefore will result in an assessed loss, an application may be made for a tax directive.

An IRP 3(c) application form, which is obtainable from SARS, must be submitted in respect of the

above. 12.4 GAINS MADE IN RESPECT OF RIGHTS TO ACQUIRE MARKETABLE

SECURITIES Paragraph 11A of the 4th Schedule prescribes that the employer must apply for an IRP 3 tax directive

in order to ascertain the amount of employees' tax to be deducted or withheld from any gain made by the exercise, cession or release of any right to acquire any marketable security as contemplated in Section 8A.

Taxable portion — A tax liability will arise on the day on which the right is exercised or otherwise

dealt with and will be calculated as the difference between the amount paid for the marketable security and the market value at that date.



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These provisions only apply if such a right was obtained by the employee before 26 October 2004.


above. IRP 5 — The income must be reflected under code 3707 on the certificate.

12.5 BROAD-BASED EMPLOYEE SHARE PLAN Paragraph 11A of the 4th Schedule prescribes that employees' tax must be deducted from any amount

received by or accrued to the employee during the year from any gain made from the disposal of any qualifying equity share or any right or interest in a qualifying equity share as contemplated in Section 8B, which —

was acquired in terms of a broad-based employee share plan; and is disposed of by the employee within five years from the date of grant of that qualifying equity

share, otherwise than — o in exchange for another qualifying equity share; o on the death of the employee; or o on the insolvency of the employee.

Exchange for other qualifying equity share

If an employee disposes of a qualifying equity share in exchange solely for any other equity

share, that other equity instrument in exchange is deemed to be — o a qualifying equity share which was acquired by the employee on the date of grant of the

qualifying equity share disposed of in exchange; and o acquired for a consideration equal to any consideration given for the qualifying equity

share disposed of in exchange. If an employee acquires any equity share by virtue of any qualifying equity share held by the

employee, that other equity share so acquired is deemed to be a qualifying equity share which was acquired on the date of grant of the qualifying equity share so held by the employee.

Employers must calculate the employees' tax deductible from any amount received by or accrued to

the employee during the year from any gain made from the disposal of any qualifying equity share or any right or interest in a qualifying equity share, in the same manner as tax on an annual payment (bonus).

IRP 5 — The income must be reflected under code 3717 on the certificate.

12.6 VESTING OF EQUITY INSTRUMENTS Paragraph 11A of the 4th Schedule prescribes that the employer must apply for an IRP 3 tax directive

in order to ascertain the amount of employees' tax to be deducted or withheld from any gain in respect of the vesting of any equity instrument as defined in Section 8C.

These provisions are only applicable to any equity instrument acquired on or after 26 October 2004.

Taxable portion: The gain to be included in the remuneration of an employee is —

in the case of a disposal, the amount received or accrued in respect of that disposal which

exceeds the sum of any consideration in respect of that equity instrument; or in any other case, the sum of —

o the amount by which the market value of the equity instrument determined at the time that it vests in that employee exceeds the sum of any consideration in respect of that equity instrument; and

o the excess amount (if any) which exceeds the consideration in respect of the restricted equity instrument where the consideration includes an amount other than restricted equity instruments.



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When the equity instrument vests in the employee and when an unrestricted equity instrument is acquired, the gain will be subject to the deduction of employees' tax.

Vesting of equity instrument: An equity instrument acquired is deemed to vest —

in the case of an unrestricted equity instrument, when the employee acquires it; and in the case of a restricted equity instrument, at the earliest of —

o when all relevant restrictions cease; o immediately before the employee disposes of it (except for disposals discussed

hereunder); o immediately after it terminates (if it is an option); and o immediately before the employee dies if all the restrictions relating to that equity

instrument are or may be lifted on or after death. A disposal does not trigger a vesting if —

a restricted equity instrument is replaced by another restricted equity instrument; a restricted equity instrument is disposed of to a person otherwise than by or under a disposal

made in terms of a transaction at arm’s length; or a restricted equity instrument is disposed of to a connected person.


above. IRP 5 — The gain must be reflected under code 3718 on the certificate.

12.7 ARBITRATION AWARDS Paragraph 9(3) of the 4th Schedule prescribes that an employer must ascertain from SARS the amount

of employees' tax to be deducted from an amount awarded in respect of a settlement agreement or a court order (labour court awards, CCMA awards, etc.) before such amount is paid to the employee or former employee.

An IRP 3(a) application form must be submitted to SARS by the employer for the amount awarded to

an employee or former employee in respect of CCMA and labour court awards. A copy of the court order or settlement agreement must accompany the application form.

CCMA and labour court awards can be classified into three broad categories:

Unfair dismissals — Amounts awarded in respect of unfair dismissals (including voluntary

payments) are remuneration as defined in the Fourth Schedule and are therefore subject to the deduction of employees' tax. Such amounts are received or accrued in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of any office or employment or of any appointment to any office or employment.

Termination of employment contract prior to its expiry date — Amounts awarded in respect of termination of an employment contract prior to its expiry date are remuneration as defined in the Fourth Schedule and are therefore subject to the deduction of employees' tax. Such amounts are received or accrued in commutation of amounts due under a contract of employment or service or in respect of cancellation or variation of any office or employment.

Unfair labour practices — Amounts paid or accrued as a result of unfair labour practice, may be included in remuneration as defined. SARS will examine the facts of the case and the nature of amounts awarded when the application for a tax directive is received from the employer.

Awards (e.g. CCMA and labour court awards) are remuneration as defined if it can be established that

the award is actually in respect of services rendered. IRP 5 — The relevant taxable and non-taxable portions of an arbitration award must be reflected on

the certificate under code —

3608 (taxable amount); and 3609 (non-taxable amount).



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12.8 LUMP SUM PAYMENTS FROM A PENSION, PROVIDENT OR RETIREMENT

ANNUITY FUND In terms of the Second Schedule, SARS determines the amount of employees' tax attributable to a

lump sum payment from a pension, provident or retirement annuity fund on application for a tax directive.

Application forms A & D, B or C are furnished by the administrators of the relevant funds in

accordance with the instructions contained in the Government Gazette No. 22577 (notice no. 1893) dated 24 August 2001. Examples of updated application forms are available on the SARS website www.sars.gov.za.

12.9 DIRECTORS OF PRIVATE COMPANIES / MEMBERS OF CLOSE

CORPORATIONS Paragraph 11C(1)(c)(ii)(bb) of the 4th Schedule prescribes that the employer must only apply for a tax

directive to determine the minimum amount of remuneration where the minimum amount (deemed amount) cannot be determined for the purpose of the prescribed formula.

Paragraph 11 of the 4th Schedule prescribes that the director may apply for a relief where there is a

verifiable result of hardship (refer to Hardship due to illness or other circumstances in paragraph 12.3). Where the minimum amount cannot be determine for purposes of the prescribed formula —

Where the employer has not determined the remuneration for the year preceding the last tax year, the employer must apply for a tax directive to determine the amount of remuneration which is deemed to have been received by the employee (director).

The following minimum information MUST be supplied in the space provided for on the

application form as well as the personal particulars of the director: o Last known remuneration received or accrued [including allowances but excluding lump

sums (as contained in Paragraph (d), (e) and (f) of the definition of gross income in Section 1) and gains made by directors in respect of rights to acquire marketable securities];

o Tax year in which such remuneration was received; and o Number of completed months for which the last known remuneration was received.

Relief where there is a verifiable result of hardship — Where the expected remuneration of a

director for the current year is less than the remuneration received for the previous year, the director may apply for a tax directive for relief.

The following minimum information MUST be supplied in the space provided for on the

application form as well as the personal particulars of the director: o Last known remuneration received or accrued [including allowances but excluding lump

sums (as contained in Paragraph (d), (e) and (f) of the definition of gross income in Section 1) and gains made by directors in respect of rights to acquire marketable securities];

o Tax year in which such remuneration was received; o Number of completed months for which the last known remuneration was received; o The estimated / actual remuneration for the current tax year; and o Documentation to support the application, such as interim financial statements and / or

minutes of meetings held by directors which indicate that remuneration to be paid to directors will be less than the remuneration for the previous tax year.

An IRP 3(d) application form, which is obtainable from SARS, must be submitted in respect of the

above. The taxation of director’s remuneration is covered separately in this guide (refer to paragraph 14.4).



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13 TAX DEDUCTION TABLES 13.1 RATES OF TAX PRESCRIBED BY THE COMMISSIONER Paragraph 9(1) of the 4th Schedule states that the deduction tables are prescribed by the

Commissioner, having regard to the rates of normal tax as fixed by Parliament or foreshadowed by the Minister of Finance in the budget statement.

Paragraph 9(2) of the 4th Schedule prescribes that these tables come into force on such a date as may

be notified by the Commissioner in the Government Gazette and remain in force until withdrawn by the Commissioner.

In the absence of a tax directive to the contrary as prescribed in Paragraph 10 of the 4th Schedule,

employers must make use of the deduction tables prescribed by the Commissioner or use the statutory rates as an alternative.

Implementation of new rates of tax

The new tax rates must be implemented by employers as soon as possible but not later than

1 July of a tax year and employees' tax must be calculated according to these rates. Any over deduction of employees' tax arising as a result of the implementation of new rates

not in the employer’s possession on 1 March of each new tax year, may be refunded to the employee as soon as new rates (tables) are implemented.

Any under deduction of employees' tax arising as a result of the implementation of new rates not in the employer’s possession on 1 March of the new tax year, may be adjusted over the remainder of the new tax year (from the date of implementation until 28 February).

Employee leaves employment before introduction of new tables

If an employee leaves your employment after 1 March of the new tax year but before the

implementation of the new rates, the employees' tax deductions made in accordance with the previous rates are regarded as final.

Rebates for individuals which are prescribed in Section 6 are deducted from the normal tax determined according to the statutory rates of tax. No rebates are allowed to trusts or personal service trusts.

13.2 DIFFERENT VERSIONS OF TAX DEDUCTION PROGRAMS Small differences may occur between the manual tables, SARSTax 2000 and other computer

programs based on the statutory rates of tax. All these methods are acceptable in terms of the Income Tax Act as long as the results are within the rules provided for in the Act. Employers may therefore design their own calculation method provided that the results are the same.

TAX DEDUCTION TABLES

The manual tables and guidelines for employers include weekly, fortnightly, monthly and annual

deduction tables. The tables are issued free of charge and should extra copies be required, these can be obtained from SARS. The tax rebates have already been taken into account in the compiling of the manual tables, therefore no further calculations are necessary.

The tables are attached to this guide as AS-PAYE-05-A12 to A15. SARSTAX 2000

The employees' tax deduction software program is available on compact disc under the name

SARSTax 2000. The minimum software and hardware required to use the program is — o WINDOWS 95 / 98 / 2000 / XP or WINDOWS NT with SP5 or later; o Microsoft Internet Explorer (version 4 or later); o 486 / 100 MHZ or higher processor; o CD Rom drive; o 16MB RAM (recommended 24MB); and o SVGA (800 x 600) or higher screen resolutions.



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SARSTax 2000 is supplied free of charge and may be reproduced freely. The latest version, in operation since 1 March 2006, is version 3. New tax rates, which need to be imported, are distributed annually.

14 CLASSIFICATION OF EMPLOYEES (WORKERS) 14.1 LABOUR BROKER The provision or procurement of workers as opposed to the provision of service is of importance.

Typically, a labour broker arrangement will involve three parties, namely:

Client: The person who specifies the workers required. A written or oral service contract would arise between the client and the labour broker where the service conditions of the workers may or may not be stipulated. Payments for the workers' services are made to the labour broker.

Labour broker: The labour broker is a person who, for reward, provides and remunerates workers for a client and is either in or not in possession of an exemption certificate (IRP 30). The labour broker either makes available his / her own employees to perform work for a client or he / she procures workers for a client. The labour broker pays the workers.

Workers: These workers can be any person, including — o Members and / or employees of a close corporation; o Directors and / or employees of a company; o Trustees and / or employees of a trading trust; o Proprietors and / or employees of a business; and o Partners and / or employees of a partnership.

Exemption certificate (IRP 30)

Paragraph 2(5) of the 4th Schedule makes provision for an exemption certificate to be issued by

SARS to a labour broker, which will absolve employers from having to deduct employees' tax from any payments made to such labour brokers.

SARS shall not issue an exemption certificate if — o more than 80% of the gross income of the labour broker during the tax year consists of

amounts received from any one client, unless that person is a labour broker which throughout the tax year employs more than three full-time employees — who are on a full-time basis engaged in the business of that labour broker of

providing persons to or procuring persons for clients of that labour broker; and who are not connected persons in relation to that labour broker; or

o the labour broker provides to any of its clients the services of any other labour broker; or o the labour broker is contractually obliged to provide a specified employee of the labour

broker to render any service to such client. An exemption certificate is only valid from the date of issue until the end of the tax year. The labour broker must apply annually on an IRP 30(a) form for a new exemption certificate at a

SARS office at least 2 months before the expiring of his / her current exemption certificate. If the issue of an exemption certificate is delayed for longer than a calendar month, the date of validity will be altered from the date of issue to the date the application was received. In such cases any employees' tax deducted is refundable by the relevant employer.

