Tax and ETI Amendments 2017/2018
Income Tax and ETI Amendments 2017/2018
Page 1 of 17
Contents 1 Employment Tax Incentive (ETI) Changes ....................................................................................... 2
1.1 Wage Qualifying Test ................................................................................................................... 2
1.1.1 Before March 2017 .................................................................................................. 2
1.1.2 From March 2017 .................................................................................................... 3
1.1.3 ‘Employed and Remunerated’ Hours .......................................................................... 4
1.1.4 Actual Wage ........................................................................................................... 5
1.1.5 Diagram to Illustrate the Wage Qualifying Test for Employees Without a Wage Regulating
Measure ................................................................................................................. 5
1.1.6 Wage Qualifying Test: Wage Regulating Measure vs. No Wage Regulating Measure ...... 6
1.2 Remuneration ............................................................................................................................... 8
1.2.1 Before March 2017 .................................................................................................. 8
1.2.2 From March 2017 .................................................................................................... 8
1.2.3 ‘Employed and Remunerated’ Hours .......................................................................... 8
1.2.4 Diagram to Illustrate the Calculation of Remuneration for All Employees (With and Without
a Wage Regulating Measure) .................................................................................. 10
1.3 Calculation of the ETI Amount .................................................................................................... 11
1.3.1 Before March 2017 ................................................................................................ 11
1.3.2 From March 2017 .................................................................................................. 11
1.4 Roll-Over and Reimbursement ................................................................................................... 12
2 Tax Changes ..................................................................................................................................... 13
2.1 Background................................................................................................................................. 13
2.2 Payroll Changes ......................................................................................................................... 13
2.2.1 ‘Remuneration Proxy’ ............................................................................................. 13
2.2.2 Employer Provided Bursaries .................................................................................. 13
2.2.3 Directors’ Deemed Remuneration ............................................................................ 14
2.2.4 RFI Definition ........................................................................................................ 14
2.2.5 Reimbursive Travel Allowance ................................................................................. 15
2.2.6 Certain Dividends Included in Remuneration ............................................................. 15
2.2.7 Value of ‘B’ in the Residential Accommodation Fringe Benefit Calculation .................... 16
2.3 Other Changes Not Affecting Payroll Directly ............................................................................ 16
2.3.1 Partner of a Partnership .......................................................................................... 16
2.3.2 Disallowing the tax exemption for Local Fund Lump Sums and Annuities ...................... 16
2.3.3 Learnership Tax Incentive ....................................................................................... 16
3 References ........................................................................................................................................ 17
Income Tax and ETI Amendments 2017/2018 Page 2 of 17
1 Employment Tax Incentive (ETI) Changes
The Taxation Laws Amendment Act, 2016, promulgated on 19 January 2017 in Government Gazette
40562, extends ETI for another 2 years, ending on 28 February 2019. The Act contains the following
changes to ETI.
1.1 Wage Qualifying Test In order for an employee to qualify for ETI, he/she must pass the wage qualifying test which is one of the
qualifying criteria to establish if an employee is a qualifying employee (other qualifying criteria includes;
employed on or after 1 October 2013, 18 to 29 years old, valid RSA ID / Asylum Seeker Permit / Refugee
ID Number, not a domestic worker, not a connected person to the employer and monthly remuneration
must be less than R6 000).
‘Wage’ refers to the cash amount paid for ordinary hours of work. This is typically basic salary or basic
wage of the employee and excludes elements such as overtime, commission, bonus etc. and includes
any leave pay (such as pay for annual leave, sick leave, family leave etc.). The ‘wage’ the employee
earns should be at least the minimum wage according to the wage regulating measure (collective
agreement, bargaining council or sectoral determination) or R2 000 for a full month, which is at least 160
hours, if there is no wage regulating measure.
1.1.1 Before March 2017
If a wage regulating measure was applicable, then the monthly wage was compared to the
minimum monthly wage (it was understood that a rate per hour comparison was allowed as this was effectively the same as grossing-up the wage).
If no wage regulating measure was applicable the monthly wage was calculated in the following
way: If the employee was employed for less than 160 hours per month, then a gross-up of the wage
was performed to see how much the wage would have been for 160 hours.
If the employee was employed for 160 hours or more, no gross-up of the wage was required.
