The 2021 Filing Season for Employers came to an end at the end of May. Today marks the start of tax filing season for individuals. Most taxpayers will be “auto assessed” because they don’t have complicated structures and/or they only have a single tax certificate.
It’s important that individuals check these “auto assessments” and to not simply accept the “auto assessment” if there are discrepancies. This will allow for the opportunity to engage with SARS and/or submit further information to support requests for tax refunds. All taxpayers must please double-check information before submitting tax returns this year.
Here’s a couple of important notes on the 2021 tax filing season for individuals and employers to take note of:
Important notes on Retirement Fund Contributions:
- If an individual contributed to a retirement vehicle and did not receive the tax benefit during the year, the individual is within his/her rights to claim the deduction when doing their tax return;
- confirmation of their contributions will ordinarily be sent via the retirement company they have contracted with, and this information should also have been received electronically by SARS;
- this saving could be quite significant, and as such must be checked before submitting a tax return.
Another item to note regarding Retirement Fund Contributions:
- if the individual took a voluntary (or even an involuntary!) pay cut and did not adjust their contribution amount (i.e. if they were paying the maximum allowed) this would cause them to have had an excessive tax benefit and this will come out in the wash when SARS does the end of year assessment, which will result in the individual having to pay in some additional tax (i.e. pay back the benefit received).
Did you have medical expenses during the 2020/2021 tax year that wasn’t covered by your medical aid scheme? Here’s some important information and notes around medical expenses to keep in mind before finalising your tax return:
- If your medical aid scheme did not cover certain medical expenses you may well be entitled to a deduction, provided those expenses are deemed as “qualifying medical expenses” and also, taxpayers should claim all medical expenses, even if the medical aid scheme does not cover the expense;
- remember that the medical aid scheme provides a certificate of contributions each year for tax purposes, which includes a schedule of all expenses not covered/reimbursed, so it’s good practice to at least have these non-refunded expenses logged;
- the taxpayer will then have a comprehensive record of these expenses for submission to SARS;
- it’s quite possible that some expenses that the taxpayer did not expect to be allowed by SARS, are in fact allowed which could result in a welcomed tax refund.
Company Vehicles and Travel Allowances
Did you receive the benefit of a company car or travel allowance during the lockdown period? Why is that important?
During the lockdown period, many employees who had the benefit of a company car or a travel allowance were not able to use this benefit due to the imposed travel restrictions. Here are a few pointers to consider:
- to be on the safe side employers converted the benefit from a 20% taxable benefit to an 80% taxable benefit, resulting in the employee paying more tax on these benefits;
- when businesses got back to some form of normality again and travel restrictions were lifted, employees started using their company vehicles and travel allowances again as they needed to catch up on the loss of business activities;
- employees should therefore do a proper analysis of their logbook before submitting to SARS as they may well find that some of the additional tax they had to pay on these benefits could well be refunded by SARS…that is if they can justify that 80% of the benefit was in fact used for business purposes;
- on the flip side, however, where an employer did not adjust the taxable portion of the company vehicle or travel allowance (i.e. to 80% or 100%) and the employee cannot justify how the total benefit received was mainly used for business purposes, they will probably have to pay the tax back to SARS – another potentially unwanted surprise.
Did you or your employees work from home at any point?
Many employers requested their employees (and their spouses) to work from home during the lockdown period. This period dragged on and in many instances employees found themselves working from home for well over 50% of the year.
The tax return does allow for the claiming of home office expenses, even for non-commission only employees, so as long as the requirements for the claiming of home office expenses are met, taxpayers are entitled to claim this relief. Care should be taken when the spouse works at home and from the same space as there are instances where this is may not be allowed.
If an individual received a TERS payment from the UIF:
- this amount did not have to be declared anywhere as the amount is not seen as remuneration and as such no tax is payable on this amount;
- if the employer received the funds directly from the UIF and then paid the amount over to the employee, care must be taken as to how this is managed in the payroll, as the employee could pay tax when it was not necessary, particularly where the employee took leave, or took a loan in lieu of the TERS payment;
- the only way the employee can get this tax back is to go through the assessment process, which the majority of employees will not want to do or simply won’t know how to do this, thus leaving them “short-changed”;
- also if the amount was processed through the payroll care should be taken to ensure that the amount does not get included in the COIDA remuneration calculation, as this is not remuneration and if included, the fee due to COIDA will be inflated;
- an inflated amount will cause the COIDA insurance cover to potentially be inflated which could land the employer in hot water.
Bursaries & Salary Sacrifice Schemes
The bursary rules in relation to using a salary sacrifice scheme to facilitate the payment of a bursary for the relative of an employee changed:
- the tax break enjoyed by the employee for that bursary could no longer be applicable;
- the employee could be liable for an increase in their monthly tax or be in for a lump sum tax payment when they get assessed by SARS;
- employees are urged to discuss the potential of any tax implications with their employer before they do their tax return and get assessed.
- Here’s a detailed document and more information on Bursaries and Scholarships.
Take note of the following regarding foreign-based employees:
- Employers must ensure that these individuals get the R 1 250 000 exemption (as long as they qualify!) recorded on their IRP5 (code 4587) otherwise they will be taxed on this when SARS does their assessment. The employee can go through the appeal process if the employer gets this wrong but this could be a lengthy process for the employee (and the employee will be out of pocket). Likewise, the employer could be in for penalties and interest if they get this wrong, i.e. if they include the exemption when they should not have. It’s important that both parties get this right.
- Employers and Employees, when establishing total remuneration and the exempt portion, ensure all items, i.e. allowances, benefits, even the tax-free ones are correctly taken into account and accurately recorded on the IRP5. Tax-free benefits in a foreign country, for example, accommodation, are not necessarily tax-free according to SARS rules. SARS will be scrutinizing this, so please take extra care!
- Employees, make sure you have the supporting documentation/proof of what tax has been paid on foreign earnings (i.e. any taxes deducted by the foreign country tax authorities). Remember that SARS will want to tax anything over the R 1 250 000 exemption so if you can’t prove what taxes have been paid you could be in for double taxation!
- Read our full guide on foreign-based employees.
- When in doubt – get professional advice. If you don’t, it could be very costly.