An exemption certificate will only be valid if: o it is not outdated; o it bears a labour broker reference number beginning with a 7; o it has been computer printed; o the labour broker is in possession of the original; and o it has not been altered in any way.

If a labour broker is in possession of a valid exemption certificate and undergoes a change of name, the original certificate must be returned to the relevant SARS office together with an application for a new certificate, which indicates the changed particulars.

If an exemption certificate has been lost or misplaced, application for a replacement certificate must be made to SARS Head Office and the replacement certificate will only be issued during the period of validity of the original certificate.



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Employees' tax applicable to Labour brokers

If a labour broker is not in possession of a valid exemption certificate (IRP 30), all payments made to the labour broker will be subject to employees' tax.

An employer who does not deduct employees' tax from a payment to a labour broker must be in possession of a certified copy of an exemption certificate (IRP 30) that must be retained for inspection purposes.

The deduction is classified in the following categories: o Individuals — employees' tax must be deducted according to the employees' tax

deduction tables. o Company or close corporation — where the labour broker is a company or close

corporation, tax must be deducted according to the rate applicable to employment companies (34%).

o Tax directive — tax must be deducted according to the instructions on the tax directive. IRP 5 details

The employees' tax deducted for individuals, companies and close corporations whether

calculated according to the deduction tables or a tax directive, must be reflected as PAYE and not as SITE on the IRP 5 certificate.

The remuneration must be reflected under code 3617 on the IRP 5 certificate. The reason code for non-deduction of employees' tax must be reflected as 07 on the IRP 5

certificate. 14.2 PERSONAL SERVICE COMPANY OR PERSONAL SERVICE TRUST

(EXCLUDING SPECIAL TRUST) Rules to determine of an employee is a personal service company / trust

A personal service company or trust is any company or trust where services are rendered

personally by any connected person in relation to such company or trust and — o the person rendering the service would be regarded as an officer or employee of the

client, had such service been performed directly to the client; o the person rendering the service is subject to the control and supervision of the client as

to the manner in which the duties are performed in rendering such service and must be mainly performed at the premises of the client; or

o more than 80% of the income of the company is derived during the tax year from one client.

The employee will be deemed to be a personal service company or personal service trust if any of the above scenarios apply.

A person shall not be required to deduct or withhold employees’ tax solely by virtue of the fact that 80% of the income of the company is derived during the tax year from one client, where the personal service company / trust has provided that person with an affidavit or solemn declaration stating that the relevant paragraphs mentioned above do not apply and that person relied on that affidavit or declaration in good faith.

Exclusion: A company or trust who employs throughout the tax year three or more full-time

employees (other than shareholders, members or connected persons) who are on a full-time basis engaged in the business of the company or trust of rendering any service.

Employees' tax — The rate at which employees' tax is deductible for personal service companies is

34% and 40% for personal service trusts. IRP 5 details

The nature of person in respect of a personal service company must be indicated as an H on

the IRP 5; and the nature of person in respect of a personal service trust must be indicated as a K on the

IRP 5.



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14.3 INDEPENDENT CONTRACTOR Income earned by an independent contractor is specifically excluded from the definition of

remuneration in Paragraph 1(ii) of the 4th Schedule. Such income is however included in the definition of gross income in Section 1.

In distinguishing between an employee and an independent contractor / trader one must commence

with an analysis of the employment contract. The object of the contract (or the parties' rights and obligations under the contract) must be established.

The object of the contract is not a mere indicator, but determines the legal nature of the contract. The

object to be established is the pre-eminent object, for example —

If the object is the surrender of productive capacity (whether capacity to provide a service or to produce things), then the contract is for employment of an employee. The essence of an employee’s contract (contract of service) is the placing of one person’s services (labour) at the disposal of another, enabling the acquisition of that service itself and not simply the fruits of that productive capacity.

If the object is the acquisition of the result of deployed productive capacity (of a produced thing or of a provided service), then the contract is for the employment of an independent contractor. The essence of an independent contractor’s contract (contract for services or work) is that the independent contractor only commits himself / herself to deliver the product or end result of that capacity.

Exceptions: The 4th Schedule prescribes that the independent contractor’s income will be deemed to

be remuneration and will therefore be subject to employees' tax, if —

An independent contractor is controlled and supervised as to the manner in which his / her duties are performed or to be performed or as to his / her hours of work; or

An independent contractor is paid at regular daily, weekly, monthly or other intervals. The employer, being a party to the employment contract, is in the best position to determine whether

or not the employee is an independent contractor. SARS has therefore provided certain guidelines in order to assist the employer with this responsibility. These guidelines are available in Interpretation Note 17 and can be obtained on the website www.sars.gov.za under Interpretation Notes / Income Tax.

14.4 DIRECTORS OF PRIVATE COMPANIES / MEMBERS OF CLOSE

CORPORATIONS The definition of employee in Paragraph 1 of the 4th Schedule includes a director of a private

company. Any remuneration paid or payable to a director of a private company or a member of a close corporation is therefore subject to the deduction of employees' tax on a monthly basis as from 1 March 2002.

The same rules for the deduction of employees' tax from the remuneration of directors of private

companies apply to members of close corporations. The definition of a director in Section 1 of the Act includes a person who, in respect of a close corporation, holds any office or performs any functions similar to the functions of a director of a company other than a close corporation. The definition of a company in Section 1 of the Act includes a close corporation.

Deemed minimum remuneration — A director is deemed to have received a minimum amount of

remuneration every month.

The minimum amount is determined by the formula prescribed in paragraph 11C of the 4th Schedule, namely —

T Y = N in which:

o Y represents the monthly amount to be determined;



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o T represents the balance of remuneration (excluding any deemed amount determined in terms of this provision) of the director paid or payable to the director by that company in respect of the last tax year of that director, less any amount — contemplated in paragraph (d), (e) and (f) of the definition of gross income in

Section 1 of the Act which is included therein; or which is included in terms of paragraph 11A; and

o N represents the number of completed months in the tax year in respect of which T was derived. If the remuneration for the year preceding the last tax year has also not been

determined as yet, then the company must request the Commissioner to determine the remuneration for the purposes of the formula.

Where the remuneration of the director for the last tax year has not yet been determined for purposes of T in the formula, T shall then be determined based on the balance of remuneration paid / payable by the company to the director in respect of the preceding tax year increased by an amount equal to 20% of that remuneration and N shall be the number of completed months which the director was employed by that company during that preceding tax year.

Fixed remuneration more than 75% of T in the formula

With effect from 1 March 2004 the requirement to determine employees' tax on the deemed

remuneration will not be applicable to directors earning more than 75% of their remuneration in the form of fixed monthly payments.

Where more than 75% of T (only T in respect of the last tax year) consists of fixed monthly remuneration, the company must use actual remuneration to calculate the monthly PAYE (i.e. paragraph 11C is NOT applicable). Where the remuneration in respect of the last tax year has not been finalised or 75% or less than 75% of T consists of fixed monthly remuneration, the company must apply paragraph 11C (deemed remuneration) principles to calculate PAYE.

Where T in the formula cannot be determined: Where the deemed remuneration cannot be

determined in the prescribed manner as a result of the fact that the remuneration of the director has not been determined for the relevant years of assessment, SARS must be approached to make the determination.

Paragraph 9(5) of the 4th Schedule prescribes that the monthly employees' tax must be determined on

the higher of the actual or the deemed remuneration of the directors of a company.

Where the actual remuneration is used, employees' tax is payable by the director and must be calculated on the actual remuneration.

Where the deemed remuneration is the highest, employees' tax on the deemed remuneration exceeding the employees' tax on the actual remuneration must be paid by the company and the difference must be paid by the director by way of a deduction from the director's actual remuneration.

Right of recovery: The employer has the right to recover the PAYE on the deemed remuneration

paid by the company from the director. This recovery may, in addition to any other right of recovery, be recovered from any amount which is or may become payable by the company to the director. The director IS NOT ENTITLED TO receive an employees' tax certificate in respect of the amount of EMPLOYEES' TAX PAID BY THE COMPANY on the deemed REMUNERATION IF THE COMPANY HAS NOT RECOVERED the employees' tax from the director.

Director status changes to employee: Where the person ceases to be a director but remains an

employee of the company, the formula must no longer be used and PAYE must be deducted from remuneration that is actually paid or is payable to the employee. Only one IRP 5 needs to be issued for the year.

Director appointed during tax year: Where a person is appointed as a director of a private company

during the tax year and the director was not previously an employee of that company, PAYE will be payable on the actual remuneration which is paid or is payable to the director during that tax year. The formula will not be applied to deem any remuneration to have accrued to the director in the year of appointment. However, where the newly appointed director was previously an employee of the company, the formula will be applicable.



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Paragraph 11 of the 4th Schedule prescribes that relief can be obtained from SARS where there is a

verifiable reason for hardship. In these situations, SARS has the discretion to issue a directive to reduce the amount of PAYE payable.

The amount of tax that a private company pays in respect of the deemed remuneration of each

director is not considered to be a loan granted to that director for the purposes of the Seventh Schedule, i.e. it does not give rise to an interest-free loan fringe benefit. It is an amount for which the company is liable in terms of Paragraph 11C(2) of the 4th Schedule.

Remuneration for SDL and UIF contributions purposes: As the remuneration of a private

company director will fall within the definition of remuneration, the remuneration must be brought into account in the calculation of SDL and UIF contributions.

Remuneration only determined in the next tax year

Circumstances may arise where the remuneration of a director or portion thereof accrues in a

tax year but the quantum of the remuneration is only determined in a later year. For example, the service contract of a director may provide that the director is entitled to a bonus of 10% of the company’s profits for the year ending on 28 February 2005. The financial accounts of the company are only finalised on 30 June 2005 when the quantum of the director’s bonus can be determined.

As long as the accrual of the bonus is not dependant on any other condition that may happen after the end of the 2005 tax year, the bonus will accrue in the 2005 tax year. The bonus which is eventually quantified in the 2006 tax year will not, however, be included in the calculation of the actual remuneration for the determination of PAYE in either the 2005 or 2006 tax year. Instead it will be included in the calculation of the deemed remuneration for the 2006 tax year (which must be re-calculated at the time of determination). This is done in terms of the discretion of the Commissioner in Paragraph 2(1).

Employees' tax — SITE is not deductible from the remuneration of directors because their

remuneration is specifically excluded from the definition of net remuneration. Employers must therefore only deduct PAYE from the remuneration of directors.

IRP 5 detail

The remuneration shown on the IRP 5 must be the amount of actual remuneration which is

paid / payable to the director for the tax year. The amount of PAYE shown on the IRP 5 will be the sum of the PAYE that was deducted from

the actual remuneration of the director and the PAYE paid by the company in respect of the deemed remuneration of that director.

The salaries paid to directors must be reflected under code 3615 on the IRP 5 and all other components of the remuneration (bonus, allowance, benefits, etc.) must be reflected against the existing codes.

14.5 STUDENTS AND SCHOLARS Full-time students and scholars do not fall in a specific category and are taxed in the same manner as

any other employee. The employer must determine, according to the rules for standard employment and non standard employment (25% deduction), which applicable method of deducting employees' tax must be used.

14.6 SEASONAL WORKERS A seasonal worker is a person who is only employed during a peak period for a specific period, for

example:

Persons employed on a fruit farm during the picking season to pick and pack fruit; Persons employed on a sheep farm to assist with either the lambing or shearing; or Factories that require additional help during the canning season.



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A tax period commences at the date the employee was employed and ends on the date his / her employment was terminated.

If the season extends over the following tax year, the employer must issue two IRP 5 certificates in

respect of the two tax periods. For example, the employee will have two periods where a season extends from 15 November to 20 May, namely, 15 November to 28 February (1st tax year) and 1 March to 20 May (2nd tax year). Two IRP 5 certificates must be issued for the two periods as the employee has two tax periods in one service period.

14.7 EMPLOYEES 65 YEARS OR OLDER Paragraph 11B(6) of the 4th Schedule prescribes that employees' tax deductions for persons 65 years

or older must be made according to the tables for PERSONS 65 YEARS OR OLDER from the beginning of the tax period (e.g. 1 March) during which the employee turns 65 and not as from the month the qualifying age of 65 is attained.

Employees 65 years or older must furnish the employer with a written declaration or a copy of his / her

identification document as confirmation thereof. Where no such proof is submitted, the employer is obliged to determine the SITE and PAYE liability according to the tables applicable to PERSONS UNDER 65 YEARS.

