CP basco kno! | income tax isa levy that is determined according o a taxpayer’s taxable income. Its payable by South A fricag vovieat txpayers on their worldwide taxable income and by non-residents on their taxable income from a South African source. These concepts will be explained in greater detail i chapters, but at this point itis sufficient to compare taxable income to net profit before tax (the figure used for accounting purpo: ‘A very simple taxable income calculation for an individual would look similar to the following: Gross income (s1) eee Less: Exempt income (S10) XXX Income XXX Less: Deductions (mainly s}1 to s20 & s23) XXX {dd: Taxable portion of allowances per s8(1) and taxable portion of capital gains (s26A) XXX Taxable income Xxx ‘One can sce that gross income is the starting point of the taxable income calculation. However, it would’ ls Pee tn Start an introductory explanation of tax with al the inclusions of income for an individual whose only, income is from employment and who has an uncomplicated tax calculation. ‘An individual eas income from many sources. As the calculation above suggests, the Income Tax Act allows ctiiain exemptions and deductions against this income before arriving at taxable income. ‘This chaplee Cadeavours to explain how income from employment will be taxed. Detailed explanations provide guidance, Si the ealculation of exemptions and deductions. Chapter 1 then collates this information and indicates how taxable income is calculated and demonstrates: how the tax to be collected by the South African Revenue Service (SARS) is determined. The chapter concludes with guidance on employees” tax, explaining that this is not a separate tax but a method of tax collection, and how an employer will calculate the tax to withhold from their employees’ salaries Learning Objectives By the end of the chapter, you should be able toCHAPTER 1) EMPLOYEDINOWIOUALS «3. ndcraand what is inchided in grass income for an employed invidunt Understand the concepts of fringe benefits and income calculation, lowances and where to include each in the taxable fringe benefit and allowance and When (if applicable) the exclusions to each fringe benefit apply ‘of exempt income: how to inchude it inthe taxable income calculation; and, “vemption Understand the concept how to calculate each Understand the concept of income and iow it differ from {gross income. Understand the concept of deductions; how it differs from a reduction (under fringe benefits and allowances); and, how to calculate each deduction, Determine taxable income 0 for an emy individual, IH the us ofthe fringe benefis, xemptions eae i: ; a into account all the requirements of Calculate the tax liability Understand the concept of employees’ tax and hw it differs stom total income tex / the final tax ability *U lerstand the concept of remuneration, how it differs from gross income and how to calculate it Understand the concept of “balance of remuneration’ and how to calculate it Determine the employees" tax withheld from an individual's monthly salary. INCOME FRO. Sen The most important or common provisions of the Income Tax Act deal and fringe benefits may be summarised as follows: with the taxation of employment [ Tncome Tax Act reference Subject } | Section T= Gross incanie (Paragraph (2) | Amouns forsee endo | ~ Gross income (paragraph (ij) | Fringe benctits | ~ Gross income (paragraph (n)) | Other amounts to inclide in gross income | Section 8(1) “Travel, ssbsistence and other allowances | | Scctions 10(1}aA), kB), (0), (p) (a) Exemptions | Seventh Schedule Fringe benefits (detail) | 1.2.1__INCOME FROM SERVICES ‘mounts can be included in gross income either through the geeraldeinition (see chapet 2), or Ugh a special inclusion ~ such as paragraph (c) — because they do not necessarily mect the general definition criteria but should still be subject to tax. Paragraph (c) of the gross income definition deems all amounts received in Fespect of services rendered or to benneed or eel atte LIVER emerest Ge {1088 income (ie. included in the starting figure of the taxable income calculation), A payment is in respect of services rendered if there is a causal link ‘tween the services and the payment. A payment for ‘loss of office’ for example, would not be for ‘services icred". However it would be ‘by virtue of employment, if the person would not have received it had he not been employed. For example, a taxpayer who receives a reward of R200 000 for providing the police with information reg ding illegal dealings in diamonds receives such reward in respect of the information supplied (the service lered). The words in respect of imply thatthe reason for the payment to the person must be because ofthe services he or she renders Wieder. Te Mie Bethea payer ie sates eed bee submitted, however, that the payment must have as its motive a reward for the services rendered. |[ Example - Prize called ABC Insurance Brokers sling runs a business ince Com MG sol poi, 3 ace policies for XYZ ns sold the 25 000, ; ee pot work for XYZ. He received it he tape (of RS 1) staal in r'shand ven haa doe Tresor he rendered (be sold the most insurance poli) 4.2.2. NON-CASH REWARDS (FRINGE BENEFITS) y to an employee, other th A fringe benefit is a benefit Lattin ne en a a is . ‘on the ‘value’ ofthe fringe benefi a sa ing hin gos tee, Fag os Paragraph income Sire ee only to. ee odofce holders (directors) and refers to the panels a a cents benefit isthe value determined in the Seventh Schedule. This is an of the cost to the employer of providing the benefit. 7” {fan amount is inclided in paragraph (i it is excluded from paragraph (c) of 1 taxpayer will not be taxed twiee. Examples of paragraph ({) income are: (i) theuse of an employer-owned car; Gi) theuse of residential accommodation; iii) schooling for children of employees paid for by the employer; (iv) theuse of any employer-owned asset; (¥) services provided by the employer to the employee; (vi) low interest loans. ‘An employee may be offered the use of a company car sh ‘vill roluc tbe employee's cash salay by an amount equivalent (othe cast Of providing ‘employer's point of view offering employees fringe benefits instead of cash has no effect on the after tax cost tothe business, ‘The fringe benefit may however be beneficial to the employee because the amount which is included in his income may be lower than additional cash salary and consequemially his after-tax position iy 1.2.3 ALLOWANCES Section 8(1) provides for certain amounts to be included in a person's “taxable income”, Note that these Amounts are not included in gross income and will be included further down in the taxable income calculation. This is important for the calculation of gross income and certain deductions. For the purposes of the section, the person is referred to as a *recipient’. The definition of ‘taxable income’ in section 1 states that it is the aggregate of- (@) income minus allowable deductions and set-ofts; and (b) all amounts to be included or deemed to be included in taxable income. Section 8(1) deals with 3 categories of allowance or advances that have to be included it certain portions ofthe allowance or advance are reduced. These as Muse im taxable * Travel allowance * Subsistence allowance 1an cash. An employee ‘gross income de * Ger allowances received by virtue ofthe recipient's office or dies (such as en : All other allowances are fully taxable. Interpretation Note 14 (issue 5), issued on 30M Providing wih aloanes abana aa caches maniCHAPTER | EMPLOYED INOMIOUALS 5 come as Act and fs generally comidered to be a “practice generally prevailing” in terms of the Tax Adininistrations Act, which binds SARS as to interpretation, Interpretation Note 14 provides that . tance’ is typically an armour of money granted by an employer to an employee where the 's certain that the employee will incur business related expenditure on behalf of the yer, but where the emplayse is not obliged 10 prove oF account 10 the employer far the expenditure © whore the amount is an ‘excess to the employer, © where the amount “advance” the employee has to prove the business expenditure and refund any eimbursement’ the employee has already incurred the business expenditure, paid for it out of his own pocket, and then recovers the ane from the employer, The employee \wsuilly has to provide the employer with the expense vouctier showing that he incurred the expense ‘on bebull of the employer. {SOLA ere aE] 4 GENERAL Fringe benefits are included in gross income in terms of paragraph (1) and are valied in terms of the provisions ‘of the Seventh Schedule. Fringe benefits differ from normal ‘salary packages and allowances in that they are ‘hot paid in cash, Its for this reason that they are referred to as “benefits and not payments Paragraph (i) differs from paragraph (c) in that it refers to value rather than 10 an amount, Because of the difficulty of establishing the value of a benefit to a particular taxpayer, the Act (Seventh Schedule) contains ‘valuation rules foe the diferent types of fringe benefits. The amount which is subject to tax in the employee's ‘hands isthe value ofthe benefit less any amount paid by the employee forthe benefit. Each of the paragraphs, from (5) to (13) in the Seventh Schedule, contains valuation provisions as well as certain exclusion provisions. 1.3.2 SEVENTH SCHEDULE - OVERVIEW Taxable benefits The Seventh Schedule deals with the valuation of benefits granted by an employer or associated institution to an employes. Paragraph 2 of the Seventh Schedule defines the different types of benefits, which are then valued in terms of paragraphs (5) 0 (13). The following is a summary of the Seventh Schedule benefits. [Paragraph (2) Fringe benetie Valuation | Paragraph _@ “Acquisition of an aisetCothee than money) Tor no 3 | ‘consideration or for an consideration Right of use of an asset other than residential | accommodation or a motor vehicle [ ® Right of use of & motor vehicle 7 | © Meals and refreshments and meal and refresment * ‘vouchers ‘Residential accommodation, 910A ‘Free or cheap services 10 [Low interest loans I i Housing subsodies: 2 Housing subsidy schemes 1 Payment of employee debts or release of an B yee from an obligation to pay a debt ‘Medical aid fund contributions TA ‘Medical expenses paid by employer 1B. ‘Long.enm insurance provided hy employer Re ‘Contributions to retirement funds by employer 12D ‘Contribution to bargaining council by employer DE6 CUPTER 1, PLOYED INDMIDUALS Excluded benefits q “The following ae specifically excluded from the definition of uxable benefit’ in paragraph | ofthe § Schedule: {a) any benefit which is exempt from tax under section 10 of the Act, aa (b) any benefit provided by any benefit fund in respect of medical, dental and similar services, services, nursing services and medicines; ; benefit payable by a benefit fund, pension or pension preservation fund, provident 9 ides heii penyliey are taxed in terms of paragraphs (d) and (¢) of the gross definition, and are not considered in this book); (4) any benefit or privilege received by or accruing to any person (as contemplated in section 92} th, Paaienreae ‘employees, stationed outside the Republic (but the benefit m attributable to that person's services outside of the Republic), () _ any severance benefit. 