Tag Archive: Finance Minister Pravin Gordhan


Finance Minister Pravin Gordhan delivered his Budget Speech on 26 February, favouring consistency and steadiness over change and fireworks ahead of the national election on 7 May.

Some tax relief for tax payers in the 2014/15 Budget Speech – 40% of the tax relief was allocated to those who earn up to R250,000 per annum, meaning individuals earning more than R250,000 per annum will receive a little less of the allocated tax relief pool.

Though some commentators had speculated that high earners would need to pay higher income tax, the Minister left income tax rates untouched, says Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR. The lowest tax bracket remains at a tax rate of 18% (annual taxable income up to R174,550) and the highest tax bracket remains taxable at 40% (annual taxable income of more than R673,100).

Tax credits for medical scheme contributions

Effective from 1 March 2012, the medical aid capping system was replaced with a tax credit – bringing in equality for all taxpayers under the age of 65 and improved benefits for lower earners.

In the new tax year, commencing 1 March 2014, monthly tax credits for medical scheme contributions (reduction of tax payable) have been marginally increased from:

  • R242 to R257 for the main member and the first dependent on a medical scheme
  • R162 to R172 for each additional beneficiary on the medical scheme

The medical aid tax credit system allows a reduction on income tax and does not reduce taxable earnings as the medical aid deduction system allowed in the past.

“The credit system is a more fair approach to providing tax relief as each individual contributing towards a medical aid fund will receive equal relief as it is not based on annual earnings. Whether an individual earns R250,000 per annum or R2,500,000 per annum, the income tax liability will be reduced by R257 for each of these individuals with at least a single beneficiary on the medical aid fund.”

From the 2014/15 tax year, medical aid contributions by people older than 65 will also be subject to the medical aid tax credit system. Up until now, those contributions were fully tax deductible. Effective from 1 March 2014, their contributions will also be subject to the medical aid tax credit system.

Is it a fringe benefit?

The company contribution towards an employee’s medical aid yields a taxable fringe benefit.

Generally, any payment made by an employer on an employee’s behalf, must be included in an individual’s taxable remuneration, before calculating the final PAYE deduction. Only pension and provident fund contributions are still exempt from the rule until 1 March 2015.

Regardless of an employee’s age or employment contract conditions, the medical aid contributed by an employer, whether in cash or as a package component directly to the fund, must be treated as a taxable fringe benefit.

The contribution paid by the employer will be subject to employee’s tax and contrary to popular belief, there is no way to structure a salary package to bypass the fringe benefit.

During the 2012/13 year of assessment, 76% of all fringe benefits reported on tax certificates were medical aid contributions made by employers on behalf of their employees.

Medical Aid Contributions must be reported on the employee’s tax certificate

As part of the Employer Filing season, each company is responsible to issue their respective employees with a tax certificate.

Medical Aid Contributions, both the employee and employer contributions must reflect on the employees tax certificate (IRP5/IT3A). If you’re making use of an automated payroll system, the codes are already loaded for you. In addition, a company is making use of an automated payroll system, they can import a payroll file with all the filing requirements directly into the e@syFile™ Employer system and the payroll EMP501 Reconciliation Report to complete the PAYE, SDL and UIF reconciliations. Van der Watt points out that this saves businesses considerable time and cost compared to manual calculation and capturing.

If you’re making use of a manual payroll system or payroll spreadsheets, please make use of the following codes:

  • Source code 4005 for employee and employer contributions
  • Source code 3810 for the taxable fringe benefit equivalent of the employer’s contribution
  • Source code 4116 for tax credits allowed

How can an automated payroll system make your business life easier?

To calculate the correct employee’s tax effect of a medical aid contribution, an employer must take the following into account:

  1. What is the total contribution that must be processed every month?
  2. How much of the contribution must be deducted from the employee’s gross income and how much is payable by the employer?
  3. Is the employer’s payment made as a cash contribution to the employee or paid directly to the medical aid?
  4. Remember to include any employer payment as a taxable fringe benefit when calculating the PAYE deduction for the month.
  5. How many dependents belong to the employee’s medical aid?
  6. Remember to constantly keep track of new dependents added or dependents removed from the medical aid policy.
  7. Remember to check for any contribution increases or change in medical aid cover that might affect the contribution value processed on the payroll.
  8. Don’t forget to calculate the medical aid tax credit after you have determined PAYE based on taxable earnings. The tax credit is based on the number of dependents and must reduce the PAYE value before you calculate the net pay.
  9. Every six months, you need to submit a PAYE reconciliation to SARS detailing the contributions, fringe benefits and tax credits related to medical aid contributions.