Paragraph 2(4) of the 4th Schedule prescribes that contributions to a medical scheme may be

deducted prior to the calculation of employees' tax in respect of employees who are 65 years or older. 14.8 TEMPORARY EMPLOYEES WHO ARE FREQUENTLY EMPLOYED Where an employer employs employees regularly or frequently for such periods as may be required by

the employer, the Commissioner may in terms of the sub-paragraph (c) of the definition of standard employment in Paragraph 11B of the 4th Schedule, after consultation with the employer, issue a ruling to the employer or a group of employees.

A written application (by the employer), accompanied by all relevant information must be directed to

SARS Head Office (refer also to Standard employment in paragraph 15.1). The following information is pertinent to the written application —

a full explanation of the specific category of employees in respect of which the application is

made, a full description of the basis on which such employees are employed, and a full explanation as to why such employees are regularly or frequently employed.

14.9 COMMISSION AGENTS Employee works for commission only:

If the employee is in possession of a tax directive, the employer MUST deduct employees' tax

according to the instructions on the tax directive and the employees' tax deducted must be reflected as PAYE on the IRP 5 certificate.

If the employee is not in possession of a tax directive, the employer MUST deduct employees' tax according to the applicable tax deduction tables and a SITE calculation must be done at the end of the tax year or tax period.

Employee works for salary and commission:

If the employee is in possession of a tax directive, the employer MUST deduct employees' tax

according to the instructions on the tax directive and the employees' tax deducted must be reflected as PAYE on the IRP 5 certificate.

If the employee is not in possession of a tax directive, the employer MUST combine the salary and commission and deduct employees' tax according to the applicable tax deduction tables and a SITE calculation must be done at the end of the tax year or tax period.



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Under no circumstances may 25% or any other percentage for that matter, be deducted from remuneration, unless the tax directive so directs.

An employer must only act on a directive where the remuneration consists mainly in the form of

commission based on the employee’s sales or turnover attributable to the employee. IRP 5 — Commission income must be reflected under code 3606 on the IRP 5 certificate and the

salary income under code 3601. 15 CLASSIFICATION OF PAYMENTS 15.1 STANDARD EMPLOYMENT Where an employee does not fall within the definition of standard employment, an employee will be

deemed to be in standard employment if —

the employee (including scholars and students) is required to work for less than 22 hours a week and the employee furnishes a written declaration that he / she will not render services to any other employer, for the period that such employment is held, such employment is regarded as standard employment.

the employee works for at least 5 hours a day and receives less than R164 per day, such employee is deemed to be in standard employment.

Where the employer conducts his / her business in such a manner that employees render services on

a regular or frequent basis for such periods as may be required by the employer the Commissioner may, after consultation with the employer or with any body or association on which the employer is represented, direct that the employment of such employees shall be standard employment. The Commissioner may further instruct the employer as to the manner in which employees' tax must be deducted. (Refer also to Temporary employees who are frequently employed in paragraph 14.8).

Non-standard employment (25% deduction)

Examples of non-standard employment:

o Workers not in standard employment employed on a daily basis who are physically paid daily.

o Casual commissions paid, such as spotter’s fees. o Casual payments to casual workers for irregular services rendered or occasional

services. o Fees paid to part-time lecturers. o Honoraria paid to office bearers of organisations, clubs, etc.

Employees’ tax

Standard employment income — The weekly and monthly tables are used and the annual table

is used at the end of the tax period or tax year to determine SITE. Non-standard employment income — Employees' tax at the rate of 25% must be calculated on

the balance of remuneration. Where the employer is in possession of a tax directive in respect of a part-time employee, tax

must be deducted according to the instructions on the directive. (Refer also to Commission Agents in paragraph 14.9).

Determining the applicable method of deducting employees’ tax

Scenario Deduction method

Employee is not in standard employment and works at least 5 hours per day and earns less than R164 for that day

No tax to be deducted

Employee is only employed for one day (less than 22 hours a week) and earns less than R164 for that day

No tax to be deducted

Employee is required to worked at least 22 hours a week and is in standard employment Deduction tables



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Scenario Deduction method

Employee is not in standard employment and works less than 5 hours per day and earns less than R164 for that day 25% deduction

Employee is not in standard employment and works at least 5 hours per day and earns more than R164 for that day 25% deduction

IRP 5 — As the remuneration received for non-standard employment are excluded from the definition

of standard employment, the employees' tax deducted must be reflected as PAYE on the IRP 5. 15.2 BACKDATED (ANTEDATED) SALARIES AND PENSIONS The employer must ascertain the amount of employees' tax that must be deducted from backdated

salaries / pensions relating to current or previous tax year. Where the backdated salary / pension relate to periods in the current tax year, the employees' tax

must be calculated by adding the backdated salary / pension to the remuneration received. It is SARS' practice that employers must also calculate the employees' tax deductible from backdated

salary / pension, which relates to periods in previous tax years in the same manner as tax on a bonus, using the current year’s tax deduction tables.

The employer must provide the employee with a schedule which indicates the portion of the backdated

salary / pension relating thereto in respect of each previous tax year. IRP 5 — Backdated salary (excluding any bonus) must be reflected on the certificate as follows:

The portion of the salary which relates to periods in the current tax year must be reflected under

code 3601; and The portion of the salary which relates to periods in the previous tax years must be reflected

under code 3907. 15.3 RESTRAINT OF TRADE PAYMENTS Payments in respect of a restraint of trade (i.e. sterilisation of a person’s income earning capacity) are

included in the definition of remuneration in Paragraph 1 of the 4th Schedule and are therefore subject to the deduction of employees' tax.

Paragraph (cA) of the definition of gross income in Section 1 prescribes that where a payment in

respect of a restraint of trade was received or accrued, it will be taxable in full if it was received by or accrued to a natural person, a labour broker not in possession of an exemption certificate, a personal service company or a personal service trust.

Employees' tax — Employees' tax from restraint of trade payments must be calculated in the same

manner as tax on a bonus. IRP 5 — Restraint of trade payments must be reflected under code 3613 on the certificate

15.4 LEAVE PAY Leave pay is remuneration as defined in Paragraph 1 of the 4th Schedule and is fully subject to the

deduction of employees' tax. Leave pay is normally determined in terms of the number of annual leave days to which the employee

is entitled and the relevant remuneration to be paid while on leave. Leave pay can also be paid in terms of leave earned in previous years of employment or a proportion thereof. The employee must however be entitled to remuneration in respect of leave in order to include the leave pay in remuneration. The allowing of leave periods would not constitute remuneration.



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Accrual of leave pay: Leave pay accrues and is taxable when it becomes payable in the event of the following:

employee dies; employee leaves the employer’s employ on superannuation, resignation or dismissal; employee becomes insolvent; or due to internal arrangements (for example, employee is appointed in a more senior post or

promoted). Unpaid leave: Where an employee, for example, merely takes unpaid leave, goes on long leave or a

woman takes maternity leave, such employee’s tax period will not end on the date the employee goes on leave, but at the end of the tax year or the date of resignation if the employee resigns before the end of the tax year.

Employees' tax — Employers must calculate the employees' tax deductible from leave pay in the

same manner as tax on a bonus is calculated. IRP 5 — Leave pay must be reflected on the certificate under —

code 3901 if it accrued as a result of death, superannuation or dismissal; and code 3605 if it accrued as a result of encashment or resignation.

15.5 SPECIAL REMUNERATION PAID TO PROTO TEAMS Amounts paid to proto team members as special remuneration are defined as remuneration in

Paragraph 1 of the 4th Schedule and are subject to the deduction of employees' tax. Section 5(9) defines special remuneration as any amount received by or accrued to any mineworker

over and above his / her normal remuneration and any regular allowance in respect of special services rendered by him / her (otherwise than in the course of his / her normal duties) in combating any fire, flood, subsidence or other disaster in a mine or in rescuing persons trapped in a mine or in performing any hazardous task during any emergency in a mine.

The special remuneration paid to proto teams is subject to the rating formula contained in

Section 5(10) and are only applicable to a mineworker. Employees' tax — Employers must calculate the employees' tax deductible from this special

remuneration in the same manner as tax on a bonus is calculated. IRP 5 — Special remuneration paid to proto team members must be reflected under code 3906 on the

certificate. 15.6 ADVANCE SALARY Advance salary can be seen as an amount of future remuneration paid by the employer prior to actual

payable date of such remuneration. Such advance payment will be subject to the deduction of employees' tax when it is paid by the employer to the employee.

15.7 OVERTIME PAYMENTS Employees' tax on overtime payments is not calculated differently from tax on salaries. Any overtime

payment must be added to the salary (remuneration) for the specific period and the employees' tax must be determined by using the applicable tax deduction tables.

15.8 ANNUAL PAYMENTS Paragraph 11B(2)(b) of the 4th Schedule prescribes a special formula to be used to calculate

employees’ tax on annual payments. The following are examples of annual payments:



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Annual bonus; Incentive bonus; Leave pay with resignation; Encashment of leave; Merit awards; Backdated payments in respect of salary / wages (accrued in previous tax years); An amount paid to a mineworker for picking up a diamond; An amount paid to an employee for a proposal to simplify procedures; and A bonus or an incentive amount paid to an employee to retain his / her services for a specific

period. Where this amount is repayable by the employee on termination of his / her service prior to the end of the contract period, the employees' tax paid on this amount may under no circumstances be refunded to the employee.

IRP 5 — The total of all annual payments received during the tax year must be reflected under code

3605 on the certificate. 16 EXEMPTIONS 16.1 UNIFORMS (SPECIAL UNIFORMS) Where it is a condition of employment that an employee is required whilst on duty to wear a special

uniform which is clearly distinguishable from ordinary clothing, the value of such uniform given to the employee or any allowance made by the employer to the employee in lieu of such uniform as is reasonable, is exempt from tax in terms of Section 10(1)(nA).

IRP 5 — The value or allowance amount must be reflected under code 3709 on the certificate.

16.2 TRANSFER COSTS Any benefit received by an employee by reason of the fact that his / her employer has borne certain

expenditure incurred in consequence of the employee’s relocation from one place of employment to another or on the appointment of the employee or on termination of the employee’s employment, may be exempt from tax in terms on Section 10(1)(nB).

A transfer that does not necessitate a change of residence does not fall within the ambit of the

exemption. Expenditure exempt from tax: Where the employer has borne the expenses (costs) set out below, it

will be exempt from tax —

the transportation of the employee, members of his / her household and personal goods from his / her previous place of residence to his / her new place of residence;

any costs as the Commissioner may allow which have been incurred by the employee in respect of the sale of his / her previous residence and in settling in permanent residential accommodation at his / her new place of residence; and

the cost of renting temporary residential accommodation for the employee and members of his / her household during a period which ends 183 days after his / her transfer took place or after his / her date of appointment.

It is immaterial whether the employer pays the creditors directly or reimburses the employee for any of the abovementioned expenses.

Reimbursement of actual expenses: The following items are exempt from tax if the employer

reimburses the employee for the actual expenditure incurred and must be reflected under code 3714 on the IRP 5 certificate —

Bond registration and legal fees; Transfer duty; Cancellation of bond; and Agent’s commission on sale of previous residence.



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Settling-in costs includes the following and must be reflected on the IRP 5 certificate under code 3714 —

New school uniforms; Replacement of curtains; Motor vehicle registration fees; and Telephone, water and electricity connection. To simplify the administration, it will be acceptable and treated as tax free if an amount equal to

one month's basic salary is paid to the employee to cover settling-in costs (excluding those related to transport, temporary accommodation and purchase and / or sale of residence).

Expenditure fully taxable: Should payments be made by the employer in respect of the following

two items, it will constitute taxable benefits in the hands of the employee concerned and be subject to the deduction of employees' tax:

Payments to reimburse the employee for loss on the sale of a previous residence during

transfer. Architect’s fees for the design or alteration of a new residence.

IRP 5 detail

If the expenditure is exempt from tax the amount must be reflected under code 3714 on the

IRP 5 certificate. In cases where the expenditure is taxable the amount must be reflected under code 3713 on the

IRP 5 certificate. 16.3 SHARE SCHEMES An amount (including any taxable benefits) received by or accrued to an employee under a share

incentive scheme operated for the benefit of employees which was derived —

upon the cancellation of a transaction under which the employee purchased the shares under the scheme; or

upon repurchase by the employee at a price not exceeding the selling price to him / her of the shares under the scheme,

is exempt from tax in terms of Section 10(1)(nH), if the employee does not receive compensation or a consideration in excess of the purchase price he / she actually paid for the shares.

This Section in effect exempts from tax the benefit that is commonly called the stop loss benefit that

can accrue in terms of share incentive schemes. Employees’ tax — Employees’ tax must not be deducted from the exempted amount.

IRP 5 — The exempted amount must be reflected under code 3714 on the IRP 5 certificate.