4.3.3_ ACQUISITION OF ASSET AT LESS THAN ACTUAL VALUE ~ PARAGRAPHS 2(a) & 5 Benefit - paragraph 2(a) A taxable benefit arises whenever an asset (other than money) has been acquired by an employee from: * his employer; or ‘© any other person by arrangement with his employer. “The benefit is the difference between the valve (as determined in paragraph (5)) and the consideration/payment given by the employee. The following benefits are excluded from paragraph 2(a): meals, refreshments, vouchers, board, fuel, power or water as contemplated in paragraphs (¢) or (d) (i.e. ‘meals and residential accommodation); = marketable securities and equity instruments per sections 8A, 8B and 8C (not considered in this book). Cash equivalent - paragraph S The cash equivalent isthe value prescribed by the Seventh Schedule, For this fringe benefit it is determined as follows: '* Market value at the time the asset is acquired by the employee, OR * cost to the employer if the asset is movable property (other than financial instruments or any asset which the employer had the use of prior to acquiring ownership thereof) which was acquired by the employer to give to the employee, OR © the lower of cost or market value if the asset is trading stock of the employer (other than financial instruments, ¢. shares) XXX Less; Amount paid by the employee for the asset (xxx) ‘Amount taxed in employee's hands XXX Examples ~ Assets acquired by employee (a) An employee gives an old welding machine, which had cost it R5 000 (including VAT) to an. leet fixed asset of the employer and has an open market value of K2 000 when itis given 10 employee. " Fringe benefit (market value) (b) A company purchases a television set to give to an employee. Market value is R3 000 butt the set ata trade price of R2 600 (including VAT),CHAPTER 1. EMPLOYEDINOMIDUALS 7 Fringe benefit R260 [Note that it does not matter whether the employer can claim the VAT on the TV set as an input, the fringe benefit is the VAT inclusive amount (6). Anemployer gives an employee trading stock with an open market value of R6 O00. The trading stock had keost the employer REO 000, Fringe benefit (lower of cost or market value) 6.000 (d) An employer who is a share dealer gives an employee 100 shares (held as stork) which had cost RT 000. At the time that the shares are given to the employee their market value is RS 000. Fringe benefit (market value) 5.000 Note: Even when the employer is registred asa vendor for VAT purposes, the cost ofthe aset for fringe benefits ‘purposes is inclusive of VAT (i.¢. even if an input is claimable), Bravery and Long-service Awards ‘An employee might receive an asset from an employer as a bravery of long service award. A bravery award is for performing some form of heroic deed. Long service is defined as an initial unbroken period of service of not less than 1 years or any subsequent unbroken period of service of not less than 10 years, Where an asset is given to an employee as a long service award or a bravery award the value of the benefit is the market value or cost to the employer of acquiring the asset (whichever is appropriate —as determined above by the cash equivalent), reduced by the lesser of RS 000 or the aggregate cost of all such awards given to the ‘employee during the year. From 1 March 2022, a proviso was added ‘concerning the reduction to be applied. The proviso has the effect of aggregating all the awards for long service (being either an asset, the use of an asset, a service, or a cash award for long service) to ensure that the total reduction across all the eategories does not exceed RS,000, This proviso was added while expanding the types of benefits that may be granted for long service (which was previously limited to assets given), Example — Bravery award During the year ended 28 February 2023 an employer sivesan employee three assets as bravery awards. The cost of the assets {including VAT) is R3 000, 82 $00 and R7 000 respectively. The amounts included in the employee's income in respect of the three awards i: 1) Cont tw employer R3 000 reduced by the lesser of {@ R3.000 (cost) (ii) RS 000 (R3 000) Taxable portion ail 2) Cost to employer 2500 reduced by the lesser of: (i) 5.500 (R3 000 + R2 $00) (aggregate cost) (ii) RS 000 (85.000) ‘Taxable portion al, 3) Cost to employer 7.000 reduced by the lesser of: (@) RI2 500 (aggregate cos) Gi) R5 000 (5.000) ‘Taxable portion 2.000 ‘The wording of the provision is misleading, because the employee has received a total reduction of more than| RS 000 for the year. 4.3.4 RIGHT OF USE OF ANY ASSET (OTHER THAN RESIDENTIAL ACCOMMODATION OR ANY MOTOR VEHICLE - PARAGRAPHS 2(b) & 6 Benefit - paragraph 2(b)° 8 ises benefit ase dation) 2¢p) a wasable Pral accomm Interms of paraeray T and residential the value of is (ier ha eran tat FONE EN hile mo. change or for 9 ee determined under par rotor vehicles is pho valent « paragra Ch ne ne employe ifthe asset is leased for the period Rent me) ei bee employee forthe period Xxx joyee"s hands @ Amount taxed inemplk i ) fe aset is owned by the employers * Gi = ae ee te (atthe date of commencement of period 0 market vi layer) oF Sotoempkyer 5% per anm i oie y pon cof the year asset is used by employee XXX Tess: Amount paid by employee Xx Amount taxed in employee's hands jor portion of its useful lif is major portion of its use! ii) Where the employee is granted the sole right of use of an asset for 9 mah he value on which the em} 1ot be determi but will be the cost joy’ i jined as above but will v hi Joyce will be taxed will n cermin ‘ ‘i the a to ine caplet a beet vs ilinedeemed to have accrued to the employee on the date he was first granted the right of use of the asset. Exclusions is paragraph is not applicable if: a the phte or domestic use hy the employe is incidental to the use of the asset fee ibe Te oa h employers busines othe asets provided the eraplayer san amenity tobe enjoyed by the em rl at his place of work or for recreational purposes at that place or a place of recreation pro} ‘mployer forthe use of his employees in general, or © the asset consists juipment or machine which the employee uses from time to time in short periods and the Commissioner is satisfied that the value of the private or domestic use is negligible, or the asset consists of telephone or computer equipment which the employee uses mainly for the purposes Of the employer's business, or the asset consists of books, literature, recordings or works of art, or since 1 March 2022, the use of an asset awarded to an em, an employee for long-service (as defined earlier), Provided the agercaate value of the use (together with any other awards in other categories) does ‘exceed RS,000. 13.5 _RIGHT OF USE OF MOTOR VEHICLE - PARAGRAPHS 2(b) & 7 the private use by an employee of an employer's motor vehicle is y a taxable benefit. ec company ear fringe benefit. The method Used to calculate the ta i “ e ofthe mator vehicle. The monthly value ofthe Benefit is 3.5% tng aoe ea onthe determined vale? Where the vehicle is : of the determined value of the car. ‘ h Subject to a maintenance plan, th i ii oo Cee tole incr: lan par ap cook ee 325% ofthe et The determined Value isthe cost (including VAT) but ex : site isthe market value (including VAT), when the © Ifthe employee is first grante the Vehicle or height of use of he oo of vehi a value by means ese he Vice, the dt which the employer first abtaine and often referred to as cluding finane ‘mployer fi ion allowance of | 4 the vehicle or riCHAPTER 1: EMPLOYED iNOIMIOUALS «9 ‘one employee and given to another for his use. The depreciation « (or its right of use) was acquired from an associated institution, ion, enjoyed the right of use of the vehicle. Example — Reduction of determined value {An employer purchases a motor car for R200 000 in January 2022 And gives the use of the ear to an employee A. {In April 2023 employee A resigns and the employer Bives the use of the caro employee B, The determined value ‘or the purposes of calculating employee Bs fringe benefit: R200 000 x (100% - 15%) = R170 000 The employer owned the car for 15 months before giving the right of use (o-employce B. This is one completed {2 month period, and no further adjustment is made forthe additional 3 movthe, ‘Cash equivalent - paragraph 7 ‘The amount taxed in the employee's hands is set out in paragraph 7(2) as: Value of private use (sce below) XXX Less: Consideration paid by employee 0o9 XXX 'ounts paid by the employee in respect of the aintenance in respect of the car. NOTE: The consideration paid does not inelude am. licence for the car, insurance for the car or fuel ot m: Value of private use The value is for each month or part of a month during which the employee was entitled to use the vehicle for Bethe coe Doses: The monthly value is 3.5% (or 3.25% if there is a maintenance plan) ofthe determined vale of the car. Example — Use of motor vehicle An employer purchases a motor car for RI 14 000 and gives the use ofthe caro an employee, The ‘employer pays all costs relating to the car. The monthly fringe benefit is calculated as follows: R114 000 x 3.5% = R3.990 {the employee is required 10 pay R300 per month forthe use of the car the R3 990 is reduced to R3 690. Temporary breaks in private use The value of private use will not be reduced where the vehicle is temporarily not used by the employee for private purposes, Reduction of fringe benefit due to business use ‘Where accurate records of distances traveled for business purposes are kept (ic, « logbook), the value placed ‘on private use for each vehicle may be reduced. The reduction is calculated as follows: Value of private use pre-reduction X —_husiness ki (i.e. determined value x 3.5%) ‘otal kilometres Reduction of fringe benefit due to employee paying certain costs In order to use this reduction, the employee must have paid all the costs relating to one (or more) of the following: © Licence Insurance © Maintenance Once again, accurate records of distances travelled must be kept. This time, the records must relate to private distances. The value placed on private use for cach vehicle may be reduced, The reduction is calculated as follows:10 (CHAPTER 1: EMPLOYED INDIVIDUALS licene vi x iv eaucme oy tatkoanenes Reduction of fringe benefit due to employee paying private fuel cost Where accurate cod of private distances avelled ae kept ad eae an ae full con cl for *private’ purposes, the fringe benefit is reduced by plies dlowance: ule in te Government Gazee Refer to 11 Travel allowance, The redveuon is caleulted follows: Private kilometres travelled X rate per kilometre for fuel in the ‘travel allowance* table Example ~ Use of motor vehicle with reductions InvestCo (Pry) Ltd provides Noah with a company car on 1 March 2023. i cent tts (BO) {inetuding VAT) when purchased on 1 February 2022. Noah kepta logbook and travelled 40 000 kms ‘ims being for business. He paid the licence of R600 in full and paid for all the private fuel of R27 000, Calculate the vale of the fringe benefit assuming 2) The car didnot come with a maintenance plan and Noah makes no other payments. ') The car did come with a maintenance plan and Noah makes no other, payments, «) The ca di not come with & maintenance plan and Noah pays R700 per month to use the car. 8) Initial inclusion (R300 000 x 3.5% x 12 months) R126 000 General business reduction (R126 000 x 10 000km/40 000km), (R31 $00) Licence reduction (R600 x 30 000kr/40 000km) (R450) Fuel reduction (30 000km x 171,7c per km) (RS1510) Inclusion in gross income: R42 480 ) Initial inetusion (300 000 x 3.25% (maint plan) x 12 months) R117 000 General business reduction (R117 000 x 10 000km/40 000km) (R29 250) Licence reduction (R600 x 30 000km/40 000km) (R40) Fuel reduction (30 000km x 171,7¢ per km) {R51 S10) Inclusion in gross income: R38 730 ©) Initial inclusion (R300 000 x 3.5% x 12. months) R126 000 General business reduction (R126 000 x 10 000km/40 000km) (R31 $00) Licence reduction (R600 x 30 000km/40 000km) (R480) Fuel reduction (30 000km x 171,7¢ per km) (RSI 510) ‘Amount pid by Noah (R700 x 12 months) (5.400) A Tnchus in gross income: R34.080 ‘No value — Pool cars and business vehicles Paragraph 710) states thatthe pri i i iti frivate use of a motor vehicle by an employes will have no value fits a pool ar OF if thas tobe i fate use fe she employe's ane aa he a 0 busines purposes andthe private use is linited o taveling Senos ‘+A pool car is one which i Generally, there is nota pen c rol KEP at or near the residence of the employee outside of business hours. I the eaaticular employee who is responsible forthe pool ear It usually kept at work penloyees in general during the day (cunning the business use. *°™™ PY an employee, but is private use must errands, ete). The motor vehicle may. be infrequent or merely incidental toCHAPTER1: EMPLOYEDINOIVOUALS 11 ravelling from his residence to his w work and back, The only private use which is permitted is that which is infrequent or ‘merely incidental to the business use, Employer reimbursement {1.5 employer reimburses the employee for any costs, the Amount of the reduction allowable tothe taxpayer {is reduced by that reimbursement see 1.3.6 MEALS, REFRESHMENTS AND MEAL AND REFRESHMENT VOUCHERS PARAGRAPHS 2c) &8 Benefit - paragraph 2(c) A benefit arises if an employee has Any meal or refreshment (other than slower than the value of the benefit been provided with any meal or refreshment or voucher entitling him to 8 Part of residential accommodation) for free or fora consideration thet Cash equivalent~ paragraph 8 The employee is taxed as follows: Cost to employer of providin, ig the meal, refreshment or voucher RXXX Less: Amount paid by employee XX) Amount included in employee's income RXAX Exclusions The following are not taxed: * meals or refreshments supplied in a canteen, employer and patronised wholly or mainly by * meals and refreshments supplied during business hours or extended Working hours or on a special occasion, cafeteria or dining ig oom operated by or on behalf of the ‘employees, * _ meals enjoyed by an employee in the course of providing ententainment on behalf of the employer, 1.3.7_FREE OR CHEAP SERVICES — PARAGRAPHS 2(e) & 10 Benefit - paragraph 2(¢) fare for a travel service), Cash equivalent - paragraph 10 If a service is rendered to an employee, he is taxed as follows: (a) Travel facility granted by an employer who is engaged in conveying passengers for reward by ea or by air- loyer enables the employce or the employee's relatives to travel to a destination outside the Repu pvc danse farce te ee ea age dein ote he amount paid by the employee or his relative in respect of such facility. (b) In the ease of any other service the employee willbe taxed on the cost of the service tothe employer less any amount paid by the employce for the service, Exclusions No value will be placed under this paragraph on =12 CHAPTER 1: EMPLOYED INDIVIDUALS i ness of conveying passen el facili any employer who is engaged in the business of conveying CO farronnlty lanl Senora caie any employe orth employees spots or minor eho in the Republic or to travel overland to any destination outside the Repu (i) twany destinatio or (ii) to any destination ouside the Republic if such flight or voyage was made in the ording ‘course of the employer's business and such employee, spouse or minor child was not permi to make a firm advance reservation of a seat or berth. (b) A transport service by the employer to convey employees between their home and work. (A) Any communication service provided to an employee if the service is used mainly for the pupa the employer's business. This would inelude, for example, access to the internet and e-mail. (©) Any service rendered by an employer at work to help employees perform their duties better, or recreational facilities, or any service as a benefit to be enjoyed by employees at work. (@) Travel facilities granted to the spouse or minor children of an employee where the emplo stationed more than 250 kilometres away from the usual place of residence for more than 183 day 8 year of assessment (the exclusion applies to travel between the usual place of residence and the ‘aidence in which the employee is stationed). The exclusion will only apply ifthe person is more tha 250 kilometres away from his or her usual place of residence in the Republic for the duration of! employment. The employee must be stationed in the Republic, (©) From | March 2022, any service granted to an employee for long service (as per the pret definition), provided the value of the service does not exceed 5,000 (or the agaregate value of Jong service awards made to the employee) 1.3.8 LOW INTEREST LOANS ~ PARAGRAPHS 2(f) & 14 Benefit - paragraph 2() ‘Where a loan has been granted to an employee by: + hisemployer; or * any other person by arrangement with the employer, or ‘* any associated institution in relation to the employer and no intrest is payable or interest is payable at arate lower than the oficial rate the difference between the official rate and the interest paid is a fringe benefit. Specifically excluded from this paragraph are subsidised loans which fll into paragraph 2(BA). Official rate of interest ie value of certain fringe benefits is determined with reference to the official rate of interest. ‘Two such: benefits are Jow interest loans and subsidies. The official rate changes from time to time as commercial rates of interest change. The Government Gazette rates for loans denominated in Rands are Set out i at the back of this book, For loans denominated in any other currency, interest for the curreney is used, ‘The official rate of interest is defined as: + Loan in Rands : 100 basis points above the Tepo (repurchase) rate * Loan in foreign currency ; 100 basis points above the equivalent of i pea point ' equivalent of the South African repo rate for that ‘Where the repo rate changes, the official rate changes from the beginning ofthe next calendar month, Cash equivalent - paragraph 11 The cash equivalent of no-interest or low-interest loan is calculated as follows: Interest payable at the official interest rate RXXX Less: Interest incurred by employee for the yearCHAPTER 1: EMPLOYED INDIVIDUALS 13. ‘Cash equivalent of taxable benefit BXXX However, the Commissioner may approve of a different method if it achieves substantially the same result. Note that ifthe official rate of interest is Varied during the year, the old rate applies up tothe date on which the ‘ew rate comes into operation, No value Paragraph | (4) provides that the following are effectively exempted from tax under paragraph 11 ~ 4 casual loan or loans to an employee not exceeding R3 000 in total at any time; or a loan to an employce to enable him to further his studies; or a loan granted up to R450 000 to assist the employee to purchase a residential property, the value of which does not exceed R450 000 in the year of purchase or in that year, the remuneration proxy of the employee docs not exceed R250 000. The employee may not be a connected person in relation to the employer. Deduction Paragraph 11(5) provides that if the employee had to pay interest on the Joan, and such interest would have been in the production of his income - then, for the purposes of section 11(a) the taxable benefit included in the employee's taxable income will be deemed to be interest actually incurred by him. 1.3.9 SUBSIDIES ~ PARAGRAPHS 2(g), 2(gA) & 12 Benefit - paragraphs 2(g) and 2(gA) In terms of paragraph 2(g) a benefit arises whenever an employer has paid any subsidy in respect of capital or interest on any loan. Paragraph 2(gA) applies inthe situation where the employer pays a lender a subsidy in respect of a loan to an employee. If the amount paid by the employer together with the interest paid by the «employee exceeds an amount determined by using the official interest rate (applied tothe loan) the full amount paid by the employer is treated as a taxable subsidy. If the amount paid by the employer together with the Interest paid by the employee is less than the offical rate the loan is treated as a low interest loan. Cash equivalent - paragraph 12 The cash equivalent of a subsidy referred to in paragraphs 2(g) or 2(@A) is the value of the subsidy, So, if for cxample, an employer pays an employee a housing subsidy of RI 000 per month, the value of the benefit (included in the employee's income) is R1 000 per month. Example of paragraph 2(gA) On | March 2023, Mr B's employer entered into an arrangement with Finance Lid whereby Finance Lid would lend Mr B R500 000 at the bond interest rate less 7%, Mr B's employer would pay the 7% as an administration fee to Finance Ltd. The capital is only repayable after $ years. For the period | March 2023 to 31 July 2023 assume that the bond intrest rate was 12% For the petod | August 202310 31 August 2023 assume it was 8%, forthe period | September 2023 10 30 September 2023 assume it was 11%, and for | October 2023 to 29 February 2024 assume that it was 12%. Assume that the official rate was &,5% 10 30 September 2023 and 10% for the remainder ofthe year of assessment MrB's taxable benefit is as follows: 1/3/2023 ~ 31/7/2023 Bond rate 12%, Official rate 8.5% Paragraph 12 subsidy: 500 000 x 7% x 153/365 R14671 Note: Because the amount paid by the employer and employee (12%) exceeds the official rate (8,5%) the amount paid by the employer (7%) is taxed as a subsidy, 11972023 - 31/8/2023 Bond rate 8% Official rate 8.5% Paragraph 11 Toan: $00 000 x (8,5% » 1%) x 31/365 R18514 CHAPTER 1: EMPLOYED! INDIVIDUALS 1972023 - 30972023 Bond rate 11% Oficial rate 10% R2877 Paragraph 12 subsidy mozors -2922023 Bond rate 12% Official rate 10% Paragraph 12 subsidy: $00 000 x 76x i SE OF EMPLO’ OF EMPLOYEE'S DEBT OR RELEA’ 11 aay NEBT - PARAGRAPHS 2(h) & 13, 500 000 x 74x 30365 Benefit - paragraph 2(h) A taxable benefit arises if © the employer has psid an amount owing by employee to reimburse him; or © the employer has released the employee from to the employer. é An employer is deemed to have released an employee from an obligation to pay @ debt if the debt ps The proviso does not apply if the Commissioner is satisfied that prescription, was not due to an inten the part of the employer to confer a benefit on the employee. ‘ Excluded from the scope of this paragraph are the amounts contemplated in paragraph 2(i) (medical 4 contributions) and paragraph 2(j) (medical expenses paid by the employer). the employee to any third person without reat ‘an obligation to pay an amount owing by the emp Cash equivalent - paragraph 13 The cash equivalent of the benefit is either the debt paid by the employer or the debt owed by the employee the employer which has been written off. No value The following is not taxable (i.e. is deemed to have no value as a taxable benefit) + payment ofthe employee's subscriptions to a professional body, if membership of the body is a condition of the employee's employment; ‘+ insurance premiums indemnifying an employee solely against claims ari i r cio be reirng of resp erin ss asc ‘payment of any portion of the value ofa benefit which is payable by a former face rece eine ne Gotenent Employee Rain Law, 996 Coeckanaere ). 