Employers have only until the end of the South African fiscal year (28 February 2017) to take corrective steps in respect of payroll where payments of relocation allowances to employees are concerned. This is due to a change in South Africa’s legislation which has resulted in the payment of any up-front allowance becoming taxable. Historically, the South African Revenue Service (“SARS”) has allowed employers to pay a tax-free relocation allowance of up to one month’s basic salary to cover settling-in costs, without the employee having to prove any actual expenditure. From 1 March 2016, the SARS Commissioner’s discretion to allow certain costs to be tax exempt has been removed from the legislation.

• Sars Tax Guide 2014 Part Time Employees

From 1 March 2016, relocation allowances without proof of corresponding expenditure are no longer tax exempt. In order for an exemption to apply, employees will need to provide proof of actual relocation expenditure and the employer will need to reimburse the employee for such expenditure. Employers should bear the new rules in mind when providing relocation assistance and clearly communicate any changes in policies (i.e., a reminder to employees to keep receipts and properly document relocation-related expenditures) to their mobile work-force. Employers may need to consider corrective steps in respect of payroll prior to the end of the tax year (28 February 2017) where they have paid relocation allowances which have not been taxed through the payroll. The discretion of the SARS Commissioner to allow certain costs related to the relocation of an employee to be exempt from tax was effectively removed by The Taxation Laws Amendment Act, No.

25 of 2015 provision amending paragraph (ii) of section 10(1)(nB) of the I ncome Tax Act, No. Historically, this discretion was exercised to allow employers to pay a tax-free allowance of up to one month’s basic salary to cover settling-in costs without the employee having to prove any actual expenditure (as published in the SARS Guide for Employers in Respect of Employees’ Tax) 1. The result was that administration and record-keeping related to the payroll tax treatment relocation costs was eased substantially for SARS and the taxpayers. At the time that the Taxations Laws Amendment Bill 2015 was published, submissions were made requesting that if the Commissioner’s discretion were to be removed, the historic practice of permitting employers to pay a tax-free relocation allowance should be included in the legislation. The draft Response Document from National Treasury and SARS to the Standing Committee on Finance noted the submission and stated that the Commissioner’s discretion would be reinstated. However, the final Response Document noted that the submission would “be considered as a matter of interpretative guidance.” It is uncertain if the intention was that guidance would be provided on the interpretation of “settling-in costs” or that paragraph (ii) would be subject to interpretation on a case-by-case basis. As a result of the above, the full impact of the amendment was not foreseen.

One of the reasons why the change may have fallen under the radar is that the initial SARS Guide for Employers in Respect of Employees’ Tax for the 2017 tax year (issued in February 2016) 2, still made reference to the tax-free relocation allowance. A new version of the guide was issued around August 2016 and it was noted that all reference to the Commissioner’s discretion and the tax-free relocation allowance had been removed from this version. 3 In the absence of any notification or indication that the guide had been revised (in fact, both versions of the guide are stated to be “Revision 12”) the removal of the tax-free relocation allowance was largely over-looked. Representatives of the KPMG International member firm in South Africa have sought guidance from SARS’s Legal and Policy division and have been informed that in SARS’ view, the Commissioner’s discretion has been removed and only actual costs incurred will be eligible for the exemption from 1 March 2016. Furthermore, it was confirmed that only a reimbursement of allowable costs would qualify and any up-front allowance would be taxable in full. This means that employees will need to provide proof of the settling-in expenditure(s) incurred by them prior to being reimbursed by their employers.

To the extent that employers have paid relocation allowances which have not been taxed through the payroll, we recommend that this be corrected prior to the end of the tax year to mitigate the risk of penalties and interest on the late payment of employees’ tax. Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services.

Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers.

No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

What is income tax? Income tax is a tax levied on all income and profit received by a taxpayer (which includes individuals, companies and trusts). It is the national government’s main source of income and is imposed by the Income Tax Act No. The form of tax that people generally associate with the concept of income tax is “normal” income tax. But the Income Tax Act is also the source of a number of other taxes that, although they have their own particular names, still form part of the income tax system. A few examples of taxes which may affect taxpayers are capital gains tax and donations tax. The Act also establishes a few methods of paying income tax – namely SITE, PAYE and provisional tax.

How is income tax collected? The year of assessment The year of assessment for taxpayers covers a period of 12 months.

For individuals and trusts, the commencement date of the year of assessment starts on 1 March and ends on the 28/29 February each year. For Companies and Close Corporations the year of assessment is the applicable financial year. Income tax returns are available annually after the end of each year of assessment to registered taxpayers, and must be completed and submitted to SARS each year.