16.4 BURSARIES AND SCHOLARSHIPS Any bursary or bona fide bursary or scholarship granted to enable or assist any person to study at a

recognised educational or research institution may be exempt in terms of Section 10(1)(q). Taxable benefit: If the scholarship or bursary has been granted by an employer (or associated

institution) to an employee or to a relative of such employee, the exemption shall not apply if the following conditions are present —

in the case of a scholarship or bursary granted to the employee to enable or assist any such

employee, unless the employee agrees to reimburse the employer for any scholarship or bursary granted to him / her if he / she fails to complete his / her studies for reasons other than death, ill-health or injury;



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in the case of a scholarship or bursary granted to enable or assist any such relative of an employee to study, if the remuneration derived by the employee during the tax year exceeded R60 000; and

to so much of a bursary as in the case of such relative exceeded R3 000 during the tax year. Exempt from tax

Expenditure in connection with internal or on-the-job training or courses presented by other

institutions on behalf of the employer, does not represent a taxable benefit in the hands of the employees, provided that the training is job-related and ultimately for the employer’s benefit. The following are examples of this type of training: o Computer and word processing courses; o Management and administration courses; o Bookkeeping courses; o Sales courses; o Courses in operating office and technical equipment; and o Language courses for employees.

To the extent that a bona fide bursary does not qualify for the exemption, it is taxable in the

employee’s hands. The following is an indication of bursaries and study loans that will be taxed as a fringe benefit:

Low-interest or interest-free loans granted by the employer to further the employee’s studies are

not regarded as bursaries, but as low or interest-free loans upon which no value is placed. Where the employee is not required to repay the loan, he / she will have received a taxable

benefit in terms of Paragraph 2(h) of the Seventh Schedule (payment of employee’s debt or release employee from obligation to pay debt) and employees' tax must be deducted. This taxable benefit is seen as an annual payment for SITE purposes.

Where an employer rewards an employee for obtaining a qualification, successful completion of a study course or reimburses the employee for study expenses, such reward or reimbursement of study expenses will represent, in the case of the reward, taxable remuneration and in the case of the reimbursement of study expenses, a taxable benefit in terms of Paragraph 2(h) of the Seventh Schedule (payment of employees debt or release employee from obligation to pay debt).

Only the taxable portion of bursaries paid to an employee or a family member of an employee is subject to the deduction of employees' tax.

Any bursary, which is granted subject to the condition of repayment, due to non-fulfilment of conditions stipulated in a written agreement, will be treated as a bona fide bursary until such time as the non-compliance provisions of the agreement are invoked. In the tax year in which such provisions are invoked, the amount of the bursary will be regarded as a loan and any benefit which an employee may have received by way of an interest-free or low-interest loan will constitute a taxable benefit in terms of Paragraph 2(f) of the Seventh Schedule.

The taxable benefit of a bursary is regarded as an annual payment for SITE purposes.

In addition to re-stating the statutory provisions, Practice Note 17 was issued. This practice note

contains the interpretation of words and phrases (e.g. closed and open scholarship and bursaries, tax implications and other forms of study assistance).

IRP 5 — It is only the taxable portion of bursaries that must be reflected under code 3809 on the

employee’s IRP 5 certificate. 16.5 EMPLOYMENT INCOME EXEMPTIONS Section 10(1)(o) exempts from tax any remuneration derived by a person in respect of services

rendered outside the Republic for an employer if such person was outside the Republic for periods exceeding 183 full days in aggregate during any 12 month period and for a continuous period exceeding 60 full days during that period and those services were rendered during that period or periods.



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For the purposes of counting these days, a person will still be regarded as being outside South Africa where the person is in transit through South Africa between two places outside South Africa and he / she does not formally enter South Africa through a port of entry or at any other place in the case of a person authorised by the Minister of Home Affairs.

This exemption does not apply in respect of any remuneration derived by the holder of any public

office (dealt with under Allowance to a Holder of a Public Office in paragraph 17.3). Further, it is not applicable to employees who are employed in the national or provincial sphere of government, any local authority or any public entity if 80% or more of the expenses of the entity are defrayed from funds voted by Parliament.

Officer or crew member of a ship: Remuneration derived by an officer or crew member of a ship

engaged —

in the international transportation for reward of passengers or goods; or in the prospecting for, or the mining of, any minerals from the seabed outside the continental

shelf of the Republic, where such officer or crew member is employed on board such ship solely for purposes of the passage of such ship as defined in the Marine Traffic Act,

is exempt from tax if such person was outside the Republic for a period or periods exceeding 183 full days in aggregate during the tax year.

The question of whether an employee will qualify for the exemption or not is a question of fact that can

only be answered once the requisite number of days has been met. Directives are therefore not issued for such taxpayers. Where the employer is satisfied that the employee will meet the necessary criteria for the exemption to be granted, the employer is at liberty not to deduct employees' tax provided that a copy of each page of the employee’s passport and a copy of the relevant contract for the services to be rendered in a foreign country are kept. Should it transpire that the employee does not qualify for the exemption, the employer will be held personally liable for any losses that SARS may suffer due to the non-deduction of the full amount of employees' tax.

Please refer to the applicable Interpretation Notes (numbers 16 and 34) on the website

www.sars.gov.za under Interpretation Notes / Income Tax for more information. IRP 5 — Separate certificates must be issued to an employee if such employee’s remuneration

consists of local and foreign employment remuneration for specified periods during a tax year. 17 ALLOWANCES 17.1 SUBSISTENCE ALLOWANCE A subsistence allowance is any allowance given to an employee or a holder of any office for expenses

incurred or to be incurred in respect of personal subsistence and incidental costs (for example, drinks). Compensation or an allowance paid to employees who reside far away from their normal place of

employment or who do not spend the night away from home is not regarded as a subsistence allowance and is subject to employees' tax. This also applies in the case of a labour broker.

Amounts deemed to be expended

Section 8(1)(c) prescribes that the employee shall be deemed to have actually expended a

certain amount (daily expenses in respect of meals and / or incidentals costs) where the employee is absent from his / her usual place of residence. o Where the accommodation to which the allowance or advance relates is in the Republic,

an amount equal to the following is deemed to be expended for each day or part of a day in the period during which the employee is absent from his / her usual place of residence: Only incidental costs – R63,50; or Meals and Incidental costs – R208.

o Where the accommodation to which the allowance or advance relates is outside the Republic, an amount equal to US$200 is deemed to be expended for each day or part of



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a day in the period during which the employee is absent from his / her usual place of residence.

The above rates are for guidance purposes only. The rates for the each tax year will be published by notice in the Gazette.

The amounts laid down in respect of travelling abroad will only apply to employees who are ordinarily resident in the Republic in respect of continuous periods spent outside the Republic not exceeding six weeks.

Employer borne expenses: The amounts that shall be deemed to be expended do not apply to the

extent that the employer has borne the expenses (otherwise than by way of payment or granting of an allowance) in respect of which the allowance was paid for each day or part of a day.

A subsistence allowance is intended for abnormal circumstances and therefore an allowance

of this nature cannot form part of the remuneration package of an employee. It is an amount paid by an employer to the employee IN ADDITION to the employee’s normal remuneration. For more information in this regard, please refer to Interpretation Note number 14 on the SARS website, www.sars.gov.za under Interpretation Notes / Income Tax.

If a subsistence allowance or advance is paid to an employee on or after 1 February 2006, the

allowance or advance is deemed to become payable to the employee in the following month in respect of services rendered where such an allowance or advance was paid to the employee during any month in respect of a night away from his / her usual place of residence and that employee has not by the last day of the following month either spent the night away or refunded that amount to the employer.

Employees' tax — Employees' tax must not be deducted from the subsistence allowance, regardless

of whether or not the deemed amounts and / or prescribed periods are exceeded. IRP 5 — The subsistence allowance must be reflected in full on the certificate under —

code 3704 (for local travel) and / or code 3715 (for foreign travel) in cases where the deemed

amounts and / or periods are exceeded; and / or code 3705 (for local travel) and / or code 3716 (for foreign travel) in cases where the deemed

amounts and periods are not exceeded. 17.2 TRAVEL ALLOWANCE A travel allowance is any allowance paid or advance given to an employee in respect of travelling

expenses for business or private purposes. Section 8(1)(b) deems any allowance or advance in respect of travelling expenses not to have been

expended on business travelling to the extent that it has been spent on private travelling (this includes travelling between the employee’s place of residence and his / her place of employment).

The following two situations are envisaged, namely —

a travel allowance given to an employee to finance transport (for example, a set rate or

amount per pay period); and a reimbursement given to an employee based on actual travel.

Reimbursive travel allowance: Where an allowance or advance is based on the actual distance

travelled for business purposes (that is excluding private use), the amount expended on business is deemed to be the actual distance travelled, multiplied by the prescribed rate per kilometre fixed by the Minister of Finance.

Prescribed rate per kilometre: The current rate per kilometre fixed by the Minister of Finance is:

R2.46 per kilometre; OR the determined rate (refer to the rate per kilometre schedule in AS-PAYE-05-A11).



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Vehicle let to the employer:

Where an employee, his / her spouse or child owns or leases a motor vehicle (whether directly

or indirectly by virtue of an interest in a company, trust or otherwise) and such vehicle is let to the employer or associated institution in relation to the employer, the sum of the rental paid by the employer together with any expenditure in respect of the vehicle which was borne by the employer, is deemed to be a travel allowance. This deemed travel allowance must be declared as such and the employee will be entitled to claim expenses incurred for business travel as a deduction on assessment.

The rental received by the employee must not be declared as rental income but as a travel allowance. Although the employee obtains the right of use of the vehicle from his / her employer, he / she is not subject to tax on the benefit arising from the private use of such motor vehicle.

Combination of travel and reimbursive allowance: Where a travel allowance is paid in addition to

a reimbursive allowance or vice versa, both amounts will be combined on assessment. This combined allowance will be treated as a travel allowance.

Employees’ tax — The table hereunder shows in which circumstances a travel allowance is subject to

employees' tax and the relevant code under which it must be reflected on the IRP 5 certificate.

Scenario Must PAYE be deducted? Code

A fixed allowance is paid. Yes 3701 Fuel and expenses paid by the employer (e.g. petrol, garage and maintenance cards). Yes 3701

Reimbursed at not more than the prescribed rate per kilometre and travels not more than 8 000 kilometres. No other travel allowance is received.

No 3703

Reimbursed at not more than the prescribed rate per kilometre and travels not more than 8 000 kilometres. Receives a travel allowance or certain expenses are paid for by the employer.

No (reimbursement)

Yes (fixed allowance)

3702 3701

Reimbursed at not more than the prescribed rate per kilometre and travels more than 8 000 kilometres. No other travel allowance is received

No 3702

Reimbursed at not more than the prescribed rate per kilometre and travels more than 8 000 kilometres. Receives a travel allowance or certain expenses are paid for by the employer.

No (reimbursement)

Yes (fixed allowance)

3702 3701

Reimbursed at a rate exceeding the prescribed rate per kilometre. No 3702 IRP 5 detail

60% of the travel allowance paid to an employee is subject to the deduction of employees' tax. The total travel allowance (100%) must be reflected on the IRP 5 certificate under code 3701. The employees' tax deducted in respect of the travel allowance must be reflected as PAYE,

even where the rest of the employee’s remuneration is only subject to SITE. An allowance or advance which is based on the actual distance travelled for business purposes

(reimbursive travel), is not subject to employees' tax but the full amount must be reflected on the IRP 5 — o under code 3703 where the reimbursive allowance does not exceed 8 000 kilometres

AND the prescribed rate per kilometre AND no other compensation is paid to the employee.

o under code 3702 where the reimbursive allowance exceeds 8 000 kilometres OR the prescribed rate per kilometre OR any other compensation is paid to the employee.



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17.3 ALLOWANCE TO A HOLDER OF A PUBLIC OFFICE Section 8(1)(d) deems any allowance granted to the holder of a public office to enable him / her to

defray expenditure incurred by him / her in connection with his / her office, to have been expended by him / her to the extent that he / she has actually incurred expenses for the purposes of his / her office in respect of —

secretarial or duplicating services, stationery, postage or telephone calls; the hire and maintenance of office accommodation; travelling; hospitality extended at any official or civic function which the holder of the office is by reason of

the nature of such office normally expected to arrange; and subsistence and incidental costs incurred.

Portion of salary deemed to be a public office allowance:

Where it is expected from the President, Deputy President, a Minister, a Deputy Minister, a

member of the National Assembly, a permanent delegate to the National Council of Provinces, a Premier, a member of an Executive Council or a member of a provincial legislature to defray any expenditure out of his / her salary, an amount equal to a portion (currently R40 000) of such salary is deemed to be an allowance to a holder of a public office. This is prescribed by the provisions in Section 8(1)(f) and the amount is determined by the National Assembly or the President.

Where the employee has held a public office for less than 12 months, the portion of his / her salary which is deemed to be an allowance to a holder of a public office in terms of Section 8(1)(f), must be apportioned to determine the amount relevant for the actual period for which the office was held. A part of a month shall be reckoned as a full month.

Employees’ tax: Only a 50% portion of the allowance is subject to the deduction of employees’ tax.