10 the Government Employees” Pension Fund as contemplaied in Rule 10(6)(d) or (e) of the R ‘ cof the Government Ey P edt + shoabiaioani oo ee Fund contained in Schedule 1 to that Proclamation (in terms. * where in retum for a bursary or study loan a person assum services for a certain period (to the person inher paoti pea =the oa igeion = theemployee becomes liable to i is services without fulfilling te Shlatoas oer ae ith eee r to take up empl with a the new cinployer has seted the obligation tothe former employer; and a . Employee has in consideration for the payment assumed an obligation to render the new employer for a period which js tothe previo Saplopen td Mbich snot shorter han the unexpired ponton prite sennaCHAPTER 1: EMPLOYED INDIMDUALS «15 4.3.44 MEDICAL AID CONTRIBUTIONS — PARAGRAPHS 2()) & 124 Benefit - paragraph 2(i) A Ginge benefit arises when an employer has directly or indirect The teal aid Scheme registered under the provisions othe Medic: the benefit of an em ly made any contribution or payment to an; ployee or the dependants of an employee. y ‘al Schemes Aet (Act No, 131 of 1998), for Cash equivalent - paragraph 124 The benefit to any employee in respect of contributions made by the employer to the medical aid fund is the amount contributed by the employer. contitaanteht thatthe payments by the employer are taxable, the employee is deemed to have made the contributions to the medical aid fund himself or herself, No value No value shall be placed on the taxable benefit derived from * 2 person who by reason of superannuation; ill-health or employer; or an employer by - other infirmity retired from the employ of such * the dependants of an employee (who was em nployed at the date of death) after such employee's death; or the dependants of a deceased retied emplo . yee; or Example ~ Medical scheme contributions paid by employer | | Mr Good aged 50 is married and has one child aged 16. Mr Good {s employed by Big Lid and is a member of the Goodhealth Medical Scheme. Mrs Good and the chil id are contributions which are R2 000 are paid by Big Lid. {in terms of the scheme. The monthly Mr Average aged 65 isa widower and also works for Big Lid, on a partime bass (momings only). He is also a member of the Goodhealth Medical Scheme. Big Ltd pays R800 Per month to the scheme in fespect of Mr ‘Average’s membership, The employees make no contributions to the scheme, The amount to-be included in Mr Good's gross income fo the year is: Contributions paid by employer ‘The amount to be included in Mr Average’s gross income forthe year is Contributions paid by employer R24.000 R260 1.3.12 INCURRAL OF COSTS RELATING TO MEDICAL SERVICES — PARAGRAPHS 2()) & 128 Benefit - para Adenefit arises ifthe employer has dresty oe indirectly incurred any amount (by contribution or payment) in {{sbect of any medical, dental or similar services, hospital, nursing services ‘or medicines for the employee (including the employee's spouse, child, relative or dependant) as contemplated in Paragraph 128. Cash equivalent - paragraph 12B ig,tmount incurred by the employer on behalf ofthe employee (including the employee's spouse, child, ‘elative or dependant) will be the fringe benefit for that employee,16 CHAPTER 1; EMPLOYED INDIVIDUALS ee is deemed to have m To the extent that the payments by the employer ar taxable, the employ contributions to the medical aid fund himself or herself. Exclusions, ; wae No value will be placed under this paragraph on medical expenditure paid by an employer in respect of No i the following: yer for his A medical scheme run by an employer for his approved by the Regisrar of Medial sie A loy e function. This exclu meals ne Sctenvinc by the Minster of Heath, Ths ap is oxhens in by he employe hee Wag cal scheme if the Registrar of Medical Schemes approves it. ra Thee the ene i not ran asthe busines of medical scheme (ee paragraph 12B(3)@X%i) For the benefit of a person who by reason of superannuation, ill-health or other infirmity retired from 1 employ of such employer, or for the benefit of his dependants, For the benefit of the dependants of an employee (who was employed at the date of death) after suc employee's death. Any benefit which consists of services rendered to the employees in general at the workplace for the: performance of their duti Any medical benefit where the services are rendered or the medicines supplied to comply with any in the Republic. 1.3.13 CONTRIBUTIONS TO RETIREMENT FUNDS BY EMPLOYERS — PARAGRAPHS 2) 120 Benefit - paragraph 2(() A fringe benefit arises when an employer has made any contribution for the benefit of any employee to pension fund, provident fund or retirement annuity fund. Cash equivalent - paragraph 12D The value of the benefit depends on the type of benefit from the fund: * Where the benefit consists solely of “defined contribution components”, ‘The benefit value i then simply the amount contributed to the fund by the employer Where the benefit does not consist solely of “defined contribution components ‘The value ofthe fringe benefit is then determined in terms of'a formula: X=(AxB)—C, where X= the fringe benefit A® the fund member category factor (which is based. i 's.a member, and provided by the board of the fund) one find member clan of which he ba BB the retirement funding employment income of on which the employer's contribution to wie C=the employee's contributions to the No value No-value shall be placed on the benefit deri * for the benefit of a member who iployee for the hic 8 foionopovdent fn in baeag ene he remuneration fund for that year of assessmentCHAPTER 1) EMPLOYED INDIVIDUALS 17, i fringe benefit valve per paragraph 121) is deemed to be a contribution ofthe ‘employee to the retirement fund, Aiteuih similar in nature, allowances are not treated in the same way as fringe benef in the taxable income calculation. Fringe benefits are included in gross income (the starting point ofthe ealculation), Allowances ae included in taxable income, Therefore, they should be included after deductions, 1.4.1_ TRAVEL ALLOWANCE Section 8(1)(b) deals with the trav 1 allowance. There are two types of travel allowance, ie. 0) ‘an allowance or advance in respect of transport expenses: and (Gi) ‘an allowance of advance to be used by the recipient for paying expenses in respect of a motor vehicle used by the recipient for business purposes (the so-called "motor car travel allowance’, Trace is 2 presumption under paragraph (i) thatthe vehicle fs owned by the recipient, but it nesd not be. Homevet ifthe employer owns the vehicle, the employee cannot deduct deemed expenditure per the eb, from such travel allowance, He has to deduct his actual business travel costs (see below), serresineie ar Private travel includes travel between the employee's residence and is place of creer. For this reason, a travel allowance received by an office-based employee who only uses his cor ‘0 tavel between his home and place of work will be trated as normal salary, fully subject to income tne Example — Allowance for transport expenses — section SION) Mr Brown is required to travel between two factories ope railway station and Mr Brown uses the train to commute ome t0 work by train. His employer pays him a travel allowance of R400 per month. During the year ended 29 February 2024 he spent RI 920 on travelling between his home and work and R2 800 on travelling besweee the ‘wo factories. In terms of section 8(1) the amount to be included in his income in respect of the travel allowence is as follows: rated by his employer. Both factories are situated near a bbetween the two factories. He also commutes from his, Allowance for transport expenses (400.x 12) Ra 800 Less: Business travel (travel between factories) (2.500) Include in taxable income 2.000 The most common type of ‘travel allowance’ is one which is given to an employee who uses his own ear for business purposes = section 8(1}(bXi) As discussed above, section 8(1) is not confined only to persons whe use their own car and also not only to persons who are employees. All that is required * that the person (not necessarily an employee) receives a travel allowance, and * that the recipient uses the vehicle, all or part of the year, In Interpretation Note 14, SARS states thatthe allowance must reflec the anticipated business expense ofthe cmployee. Ifthe allowance is excessive, it will be regarded as normal salary. Employers will be lable fer the deduction of employees’ tax in these circumstances. The amount which is deemed to be In respect of which the allowance is received, for business purposes for part of the recipicnt's taxable income is so much of any allowance or sdvance in respect ofthe expenses of any travelling on business as i not actually expended on business tngver {ne application ofthe section therefore requires a determination of business travel expenditure, There are two \ways in which this can be done, namely: (}) Using actual figures. If taxpayer can produce actual business expenditure figures which are acceptable to the Commissioner, such figures will be used. To do thi ‘taxpayer would have to keep a detailed record, of all of his business expenditure. (ii) Using actual business kilometres travelled and a deemed cost per kilometre. 4m each case a log book would have to be kept and all business travel would have to be recorded.18 CHAPTER 1: EMPLOYED INOIVIDUALS .ed cost per kilometre ; a aerate dacene No 48162 of 3 March 2023, fies the curent rate por imate in respect of m ane aa cot this section, The ble of rates set out in the appendices, and app ya ‘iigscscement commencing on of afler | March 2023 (see Appendix A). : a The schedule of rates states thatthe rate per kilometre shall be determined in accordance with the table, wll be the sum of: : (a) the fixed cost per the table, divided by the total distance in kilometres travelled during the year assesement_ (This includes kilometres for both private and business purposes). purposes durit ich i the fixed cost ie i .