Payroll software will take care of the calculations and reporting of medical aid contributions and the PAYE effect thereof.

It is also important to keep in mind that effective 1 March 2014, employees aged 65 and older are also included in the medical aid tax credit system and their contributions may no longer be allowed as tax deductions. If you still make use of spreadsheet or manual methods of calculating PAYE, it is important to adjust your calculations to not only cater for new medical aid tax credits for the 2014/15 tax year, but also to keep in mind that you need to adjust the calculation for your employees aged 65 and older.

“Our software is designed to make your business life so much easier, so that you can focus on running your business. Let automated payroll solutions take care of the six major payroll acts and the ever-changing legislative plethora that governs payroll,” says Sumay Dippenaar, Marketing Manager at Sage Pastel Payroll & HR.

“There is no reason for businesses to rely on manual payroll spreadsheets since we offer automated solutions that are easy-to-use, smart and affordable, whether you deploy them on the desktop or in the cloud. Our subscription-based payroll solution allows you to pay low monthly fees with no upfront capital outlay, keeping your cash flow in mind.” With an online payroll solution, you only pay per payslip that you process. This pay-as-you-go model is cost-effective at R18 excluding VAT per payslip.

Example

Mr Jim Hardens is 67 years old, he earns a basic salary of R15,000 per month and the company contributes the full medical aid contribution of R1,000 on his behalf. He is the only member on his medical aid.

Below, please see how the calculation differs for tax year 2013/14 and 2014/15. Seeing that Jim is over 65 years, he also needs to be taxed on the medical tax credit system, effective 1 March 2014. Jim will enjoy a tax saving of R143.04 in the new tax year.

TAX YEAR 2014/2015
SALARY R 15 000
ADD MEDICAL AID FRINGE BENEFIT R 15 000 + R1 000 = R16 000
ANNUALISES TAXABLE INCOME R 16 000 * 12  = R192 000
TAX AS PER SARS TABLES R 192 000 – R 174 550 = R 17 450 * 25% + R 31 419 = R35 781.50
LESS PRIMARY REBATE R 35 781.50 – R 12 726 = R 23 055.50
LESS SECONDARY REBATE (FOR EMPLOYEES OVER 65 YRS) R 23 055.50 – R 7 110 = R 15 945.55
DEANNUALISE R 15 945.55/12 = R 1 328.79
LESS MEDICAL AID TAX CREDITS R 1 328.79 – R257
PAYE FOR THE MONTH R 1 071.79
TAX YEAR 2013/2014
SALARY R 15 000
ADD MEDICAL AID FRINGE BENEFIT R 15 000 + R 1 000 = R 16 000
LESS TOTAL MEDICAL CONTRIBUTION R 16 000 – R 1 000 = R 15 000
ANNUALISES TAXABLE INCOME R 15 000 * 12 =  R 180 000
TAX AS PER SARS TABLES R 180 000 – R 165 600 = R 14 400* 25% + R 29 808 = R 33 408
LESS PRIMARY REBATE R 33 408 – R 12 080 = R 21 328
LESS SECONDARY REBATE (FOR EMPLOYEES OVER 65 YRS) R 21 328 – R6 750 = R 14 578
DEANNUALISE R 14 578 / 12
PAYE FOR THE MONTH R 1 214.83
TOTAL SAVING R 143.04

 

Nifty Quick Links and Tools

>FREE Salary Tax Calculator

>FREE Online Logbook

>FREE Tax Guide

>Attend a Budget Speech Seminar, everything explained in laymen’s terms

>New Tax Rates

>Everything else you need to know

>Automate your payroll using an online solution 

For the latest legislative news, connect with Sage Pastel Payroll & HR on Twitter (Payroll News), Facebook or LinkedIn. To read more about the upcoming budget speech, click here.