Some local authority council members are temporary employees (not in standard employment)

in receipt of an allowance only. If only an allowance is paid to such an employee, 50% of the total allowance is deemed as remuneration from which employees' tax must be recovered at a rate of 25%.

If the allowance is paid to a member who is a full-time employee (in standard employment), to reimburse him / her for expenses which were incurred in respect of official duties, the tables must be applied on 50% of the total allowance.

IRP 5 details

The full allowance (100%) must be reflected under code 3708; and all the other income components must be reflected under the relevant codes (e.g. salary,

overtime, bonus, etc.). 18 FRINGE BENEFITS 18.1 OBLIGATION OF EMPLOYER Paragraph 4 of the 7th Schedule prescribes that where any associated institution in relation to any

employer grants a benefit to an employee as a reward for services rendered, it constitutes a taxable benefit deemed to be granted by the employer to the employee.

Paragraph 3 of the 7th Schedule prescribes that an obligation is placed upon the employer to

determine the cash equivalent of the value of a taxable benefit. SARS may, on assessment for normal tax, re-determine the cash equivalent of the taxable benefit if it is considered that the determination is incorrect. If any employee is dissatisfied with the determination by his / her employer, SARS may consider the matter and if necessary, issue a directive.

Paragraph 17 of the 7th Schedule prescribes that every employer must deliver an IRP 5 certificate to

the employee. The nature of the taxable benefit and the cash equivalent of the value thereof must be



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reflected on the IRP 5 certificate. Where the employer fails to comply with this requirement, a penalty equal to 10% of the cash equivalent of the value of the taxable benefit or 10% of the amount by which the cash equivalent is understated may be imposed.

Paragraph 18 of the 7th Schedule prescribes that the employer must declare that all taxable benefits

enjoyed by their employees are included in the employees' tax certificate issued to employees. This declaration forms part of the IRP 501 reconciliation statement that must be submitted annually by all employers.

18.2 BENEFITS GRANTED TO RETIRED EMPLOYEES Exemption: Benefits or advantages granted to employees who, after having retired from full-time

service with the employer by whom such benefit or advantage was granted, have been re-employed before 1 March 1992 by such employer on a part-time basis, will be exempt from tax in terms of Section 10(1)(nG) if all of the following conditions are complied with —

the cash remuneration received by or accrued to the employee in respect of such part-time

employment is payable at a rate not exceeding R5 000 per annum; and the employee retired from full-time service on or after attaining the age of 60 years or as a result

of ill-health or other infirmity; and the benefit or advantage in question was granted before the employee so retired.

The exemption shall not apply to any benefit or advantage granted to an employee who is re-

employed on or after 1 March 1992 and such benefits will be subject to employees’ tax. An employee, who retired before 1 March 1992 and has not been re-employed by his / her last

employer, is not subject to tax in respect of any benefit or advantage granted to him / her by such employer prior to retirement, which he / she still receives after retirement.

All benefits enjoyed by a retired employee who retired on or after 1 March 1992 will be subject to tax in

his / her hands irrespective of whether or not he / she is re-employed by his / her previous employer. 18.3 BENEFITS GRANTED TO RELATIVES OF EMPLOYEES AND OTHERS Paragraph 16 of the 7th Schedule prescribes that an employee is deemed to have been granted a

taxable benefit by his / her employer if, as a reward for services rendered or to be rendered by the employee —

the employer has granted a benefit or advantage directly or indirectly to a relative of the

employee; or anything is done by the employer under any agreement, transaction or arrangement so as to

confer any benefit or advantage upon any person other than the employee, whether directly or indirectly, and

the benefit or advantage would have been a taxable benefit if it had been granted to the employee.

18.4 TAXABLE BENEFITS A taxable benefit is deemed to have been granted by the employer if, as a benefit or advantage of, or

by virtue of such employment or as a reward for services rendered or to be rendered, the employee is granted one of the benefits described in Paragraph 2 of the 7th Schedule, namely:

Acquisition of an asset at less than the actual value (money excluded); Right of use of a motor vehicle; Right of use of any asset, other than a motor vehicle; Meals, refreshments or vouchers that entitle an employee to any meal or refreshment; Free or cheap accommodation; Free or cheap services; Low or interest free loans; Subsidy in respect of interest; Subsidy in respect of interest on home loan;



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Payment of employee’s debt or the release of the employee from the obligation to pay a debt; Medical fund contributions paid on behalf of an employee; and Medical costs (other than contributions) paid for the benefit of an employee.

ACQUISITION OF AN ASSET AT LESS THAN THE ACTUAL VALUE

Paragraph 2(a) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted if any asset consisting of any goods, commodity, marketable security or property of any nature (other than money) is acquired by an employee from the employer or any associated institution, for no consideration or for a consideration less than the value of the asset.

Value to be placed on the benefit in terms of Paragraph 5 of the 7th Schedule: o The value to be placed on the asset is the market value thereof at the time the employee

acquired the asset. o However, where the asset is —

movable property and the employer acquired the asset in order to dispose of it to the employee, the value to be placed on the asset is the cost thereof to the employer;

trading stock of the employer, the value to be placed on the asset is the lower of the cost thereof to the employer or the market value;

marketable securities, the value to be placed on the asset is the market value; and an asset which the employer had the right to use prior to acquiring ownership

thereof (for example, a leased asset on which the employer had the right to acquire ownership at the end of the lease agreement), the value to be placed on the asset is the market value.

Reducing the value of the benefit: Where assets are presented to the employee as an award for bravery or for long service, the value determined is reduced by the lesser of the cost to the employer of all such assets so awarded to the relevant employee during the tax year and R5 000. For example, if the value of the asset is R5 600, only R600 will be taxable and reflected on the IRP 5 certificate.

No value: Assets (other than cash) disposed of to an employee in the following circumstances are not regarded as a taxable benefit — o Fuel or lubricants supplied for use in a motor vehicle where the private use of such

vehicle is brought into account as a taxable benefit according to other provisions of the Schedule (in other words, a company vehicle).

o Meals, refreshments, vouchers, board, fuel, power or water which are brought into account as taxable benefits according to other provisions of the Schedule.

o Marketable securities acquired by the exercise by the employee of any right to acquire such marketable security, as is contemplated in Section 8A.

Examples o Prizes given to an employee by an employer or any other person by arrangement with the

employer, for sales performance, outstanding work, etc. o Benefits enjoyed by employees according to an agreement whereby employees are

provided with credit cards and may purchase goods. o In cases where the employer arranges for the employee to acquire an asset from any

other person at a discount, a benefit accrues to the employee. o The provision of security for the protection of the private home of an employee in the form

of the installing of an alarm system, burglar bars or the provision of armed response. Employees' tax — Employees' tax must be deducted in the month during which the employee

acquires the asset. If the amount of employees' tax to be deducted is excessive in relation to the employee’s remuneration for that month, the deduction of the tax in respect of the benefit may be spread over the balance of the tax year during which the benefit accrued to the employee.

IRP 5 — The cash equivalent of the benefit must be reflected under code 3801 on the IRP 5 certificate.

RIGHT OF USE OF AN ASSET

Paragraph 2(b) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted where an employee is granted the right of use of any asset (other than residential



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accommodation or any motor vehicle) for private or domestic purposes, either free of charge or for a consideration which is less than the value of such use.

Value to be placed on benefit in terms of Paragraph 6 of the 7th Schedule: o Where the employer is leasing / hiring the asset, the amount of the rental payable by

the employer for the period the employee has the use of the asset. o Where the employer owns the asset, an amount calculated for the period during which

the employee has the use of the asset, at the rate of 15% per annum on the lesser of the cost of the asset to the employer and the market value of the asset at the date of commencement of the period. However, where the sole right of use of the asset for a period extending over the useful life of the asset or a major portion thereof, the value to be placed on the use of the asset shall be the cost thereof to the employer.

No value: Exemptions in respect of assets used for private or domestic purposes are

applicable when one of the following criteria is met — o The private use is incidental to the use of the asset for the employer’s business. o The asset is provided by the employer as an amenity for recreational purposes for the

use of his / her employees in general at his / her place of work. o Any equipment or machine that the employer allows his / her employees in general to use

from time to time for short periods where the value of the private use of the asset is negligible.

o Books, literature, recordings or works of art. Employees' tax — The cash equivalent of the benefit must be apportioned and is deemed to

have accrued on a monthly or weekly basis during the year at the same intervals that the employee receives his / her cash remuneration, except in respect of those cases where the employee is granted the sole right of use of the asset during its useful life or a major portion thereof. As the latter benefit is deemed to accrue on the date on which he / she was first granted the right of use of such asset, employees' tax must be deducted from the full value of the benefit during that specific month.


RIGHT OF USE OF A MOTOR VEHICLE

Paragraph 2(b) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted where an employee is granted the right of use of any motor vehicle for private or domestic purposes, either free of charge or for a consideration which is less than the value of such use. The private use of the vehicle includes travelling between the employee's place of employment and place of residence.

Determined value of motor vehicle: In terms of Paragraph 7 of the 7th Schedule, determined value in relation to a motor vehicle, means — o Vehicle was acquired under a bona fide agreement of sale or exchange concluded by

parties acting at arm’s length: the original cost of the vehicle to the employer (excluding finance charges, interest, sales tax or value-added tax borne by him / her);

o Where the vehicle is supplied by a manufacturer of motor vehicles to his / her employee: the cost of manufacturing of the vehicle;

o Where the vehicle was held by the employer under a lease and the ownership thereof was acquired by him / her on the termination of the lease or is held by the employer under a lease agreement only: the retail market value thereof at the time the employer first obtained the right of use of the vehicle or where at the time the lease was a lease as contemplated in paragraph (b) of the definition instalment credit agreement in Section 1 of the Value-Added Tax Act, the cash value thereof as contemplated in the definition of cash value in the said Section, but excluding the value-added tax; or

o In any other case, for example, a gift: the market value at the time the employer first obtained the right of use of the vehicle.

Where the employer has granted an employee the right of use of a motor vehicle and a limit was placed on the value of such vehicle to be acquired for this purpose by the employer and the employee makes a contribution towards the purchase price of a more expensive vehicle, the contribution made by the employee, must be deducted from the cost price of the asset for the purpose of determining the determined value.



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Employees of dealers in new and second hand vehicles may use several vehicles over short periods before they are sold. The determined value for the use of the vehicles may be based on the average cost of all stock in trade at the end of the immediate preceding tax year.

Where an employee and the motor vehicle allocated to him / her are both transferred to an associated institution, the determined value of the motor vehicle must be determined as on the date that the employee first became entitled to the right of use of such vehicle.

Reducing the determined value: o Where a motor dealer includes a maintenance contract in the purchase price of a vehicle,

the value of the maintenance contract should be excluded from the calculation of the value of the benefit received by an employee when the right of use is granted to such employee.

o Where the employee has the use of the vehicle for part of a month, the amount of the value of private use must be determined in the same ratio as the number of days the employee had the use of the vehicle to the total number of days in the month.

o If the employer acquired the vehicle or the right of use of the vehicle 12 months or more before the date on which the employee is granted the right of use of the vehicle, a depreciation allowance must be deducted from the value of the vehicle as determined. The allowance is calculated according to the reducing balance method at the rate of 15% for each COMPLETED period of 12 months, calculated from the date on which the employer first obtained such vehicle or the right of use thereof to the date on which the employee was first granted the use of the vehicle.

Value to be placed on the benefit: For each month during which the employee is entitled to use the vehicle for private purposes, the value is — o 2,5% of the determined value of the motor vehicle; o if the employee has the use of more than one motor vehicle simultaneously, the value of

the second or successive vehicle must be calculated at 4% - the vehicle with the highest determined value must be taxed at 2,5%; and

o if the employee receives a travel allowance in respect of the relevant vehicle, the value must be calculated as if the vehicle is the second vehicle (4%).

Reducing the value of the benefit: Where the employee does not receive a travel allowance or advance in respect of the vehicle and the employee — o bears the cost of all fuel used for the purposes of the private use of the vehicle, the

monthly value of the benefit must be determined by deducting 0,22 percentage points from the percentage to be applied to the determined value of that motor vehicle.

o bears the cost of all maintenance (including repairs, servicing, tyres, etc.), the monthly value of the benefit must be determined by deducting 0,18 percentage points from the percentage to be applied to the determined value of that motor vehicle.

o pays any consideration for the private use of the vehicle, it must be deducted from the value of the benefit. However, where the employee receives a travel allowance in respect of the relevant vehicle, no consideration paid for the use of the vehicle may be deducted from the benefit.

No reduction in the value of private use may be made for any period the vehicle is temporarily not used for private purposes. If an employee is, however, required to travel for business purposes away from his / her usual work place by his / her employer for a period exceeding one month and leaves his / her company vehicle at the premises of the employer, no benefit accrues for the duration the employee is away.