¢s during a period which is less than a full year the fixed a Sencinectamayl ‘The apportionment is dane on the basis of the ratio oe ‘use for business purposes’ to 365 days (366 in. leap year). This does not mean that yon mist Com the “days” of business use to 365 days. Regard must be had to the ‘period” in whic falls. the fiacl cost per the table where the recipient of the allowance has borne the fil! cost of the fuel used inthe vehicle; and (©) the maintenance cost per the table where the recipient has borne the full maintenance cost of the vehicle. i) The three costs referred to above vary depending on the value of the vehicle. The ‘value’ is defined in schedule as follows: (}) Where the motor vehicle was acquired by the recipient under a bona fide agreement of sale or excl ‘concluded by parties dealing at arm’s length, the value is the original cost of the vehicle to, ‘including any VAT, but excluding any finance charges or interest. Note that this paragraph docs apply to motor vehicles acquired at the end of a lease. Where the motor vehicle is held by the recipient under a lease (as contemplated in the definition of instalment credit agreement in the Valuc Added Tax Act) or was held ‘by him under such a lease ai acquired by him on the termination of the lease, the value will be; ‘where the lessor is a banker or financier, the cost to the banker or financier of the motor vehiel plus any VAT paid by the lessor under the financial lease, where the lessor is 8 dealer, the price at which the motor yehicle is normally sold by him for ‘or may normally be acquired from him for cash, together with i lessor under such financial lease. ae aes (ii) An any other case, the vah Total kilometres travelled by Mr A during the: | The tax-free portion of the travel allowance is Deemes rate per kilometre is determined a8 fo Fixed cost (based on R105 000) Year was 27 000, of which 7 000 were for busi calculated as follows: Hows: 0329 x 27000 6s 369 223.44 Fuel Maintenance [Business expenditure: 7000 km x 43624 cents = Mr A will include in his taxable income:CHAPTER 1) EMPLOYED INDIVIDUALS 19 Travel allowance 12 x R3 $00 Ra? 000.00 [Reduced by business expense R30 536.80 BLL 493.20 Actual costs Ifthe taxpayer is able to fumish an acceptable calculation based on accurate data, he can deduct the actual cost ‘of his business travel forthe year Where actual costs are being determined, the value of the vehicle is limited to R665 000. The wear and tear is Jimited to this value and must be determined over a period of 7 years. Note this determination of wear and tear {s for the purposes of this calculation only. Furthermore, any finance charges must be limited as if the vehicle had a cash cost of a maximum of R665 000. Similarly. for a leased vehicle, the instalments for the year of assessment cannot exceed the fixed cost per the table issued by the Minister based on that vehicle's “cash cost’. Actual kilometres travelled for the year (if recorded) XXX Less: Actual private travel xx ‘Actual business travel (proved tothe satisfaction of the Commissioner) XXX The ratio of actual business kilometres travelled to total kilometres travelled is applied to the total costs to, calculate the business costs, Example 1 - Travel allowance & actual costs Mr A receives a travel allowance of RI 800 per month for a vehicle costing R319 200. For the year of assessment |e waveled a total of 20 00 kilometres of which 5 $00 were for business purposes, He had paid eash for the vehicle. Mr A's actual travel expenditure for the year is as follows: + wear and tear (R319 200 /7) R§s 600 + licence 500 |= insurance 8000 > fuel 10.000 - maintenance 2.000 R66. 100 The taxable portion of the travel allowance is; Travel allowance received, RI 800 x 12 = R21 600,00 Less: Business costs, R66 100 x 5 500/20 000 = a8.172:50) RAs2s0 | Note that Mr A still has the option of using the deemed cost reduction and would do so if that reduction resulted ina figure greater than RIS 178. Example 2~ Travel allowance & actual costs — vehicle costing more than R66S 000 Mr B uses his car, which he purchased for 700 000 (including VAT) on | March 2023, for business purposes. Finance charges incurred on this acquisition amounted to 3% simple interest per annum. He has kept an accurate| record of expenses and paid R12 000 for fuel, R5 280 (including VAT) for maintenance, R800 for licence, and] |2.0% based on the value of the car for insurance. Mr B is not a VAT vendor, He recrives a travel allowance of] | R90 000 pa. He travelled 40 000 kilometres in total with 21 000 being business kilometres MB Travel allowance 90 000 Total kms 40 000 Private kms (19.000) Business kms 21.000. Actual expenditure: Finance charges R665 000 (max) x 3% 1995020 CHAPTER 1: EMPLOYED INDIVIDUALS Fuel 12.000 Maintenance $280 Licence 800, Insurance R700 000 x 2% 14000 ; ‘Wear & tear R665 000 (max)/7 years 95.000 -B147.030 . Reduction from travel allowance (21 000/40 000 x R147.030) (R77 191) Note that Mr B still has the option to elect using the deemed cost reduction and would do so if that reduct resulted in a figure greater than that allowed under this method. Note: The employee has a further option for their travel allowance reduction. If the allowance recei reimbursive allowance, the employee has the option of deducting 464 cents per kilometre from his allowance if he so wishes, The 464 cents can only be used if the employee receives no other reimbut allowance. A reimbursive allowance is an allowance based on kilometres travelled, not a set value per month, Example 3 ~ Reimbursive travel allowance & actual costs Mr A receives a travel allowance of RS.50 per business kilometre travelled for a vehicle costing R319 200. Fe the year of assessment he travelled a total of 20 000 kilometres, of which S 500 were for business purposes. had paid eash forthe vehicle. Mr A’s actual travel expenditure for the year is as follows: ~~ wear and tear R45 600 = licence 300 ~ insurance 3000 = fuel 10.000 = maintenance 2.000 66.100 The taxable portion of the travel allowance is: Travel allowance received, R5.50 x 5 500 = 30 250,00 Less: Business costs, R66 100 x 5 500/20 000 = (1817750) 1207250 Note that Mr A still has the following options available to him: |. Toclect to use the deemed cost reduction method and would do so if that reduction resulted in a figure greater} than R18 178, 2. As the travel allowance is reimbursive (ic. based on kilometres travelled), he also has the option to use R464] x 5500 = R25 520 as his reduction, 3. Mr A will elect whichever option grants the largest reduction to the travel allowance, 1.4.2 SUBSISTENCE ALLOWANCE Section 8(1)(a)(i) requires all allowances or advances to be included in ‘taxable income’, excluding any. actually expended by the recipient (employee) — > onany * accommodation: ‘* meals and other incidental costs > while the recipient is obliged * by reason of his duties (office or employment) * tospend at least one night away from his or her usual place of residence in the Republic.CHAPTER 1: EMPLOYEDINDIDUALS 21 Accommodation ‘The portion of the allowance or advance for accommodation which is included in the recipient's (employee's) taxable income is calculated as follows: Amount of allowance for accommodation (say) 5 nights at R2 000 per night R10 000 ‘Amount which the employee can prove he spent (say) (6.000) Include in taxable income R400 Amount of advance for costs of accommodation (say) R12 000 Amount for which employee has records of the accommodation expense (say) (7.000) ‘Amount recovered by the employer (say) 2.000) Include in taxable income R3.000 Note: A loss cannot be created. Costs are limited to the advance or allowance. ‘The difference between an allowance and an advance is: Allowance — the employee ean deduet his actual costs of accommodation for tax purposes and need not account to his employer for what he spent. «Advance — the employee has to account to his employer for his actual costs of accommodation. He is AXSTon any amount which he has not spent on accommodation and has not paid back to his employer. .s do not apply to accommodation allowances, so usually an employer pays The subsistence allowance table: these costs directly. Meals and other incidental costs or allowance is received by an employce for meals and other ineidental costs, he or she can Where an advance 0 deduct either: + the amount actually spent (limited to the advance or allowanee), or notice in the Government Gazette for each day or part of ‘+ the amount set by the Commissioner by way of er usual place of residence (provided that the employee is 1 day that the employee is absent from his or h obliged to spend at least one night away). The employee can choose between the two methods on a day-by-day basis. Note thatthe allowance inthis case is called a “subsistence” allowance, and the amount allowed to be deducted per the Government Gazette applies to either of the following: © anallowance for meals and other incidental costs © anallowance for incidental costs only. The allowance for incidental costs is to cover beverages, private telephone calls, gratuities (tips), and room The amounts deductible from the subsistence allowance for the 2024 year of assessment (1 March 2023 ~ 29 ‘ebruary 2024) are as follows: R522 per day RI6I per day Varies per country ~ See Appendix B Meals and incidental costs in the Republic Ineidental costs only, in the Republic Daily amount for travel outside the Republic Paxa s imple ~ Subsistence allowance MeG isa sae MCG isasals representative forthe KLI Feed and Friis? ‘eel spend 10 nights away from home, visitng 10 customer, Ssimmodaton and give Mr G an allowance for meas andinedental ons | lance of RS 000 for the month of January. ‘Company (KL). His employer estimates that he will "The employer agreed that it wll pay the costs of| ‘of R750 per day. Mr G was therefore|22 CHAPTER 1: EMPLOYED INDIVIDUALS iohts away on business, visting 8 customers, For the 9*euston By the end ofthe mom, Mr Ghd only spent ne home in the evening. He di not visit the 10h he travelled out to the customer in the moming, Jeustomer. ale By the end ofthe following month Mr had not refunded any pat ofthe allowance to the employer, Mr G’s income for tax is as follows: January (8 nights x R70) R6 000 | Tax-free portion (8 x R522) (4176) Included per section 8(1) RL824 February (2 x R750) RL500, 4.4.3 OTHER ALLOWANCES ‘ 1)(a)(i) is meant to deal with all other allowances, including the entertainment allowance. Th aay Re et to include expenditure allowed to be spent by the employer on meals and inciden tosts while away for part of a day away from home. The rate was set in Government Gazette 48162 (3 Ma 2023) as being R161 per day. This is to be distinguished from the meals and incidentals covered by se 8(1{a)({)(0b).. ‘The basic principle is that all allowances are included in taxable income, and where the recipient is an «employee, he cannot deduct any expenses from such other allowances if section 23(m) applies (see later). Note however that a reimbursement of actual business expenditure is not included in the recipient’s taxable income. Where the amount is a reimbursement of or an advance for expenditure the amount must be: : incurred or to be incurred, = ‘on the instruction of the employer, - inthe furtherance of the trade of the employer, and - the employee must produce proof to the employer that the expenditure was wholly incurred, and - the employee must account to the employer for the expenditure * ~ __ iffan assetis bought, the ownership of the asset must be given to the employer. The position is as follows: * fan employee is given an allowance, for example an entertainment allowance, and he i i , . is not required to account (to his employer) for actual expenditure incured, the amount is included in his rable ose ‘+ Ian employee is given an amount, whether in advance or i i i : ven an amount, arrears, 10 cover expenditure which he has, or wll incur on the instruction of his employer and for which he is accountable vo his employer ed of s8(1 (ai), the amount does not fall into his taxable income (see above). Example ~ Reimbursive allowance (On etuming to office Mr D gives the program to his employer, as well a the i forthe lunch. He also returns the R600 cash which he has left ane Se Mr D’s inclusion in taxable income is calculated as follows: Advance ‘Amount spent on program feo ‘Amount retumed to employer 4 ra i Section 8(1) inclusion in taxable income R400 Mr D is taxed on the R400 because the money was not spent on the instruction of his employer.CHAPTER 1) EMPLOYEDINDMDUALS 23 SSeS GENERAL determined gross income from employment, the next step is to determine if any of this income is from tax. Ifan amount is exempt itis deducted from gross ineome in order to arrive at income, as GROSS INCOME XXX Less EXEMPT INCOME (XXX) INCOME XXX exempt income provisions are set out in section 10 of the Act. Key exemptions relating specifically to from employment (s10(1)(nA), (nB) in detail in this 5.2 SPECIAL UNIFORMS EXEMPTION - SECTION 10(1)(nA) een