Madelein van der Watt, development manager at Sage Pastel Payroll & HR.

Madelein van der Watt, development manager at Sage Pastel Payroll & HR.

Finance Minister Pravin Gordhan delivered no surprises in his Budget Speech on 26 February, favouring consistency and steadiness over change and fireworks ahead of the national election on 7 May. His Budget Speech once again put job creation, infrastructure development, social spending and education right on top of the nation’s list of priorities.

Taxpayers will benefit from R9,25 billion in personal income tax relief in the new tax year, though this relief hardly caters for the effects of inflation, says Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR.  40% of the tax relief was allocated to those who earn up to R250,000 per annum, meaning individuals earning more than R250,000 per annum will receive a little less of the allocated tax relief pool.

Personal income tax brackets and rebates

Personal income tax brackets and rebates have been slightly adjusted. The amount an individual can earn before being required to pay income tax has been increased for the 2014/15 tax year:

  • Increase from R67,111 to R70, 700 for individuals below the age of 65
  • Increase from R104,611 to R110, 200 for individuals between the ages of 65 to  below 75
  • Increase from R117,111 to R123, 350 for individuals over 75 years

Individuals aged 65 and older will pay less tax due to an increase in the secondary rebate. The tertiary rebate for individuals aged 75 or older has also been increased which means less tax payable by the elderly from 01 March 2014.

The annual tax rebates for individuals have been increased as follows:

  • Under the age of 65 increased from R12,080 to R12, 726
  • Aged 65 to 75 increased from R6,750 to R7, 110
  • Aged 75 and older increased from  R2,250 to R2, 367

Though some commentators had speculated that high earners would need to pay higher income tax, the Minister left income tax rates untouched, says Van der Watt. The lowest tax bracket remains at a tax rate of 18% (annual taxable income up to R174, 550) and the highest tax bracket remains taxable at 40% (annual taxable income of more than R673, 100).

Tax credits for medical scheme contributions

Effective from 1 March 2012, the medical aid capping system was replaced with a tax credit – bringing in equality for all taxpayers under the age of 65 and improved benefits for lower earners. Monthly tax credits for medical scheme contributions (reduction of tax payable) have been marginally increased from:

  • R242 to R257 for the main member and the first dependent on a medical scheme
  • R162 to R172 for each additional beneficiary on the medical scheme

The medical aid tax credit system allows a reduction on income tax and does not reduce taxable earnings as the medical aid deduction system allowed in the past. The credit system is a more fair approach to providing tax relief as each individual contributing towards a medical aid fund will receive equal relief as it is not based on annual earnings. Whether an individual earns R250,000 per annum or R2,500,000 per annum, the income tax liability will be reduced by R257 for each of these individuals with at least a single beneficiary on the medical aid fund.

From the 2014/2015 tax year, medical aid contributions by people older than 65 will also be subject to the medical aid tax credit system. Up until now, those contributions were fully tax deductible.

Fuel levies & subsistence allowances

The general fuel levy and the Road Accident Fund levy will increase by 12c per litre and 8c per litre respectively by 2 April 2014. This will push up the general fuel levy on petrol to R2.25 per litre and R2.10 per litre of diesel. Subsistence allowances paid to employees who travel for business within South Africa, will be tax-free provided the amount paid for meals and incidental costs does not exceed R335 per day. An amount not exceeding R103 per day for incidental costs will also be exempt.

Any good news for SMEs?

Van der Watt says that SMEs could benefit from a recommendation made by the Davis Tax Committee to introduce a tax compliance rebate that replaces the current progressive tax rate structure for income tax on companies. “Minister Gordhan’s speech indicated that he is looking at ways to reduce red tape for small businesses by amending the turnover tax regime and replacing the graduated tax structure for small businesses with refundable tax compliance credits,” she adds.

Youth subsidy and spending

Government will be collecting around R1.02 trillion in tax revenues for the 2014/15 tax year, but how will that money be spent? Mindful of the country’s budget deficit, Minister Gordhan plans to increase real non-interest spending by only 1.9% over the next three years.