If the employee keeps an accurate record of the distance travelled for private purposes and the distance so travelled is less than 10 000 kilometres per year, the Commissioner may, when the employee’s income tax assessment is raised for the relevant year, place a lesser value on the private use of the vehicle. The employee must submit an accurate logbook showing actual distances travelled with his / her return.

Where more than one motor vehicle is made available to an employee at the same time, the employer must determine the value of the taxable benefit according to the prescribed rules [2,5% of vehicle with the highest determined value and 4% for other vehicle(s) determined value(s)]. If the Commissioner is satisfied that each vehicle is used during the tax year primarily for business purposes (more than 50% of the total distance travelled with each vehicle), the value of the taxable benefit in respect of all the vehicles will be re-determined upon assessment by using the value of the vehicle having the highest taxable benefit value, unless the Commissioner directs otherwise. The employee must submit an accurate logbook for each vehicle showing actual distances travelled for business and private purposes together with his / her return. Full details of the reasons why it was necessary to make more than one vehicle



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available to the employee must be provided by the employer and submitted when the employee makes an application for this concession.

No value: The private use by an employee of a motor vehicle shall be deemed to have no value, if — o the vehicle is available to and is used by other employees of the employer in general and

the private use of the vehicle by the employee is infrequent; or is merely incidental to the business use; and the vehicle is not normally kept at or near the residence of the employee

concerned when not in use outside business hours; or o the nature of the employee’s duties are such that he / she is regularly required to use that

vehicle for the performance of such duties outside his / her normal hours of work and he / she is not permitted to use such vehicle for private purposes (other than travelling between his / her place of residence and place of work).

Employees' tax — The cash equivalent of the benefit accrues monthly and employees' tax must be deducted.


MEALS, REFRESHMENTS AND MEAL AND REFRESHMENT VOUCHERS

Paragraph 2(c) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted where the employee has been provided with any meal or refreshment or voucher entitling him / her to any meal or refreshment, either free of charge or for a consideration which is less than the value of such meal, refreshment or voucher.

Value to be placed on the benefit in terms of Paragraph 8 of the 7th Schedule is the cost thereof to the employer less any consideration paid by the employee.

No value shall be placed on — o Any meal or refreshment supplied by an employer to his / her employees in any canteen,

cafeteria or dining room operated by or on behalf of the employer and patronised wholly or mainly by his / her employees or on the business premises of the employer.

o Any meal or refreshment supplied by an employer to any employee during business hours or extended working hours or on special occasions.

o Any meal or refreshment enjoyed by an employee in the course of providing a meal or refreshment to any person whom the employee is required to entertain on behalf of the employer.

o Board and meals provided with accommodation. They are dealt with as part of the accommodation benefit.

Employees' tax — Employees' tax must be deducted from the cash equivalent of the benefit. IRP 5 — The cash equivalent of the benefit must be reflected under code 3804 on the IRP 5

certificate. ACCOMMODATION

Paragraph 2(d) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted where the employer has provided the employee with residential accommodation either free of charge or for a rental consideration which is less than the value of such accommodation.

Value to be placed on the residential accommodation benefit in terms of Paragraph 9 of the 7th Schedule is the greater of —

C D o an amount determined according to the formula (A — B) x 100 X 12 ; OR

o an amount equal to the cost for the employer (in other words, rentals paid and other expenses defrayed in order to provide such accommodation).

For purposes of the above formula — o A represents the remuneration factor as determined in relation to the tax year; o B represents an abatement equal to an amount of R43 000, provided that the abatement

is reduced to ZERO where: the employer is a private company and the employee or his / her spouse controls

the company or is one of the persons controlling the company, whether control is exercised directly as a shareholder in the company or as a shareholder in any other company; or



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the employee, his / her spouse or minor child has a right of option or pre-emption granted by the employer or any other person by arrangement with the employer or any associated institution in relation to the employer, whereby the employee, his / her spouse or minor child may become the owner of the accommodation, whether directly or indirectly by virtue of a controlling interest in a company or otherwise;

o C represents a quantity of 17, provided that — C represents a quantity of 18 where the accommodation consists of a house, flat or

apartment consisting of at least four rooms; and: such accommodation is unfurnished and power or fuel is supplied by the employer;

or such accommodation is furnished, but power or fuel is not supplied by the

employer; or C represents a quantity of 19 where the accommodation consists of a house, flat or

apartment consisting of at least four rooms and such accommodation is furnished and power or fuel is supplied by the employer; and

o D represents the number of full months in relation to the tax year during which the employee was entitled to the occupation of the accommodation.

Remuneration for purposes of the above formula means, in relation to an employee, the aggregate remuneration as determined for employees' tax purposes including any amount paid to any director of a private company in respect of services rendered or to be rendered, which has been derived by him / her from his / her employer and any associated institution in relation to the employer, but excluding — o the value of the taxable benefit derived in respect of the private use of a vehicle and the

taxable benefit in respect of residential accommodation; o the amount of the remuneration derived by an employee who is not the controlling

shareholder or one of the controlling shareholders of the employer company, from an associated institution in relation to the employer if it is shown to the satisfaction of the Commissioner that the employee’s employment with the employer is not in any way connected with the employment with the associated institution; and

o a travel allowance and the allowance paid to a holder of a public office, which is included in remuneration.

Remuneration factor for purposes of the above formula means, in relation to a tax year during which residential accommodation has been occupied, the remuneration derived by the employee during the tax year immediately preceding that tax year, provided that — o where the employee was not employed by the employer concerned for the whole of the

preceding year, the remuneration he / she received from the employer for the portion of the year he / she was employed by the employer, must be calculated pro rata for the full 365 days; and

o if the employee was not employed by the employer for any portion of the preceding year, the employee's remuneration for the first month he / she is employed by the employer, must be calculated pro rata for a full 365 days.

Value to be placed on holiday accommodation that is occupied temporarily depends on whether the accommodation is owned or hired by the employer: o Where such accommodation is hired by the employer from a person other than an

associated institution in relation to the employer, so much of the rental payable and any amounts chargeable in respect of meals, refreshments or any other services as have been borne by the employer.

o Where such accommodation so owned by the employer or hired by the employer from an associated institution in relation to that employer, an amount calculated at the prevailing rate per day at which such accommodation could normally be let to a person other than an employee.

Employer rents a residence from his / her employee: There is one important exception to the formula method of determining this benefit. This exception occurs when an employer rents from his / her employee a residence in which the employee has an interest. Paragraph 9(10) of the 7th Schedule prescribes that an employee will be deemed to have an interest in the accommodation if: o such accommodation is owned by the employee or a connected person in relation to such

employee; o any increase in the value of the accommodation in any manner whatsoever, whether

directly or indirectly, accrues for the benefit of the employee or a connected person in relation to such employee; or



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o such employee or a connected person in relation to such employee, has a right to acquire the accommodation from his / her employer.

Employee has an interest in the accommodation: In all cases where it can be said that the employee has an interest in the accommodation and such accommodation has been let to the employer who in turn has granted such employee free or cheap occupation thereof, the value of the benefit is the greater of: o the value determined in accordance with the formula; or o an amount equal to the rental together with any other expenditure paid by the employer and is therefore, fully taxable in the hands of the employee.

Applying the value determined in accordance with the formula: o The value determined in accordance with the formula (except where the employee has an

interest in the accommodation in question) shall apply where — it is customary for an employer in the industry concerned to provide free or

subsidised accommodation to his / her employees; it is necessary for the particular employer, having regard to the particular kind of

employment, to provide free or subsidised accommodation — 18....1 for the proper performance by the employees of their duties; 18....2 as a result of the frequent movement of employees; or 18....3 as a result of the lack of employer-owned accommodation; and

the benefit is provided solely for bona fide business purposes, other than the obtaining of a tax benefit.

o Where all three criteria have been met, the formula-based value will be included in the taxable income of the employee, even though the employer does not own the accommodation. The valuation based on the cost for the employer will however, not apply.

Where more than one residential accommodation at different places has been made available to the employee, which he / she is entitled to occupy from time to time while performing his / her duties, the amount of the value of the unit with the highest rental value over the full period during which the employee was entitled to occupy more than one unit, must be included in his / her gross income.

Reducing the determined value: Where, by reason of the situation, nature or condition of the accommodation or any other factor, the Commissioner is satisfied that the rental value is less than the rental value determined, he / she may determine such rental value at a lower rate / amount which he / she considers fair and reasonable. An application for a ruling for employees' tax purposes should be made to SARS. This ruling must be renewed annually.

No value is placed on any accommodation away from an employee’s usual place of residence while such employee is absent from his / her usual place of residence for the purpose of performing his / her duties. This provision does not apply in the circumstances mentioned in the preceding paragraph.

Employees' tax — The cash equivalent of the benefit must be calculated during the year at the same intervals at which the employee receives his / her cash remuneration and employees' tax must be deducted.


FREE OR CHEAP SERVICES

Paragraph 2(e) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted if any service has at the expense of the employer been rendered to the employee (whether by the employer or by some other person) and that service has been utilised by the employee for his / her private or domestic purposes and no consideration or an inadequate consideration has been given by the employee.

Value to be placed on the benefit in terms of Paragraph 10 of the 7th Schedule shall be — o In the case of any travel facility granted by an employer engaged in the business of

conveying passengers for reward by sea or air, to enable any employee or his / her relative to travel to any destination outside the Republic for private purposes, an amount equal to the lowest fare payable by any passenger utilising such facility less any amount paid by the employee or his / her relative. For this purpose, the forward and return journey is regarded as one journey.

o In the case of rendering of any other service, the cost to the employer in rendering such service or having such service rendered, less any amount paid by the employee.



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Example: If an educational institution such as a university or technikon provides free or cheap tuition to the children of personnel, a taxable benefit arises. The value that must be placed on the benefit is the marginal cost involved in the tuition of the additional person. If the employee makes a contribution that is equal to or more than the marginal cost, no taxable benefit accrues.

No value shall be placed on — o Any travel facility granted by an employer engaged in the business of conveying

passengers for reward by land, sea or air, to enable any employee, his / her spouse or minor children to travel — to any destination in the Republic or to travel overland to any destination outside

the Republic; or to any destination outside the Republic if such travel was undertaken on a flight or

voyage made in the ordinary course of the employer’s business and such employee, spouse, or minor child was not permitted to make a firm advance reservation of the seat or berth occupied by him / her.

o Any transport service rendered to employees in general for the conveyance of such employees from their home to the place of their employment and vice versa.

o Services rendered to employees at their place of work for better performance of their duties, as a benefit to be enjoyed by them at their place of work, or for recreational purposes at work or a place of recreation, other than at the place of

work that is for the use of employees in general. o The provision of parking for motor vehicles of personnel at their place of work is not a

taxable benefit. o Any travel facility granted by an employer to the spouse or minor child of the employee if:

The employee is for the duration of his / her employment stationed for purposes of the employer’s business at a specific place in the Republic further than 250 kilometres away from his / her main place of residence where he / she ordinarily resides;

The employee is required to spend more than 183 days during the tax year at that specific place; and

Such a facility is granted in respect of travel between the employee’s main place of residence where he / she ordinarily resides and that specific place where the employee is so stationed.

Employees' tax — Employees' tax must be deducted from the cash equivalent of the benefit. IRP 5 — The cash equivalent of the benefit must be reflected under code 3806 on the IRP 5

certificate. LOW INTEREST OR INTEREST FREE LOANS

Paragraph 2(f) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted if a loan (other than a loan for purposes of paying any consideration by the employer in respect of a qualifying equity share, the payment of any stamp duties or uncertified securities tax payable in respect of that share or a loan in respect of which a subsidy is payable to the borrower by the employer), has been granted to the employee, whether by the employer, by any other person by arrangement with the employer or any associated institution in relation to the employer.

Value to be placed on the benefit in terms of Paragraph 11 of the 7th Schedule is: o The amount of interest that would have been paid on the loan during the tax year if any

interest had been paid at the official rate, less the amount of interest (if any) actually incurred by the employee.

o Where an employer provides loans financed out of his / her own funds to employees, the taxable benefit will be the amount of interest that the employees would have paid in respect of the tax year, if they were obliged to pay interest at the official interest rate.

No value shall be placed on the benefit derived in consequence of — o The granting of a casual loan or loans if the aggregate of such loans do not exceed the

sum of R3 000 at any time. The loans contemplated in this exclusion are short-term loans granted at irregular intervals to employees and not all loans merely because they are less than R3 000. A taxable benefit would arise if the loans were granted on a regular basis to all employees or a certain category of employees notwithstanding the fact that the loan does not exceed R3 000.



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o The granting of a loan for the purpose of enabling the employee to further his / her own studies.

If a financial institution such as a bank provides loans to its employees at the same rate as to the customers of the institution on the same conditions and under the same circumstances, no taxable benefit will accrue if such customer rate is below the official interest rate.

If a low interest or interest free loan is provided to a director of a company or to a member of a close corporation, no taxable benefit will accrue if such loan is, for example, provided only as a result of the director’s share holding and not in respect of any services rendered. In such a case, the interest on the loan will not be deductible in the hands of the company or close corporation.