crrployee is required to wear a special uniform while he is on duty, he is exempt from tax on the hc of such uniform given to him by his employer or on any allowance (tothe extent considered reasonable ie Commissioner) paid to him for that purpose, provided that the uniform is clearly distinguishable from ordinary clothing, .5.3 TRANSFER OR RELOCATION COSTS EXEMPTION — SECTION 10(1)(nB) here an employee is © appointed, or © transferred, or © dismissed and moves at the insistence of his employer and the employer bears the cost thereof, the amount expended will not be taxed in the employee’s hands. The costs dealt with are * transportation costs, © settling-in costs, «hiring of temporary accommodation for less than 183 days. The employee will also not be taxed on any costs borne by the employer or reimbursed t respect of the sale of the employee’s previous residence and in settling in p accommodation at his new place of residence. The Commissioner has stated the following in this regard: Reimbursement of actual expenses: The following items are exempt from the employee for the actual expenditure incurred and must be reflected certificate ~ Bond registration and legal fees } - Transfer duty = Cancellation of bond : = Agent’s commission on sale of previous residence Settling-in costs include the following and must be reflected on the IRF - New school uniforms - Replacement of curtains - Motor vehicle registration fees . - Telephone, water and electricity connection24 CHAPTER 1: EMPLOYED INDIVIDUALS. {ed as tax free if'an amount equal to one month's ‘To simplify the administration, it will be acceptable and trea ei hose related 0 TaNspor, basic salary is paid to the employee to cover settling-in costs (ex temporary accommodation and purchase and/or sale of residence). = fe by the employer Expenditure fully taxable: Should payments be made by t! or items, these will constitute taxable benefits in the hands of the employee deduction of employees’ tax in respect of the following two concerned and be subject to the n transfer. © Payments to reimburse the employee for loss on the sale ofa previous residence during 1 ‘© Architect's fees for the design or alteration of a new residence. 1.5.4 SHIPS CREW EXEMPTION - SECTION 10(1)(0)(i) Section 10(1)(0}(i) exempts any remuneration (as defined in the Fourth Schedule) ha by any penal officer or crew member of a ship engaged in international transportation for rewal lot pastes pe exempt if such person was outside the Republic for a period or periods exceeding 183 full days in oat during the year of assessment. The crew of ships used in the prospecting, Se ai) coe ae including surveys and other work ofa similar nature) for any minerals (including natural oils) from the sea ‘outside the Republic, may also have their remuneration exempted under this provision. where ae ‘crew member is employed on board such ship solely for purposes of the ‘passage’ of such ship, as defined in, the Marine Traffic Act, 1981, and the ‘days’ requirement is met. A full day runs from 00H00 to 24H00. 1.5.5_EMPLOYMENT OUTSIDE THE REPUBLIC EXEMPTION — SECTION 10(1)(o)(ii) Section 10(1(o)ii) exempts the first R1,25 million of any remuneration received by or accrued to a per by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, includ ‘an amount referred to in paragraph (i) of the definition of gross income (fringe benefits), is exempt if it is respect of services rendered outside the Republic for, or on behalf of, any employer provided that person wi outside the Republic of South A frica - * _ for aperiod or periods exceeding 183 full days in aggregate during any 12 month period commencing oF ending during that or any other year of assessment; and fora continuous period exceeding 60 full days during such period of 12 months; and such services were rendered during such periods worked outside the Republic, ‘The remuneration referred to in thi The rem is subsection includes fringe benefits and benefits under employee Note: 1 Tie reyment must rete ‘o employment. Independent contractors (self-employed persons) may | Toscan Sa ai tate ope ote Ro a; nis ite Pa cl bal Heise, Person contemplated in section 9(2)(g) (public office) or 4 ay ae jirough the Republic and does not formally enter the Republic, he is d 5. Zhe services do not have to be rendered luring the whole time that the employee is o ren luring the employee is on holiday outside the Republic, the days on ho! iday count tow: untCHAPTER 1: EMPLOYEDINoMOUALS 25 ‘¢ MrK has been outside South Africa for more than 183 days beginning in the 2023 year of assessment and ending in the 2024 year of assessment ‘+ During that time Mr K has been outside South Africa for a continuous period exceeding 60 days ‘¢ Therefore Mr K qualifies for the st0(1)(o\i) exemption, R40 000 of Mr K's salary will be exempt from tax for the year of assessment ending 28 February 2023 (R240 000 x 2/12) R140 000 of Mr K's salary will be exempt from tax for the year of assessment ending 29 February 2024 (R240 000 x 7/12). 1.5.6 SERVICES FOR THE SOUTH AFRICAN GOVERNMENT EXEMPTION — SECTION 10(1)(P) Section 9(2)(h) deems the income arising from certain services rendered to the South African Government or municipality to be from a South African source. This deeming provision applies to residents and non-residents alike. Section 10(1)(p) exempts such amounts from South African tax in the hands of a non-resident if he is taxed in his home country on the amount and the tax is actually borne by him. 4.5.7_ BURSARIES AND SCHOLARSHIPS EXEMPTION ~ SECTION 10(1)(a) Section 10(1)(q) exempts any bona fide scholarship or bursary granted to assist or enable any person to study ata recognised educational or research institution. The following additional rules apply if the scholarship or bursary has been granted by an employer (or an associated institution) to an employee or a relative of an employee: + Inthe case of a bursary or scholarship granted to an employee the exemption will not apply unless the employee agrees to reimburse the employer for any scholarship or bursary if the employee fails to complete his or her studies for reasons other than death, ill-health or injury. ‘Inthe case of a scholarship or bursary granted to a relative of an employee the exemption is limited to 20 000 per year for studies up to NF level 4 (high school) and R60 000 per year for studies up to NOF level 10 (PhD), provided that the employee's remuneration does not exceed R600 000 for the year of assessment, If the employee's remuneration exceeds R600 000 during the year of assessment, the section 10(1)(q) exemption will not apply to the scholarship or bursary granted to assist the relative of the employee to study. Interpretation note 66 deals with the taxation implications of bursaries and scholarships. The interpretation note defines the following terms: * ‘Bona fide scholarship or bursary” * ‘A recognised educational or research institution” * ‘To study’ * ‘Remuneration’ A bona fide bursary would include one which is in terms ofa written agreement conditional on the fulfilment of stipulated requirements such as the requirement that the grantee is required to obtain a qualification or take 'p employment with the grantor on completion of his studies. It also includes a direct payment of fees. 140 study’ relates to the formal process whereby the person to whom the grant is made, gains or enhances his ‘sledge, intellect or expertise. It is not a requirement that a degree, diploma or certificate be awarded on completion of the course of study. “Study does not include research undertaken for the benefit of another Reuom. ¢8. an employer, a business or sponsor, Also, a grant to a visiting academic for the purpose of lecturing persons es not satisfy the study requirement. A reward or reimbursement of study expenses borne by a Inada ter completion of his studies does not constitute a scholarship or bursary as the grant must have been Wan 2enableor assis the grantee to study crit 8 émployee obiains a Toan to study it is exempt from fringe benefits tax, but ifthe loan is waived the = will be taxed on the amount waived. The section 10(1)(q) exemption will not apply.26 CHAPTER 1) EMPLOYED INDIVIDUALS i fully comy init \lification or success! here an employer rewards an employee for ene ireasntoyer to the employee Saaeet ‘i ud ve reimburses him for study expenses, t rie ices ne Ea tured in ar ceaaieal ‘hands in terms of paragraph (c) o yeom ining courses -the-job training, or course Specialised training cow awn house a on- thes able benefit i y the employer's ben e states that expenditure in cone bese The interpretation note states that exper in connect on Wi con reseed ca nee amploer, ifthe training is job-related and ultimately hands of the emplo BLED PERSONS 4.5.8 BURSARIES AND SCHOLARSHIPS EXEMPTION FOR DISA\ ; “SECTION 10(1)(qA) sholarship or bursary granted: S the previous section, section 10(1)(qA) exempts any. se oi rovoguised sdaca te nae ic any person witha disability as defined in section 6B(1) assist or enat S research. itution. ip or bursary ited by an employer (or an The following ational ues apply if the scholarship of bursary ta been gra associated institution) to an employee or family member of an empl ion will not apply unles Inthe case ofa bursary or scholarship granted oa disabled one ee eae eee ot the employee agrees to reimburse the employer for any scl oF complec his or er stu for reasons other than death, il-health o injury. In the case of a scholarship or bursary granted to a family member of an pulls ‘the oa we a to R30 000 per year for studies up to NQF level 4 (high school) fe seh z per Peat a0 eis NOF level 10 (PhD), provided that the employee’s remuneration does not exceed ag eet employee's remuneration exceeds R600 000 during the year of assessment, section 10(1)(@A) exemption will not apply to the scholarship or bursary granted to assist the relative of the employee to study Een 1.6.1_DEDUCTIONS AND ALLOWANCES. So far, we have looked at inclusions in gross income (with allowances being included in taxable income) and Sabres Bore tis gross income, Now we will take a closer look al deductions, which are amounts thie aad subtracts from income to determine taxable income. Most deductions are included under section 11. Section 11 incurred in the production of ineome from trade. Sal (a) allows the deduction of defined in section 1 of the ies, Wages, ete are income revenue expendi Income Tax Act as including any “employment® from trade, because ‘trade’ is, In the past, therefore, the related expense ¢i Employment contracts would be drafted to require “Ould be deducted, for example: Being on call (telephone at home and mobile phone) Working from home (home study) Belonging to a professional bod: Keeping up to date (subscribe t Having a notebook computer t The result has been that seetion 23 employment, ie, — © Section 23(b) disallows ex s ‘PeNSES relate; of the employee's trade and regulary, = employees to do certain things so . 