Hours employed referred to:
Contractual normal hours (no overtime hours) in the case of a ‘permanent’ employee for ETI purposes (those employees who work in terms of an employment contract that specifies a contractual predictability of regular work in the future. In other words, an employee with a standard amount of hours to work in a month).
Actual total hours worked in the case of a ‘temporary’ employee for ETI purposes (employee without a standard amount of hours to work in a month or an employee who works an irregular amount of hours, such as temps or casual workers).
Actual normal hours employed for new and terminated employees.
Please Note: The definitions for ‘permanent’ and for ‘temporary’ are not legal terms, but our
own definitions we used to explain the legislation
To simplify the calculation, from March 2015 the test was not based on the wage rate per month, but by applying a rate per hour comparison:
The minimum wage rate per hour applied if there was a wage regulating measure, or
If there was no wage regulating measure, an employee qualified if the wage rate per hour of the employee was equal to or more than R12.50 (R2 000/160 hours).
Income Tax and ETI Amendments 2017/2018 Page 3 of 17
1.1.2 From March 2017 The legislation was amended to change the word from ‘employed’ to ‘employed and paid remuneration’ in
order to clarify the applicable hours worked in the grossing up/grossing down calculation.
The term ‘employed’ has a different meaning to ‘employed and paid remuneration’ and therefore some of
the calculations are changing.
Summary of the legislation for the wage qualifying test from March 2017:
If a wage regulating measure is applicable:
The wage paid should be compared to the minimum wage of the wage regulating measure in respect of that month, it is understood that a rate per hour comparison is allowed as this is effectively the same as grossing-up the wage.
If no wage regulating measure is applicable:
If an employee is ‘employed and paid remuneration’ for less than 160 hours in a month, then
gross-up the wage to 160 hours to determine if the monthly wage is R2 000 or more.
If an employee is ‘employed and paid remuneration’ for at least 160 hours in a month, no gross-
up of the wage is required to determine whether the monthly wage is R2 000 or more.
The amended legislation allows for a rate per hour/week/month comparison for employees with a wage
regulating measure, however the amended legislation does not provide for a gross-up calculation if a
wage regulating measure is applicable, therefore our system will still perform a rate per hour comparison
for employees with a wage regulating measure to apply the wage qualifying test.
The wording of the legislation in respect of employees without a wage regulating measure has changed to
indicate that a gross-up calculation should be done based on all hours ‘employed and remunerated’, and
therefore we will not be performing a rate per hour comparison on employees without a wage regulating
measure, the wage qualifying test must be applied strictly on a monthly basis (R2000 for a full month,
which is at least 160 ‘employed and remunerated’ hours).
From March 2017, the following wage qualifying tests will be applied:
Wage regulating measure (no change)
Check if contractual/actual wage rate per hour of the employee is equal or more than the minimum wage
rate per hour (according to the wage regulating measure) of the employee.
No wage regulating measure
If ‘employed and remunerated’ hours are less than 160 hours a gross-up calculation will be done using
the actual monthly wage to apply the wage qualifying test.
Actual monthly wage / ‘employed and remunerated’ hours x 160
If the ‘employed and remunerated’ hours are 160 or more the actual monthly wage will be used to apply
the wage qualifying test.
If the actual monthly wage or grossed-up monthly wage for a full month (at least 160 hours) is R2000 or
more, the employee will pass the wage qualifying test. If the actual monthly wage / grossed-up monthly
wage for a full month (at least 160 hours) is less than R2000, the employee will fail the wage qualifying
test and no ETI will calculate.
In order to apply this test, the system must know the following:
‘Employed and remunerated’ hours
Actual wage for the month
Income Tax and ETI Amendments 2017/2018 Page 4 of 17
1.1.3 ‘Employed and Remunerated’ Hours ‘Employed and remunerated’ hours are all actual hours the employee was ‘employed and remunerated’
for. In other words, it should be the ordinary hours less any unpaid hours (such as unpaid leave hours, no
work-no pay hours, strikes etc.) plus any additional hours (such as overtime hours, public holiday worked
hours, hours worked on a Sunday etc.).
Before March 2017 we distinguished between permanent employees (employees with a standard amount
of hours to work in a month) and temporary employees (employees without a standard amount of hours to
work in a month or employees who work an irregular amount of hours) in order to apply the ‘employed’
hours. We used the ‘employed’ hours to determine whether a gross-up of the wage should have been
done.