The “Tax Season” commences 1 July each year, and the deadlines for the submission of returns are:. Company/CC (IT14) returns: Must be completed and submitted within 12 months after the financial year end of the company/close corporation. The assessment by SARS From the information furnished in the income tax return, SARS will issue an assessment showing either tax due or refundable, if applicable. Who needs to register for income tax?

The Minister announced “as from September this year SARS will require all those receiving any form of employment income – including those below the tax threshold – to be registered with SARS to help reduce the scope for non-compliance. Who needs to submit a completed and signed income tax return to SARS? Where taxpayers receive remuneration less than R120 000, taxpayers may elect not to submit an income tax return, provided the following criteria are met:.

No allowance was paid, from which PAYE was not deducted in full with regards to travel allowance. What are SITE, PAYE and provisional tax? The final income tax payable by a taxpayer can only be calculated once the total taxable income earned by the individual for the full year of assessment has been determined. This is normally only done after the end of the year of assessment, once a taxpayer’s income tax return has been processed and an assessment is issued.

However, it would be impractical to expect taxpayers to pay tax as a large lump sum once a year. As a result, the Income Tax Act has created three mechanisms to solve this problem: SITE, PAYE, and provisional tax. In this way, income tax is collected as soon as the taxpayer has earned the income and is offset against the final income tax that is due on assessment. Employees’ tax SITE and PAYE are the two elements of employee’s tax. Employees’ tax is the tax that employers must deduct from the employment income of employees – such as salaries, wages and bonuses – and pay over to SARS monthly. It is withheld daily, weekly, or monthly, when these amounts are paid or become payable to the employees.

An employer must issue an employee with a receipt known as an employees’ tax certificate (an IRP5/IT3(a)) if SITE or PAYE have been deducted. This discloses the total employment income earned for the year of assessment and the total SITE and/or PAYE deducted and paid to SARS. Standard Income Tax on Employees Standard Income Tax on Employees, or SITE, is not a separate tax. It is merely a method that means employees who earn less than a certain amount pay income tax as a full and finial liability on the information to the specific employer. SITE generally applies to individuals:. Who do not receive any other income. Pay-As-You-Earn Pay-As-You-Earn, or PAYE, ensure that an employee’s income tax liability is settled in a continuing fashion, at the same time that the income is earned.

The advantage of this is that the tax liability for the year is settled over the course of the whole year of assessment. Refer to the PAYE page for more information. Provisional tax Provisional tax allows taxpayers to provide for their final tax liability by paying two amounts in the course of the year of assessment. But the final liability is determined upon assessment.

Provisional tax payments – which are made six months after the beginning of a year of assessment, as well as at the end of it – represent tax on anticipated income. Provisional tax estimates and payments are made on IRP6 forms. What are the steps in calculating the income tax owed? The Income Tax Act No.

58 of 1962 sets out a series of steps to be followed in calculating a taxpayer’s “taxable income”. This then forms the foundation on which tax liability is calculated. These steps are briefly set out below and are tackled in greater detail in the explanations that follow.

Determine gross income First determine your total receipts and accruals, or total income. These concepts are not contained in the Act, but they are implied by the wording of the definition of “gross income” in Section 1 of the Income Tax Act. Deduct from “total income” those amounts that are excluded from the ambit of the definition of “gross income”. In other words, exclude accruals or receipts:. That is of a capital nature. Gross income of residents For any person who is a resident, gross income is the total amount of worldwide income, in cash or otherwise, received by or accrued to or in favour of that person. Gross income of non-residents For any person who is not a resident, gross income is the total amount of income, in cash or otherwise, received by or accrued to or in favour of that person from a source within or deemed to be within South Africa during the year of assessment.

Sars Tax Guide 2014 Part Time Employees

Capital receipts and accruals Receipts or accruals of a capital nature are generally excluded from gross income as the Eighth Schedule covers these as capital gains and losses. However, certain other receipts and accruals are specifically included in gross income, regardless of their nature. A taxpayer needs to include in gross income:.

Deemed accruals (contained in Section 7), deemed interest (in Section 8E) and the accruals or receipts deemed to be from a source in South Africa (in Sections 9 and 9D). Deduct exempt income “Gross income” minus the exemptions set out in Section 10 is equal to “income”. A taxpayer’s “income” is therefore calculated by deducting from the taxpayer’s gross income all amounts that are exempt from tax. Deduct allowable deductions The next step is to subtract certain allowable deductions from “income”, then add taxable gains and then subtract the other deductions, which leaves “taxable income”. Deductions include:.