'Y (professional subscriptions) . ‘0 trade journals) to Work while away from office has been designed to prevent the deduction of certain expenses relat toahome st id exclusives study unless itis 5 !y used for that Pecifically equipped for the p Purpose and the following appliCHAPTER: EMPLOYED INDIVIDUALS 27° + _ the employee's income from employment is derived mainly from commission or other variable payments based on his or her work performance and the employee's duties are performed (mainly) ‘outside any office provided to him or her by the employer; and = the employee's duties are mainly performed in his study. o Section 23(m) disallows any section 11 expenditure or loss relating to employment or the holding of office (if the remuneration is subject to employees tax in terms of the Fourth Schedule), except for: Deductions in respect of domestic premises which are not disallowed under section 23(b) Pas Provident or retirement annuity fund contributions ~ these are deductible in terms of section - Arefund of the person’s sal 11(nB), = Legal expenses per section 11(c) = Wear and tear per section 1(e) lary per section 11(nA) or of restraint of trade payment under section - Bad debts per section 11(i) = Doubtful debts per section 11() Premiums paid in terms of an insurance policy to the extent that it covers the person against loss in income as a result of injury, illness, disability or unemployment - s11(a), (The proceeds from such policy must constitute income in the taxpayer's hands) Furthermore, since deductions in respect of donations to public benefit organisations are governed by section 18A rather than section 11 they are not disallowed by section 23(m) and may therefore also be made against employment income. The section 23(m) limitation does not apply to agents or representatives whose remuneration is normally. derived mainly in the form of commissions based on his or her sales tumover. 1.6.2_ PENSION, PROVIDENT AND RETIREMENT FUND CONTRIBUTIONS Section 11F deals with the taxpayer's contributions to a pension fund, provident fund or retirement annuity fund. These contributions were previously deductible under sections 11(k) and 11(n). Contributions to retirement funds section 11F ‘A member's contributions to a pension, provident and retirement annuity fund are deductible under section IF. These contributions consist of: contributions in the current year (including the contributions of the employer considered a fringe benefit for the purposes of the Seventh Schedule), and. contributions in the past that were disallowed as a deduction under section 11F and the old sections 11(&) and 11(). The deduction under section 11F is limited to~ The | of + R350 000; or 27.5% of the higher of: Remuneration as defined in paragraph 1 of the 4th Schedule (excluding retirement or severance lump sums), or Taxable income (excluding retirement or severance lump sums), before the s11F or s18A deductions, __* Taxable income before s11F and ineluding taxable capital gains under s26A. Example an salary of R300 000 per year. He also has other income, not related to employment, of R80 000. He contributes 8% %eof his salary to a pension fund and contributes R500 per month to a retirement annuity fund. Mr R28 CHAPTER 1: EMPLOYED INOVIDUALS also contributes R12 000 to a provident fund. Mr R’s employer contributed 5% of the salary tothe pension find: MER has previous non-deductible retirement fund contributions, brought forward from prior years of R4 000, ‘The section 11 F deduction will be calculated as follows Contributions of (R300 000 x (8%+5%)) + (R500 x 12) + R12 000 4 Limited to the lesser of: *© R350 000, or © 27.5% of the higher of: Remuneration (salary R300 000 + fringe benefit employer contribution R15 000) R315 000 ‘And taxable income (R300 000 + R15 000 + R80 000) 395 000 | Therefore 27.5% x R395 000 R108 625 Therefore, all contributions are deductible, and the deduction is R57 000. R57 000. 4.6.3 DONATIONS TO PUBLIC BENEFIT ORGANISATIONS In terms of sI8A a deduction (subject to a 10% limit) is allowed in respect of the sum of bona fide donatio ‘of cash or property in kind made by a taxpayer, during the year of assessment, 10: ‘© certain public benefit organisations (PBO) approved by the Commissioner under section 30 and ¢ other institutions and bodies. Not all donations are tax-deductible. The PBO or other institution has 10 b registered under Part II of the Ninth Schedule, and must issue a tax deduction certificate to the donor. ‘¢ The deduction is limited to an amount which does not exceed 10% of the taxable income of the taxpaj before the deductions under this section. Example ~ Pension, RAF, Donations and Medical contributions Mr G (under 65) eamss a pensionable salary of R204 000 for the year ended 28 February 2023 and has other trading income of R130 000, and interest income of R43 300 (assume R22 800 of this interest is exempt). The following amounts have been paid by him for the year of assessment: Deductible revenue expenditure in the production of trade income R22. 000 Provident fund contributions 7.300 Medical aid contributions 6 000 Donations to tax-exempt church fund 2000 Donations to tax-exempt AIDS organisation (tax deduction certificate received) 1800 Pension fund contributions 12.000 Retirement annuity fund contributions 18.000 Mr G's taxable income for the year is as follows: Salary R204 000 Trading income R130 000 | Deductible trading expenses (22.000) 108000 Interest income R43 300 Interest exemption (23.800) 19500 R331 500 Pension, provident and retirement annuity flund contributions s11F R37 500 Ld to lesser of R350 000, 27.5% of the higher of Remunerati R204 000 a And taxable income R331 500 Therefore 27.5% x R331 500, R91 163 -_ ‘And taxable income R331 500 a All the contributions of R37 500 are deductible. 37500) Donations to church (not deductible) 4CHAPTER 1; EMPLOYED INDMDUALS 29. Donations to Aids organisation Taxable income 800) R292.200 | 1.6.4 SEQUENCE OF DEDUCTIONS The Act provides that the tnxable’ portion of the capital gain must be included in the taxable income of the taxpayer (section 26A), The Act provides that the deduction of donations to certain organisations must not exceed 10% of the taxable income (excluding any retirement fund Jump sum benefit and retirement fund lump sum withdrawal benefit) ofthe taxpayer as calculated before allowing any deduction under section 18A. A specific sequence should be applied when a taxpayer's taxable income is calculated if he or she contributed to retirement funds (s11F), received a taxable allowance in respect of section 8(1)(a), made a taxable capital gain, made a deductible donation to an Organisation under section 8A. This sequence is illustrated by the following example: Example Mr A is under 65 with no dependants and his income (non-retirement funding income) is R320 000 for the 2023 year of assessment, before the following taxable income and contributions and deductions for the year of assessment were | taken into consideration: Taxable travel allowance R24000 Taxable portion of eaptal gain 120 000 Current contributions o a retirement annuity fund (not through the employer and no proof of payment was provided) 52.000 Medical aid fund contributions (by himself, not through the employer) 14.000 Medical expenses not refunded by his medical aid fund 45.000 Donations to public benefit organisations in the Republic which carry on | Public benefit activities as contemplated in Part Il of the 9® Schedule 43.000 | Calculation of Mr A’s taxable income for the year of assessment ending 29 February 2024: Non-retirement funding income R320 000 Plus: Taxable travel allowance 24000 Less: RAF contribution of RS2 000 Lid to lesser of R350 000, 27.5% of the higher of Remuneration (R320 000 + R24 000) R344.000 And taxable income (R344 000 + R120 000) R464 000 Therefore 27.5% x R464 000 R127 600 And taxable income R464 000 Therefore all the contributions are deductible (RS52.000) Plus: Taxable capital gain 120.000. | Taxable income before donations 412.000, Less; Donations of R43 000: Limited to 10% x R412 000 (41200) | Taxable income 370800 “ote: the taxpayer would also be entitled to medical rebates, as discussed in 1.7.4 and 1.7.5. UTS ae eae AEN) 4.7.4 CALCULATION OF INDIVIDUAL'S TAX LIABILITY So far, the calculation of taxable ineome includes the following: Gross income (s1) XXX Less: Exempt income (10) ex) _ Income ness30 CHAPTER 1: EMPLOYED INDIVIDUALS. ‘Add: Taxable portion of allowances (s8(1)) XX Less: Deductions (mainly s11 to 820 & s23) Retirement fund deductions (s11(F)) XX eR ‘Ada: Taxable portion of capital gains (s26A) Less: Donations deduction (s18A) 2a, Taxable income ! Once the taxable income has been calculated, the tax payable must be determined ‘This is accomplished by using the tax table for each year of assessment and considering the rebates applicable, Tax per the table, based on taxable income XXX Less: Rebates XXX XXX Tax payable 4.7.2_TAX TABLE “The tax payable on a person's taxable income is set out in the tax table for each year of assessment. i i li individuals as well as The tax table for individuals (natural persons) is set out in Appendix A. It applies to all individual special trusts, The tax table provides rates of tax which increase progressively as taxable income increases, In. ‘other words, persons with low income pay tax at a lower rate than persons with high income, Example — Tax table Mrs Hay has a taxable income of R2S0 000 for the year ended 29 February 2024. Calculate her tax per the tax table, Solution. Tax on R237 100 R42 678. Tax on R12 900 (R250 000 R237 100) @ 26% 3354 Total tax per the tax table R4G.032 Mrs Hay"s average rate of tax is 46 032 / 250 000 x 100 = 18,41%. Her marginal rate of tax is 26%, being the rate of tax which Mrs Hay will pay on her next Rand of taxable income, Nore: The tax per the table is reduced by certain personal rebates which are discussed in 1.7.3. 4.7.3 NORMAL TAX REBATES ‘The normal tax rebates are fixed amounts deductible by a natural person from the tax calculated per th table ‘The rebates for the year of assessment ended 29 February 2024 are as follows: © Primary rebate - RI7 235 (2023: R16 425) © Secondary rebate - R 9 444 (2023: R9 000) © Tertiary rebate : R 3145 (2023: R2 997) Notes: (1) The secondary rebate is claimable if the taxpayer is 65 years or older on the last day of assessment (2) The tertiary rebate is claimable ifthe tax aaneat ea payer is 75 years or older on the last day of (3) If the taxpayer dies during the year, assessment had he lived, the secondar apportioned as it would be in respect of partial period of assessment, ‘The total rebate for a person who is 65 or older is therefore R26 679 (17 235 +9 444), The total rebate for a person who is 75 or older is therefore R29 824 (1723549 sats (4) (6)CHAPTER 1: EMPLOYEDINDIiOUALS 31 1.7.4 MEDICAL SCHEME FEES TAX CREDIT Inaddition to the normal tax rebates, a natural person rebate ~ the medical scheme fees tax credit under sect In terms of section 6A, taxpayers who contribute to a medical aid scheme (in terms of the Medical Schemes Act) of to any similar scheme in another country, will receive a monthly tax rebate of R364 (for one member), R728 for the taxpayer and one dependant and R246 per each additional dependant. The contributions must be in respect of the taxpayer, his spouse, any child and any dependant of the taxpayer who was admitted as a dependant under the medical scheme. ‘ if All taxpayers who are contributing to a medical aid the months in which contributions are paid to the regardless of the actual contribution made by the taxy than the credit, ~ontributing to a medical aid is entitled to an additional on 6A. qualify for this rebate. The rebates are only claimable for medical aid. The monthly tax rebate is a fixed amount, payer. The contribution to the fund can be larger or smaller Contributions by employers The rules of a medical aid fund vary from fund to fund and may require half the medical aid contribution to be made by the employer and half by the employee. To the extent that the payments are made by an employer and are taxable as a fringe benefit, the employee is deemed to have made the contributions to the medical ai fund himself or herself. 