For explanatory purposes we will still distinguish between permanent, temporary, new and terminated
employees.
Permanent employees – contractual/ordinary hours (average working hours per month according to the BCEA, calculated on a 4.3333 week or according to the employment contract) less any unpaid hours (such as unpaid leave hours, no work-no pay hours) plus any additional hours (such as overtime hours, public holiday worked hours, hours worked on a Sunday etc.).
Temporary employees – actual number of hours worked in the month (the calculation of hours will include ordinary hours plus additional hours of work, unpaid hours will automatically not be counted).
New and terminated employees – actual number of hours worked if employed after the first day of the month or terminated before the last day of the month (the calculation of hours will include ordinary hours plus additional hours less unpaid hours).
It is our opinion that ordinary/contractual (average working hours per month) less unpaid hours plus
additional hours can be used for permanent employees as this refers to the number of hours
‘employed and remunerated’ during the month.
Example 1 – permanent monthly paid employee:
The employment contract states that the employee’s ordinary hours of work is 8 hours a day, 5 days a
week (Monday to Friday) which is 173.3333 average working hours per month (in line with the BCEA).
In the month of April, the employee took 30 hours unpaid leave (unpaid hours) and worked 3 hours
overtime (additional hours).
‘Employed and remunerated’ hours for the month: Contractual/ordinary hours – unpaid hours + additional hours = 173.3333 – 30 + 3 = 146.3333 hours
Example 2 – permanent weekly paid employee:
The employment contract states that the employee’s ordinary hours of work is 8 hours a day, 5 days a
week (Monday to Friday) which is 40 hours per week.
The month of April has 4 weeks in the month.
In the month of April, the employee took 30 hours unpaid leave (unpaid hours) and worked 3 hours
overtime (additional hours).
‘Employed and remuneration’ hours for the month: Contractual/ordinary hours – unpaid hours + additional hours = (40 x 4) – 30 + 3 = 133 hours
Income Tax and ETI Amendments 2017/2018 Page 5 of 17
1.1.4 Actual Wage According to the Basic Conditions of Employment Act, actual wage will include the basic wage or salary
(excluding fringe benefits and company contributions) paid to the employee for the month and excludes
elements such as overtime, commission, bonus etc. Actual wage includes leave pay (such as annual
leave, sick leave, family leave etc.). It is important that earning lines/components which form part of the
employee’s wage are separate from other earnings on the payroll.
1.1.5 Diagram to Illustrate the Wage Qualifying Test for Employees Without a Wage Regulating Measure
*Hours refer to ‘employed and remunerated’ hours.
No wage regulating measure
*Hours less than 160
Gross-up calculation:
Actual monthly wage / *hours x 160
Grossed-up wage is R2000 or more
Employee passes the wage qualifying test
Grossed-up wage is less than R2000
Employee fails the wage qualifying test, no ETI is calculated
*Hours are 160 or more
Actual monthly wage
Actual wage is R2000 or more
Employee passes the wage qualifying test
Actual wage is less than R2000
Employee fails the wage qualifying test, no ETI is calculated
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1.1.6 Wage Qualifying Test: Wage Regulating Measure vs. No Wage Regulating Measure
Please note it is the user’s responsibility to process the correct ‘employed and remunerated’ hours
in order to correctly calculate and claim ETI.
From March 2017, the wage qualifying test remains the same for employees with a wage regulating
measure (rate per hour comparison – actual ‘wage’ rate per hour must be equal to or more than the
minimum wage rate per hour according to the wage regulating measure). The wage qualifying test is
only changing for employees without a wage regulating measure.
Example 1 – permanent monthly paid employee with no wage regulating measure
The employment contract states that the employee’s ordinary hours of work is 8 hours a day, 5 days a
week (Monday to Friday) which is 173.3333 average working hours per month (in line with the BCEA).
Employee A was appointed on 1 April 2017. Employee A meets all other qualifying criteria in terms of ETI.
In the month of April employee A took 30 hours unpaid leave (unpaid hours) and worked 3 hours overtime
(additional hours).
Wage qualifying test
Wage regulating measure
The actual wage rate per hour must be equal to or more than the minimum wage rate per
hour specified according to the wage regulating measure for the employee to pass
the wage qualifying test.
