2021 Tax Laws Amendment Bills – Payroll Practitioners, here’s some food for thought…

Details of the proposed changes to the Tax Law Amendment Bill and the Tax Administration Law Amendment Bill have recently been released for comment.

At first glance the following proposed changes may impact the payroll profession:

  • Taxation of a long service award. The total non-taxable value of R 5 000 and all other qualifying criteria must continue to be met. However, it is proposed that in future the award can be provided in cash, as opposed to a non-cash asset, as is the current requirement. This is a welcome change as most employers provide long service awards in many different forms, some of which have different tax implications. 
  • Clarifying the calculation of the fringe benefit in relation to employer contributions to a retirement fund. Where the employer contributes to a defined benefit fund and the actual taxable benefit accruing to the employee is derived by using a specific formula, the self-insured risk-benefit which is included in the contribution is often “lost” when calculating the amount that the employee can use towards the calculation of the allowable deduction (i.e. the 27.5%), thus allowing the employee a greater deduction than permitted. The proposal is to split the two amounts to ensure the value of the benefit for both the retirement fund and the self-insured risk-benefit can be determined and taxed accordingly.    
  • Definition of an employee for ETI purposes. It is proposed that the definition of an “employee” and a “qualifying employee” be changed to clearly specify that “work” must be performed in terms of an employment contract and that the employee must be documented in the employer’s records. This is to ensure that employers don’t claim for employees who don’t actually work for them.
  • Transfer between retirement funds by members reaching 55 (or older). There are certain instances where a tax liability arises when a fund member reaches retirement age and transfers his/her funds into a preservation fund, for example. The intention is that any transfer to a similar fund should not be taxed. It is proposed that an amendment be made to address this and allow for the tax free transfer of funds from a preservation fund into a similar fund by a member who has already reached normal retirement age. This is a welcomed proposal as it enables individuals to maximise their return by moving from one fund to another, without any tax liability.     
  • The tax implications on a retirement fund when an individual ceases to be a tax resident. There are some proposed changes which, for example, will assist the individual in delaying the payment of the tax liability that arises when it is deemed that the individual has “withdrawn” from the fund, until such time as the individual has actually received the payment from the fund
  • Penalties for non-submission of bi-annual PAYE reconciliations. There is a proposed new method in calculating the penalty due (i.e. higher!) for this type of non-compliance. 

Join us at our Mid Year – Payroll Taxes and Associated Legislation Update Seminar on 4 or 5 October 2021 for an in-depth analysis of what all of this means in practice. Check back here regularly for dates and to book your seat.