Deemed loans: Paragraph 10A of the 7th Schedule makes provision for the benefits granted to employees under a certain type of housing scheme, to be deemed to constitute a loan. Under this type of scheme, the employee’s house is acquired by and registered in the name of his / her employer. The employee is in terms of the agreement with the employer either entitled or obliged to acquire the house, either on termination of his / her service or after the expiration of a fixed period, at a price stated in such an agreement. The employee is granted the right to occupy the house and as a consideration in respect of his / her occupation pays a rental to the employer, which is calculated as a given percentage of the cost of the house to the employer. This scheme is in effect identical to the granting by the employer of a low-interest housing loan and is in terms of Paragraph 10A to be treated as such.

Paragraph 10A of the 7th Schedules also provides that where the employee ultimately purchases the house from the employer, which will probably be at a price considerably lower than its then market value, the difference between the market value and the purchase price will not be subject to tax in the hands of the employee, provided that the purchase price is not lower than the market value of the house on the date on which the original agreement was concluded between the employer and the employee.

Deemed interest: Paragraph 11(5) of the 7th Schedule provides that where a loan obtained by the employee from the employer is used by the employee to produce income, for example where the employee uses the money to purchase fixed property from which he / she derives rental income, the cash equivalent of the taxable benefit which is included in the employees' taxable income, will be deemed to be interest actually paid by him / her and will be allowed as a deduction from the income earned.

Accrual of taxable benefit: A portion of the cash equivalent is, for employees' tax purposes deemed to have accrued to an employee where — o interest on the loan becomes payable by the employee at regular intervals during the tax

year, on each date during the year on which interest becomes payable; o interest on the loan becomes payable at irregular intervals or where interest is not

payable, on the last day of each period during the year in respect of which any cash remuneration becomes payable to the employee.

Employees' tax o The amount that is subject to employees' tax is determined by calculating the interest at

the official rate for the portion of the year mentioned above, reduced by the amount and interest (if any) actually payable by the employee for the portion in question.

o An alternative method for the calculating of the cash equivalent for employees' tax and normal tax purposes may be used if the Commissioner is satisfied that such method achieves substantially the same result as the prescribed methods.


SUBSIDIES IN RESPECT OF LOANS

Paragraph 2(g) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted if the employer has paid any subsidy in respect of the amount of interest or capital repayments payable by the employee in terms of any loan.

Paragraph 2(gA) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have been granted if the employer has made a payment to a third party in respect of the granting by that party of a low interest or interest free loan to an employee. Such payment would be deemed to be a subsidy.

Value of the benefit in terms of Paragraph 12 of the 7th Schedule is the amount of any subsidy paid by the employer in respect of the amounts of interest or capital repayments.



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Employees' tax — The full amount of the subsidy in respect of loans is subject to the deduction of employees’ tax.


PAYMENT OF AND EMPLOYEE’S DEBT OR RELEASE EMPLOYEE FROM AN OBLIGATION TO

PAY A DEBT

Paragraph 2(h) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have been granted if the employer has paid an amount owing by the employee to a third party, whether directly or indirectly, without requiring the employee to make any payment for the amount paid or the employer has released the employee from an obligation to pay an amount owing by the employee to the employer. This excludes medical contributions made by the employer or medical costs incurred by the employer.

Value to be placed on the benefit in terms of Paragraph 13 of the 7th Schedule is the amount

paid by the employer or the amount of the debt from which the employee has been released. There is no limitation on the method by which this debt may have been arisen or the size of the

debt. Examples:

o Where any debt owing by an employee to an employer is extinguished by prescription, the employer shall be deemed to have released the employee from his / her obligation to pay the debt, unless it can be shown to the satisfaction of the Commissioner that it was not the intention of the employer to confer a benefit on the employee.

o Payment by employers of a portion or the whole of an employee’s mortgage bond payment, credit card account, clothing account, etc., is fully subject to tax notwithstanding the fact that the payment is made by the employer directly to the institution or supplier.

o Where an employee changes employment and is obliged to repay a study loan or a bursary to his / her previous employer, the new employer may pay this debt on behalf of the employee. Such a payment constitutes a benefit to the employee, which must be taxed in full.

No value shall be placed on the benefit derived by reason of the fact that an employer has paid subscriptions to a professional body due by the employee, if such membership of such body is a condition of the employee's employment.

Should the new employer grant a low interest or interest free loan to the employee in order to enable him / her to recompense the previous employer, such new loan cannot be regarded as a study loan in respect of which no benefit is considered to arise. However, a refund of any bursary, study loan or similar assistance by an employer on behalf of his / her employee to the employee's previous employer, is not regarded as a taxable benefit, if — o the employee’s previous employer made a grant on condition that the employee rendered

service to the employer for an agreed period; o on termination of service before the expiration of the period agreed upon, the employee is

liable to refund an amount to his / her previous employer; o upon accepting employment with a new employer, the outstanding amount is refunded to

the previous employer by the new employer on behalf of the employee; and o the employee consequently is liable to work for the new employer for a period not shorter

than the remaining period which he / she should still have worked for the previous employer.

A Scholarship, which is subject to repayment if certain written conditions are not met, is treated as a bona fide scholarship or bursary until the conditions are not fulfilled. In the tax year in which such conditions are not fulfilled, the amount of the scholarship will be regarded as a loan and any benefit that the employee may have received will constitute a taxable benefit.

Employees' tax — Employees' tax must be deducted from the cash equivalent during the month in which the benefit accrues to the employee. If however the amount of employees' tax to be deducted is excessive in relation to the employee’s monthly remuneration for that month, the deduction of the tax in respect of the benefit may be spread over the balance of the tax year during which the benefit accrued to him / her.




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MEDICAL SCHEME CONTRIBUTIONS PAID BY AN EMPLOYER

Paragraph 2(i) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted where the employer contributes, directly or indirectly, to a medical scheme on behalf of an employee and his / her dependants.

Value to be placed on the benefit in terms of Paragraph 12A of the 7th Schedule shall be the amount by which the contribution or payment by the employer (directly or indirectly) to a medical scheme for the benefit of the employee and dependants of such employee for any period, exceeds the prescribed amount. o Prescribed amount is equal to —

R530 for each month in that year for which those contributions were made solely with respect to the benefits of that employee;

R1 060 for each month in that year for which those contributions were made with respect to the benefits of that employee and one dependant; or

where those contributions are made with respect to the benefits of that employee and more than one dependant, R1 060 in respect of the employee and one dependant plus R320 for every additional dependant for each month in that year for which those contributions were made.

Appropriate portion cannot be attributed to the relevant employee o In cases where the contribution or payment is made by the employer in such a manner

that an appropriate portion thereof cannot be attributed to the relevant employee, in other words, where the employer makes a lump sum payment to the scheme in respect of all employees or a class of employees, the amount of that contribution or payment in relation to that employee and his / her dependants is deemed to be an amount equal to the total contribution or payment by the employer to the scheme during the relevant period for the benefit of all employees and their dependants divided by the number of employees in respect of whom the contribution or payment is made.

o If the Commissioner is in any case satisfied that the apportionment of the contribution or payment amongst all employees does not reasonably represent a fair apportionment of that contribution or payment amongst the employees, he / she may direct that the apportionment be made in such other manner as to him / her appears fair and reasonable to him / her.

No value shall be placed on the benefit, if the payment by the employer is made on behalf of — o a pensioner (a person who by reason of superannuation, ill-health or other infirmity retired

from the employ of such employer); o the dependants of a pensioner after the death of the pensioner, (if such pensioner retired

from the employ of such employer by reason of superannuation, ill-health or other infirmity);

o the dependants of a deceased employee after such employee’s death, if such deceased employee was in the employ of the employer on the date of death; or

o an employee who is 65 years or older. Employees' tax — Employees' tax must be deducted during the month in which the benefit

accrues. IRP 5 details

o The cash equivalent of the benefit must be reflected under code 3810; and o under code 4005 (medical scheme contributions paid by the employee) as it is deemed in

terms of Section 18(5) to have been paid by the employee if the benefit was included in the employee's remuneration.

MEDICAL COSTS INCURRED BY AN EMPLOYER

Paragraph 2(j) of the 7th Schedule prescribes that a taxable benefit shall be deemed to have

been granted where the employer, directly or indirectly, incurred any amount (other than a medical scheme contribution paid to a registered medical scheme) in respect of medical, dental and similar services, hospital services, nursing services or medicines provided to the employee, his / her spouse, child, relative or other dependant.

Value to be placed on the benefit in terms of Paragraph 12B of the 7th Schedule shall be the amount incurred by the employer (directly or indirectly) in respect of any medical, dental and similar services, hospital services, nursing services or medicines in respect of that employee, his / her spouse, child or other relative or dependants.



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Appropriate portion cannot be attributed to the relevant employee: Where the payment is made in such a manner that an appropriate portion thereof cannot be attributed to the relevant employee and his / her spouse, children, relatives and dependants, the amount of that payment in relation to that employee and his / her spouse, children, relatives and dependants is deemed to be an amount equal to the total amount incurred by the employer during the relevant period in respect of all medical, dental and similar services, hospital services, nursing services or medicines for the benefit of all employees and their spouses, children, relatives and dependants divided by the number of employees who are entitled to make use of those services.

No value must be placed on any benefit — o resulting from the provision of medical treatment listed in any category of prescribed

minimum benefits determined by the Minister of Health in terms of Section 67(1)(g) of the Medical Schemes Act No. 131 of 1998, which is provided to the employee or his / her spouse or children in terms of a scheme or programme of that employer — which constitutes the carrying on of the business of medical schemes if that

scheme or programme is approved by the Registrar of Medical Schemes as being exempt from complying with the requirements of medical schemes; or

which does not constitute the carrying on of the business of medical schemes, if that employee and his / her spouse and children —

are not beneficiaries of a medical scheme registered under the Medical Schemes Act no. 131 of 1998; or

are beneficiaries of such medical scheme and the total cost of that treatment is recovered from that medical scheme;

o derived from an employer by— a person who by reason of superannuation, ill-health or other infirmity retired from

the employ of that employer; the dependants of a person after that person’s death, if that person was in the

employ of that employer on the date of death; the dependants of a person after that person’s death, if that person retired from the

employ of that employer by reason of superannuation, ill-health or other infirmity; or an employee who is 65 years or older; or

o where the services are rendered by the employer to its employees in general at their place of work for the better performance of their duties.

Employees' tax — Employees' tax must be deducted during the month in which the benefit accrues.

IRP 5 — The information in respect of the taxable benefit must be reflected on the IRP 5 certificate under the following codes: o 3813 — cash equivalent of the benefit (costs paid on behalf of the employee, irrespective

if the expenses was in respect of immediate family or other relatives / dependants); o 4024 — costs paid on behalf of the employee in respect of the employee, his / her

spouse or child; and o 4485 — costs paid on behalf of the employee in respect of other relatives or dependants

of the employee. 19 EMPLOYEES' TAX CERTIFICATES [IRP 5, IRP5(A) AND IT 3(A)] 19.1 OBLIGATION OF EMPLOYER TO ISSUE EMPLOYEES' TAX CERTIFICATES Paragraph 13(1) of the 4th Schedule prescribes that an employer must furnish employees to whom

remuneration is paid or has become payable and from which employees' tax in respect of a tax period was deducted, with an IRP 5 certificate within the prescribed period.

If for a valid reason no employees' tax was deducted from the remuneration paid to an employee, an

IT 3(a) return must be issued to the employee instead of an IRP 5 certificate. Paragraph 13(2) of the 4th Schedule prescribes that the employees' tax certificate must be delivered to

the employee within —

sixty (60) days after the end of the tax year or alternative period; fourteen (14) days after an employee has left the employer’s service; seven (7) days after the employer has ceased to be an employer; or a further period as the Commissioner under special circumstances may approve.



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A separate certificate may under no circumstances be issued to the employee in respect of the same

remuneration and no blank certificates may be issued. Foreign employment income: Separate certificates must be issued to the employee if the

employee's remuneration consists of local remuneration and foreign remuneration for certain periods during a specific tax year. The nature of person must be indicated as M on the certificate that reflects the foreign employment income.

Codes used on certificates: All income and deductions must be classified according to the different

codes allocated for income and deductions. A certificate will be rejected if it does not contain the mandatory information as required and the codes are not in the specified sequence. Codes are listed in AS-PAYE-05-A2.

Declaration by employer: The employer must declare on the annual IRP 501 reconciliation or IT 3

General return that all taxable benefits enjoyed by employees, are reflected on the IRP 5 or IT 3(a) certificates issued.