No wage regulating measure
Indicate/establish if the 'employed and remunerated' hours are less than 160. If
the hours are 160 or more, actual monthly wage will be used. If the hours are less than 160, a gross-up calculation will be done on
actual monthly wage.
If the monthly actual / grossed-up wage is R2000
or more, the employee will pass the wage qualifying
test.
Income Tax and ETI Amendments 2017/2018 Page 7 of 17
Payslip:
Earnings Amount
Salary R2 100.00
Overtime R 560 .00
Unpaid Leave R 220.00
Commission R1 800.00
Total R4 240.00
Wage qualifying test: Receives at least R2000 wage for a full month (160 hours).
‘Employed and remunerated’ hours:
Contractual/ordinary hours – unpaid hours + additional hours
= 173.3333 – 30 + 3
= 146.3333 hours
Monthly wage for 160 hours:
Actual wage / ‘employed and remunerated’ hours x 160
= (Salary – unpaid leave) / 146.3333 x 160
= R2 100 – R220.00 / 146.3333 x 160
= R2056.00
Pass wage qualifying test as the wage for a full month is equal to or more than R2 000.
Example 2 – permanent weekly paid employee with a wage regulating measure
The collective agreement states that the employee should be paid a minimum rate of R22.50 and that his
ordinary hours of work is 45 hours a week. April has 5 weeks in the month.
Employee A was appointed on 1 April 2017. Employee A meets all other qualifying criteria in terms of ETI.
In the month of April employee A took 18 hours unpaid leave and worked 8 overtime hours (additional
hours).
The employer pays the employee R23.50 per hour.
Payslip:
Earnings Amount
Wage R4 230.00
Overtime R 282 .00
Unpaid Leave R 432.00
Sick Leave R 634.00
Total R4 714.00
Wage qualifying test:
Actual rate per hour equal to or more than the minimum rate per hour according to the wage regulating
measure.
=R23.50 is more than R22.50
Pass wage qualifying test as employee A’s actual rate per hour is equal to or more than the minimum rate
per hour according to the wage regulating measure.
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1.2 Remuneration Monthly remuneration (taxable earnings, taxable perks and taxable company contributions) is used to
calculate the employment tax incentive amount.
1.2.1 Before March 2017 A gross-up of remuneration was performed if the employee was employed for less than 160 hours a
month. In other words, if the person was employed for less than 160 hours then a ‘gross-up’ of
remuneration was done to calculate what the person would have earned for a full month (a full month is
seen as 160 hours). A full month’s remuneration was used to calculate the ETI value.
Gross-up calculation: Remuneration earned / hours employed x 160.
Hours employed referred to:
Contractual normal hours (no overtime hours) in the case of a ‘permanent’ employee for ETI purposes (those employees who work in terms of an employment contract that specifies a contractual predictability of regular work in the future. In other words, an employee with a standard amount of hours to work in a month.).
Actual total hours worked in the case of a ‘temporary’ employee for ETI purposes (employee without a standard amount of hours to work in a month or an employee who works an irregular amount of hours, such as temps or casual workers).
Actual normal hours employed for new and terminated employees.
Please Note: The definitions for ‘permanent’ and for ‘temporary’ are not legal terms, but our
own definitions we used to explain the legislation
1.2.2 From March 2017 A gross-up of remuneration should be performed if the employee is ‘employed and paid remuneration’
for less than 160 hours a month (for employees with and without wage regulating measure):
If an employee is ‘employed and paid remuneration’ for 160 hours or more in a month, then the actual amount of remuneration paid to the employee in a month (no gross-up calculation) is used.
If an employee is ‘employed and paid remuneration’ for less than 160 hours in a month the monthly remuneration is calculated as follows: Remuneration earned in the month / ‘employed and remunerated’ hours x 160.
1.2.3 ‘Employed and Remunerated’ Hours ‘Employed and remunerated’ hours are all actual hours the employee was ‘employed and remunerated’
for. In other words, it should be the ordinary hours less any unpaid hours (such as unpaid leave hours, no
work-no pay hours, strikes etc.) plus any additional hours (such as overtime hours, public holidays
worked hours, hours worked on a Sunday.).