4.7.5_ADDITIONAL MEDICAL EXPENSES TAX CREDIT A natural person paying qualifying medical expenses is entitled to an additional rebate to be deducted from normal tax payable ~ the additional medical expenses tax eredit under section 6B. Qualify ing medical expenses These expenses include: (2) Amounts paid by him or her: - toa registered medical practitioner - toa registered nursing home - toa registered pharmacist (b) Amounts paid by him or her in respect of expenditure incurred outside the Republic on services or medicine similar to those described above, and (c) Expenditure that is prescribed by the Commissioner, necessarily incurred and paid by the taxpayer in consequence of any physical impairment or disability suffered by the taxpayer or any dependant. Any expenses recovered from the medical aid scheme or under an insurance policy are not included as 4ualifying medical expenses. The amounts paid must be in respect of the taxpayer, or any dependant as referred to below. Dependant Dependant means: (2) A person’s spouse, (b) A person's child and the child of his or her spouse, (¢) Any other member of the person's family whom they are liable to support, and. (@) Any other person recognised as a dependant in terms of the rules of the medical aid scheme to which they contribute for the medical scheme fees tax credit. Child for the Purposes of the rebate For the purposes ofthe section child means any child (including an adopted child) of the taxpayer or his spouse ‘who was alive for atleast part ofthe year and meets the following requirements: > Under 18 years of age{0 INOMIOUALS- 22 QUPTER 1, EMPLOTE! of -s old and is unmarried. The taxpayer will qualify for the rebat ifthe child is under 18 year: as >» 1810 wnder 21 years old . The taxpayer will qualify for the de d, iy : =. parilly dependent for his maintenance upon the taxpayer, and w ot lable forthe payment of normal tax for the year in his own right. not li 26years old , 21 to under 26 years - : The taxpayer will qualify for the deduction ifthe child i jetion if the child is © unmarried, ‘wholly or partially dependent for his maintenance upon the taxpayer, not liable forthe payment of normal tax for the year, and a fulltime student at an educational institution of a public character. , Any age The taxpayer will qualify for the deduction if the child is: * incapacitated by physical or mental infirmity from maintaining himself, ‘+ wholly or partially dependent for his maintenance upon the taxpayer, and © not liable for the payment of normal tax for the year. Disability A disability means a moderate to severe limitation of person's ability to function or perform dally as a result of a physical, sensory, commumication, intellectual or mental impairment, if, * the limitation has lasted or has a prognosis of lasting more than a year; and © G.tlamose by a duly registered medical prtitionr in accordance with criteria preseribed by Commissioner. 1.7.6 LIMITATION OF THE MEDICAL EXPENSES TAX CREDIT ‘There are three categories of taxpayers to whom the rebate appli * Persons who are 65 years old and older, * Persons with a disability, and * Everyone else (persons younger than 65 without a disability) Rebate for persons 65 years old and older, and persons with disability ‘The calculations for the rebate for the first two categories are identical, The calculation is as follows: (9) 333% of the medical aid contributions i ai ‘imexcess of three times the medical scheme fees tax credit, (®) 353% of qualitying medical expenditure 7 Rebate for persons younger th: The rebate is calculated as 25: of four times the medical (Gi) qualifying medical expenditure Scheme fees tax credit, plus to the extent that the sum of ) and (ii) are in excess of 75% Note: there can never be a nega , taxable income, tive excessCHAPTER 1 EmpLovEDinoMoUALS 33, Example ~ Medical scheme contributions and medical expenses Mr X belongs to a medical aid i i i cont eee 2 ah maa ce ek ere er ct covered by his medical aid. His eo RT ie SS AININS Meinl sevens Mckanes et Calculate the final tax lability, asstiming Me X is: a) 70ysars old b) 30 years old without disability 2) 7O,years old (working to the mearest Rand): Taxable income R300 000 Normal tax per the tables (R42 678 + 26% x (R300 000 - R237 100)) 59032 Less: primary rebate {R17 235) Less: secondary rebate (R9 444) Less: s6A medical scheme fees tax credit (R728 + R246) x 12 ARI 688) Less: s6B medical expenses tax eredit Contributions (R1 $00 + RI 700) x 12 R38 400 3 times the $6 rebate (3 x R11 688) (R35 064) R3336 x333% (RIAN) Qualifying medical expenditure (R25 $00 x 33.3%) (R8.492) Final tax liability R11 062 5) 30 years old (working to the nearest Rand): Taxable income R300 000 Normal tax per the tables (R42 678 + 26% x (R300 000 - R237 100)) R59 032 Less: primary rebate (no secondary rebate as under 65) (R17 235) Less: s6A medical scheme fees tax credit (R11 688) Less: s6B medical expenses tax credit Contributions (RI $00 + RI 700) x 12 R38 400 A times the s6A rebate (4x RII 688) (R46 752) Limited to RO ‘Qualifying medical expenditure R25 500_ R25 500 Less 7.5% of R300 000 {R22 500) R3 000 x25% —{R750) Final tax liability, Re)34 CHAPTER 1) EMPLOYED INDIVIDUALS. 1.7.7 _TAXTHRESHOLDS ‘The point at which tax becomes payable is known asthe tax threshold. Asa result of the rebates, persons are not liable for tax ifthe tax per the table is to which they are entitled. qual t or fess than the The tax thresholds for the 2024 year of assessment are as follows: Taxable income ~Persons under 65 9S 750 (2023 ; R91 250) ~ Persons over 65 R148 2172023: RI4I 250) ~ Persons over 75 R165 689 (2023 ; R157 900) 4.7.8 TAX COLLECTION =. : ia a “Tax is collected by means of various withholding taxes (such as employees” tax), provisional tax, six-monthly, and when an assessment is issued for the year. Registration ’ ‘ Every person who becomes liable for income tax or becomes liable to submit a tax return must apply to ‘Commissioner to be registered as a taxpayer. i Employees tax ‘The Fourth Schedule to the Income Tax Act provides that where a person receives remuneration in respect employment his or her employer must withhold tax from his or her remuneration and pay it to SARS, ‘employees’ tax so withheld is determined by reference to tables issued by SARS, Provisional Tax Persons with non-remuneration income may be subject to provisional tax, which isan advance payment of| made in instalments during the year. A first payment is made on or before 31 August and a second not than the last day of February. A topping-up provisional tax payment may be made 7 months after the year. (see chapter 2), Normally, persons who eam other income which is not subject o employees’ tax have to register as provisi taxpayers and pay the tax on this other income on their provisional tax retums (see chapter 2), Assessment All persons who are liable for tax are required to render a retum of their income and deductions every From this return SARS raises an assessment showing the tax due for the year. The amount due is reduced ny employees’ tax and provisional tax, which has been paid to SARS in respect of the year. 1.7.9 PARTIAL PERIOD OF ASSESSMENT A pastial period of assessment is one which is less than 12 months, In a partial period of assessment, th Baia ‘ent, the rebates (other than sections 6A and 6B) are reduced A partial period of assessment arises: * inthe year in which the taxpayer is born, if he is liable for tax; * inthe year in which the taxpayer dies; © in the year in which the taxpayer ceases to be a resident due to emigration; or in the year in which the taxpayer goes insolvent. Note that there is no partial Period in the year in which a Person starts working or Stops workin, igCHAPTER 1: EMPLOYEDINOIVIDUALS © 35, Po Oar 1.8.1_GENERAL Employees’ tx isa withholding tax which s dea y) basis. Its ich is deducted from an e eee eeeicad ae Miva MATAGitad clacton of romal tos The sehen oes by the employer and is determined by using tables issued by SARS. Lk cate A Every employer who pays remuneration whic camel eat eee eee SARS as an employer conve x pon “employees” tax iv! of the month, Should the secs eTation by the employer must be paid to SARS within seven days after the the fast basics at fs ‘venth day be a weekend or a holiday, then the employees’ tax is to be paid by the seventh day) wall pea tne seventh day, Failurcto pay within seven days (or tock laa banicse) day before eee ay) ne " penalties and interest (sce below) being levied by SARS on the smouns of tax 4.8.2 DEFINITIONS Is clear that the withholding of employees taxis onl smployee's remuneration on a regular (usually + raw esentaiive eatta ly necessary where remuneration is paid by an employer eae iOn ae ete amnioiee lbs terms wuployer; enployer, reprcsenmive emplover ond Tamortant beesuse the cake: artgraph 1 of the Fourth Schedule. The definition of remuneration is the most important because the other definitions are dependent on it Remuneration includes all payments rendered. Remuneration includes: + salary and wages, leave pay, bonuses, gr amounts paid for services rendered and amounts payable, in cash or otherwise, whether or not for services ies, commissions, fees, overtime pay, emoluments, other allowances and advances (excluding the rave allowance and permissible subsistence allowances), > Ifa person has been paid a subsistence allowance to spend a night away from his usual residence has not (by the last day of the following month) spent the required nights away from his residence (and he has not refunded the allowance to his employer), the subsistence allowance is treated as a normal payment for services rendered and is subject to employees tax in that next month. Itis deemed not to have been paid in the first month. * 50% of allowances paid to a holder of public office * 80% of any travel allowance, except where the employer is satisfied that 80% of the use of the vehicle is for business purposes. In this circumstance, the inclusion in remuneration is only 20%. This is to prevent a refund of employees’ tax once the taxpayer has been assessed, + Pensions, superannuation allowances, annuities * restraint of trade receipts (gross income (¢A)) + amounts paid for variation of office (gross income (d)) ‘+ any amount received or accrued in commutation of amounts due under any contract of employment or service (gross income (f)) * fringe benefits (gross income (i)). The amounts (after reductions) that are included in gross income, with the exception of: » Only 80% of the use of the motor vehicle (before any reductions), ‘except where the employer is satisfied that 80% of the use of the vehicle is for business purposes. In this circumstance, the inclusion in remuneration is only 20%. This is to prevent a refund of employees’ tax once the taxpayer has been assessed. Remuneration does not include the following: * Fees paid to a person for service he renders inthe course of any trade carried on independently by him. Examples of such payments are fees paid to: auditors, medical practitioners, lawyers, independent businesses, etc, This is an important exclusion and is discussed in a scparate chapter. Note that this exclusion does not apply in the case of persons who are not ordinarily resident in the Republic or persons such as labour brokers or personal service providers.