19.2 MANUAL CERTIFICATES Pre-printed manual certificates are available from SARS (Taxpayer Service Centres) which, upon

written request, will be supplied to employers making use of these certificates. Format of certificates: The manual IRP 5 certificates are provided in a book format which contains

25 certificates. The IRP 5(a) certificate book contains only 20 certificates and is used where an employer receives a request from an employee to issue a duplicate manual certificate. The original IRP 5 certificate number must be completed on the IRP 5(a) certificate.

Procedure to request manual certificates: A written application, on the employer's letterhead, must

contain the following information:

PAYE reference number of employer; Type of certificates required [IRP 5, IRP 5(a) or IT 3(a)]; Number of certificates required; and Authorisation (if any) where certificates are to be collected by a person other than the employer.

This authorisation must clearly state the person’s — o full names; o identity number or other acceptable means of identification.

The person collecting the certificates will be required to provide proof of his / her identity when

collecting the certificates. Employers who issue manual certificates may only use pre-printed manual certificates that are

provided by SARS for this purpose. Issue and submission of manual certificates: The original manual certificates issued must be

handed to the relevant employees and the first copy thereof must be submitted to SARS together with the IRP 501 reconciliation. The employer must retain the second copy for a period of five years.

Rejection of manual certificates: A manual certificate will be rejected if it does not contain the

mandatory information as required or where the tax deductions are calculated incorrectly. Where a certificate is rejected, it will immediately be cancelled by SARS and returned to the employer. No tax credit will be allowed to the employee on assessment. In such a case, a new certificate must be issued to the employee and the first copy must once again be submitted to SARS with a revised IRP 501 reconciliation.

Lost / destroyed manual certificates: If unused manual certificates are lost or destroyed, SARS

must immediately be notified in writing of all such certificate numbers.



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19.3 ELECTRONIC CERTIFICATES Employers may print their own certificates according to the prescribed standards. Those employers

who choose to print their own certificates, must supply the certificate information to SARS in the prescribed format on an electronic medium. No pre-printed certificates will be issued by SARS for this purpose.

Employers may use both the manual and electronic format certificates but employers who cannot print

their own certificates and submit certificate information on an electronic media according to the prescribed standards, must use manual certificates.

No paper copies of the printed certificates may be submitted to SARS for reconciliation purposes.

If a certificate was generated electronically (employer prints his / her own certificates) the SARS logo

may NOT be printed on these certificates. Issue and submission of electronic certificates: The certificates must be printed and handed to

the relevant employees and the certificate information must be supplied to SARS in an electronic file layout as prescribed in AS-PAYE-05-A4 on the specified electronic media together with the IRP 501 reconciliation. The employer must retain the electronic certificate information for a period of five years. Hard copies of the certificates will not be accepted.

Rejection of electronic certificates: An electronic certificate will be rejected if it does not contain

the mandatory information as required or where the tax deductions were calculated incorrectly. Where a certificate is rejected, it will immediately be cancelled and referred to the employer. No tax credit will be allowed to the employee on assessment. In such a case, a new certificate must be issued to the employee and the new certificate information must once again be supplied to SARS with a revised IRP 501 reconciliation.

Description of electronic information: This relates to any data created by means of a computer

including data in the electronic form in which it was originally created or in which it is stored for the purposes of backing up such data.

Zipped files: SARS does not accept electronic files that have been zipped by any computer program.

19.4 DUPLICATE CERTIFICATES Paragraph 13(8) of the 4th Schedule prescribes that the employer must, at the request of his / her

employee or former employee, issue a duplicate certificate and such duplicate certificate must disclose the full details of the original certificate.

Manual certificates: A duplicate IRP 5(a) certificate or a replacement IT 3(a) return must be issued.

The duplicate IRP 5(a) must refer to the original certificate and the original IT 3(a) return must be cancelled if a replacement is issued as a duplicate.

Electronic certificates: A re-print of the original IRP 5 or IT 3(a) certificate must be done. The same

certificate number must be used. Manual IRP 5(a) certificates may not be used to replace a lost electronic certificate or to issue duplicate certificates in respect of electronic certificates.

19.5 CANCELLED CERTIFICATES Paragraph 13(10) of the 4th Schedule prescribes that any cancelled or spoiled certificate may not be

destroyed by the employer concerned but must be retained until the Commissioner requires it to be surrendered to him / her.

Where an employer cancels a certificate, SARS must immediately be notified in writing of all such

certificate numbers.



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A certificate must be cancelled if the written or printed information thereon is incorrect. It is not necessary to submit the original certificate to SARS when the original certificate is cancelled unless SARS has requested such certificates.

19.6 UNUSED MANUAL CERTIFICATES Paragraph 13(11) of the 4th Schedule prescribes that SARS must immediately be notified in writing

when any unused manual certificates are lost or destroyed. Unused stock when employer ceases business: Paragraph 13(13) of the 4th Schedule prescribes

that the employer must return all unused certificates as well as the blank EMP 201 returns to SARS within 14 days of his / her ceasing to be an employer.

19.7 WHEN MUST AN IT 3(A) RETURN BE ISSUED Every employer is required to furnish his / her employee with certificates relating to amounts paid or

accrued to such employee in the prescribed formats. IT 3(a) returns are issued —

Where foreign employment income is not subject to the deduction of employees' tax. Where an employee’s annual equivalent of the remuneration amounts to at least R2 000 and

does not exceed the tax threshold. (If an employee was not employed by the same employer for the full tax year, the remuneration received for the tax period must be calculated pro-rata in order to determine whether an IT 3(a) must be issued).

In respect of lump sum payments (not reflected on an IRP 5) from which no tax has been deducted.

In respect of any amount paid to a person for services rendered or to be rendered from which no employees' tax has been deducted.

In respect of directors remuneration which is only determined in the following tax year. IT 3(a) returns are NOT issued —

In respect of any remuneration which is reflected on an IRP 5 (e.g. fringe benefits). In respect of fees paid for services rendered by persons in the ordinary course of their

professional practice (e.g. medical practitioners, attorneys, advocates, accountants, auditors, etc.).

Where the annual equivalent of the remuneration does not exceed R2 000 for the tax year. Where no employees' tax has been deducted from the remuneration paid to any person and no IT 3(a)

return was issued in respect thereof, the employer must furnish SARS, in terms of Section 69(1) with a list of names in alphabetical order (together with his / her IRP 501 reconciliation or IT 3 general return). The following information of the relevant employees must be reflected —

Surname and initials or trading name; Identity number, passport number or company / cc / trust number; Amount of remuneration; Address; and Period employed or accrual date.

Submission of IT 3(a) returns: The first carbon copies of the manual returns must be submitted to

SARS within 60 days from the date the IT 3 was issued and the electronic IT 3(a) returns must be submitted with the reconciliation.

An employer must be registered with SARS to receive manual IT 3(a) returns.



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20 RECONCILIATIONS (IRP 501) 20.1 SUBMISSION OF A RECONCILIATION Paragraph 14(3) of the 4th Schedule prescribes that the employer is obliged to furnish a reconciliation

statement showing details of the total amount of employees' tax deducted or withheld as well as the details of IRP 5 certificates issued during the tax year.

The purpose of the reconciliation is to —

reconcile the amount of employees' tax which was declared and paid over to SARS on the

monthly EMP 201 returns, with the tax reflected on the IRP 5 certificates issued for that tax year; and

justify all issued, cancelled, lost and destroyed IRP 5 certificates. The IRP 501 reconciliation statement that is automatically sent to the employer must be FULLY

completed by the employer. Where an employer submits his / her IRP 5 and IT 3(a) certificates to SARS on an electronic medium,

the employer must also account for all IT 3(a) certificates (which were combined into one file with the IRP 5 certificates) on the IRP 501 reconciliation statement.

The IRP 501 reconciliation statement must be submitted to your local SARS office within —

60 days after the end of the tax year or alternate period; or 14 days after you have ceased to be an employer.

20.2 CREDITS WITH THE FINALISATION OF A RECONCILIATION Paragraph 11B(5) of the 4th Schedule prescribes that the employer must refund any over deduction of

employees' tax to a SITE-only employee with the final determination of the SITE liability. Such refund may be deducted from any subsequent payment of employees' tax due by the employer or may be refunded by SARS.

If the employer requires that the credit be carried forward to a specified month or refunded to him /

her, a written request must accompany the IRP 501 reconciliation with a full explanation and instructions thereto.

20.3 CANCELLATION OF EMPLOYEES' TAX CERTIFICATES BY SARS Copies of manual certificates submitted with the reconciliation to SARS that do not comply with the

prescribed standards or manual and electronic certificates reflecting incorrect employees' tax deductions may be rejected and returned to the employer.

An employer will have to submit an amended IRP 501 reconciliation and replace the cancelled

(rejected) certificates with new certificates reflecting the correct information and amounts of employees' tax.

20.4 COMPLETION OF THE IRP 501 RECONCILIATION STATEMENT In order for SARS to finalise an employer’s reconciliation, it is important for the IRP 501 to be

completed correctly. Completed IRP 501’s and IRP 5 certificates issued by employers that are illegible, incomplete or do not comply with the validation rules will not be processed and will result in additional queries and the rejection of certificates and IRP 501’s.

The following must be borne in mind when completing a reconciliation —

The employer’s liability must be completed in the appropriate block (liability according to the

employer’s records) on the IRP 501.



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The total liability (according to the employer’s records) must be completed in the appropriate block on the IRP 501.

The total tax value of all certificates issued (excluding cancelled certificates) must be completed in the appropriate block on the IRP 501.

Any difference between the tax value of certificates issued and the total liability must be explained on the IRP 501. However, if the liability amounts are declared correctly and all certificates are issued correctly, there should not be a difference.

The numbers of the CERTIFICATES ISSUED (excluding manual IT 3(a) certificates) must be indicated in

the appropriate block on the IRP 501. This includes certificates that have been cancelled.

The numbers of the certificates cancelled (excluding manual IT 3(a) certificates) must be indicated in the appropriate block on the IRP 501. The certificates indicated as cancelled must also be indicated as issued.

The numbers of the manual certificates lost / destroyed (excluding manual IT 3(a) certificates) must be indicated in the appropriate block on the IRP 501. Electronic certificates cannot be indicated as lost / destroyed.

The employer must sign the IRP 501 reconciliation statement for declaration purposes. When signing the declaration, the employer confirms that the liability amounts completed by him / her are correct and the benefits enjoyed by employees were declared on the certificates issued. If this part is not signed, the IRP 501 will be returned to the employer and regarded as outstanding.

The original IRP 501 reconciliation statement including the first copies of the manual IRP 5s issued and electronic media (if any), must be submitted to SARS.

The first copy of the manual IRP 5 (copy which must accompany the IRP 501 reconciliation) must be kept until the end of the tax year when the reconciliation is submitted to SARS.

Where the employer exercises an option in respect of an alternate period in relation to a certain class of employees, you will have different dates for the submission of your reconciliation. However, for the remaining staff, the tax period will still end on 28 / 29 February. As you must render only one reconciliation for a tax year, permission is granted to employers with different closing dates to submit the reconciliation within 60 days after the last closing date. o For example, an employer exercises an option in respect of the administrative staff

whereby the alternate period ends on 9 March, while the period in respect of the remainder of the staff ends on 28 / 29 February. As only one IRP 501 reconciliation must be submitted within 60 days after the end of the period, the 60-day period will be determined from 9 March.

Where the employer submits his / her IRP 5 information to SARS on an electronic medium, no

hard copies of such IRP 5’s must accompany the IRP 501 reconciliation. Copies of the manual IT 3(a) returns are not submitted with the IRP 501 reconciliation to SARS, but

must be rendered under cover of an IT 3, unless the employer submits the IT 3(a) information in one electronic file which is combined with IRP 5 certificates on an electronic medium.

21 QUALITY RECORDS Completed forms as listed below —

Number Title AS-PAYE-05-A5 Example of certificates EMP 201 Return for remittance. Form A & D Application form for a tax directive in respect of lump sums paid by a

pension and / or provident fund on death / ill health / retirement / deemed retirement / unclaimed benefit.

Form B Application form for a tax directive in respect of lump sums paid by a pension and / or provident fund on resignation / withdrawal / winding up / transfer / surplus apportionment / unclaimed benefit.

Form C Application form for a tax directive in respect of lump sums paid by a RAF to a member on death before retirement / death after retirement / ill health / retirement / transfer from one RAF to another / unclaimed benefit.



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Number Title IRP 3 Tax directive. IRP 3(a) Application form for a tax directive in respect of Gratuities paid by the

employer. IRP 3(b) Application form for a tax directive in respect of employees' tax to be

deducted at a fixed percentage. IRP 3(c) Application form for a tax directive in respect of employees' tax to be

deducted at a fixed amount. IRP 3(d) Application form for a tax directive in respect of deemed remuneration to

be used to deduct employees' tax. IRP 5 Employees' tax certificate. IRP 30 Labour broker exemption certificate. IRP 130 Application for registration as a creator. IRP 501 Reconciliation of tax deductions and certificates. IT 3 General return of information. IT 3(a) Employees' tax certificate where no tax has been deducted.

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