Before March 2017 we distinguished between permanent employees (employees with a standard amount
of hours to work in a month) and temporary employees (employees without a standard amount of hours to
work in a month or employees who work an irregular amount of hours) in order to apply the ‘employed’
hours. We used the ‘employed’ hours to determine whether a gross-up of the wage should have been
done.
For explanatory purposes we will still distinguish between permanent, temporary, new and terminated
employees.
Permanent employees – contractual/ordinary hours (average working hours per month according to the BCEA, calculated on a 4.3333 week or according to the employment contract) less any unpaid hours (such as unpaid leave hours, no work-no pay hours) plus any additional hours (such as overtime hours, public holiday worked hours, hours worked on a Sunday.).
Income Tax and ETI Amendments 2017/2018 Page 9 of 17
Temporary employees – actual number of hours worked in the month (the calculation of hours will include ordinary hours plus additional hours of work, unpaid hours will automatically not be counted).
New and terminated employees – actual number of hours worked if employed after the first day of the month or terminated before the last day of the month (the calculation of hours will include ordinary hours plus additional hours less unpaid hours).
It is our opinion that ordinary/contractual (average working hours per month), less unpaid hours plus
additional hours can be used for permanent employees as this refers to the number of hours ‘employed
and remunerated’ during the month.
Application of ‘employed and remunerated’ hours in terms of remuneration
If the ‘employed and remunerated’ hours are less than 160, the system will do a gross-up
calculation of the remuneration:
Actual remuneration / ‘employed and remunerated’ hours x 160
If the ‘employed and remuneration hours’ are 160 or more, the system will use actual
remuneration.
The actual/grossed-up remuneration for the full month has to be less than R6000 for the
employee to qualify. If the remuneration for the full month is R6000 or more, the employee will not
qualify and no ETI amount will calculate.
See section 1.1.3 for examples on how to calculate ‘employed and remunerated’ hours.
Income Tax and ETI Amendments 2017/2018 Page 10 of 17
1.2.4 Diagram to Illustrate the Calculation of Remuneration for All Employees (With and Without a Wage Regulating Measure)
*Hours refer to ‘employed and remunerated’ hours.
'Employed and remunerated' hours
*Hours less than 160
Gross-up calculation:
Actual monthly remuneration /
*hours x 160
Grossed-up remuneration is R6000 or more
No ETI amount is calculated
Grossed-up remuneration is less
than R6000
Continue to calculate ETI amount
*Hours are 160 or more
Actual monthly remuneration
Actual remuneration is R6000 or more
No ETI amount is calculated
Actual remuneration is less than R6000
Continue to calculate ETI amount
Income Tax and ETI Amendments 2017/2018 Page 11 of 17
1.3 Calculation of the ETI Amount
1.3.1 Before March 2017 The ETI amount was grossed-down (pro-rated) if the ‘employed’ hours were less than 160 hours:
Full monthly ETI amount / 160 hours x ‘employed’ hours.
If the ‘employed’ hours were 160 hours or more, the full monthly ETI amount was calculated.
1.3.2 From March 2017 The ETI amount will be grossed-down (pro-rated) if the ‘employed and remunerated’ hours (previously
referred to as ‘employed’ hours) are less than 160 hours:
Full monthly ETI amount / 160 x ‘employed and remunerated’ hours.
If the ‘employed and remunerated’ hours are 160 hours or more the full monthly ETI amount will calculate.
Example 1 – permanent monthly paid employee with no wage regulating measure
The employment contract states that the employee’s ordinary hours of work is 8 hours a day, 5 days a
week (Monday to Friday) which is 173.3333 average working hours per month (in line with the BCEA).
Employee A was appointed on 1 April 2017. Employee A meets all other qualifying criteria in terms of ETI.
In the month of April employee A took 30 hours unpaid leave (unpaid hours) and worked 3 hours overtime
(additional hours).
Employee A’s actual wage for April is R1 900.00.
Employee A’s actual remuneration for April is R3 700.00.
