Payroll, tax and the annual Budget

Finance minister Enoch Godongwana’s annual budget speech ushered in key changes for payroll.

Christine Painter, PaySpace’s head of compliance, explains that the changes to retirement fund tax is not applicable to normal payrolls, rather only to retirement fund administrators or insurers paying these annuities.

“In addition, with the new changes, while the PAYE deducted might be higher, the chances of a nasty surprise when you file your return are greatly reduced, as you know what you are in for. Furthermore, employees can still request their retirement fund administrators to use the normal PAYE rate. Employees can also volunteer to pay additional tax if they choose to do so.”

Kristel Badenhorst, compliance research manager at PaySpace, says there have also been amendments to the Employment Tax Incentive Act to counteract schemes where employers claim the ETI in respect of employment agreements that are not genuine. Firstly, the definition of ’employee’ has been amended to make sure that the substance of the employment relationship will determine eligibility for the ETI claim, as opposed to its purely legal form. For example, students whose main occupation is studying, are no longer eligible.

“The intention of the amendment is to close the loophole where employers illegitimately claimed ETI in respect of employees who are not true employees,” adds Christine. She reminds the employer that the definition change of employee is more an administrative change for the employer.

“The definition of monthly remuneration has been amended to exclude certain non-cash remuneration as well as salary sacrifices. However, no formal interpretation has been issued by SARS as yet, thus employers are waiting to receive guidance,” she notes. 

Fringe benefits on retirement funds

Next on the list is clarifying the calculation of fringe benefits in relation to employer contributions to a retirement fund, aimed at addressing the anomaly that existed where self-insured risk benefits were not seen to be a defined contribution component.

“The definitions in the Seventh Schedule to the Income Tax Act, paragraph 12D(1) have been amended to change the definition of a risk benefit, add the definition of a risk benefit policy, and change the definition of a defined contribution component so that self-insured risk benefits are classified as a defined contribution component. The changes came into operation on 1 March 2022 and apply in respect of years of assessment commencing on or after that date. Relevant employers need to contact their retirement funds to confirm whether the fund has changed from defined benefit to defined contribution in time for the March 2022 payroll run,” says Kristel.

Long-service awards

These awards now also apply to reasonable awards granted for long service that adhere to all the current requirements in the Income Tax Act, such as the number of years in service, and the aggregated exemption limited to R5,000. The changes came into operation on 1 March 2022 and apply in respect of years of assessment commencing on or after that date.

“Previously, when the recognition of long service was paid out, the first R5,000 was exempt from tax, when the reward was an acquisition of non-cash assets, such as a classic gold watch,” adds Christine. “Based on the latest changes, it now includes cash payments, acquisitions of assets at less than the actual value, the right of use of an asset, as well as free or cheap services. For example, if you receive a spa treatment as an award, the first R5,000 is also exempt.”

Learnership tax incentive

Finally, Kristel says in line with the Minister's 2021 Budget proposals, section 12H of the Income Tax Act has been amended to extend the learnership tax incentive by two years, from 1 April 2022 to 1 April 2024. This change comes into effect on 1 April this year and applies in respect of learnership agreements entered into on or after that date.

Christine says this has no systematic impact on payroll. “However, I’m glad that due to a formal structure, employers can still benefit from the tax incentive for the next two years. It’s a great initiative to employ unskilled individuals and upskill them in a specific industry. These types of employees are not expensive. It’s soft on the employer’s pocket and more importantly, it creates employment.”