‘Employed and remunerated’ hours: Ordinary hours – unpaid hours + additional hours = 173.3333 – 30 + 3 = 146.3333 Wage qualifying test: Receives at least R2000 wage for a full month (160 hours). Actual wage / ‘employed and remunerated’ hours x 160 = R1 900.00 / 146.3333 x 160 = R2 076.80 Pass the wage qualifying test as the wage for a full month is equal to or more than R2 000. Remuneration: Remuneration for the full month (160 hours) less than R6 000.00. Actual remuneration / ‘employed and remunerated’ hours x 160 = R3 700 / 146.3333 x 160 = R4044.80 Continue to calculate the ETI amount as the remuneration for a full month is less than R6 000. Calculation of ETI amount: = R1 000 – [0.5 x (monthly remuneration – R4 000)] / 160 x 146.3333 = R1 000 – [0.5 x (R4044.80 – R4 000)] / 160 x 146.3333 Pro-rata (gross-down) ETI amount (‘employed and remunerated’ hours less than 160 hours): ETI amount / 160 x ‘employed and remunerated’ hours = R977.60 / 160 x 146.3333 =R894.10 Final ETI amount for the month of April.
Example 2 – temporary weekly paid employee with a wage regulating measure
The collective agreement states that the employee should be paid a minimum rate of R22.50
Employee A was appointed on 1 April 2017. Employee A meets all other qualifying criteria in terms of ETI.
In the month of April employee A worked 158 ordinary hours and 5 overtime hours (additional hours).
The employer pays the employee R23.50 per hour.
Employee A’s actual wage for April is R3 713.00.
Income Tax and ETI Amendments 2017/2018 Page 12 of 17
Employee A’s actual remuneration for April is R4 528.00.
‘Employed and remunerated’ hours: Ordinary hours + additional hours = 158 + 5 = 163 Wage qualifying test: actual rate per hour equal to or more than the minimum rate per hour according to the wage regulating measure. = R23.50 is more than R22.50
Pass wage qualifying test as employee A’s actual rate per hour is equal to or more than the minimum rate
per hour according to the wage regulating measure.
Remuneration: Remuneration for the full month (160 hours) less than R6 000. = R4 528.00 Continue to calculate the ETI amount as the remuneration for a full month is less than R6 000. Calculation of ETI amount = R1 000 – [0.5 x (monthly remuneration – R4 000)] = R1 000 – [0.5 x (R4 528 – R4 000)] = R736.00 Final ETI amount for the month of April, the ETI amount will not be pro-rated (grossed-down) as the ‘employed and remunerated’ hours are 160 or more.
1.4 Roll-Over and Reimbursement Before March 2017 if the employer was tax compliant, the ETI due to the employer (after the 6 month
cycle) would have been reimbursed at some stage during the next 6 month cycle. An ETI refund would
only be paid if an employer was tax compliant. This means that all tax returns must have been submitted
and there should have been no outstanding tax debt when the employer’s reconciliation documents
(EMP501 and IRP5/IT3(a)s) were received and processed by SARS. If the employer was not tax
compliant, the excess amount would have been reimbursed when the employer became tax compliant. If
the employer failed to be tax compliant within the next six months, the excess amount would have been
permanently lost. From 2017 onwards this is still applicable.
From March 2017 if the employer does not claim the ETI amount they are entitled to within the 6 month
cycle (for example they forgot to or any other case), then the ETI will be nil (0.00) after the 6 month cycle
and the employer will not receive ETI as a refund and cannot back-date the ETI claims if the 6 month
cycle has elapsed. This is only applicable when the employer did not claim the ETI amount they are
entitled to.
If the employer does not claim the ETI amount due to the fact that the ETI amount exceeds the
employees’ tax due for the month or due to the fact that the employer is not tax compliant, then the ETI
brought forward amount will still be 0.00 in the months following the 6 month cycle (March and
September) but the employer will still be eligible to claim the excess ETI amount as a refund after the 6
month cycle (only if the employer is compliant).
It is our understanding that this is what is implied with the amendments in the legislation. We are in the
process of confirming whether our interpretation is in line with SARS’s.
Income Tax and ETI Amendments 2017/2018 Page 13 of 17
2 Tax Changes
2.1 Background The Taxation Laws Amendment Act, 2016 and the Tax Administration Amendment Act, 2016 were
promulgated on 19 January 2017 in Government Gazette 40562 and 40563. It contains the following
changes as of March 2017, except where mentioned otherwise.
2.2 Payroll Changes
2.2.1 ‘Remuneration Proxy’ Currently the ‘remuneration proxy’ is used in 3 areas of employment tax:
The tax exemption rules for bursaries granted to a relative of an employee by an employer.
The acquisition of immovable property.
The residential accommodation fringe benefit value.
Before March 2017 ‘remuneration proxy’ was defined as Fourth Schedule remuneration but excluding the
residential accommodation fringe benefit value.
Change:
From March 2017, ‘remuneration proxy’ will be remuneration defined in paragraph 1 of the Fourth
Schedule and will only exclude the residential accommodation fringe benefit value when calculating the
residential accommodation fringe benefit.
‘Remuneration proxy’ will include the residential accommodation fringe benefit value when calculating -
the tax exemption for bursaries granted to a relative of an employee by an employer and
the acquisition of immovable property.
2.2.2 Employer Provided Bursaries A scholarship or bursary granted by the employer (or associated institution in relation to the employer) to
a relative of an employee was subject to the following conditions:
The scholarship or bursary was not exempt if the remuneration proxy exceeded R250 000
If the remuneration proxy did not exceed R250 000, then the first R10 000 of a scholarship or
bursary in respect of grade R to grade twelve or a qualification to which an NQF level from 1 up
to and including 4 has been allocated was exempt from normal tax.
If the remuneration proxy did not exceed R250 000, then the first R30 000 of a scholarship or
bursary in respect of a qualification to which an NQF level from 5 up to and including 10 has
been allocated was exempt from normal tax.
Change:
Backdated to March 2016, the exemption thresholds for bursaries granted by the employer (or associated
institution in relation to the employer) to a relative of an employee have increased to the following
amounts:
The scholarship or bursary is not exempt if the remuneration proxy exceeds R400 000.
Income Tax and ETI Amendments 2017/2018 Page 14 of 17
If the remuneration proxy does not exceed R400 000, then the first R15 000 of a scholarship or
bursary in respect of grade R to grade twelve or a qualification to which an NQF level from 1 up
to and including 4 has been allocated is exempt from normal tax.
If the remuneration proxy does not exceed R400 000, then the first R40 000 of a scholarship or
bursary in respect of a qualification to which an NQF level from 5 up to and including 10 has
been allocated is exempt from normal tax.
The new thresholds must be backdated to March 2016
2.2.3 Directors’ Deemed Remuneration Before March 2017 directors of private companies (and members of closed corporations) were taxed on
the greater of actual or deemed remuneration.
Deemed remuneration was calculated as the -
previous year’s remuneration, or if not available -
the year prior to the previous year’s remuneration plus 20%, or if not available -
an amount acquired by applying for a SARS directive.
Change:
From March 2017, deemed remuneration will be repealed and directors of private companies (and
members of closed corporations) will only be taxed on their actual remuneration.
2.2.4 RFI Definition Currently employer contributions towards a defined benefit or hybrid fund on behalf of the employee
results in –
a fringe benefit amount calculated using the formula: X = (A X B) – C, where-
o A is the fund member category factor (indicated on the Contribution Certificate)
o B is the employee’s RFI amount, and
o C is total employee contribution amount (excluding voluntary/additional and buy-
back/arrears contributions).
Before March 2017 RFI (retirement funding income) referred to remuneration as defined in the Fourth
Schedule (which included only the taxable % of a travel allowance, company car and a public office
allowance) on which the employer contribution towards the pension/provident fund was based on.
Therefore RFI only included the 20%/80% or 100% of a travel allowance or company car and 50% of a
public office allowance.
Remuneration can be different from employee to employee, depending on the taxable % of travel
allowance which resulted in a situation where two members of the same fund (defined benefit or hybrid)
with the same contribution values had a different RFI value and therefore a different fringe benefit value.
Changes:
From March 2017, RFI will be defined as income (taxable earnings + taxable perks + taxable company
contributions), however it will include the full value of a travel allowance, company car and a public office
Income Tax and ETI Amendments 2017/2018 Page 15 of 17
allowance on which the employer or pension fund or provident fund contribution towards the
pension/provident fund is based on.
To clarify the new proposed legislation:
RFI will include 100% of a travel allowance or use of a motor vehicle perk and 100% of a public
office allowance and not only the taxable value anymore.
To ensure RFI is calculated when the fund itself contributes the retirement fund contribution on
behalf of the members/employees to the fund. This means there will also be a fringe benefit
amount even though it is the fund that actually contributes.
Example of RFI before and from March 2017:
Example: Pension CC is based on Salary and Travel (80% taxable)
Description Total earnings of
employee
RFI (before March
2017)
RFI (from March
2017)
Salary R20 000 R20 000 R20 000
Travel (80% taxable) R2 000 R1 600 R2 000
Bonus R50 000
Total R72 000 R21 600 R22 000
2.2.5 Reimbursive Travel Allowance From March 2017 the simplified method for business kilometres travelled in the application of section
8(1)(b)(ii) of the Income Tax Act is as follows:
Report the reimbursive travel allowance on the tax certificate against code 3703 if:
the rate of reimbursement is less than the prescribed rate, and
less than 12 000 business kilometres (previously 8 000 business kilometres) are reimbursed in the tax year, and
no travel allowance is paid in addition to the reimbursed amount.
Report the reimbursive travel allowance on the tax certificate against code 3702 if:
the rate of reimbursement exceeds the prescribed rate, or
more than 12 000 business kilometres (previously 8 000 business kilometres) are reimbursed in the tax year, or
a travel allowance is paid in addition to the reimbursed amount.
2.2.6 Certain Dividends Included in Remuneration From March 2017, the definition of remuneration is expanded to include certain dividends from restricted
equity instruments (section 8C shares).
PAYE should be deducted from dividends as specified in paragraph (dd), (ii) and (jj) of the proviso of
section 10(1)(k)(i).
Currently it is unclear if the employer should also apply for a directive, but we assume the PAYE amount
will be acquired by applying for a directive, the same manner in which the employer should currently
apply for a section 8C share amount when vesting and/or on any return of capital. We will, however,
communicate the information once we have final confirmation.
There is also a possibility that SARS will create a new IRP5 code/s for these dividends. Once SARS has
released the new PAYE Business Requirement Specifications document, we will be able to confirm this.
Income Tax and ETI Amendments 2017/2018 Page 16 of 17
Please note that this amount will be included in the SDL, UIF, ETI remuneration and remuneration for the
purpose of calculating the tax benefit for contributions towards retirement funds.
We advise employers to consult their auditor or a tax consultant to confirm whether the dividends from
restricted equity instruments are exempt or included in remuneration.
2.2.7 Value of ‘B’ in the Residential Accommodation Fringe Benefit Calculation Please note that the value of ‘B’ for the purpose of calculating the fringe benefit value for free or cheap
residential accommodation was not mentioned in the 2017 budget speech. However, R75 750 is the new
tax threshold and is usually the value of ‘B’ in the calculation.
Note that this value has not yet been promulgated.
2.3 Other Changes Not Affecting Payroll Directly
2.3.1 Partner of a Partnership
From 19 January 2017, for the purpose of the Seventh Schedule (fringe benefits), a partner in a
partnership must be deemed to be an employee of the partnership.
2.3.2 Disallowing the tax exemption for Local Fund Lump Sums and Annuities Before March 2017 the Act made provision to exempt receipts of retirement benefit amounts that accrued
to the employee during a period of employment outside South Africa, irrespective of where the fund was
registered, even though the employee was eligible to receive a tax deduction on contributions made to a
South African retirement fund.
Change
From March 2017 retirement benefits received by South African residents (relating to employment outside
South Africa) are only exempt from tax if it is paid by a foreign retirement fund.
This will apply to retirement funds other than a “pension fund”, “pension preservation fund”, “provident
fund”, “provident preservation fund” and/or “retirement annuity” as defined in section 1 of the Income Tax
Act.
2.3.3 Learnership Tax Incentive From October 2016, the incentive is extended to registered learnership agreement entered into before 1
April 2022.
To encourage training from NQF level 1 to NQF level 6 (grade 9 to an advance certificate/national
diploma) the annual allowance changed accordingly:
Learner Category NQF Level Previous Annual
Allowance
New Annual
Allowance
Without disability NQF 1-6 R30 000 R40 000
NQF 7-10 R30 000 R20 000
With Disability NQF 1-6 R50 000 R60 000
NQF 7-10 R50 000 R50 000
Income Tax and ETI Amendments 2017/2018 Page 17 of 17
3 References
Employment Tax Incentive Act, 2013.
Taxation Laws Amendment Act, 2016.
Explanatory Memorandum on the Taxation Laws Amendment Bill of 2016.
SARS Non-Binding Private Opinion dated 9 February 2017.
PAGSA News Flash 2017-06.