Sage Pastel Payroll & HR correctly predicted that the lion’s share of revenue allocation during this year’s budget announcement would go to health services, education and social grants. Minister Gordhan allocated R254 billion for education, R146 billion for healthcare, R143 billion allocated to build new homes and improve basic infrastructure in communities.  Social grant expenditure has risen to R118 billion this year.

The Minister also provided feedback about the Employment Tax Incentive in his speech. The Minister mentioned that already in the first month of implementing the subsidy – aimed at increasing employment for the youth – about 56,000 beneficiaries were recorded.

What’s next?

Though Minister Gordhan’s Budget Speech was conservative, South Africans might see more radical changes to the tax system when he or his successor delivers the Medium Term Budget Policy Statement in October. The Tax Review Committee led by Judge Denis Davis has started wide-ranging investigations into South Africa’s tax system, including a focus on value-added tax, mining taxes and wealth taxes.

In addition, Government will soon publish its National Health Insurance white paper, which may also impact on South African businesses and taxpayers.

Sage Pastel Payroll & HR assists SMEs

To assist SME businesses with the changes outlined in the new Budget, Sage Pastel Payroll & HR is incorporating all of the Budget changes to tax bracket values, medical aid benefits, and tax relief rebates. This will ensure that Sage Pastel Payroll & HR customers are immediately compliant when the new Budget stipulations take effect in the new tax year.  “With our automatic software updates, our customers will have the new year’s tax rates and calculations downloaded as soon as they open their software to process the first payslip run for March 2014,” says Van der Watt.

“We understand small and mid-sized businesses’ day-to-day challenges. Our software is designed to make your life so much easier so you have more time to do what you do best – grow your business,” says Sumay Dippenaar, Marketing Manager at Sage Pastel Payroll & HR.

“There is no reason for businesses to rely on manual payroll spreadsheets since we offer automated solutions that are easy-to-use, smart and affordable, whether you deploy them on the desktop or in the cloud. Our subscription-based payroll solution allows you to pay low monthly fees with no upfront capital outlay, keeping your cash flow in mind.” With an online payroll solution, you only pay per payslip that you process. This pay-as-you-go model is cost-effective at R18 excluding VAT per payslip.

For more information

For more help understanding what the Budget Speech will mean for you and your business – and a chance to win R10,000 – check out Sage Pastel Payroll & HR’s extensive set of online resources for Budget 2014/15:

>Competition: Stand a chance to win R10, 000

>Attend a Budget Speech Seminar, everything explained in laymen’s terms

>Free Salary Tax Calculator

>FREE Online Logbook

>FREE Tax Guide

>New Tax Rates

>Everything else you need to know

>Automate your payroll using an online solution 

For the latest legislative news, connect with Sage Pastel Payroll & HR on Twitter (Payroll News), Facebook or LinkedIn. To read more about the upcoming budget speech, click here.

Sage Pastel Payroll & HR is creating South Africa’s first-ever live infographic and you can win R10,000 by helping to build it. The infographic displays in real time what South Africans like you are expecting to see from Finance Minister Pravin Gordhan’s Budget Speech on 26 February.

To participate, simply answer 10 easy questions on the website and then watch as our infographic grows and changes as more South Africans take part. Everyone who answers the questions will be entered into the competition. You are able to earn additional entries into the competition by sharing the competition via Twitter, Facebook, LinkedIn or you can share via email to a friend or the person paying your salary.

On budget day, you will be able to follow us for all the Budget Speech updates as it happens, real-time. We’ll give you blow-by-blow Budget Speech updates, including the most popular conversations around the Budget Speech, most popular words and key phrases that are searched for on Google on the day and you can view all the live tweets relating to the Budget Speech announcement on 26 February.

But that’s not the only way Sage Pastel Payroll & HR will help you to make sense of this year’s Budget Speech. As Minister Gordhan is wrapping up his speech, the company’s tax wizards will be working to create a range of content that will help you understand what the Budget means for you as a tax payer and as a business owner.

The Sage Pastel Payroll & HR website will feature the sudget speech transcripts, supporting documents and a handy Tax Guide for the 2014/2015 tax year. There will also be a free updated salary tax calculator where you can enter your salary, relevant allowances and contributions to see whether you’ll pay more or less tax in the new tax year. You are able to download a free online travel logbook that is SARS compliant and that allows you to keep track of your travel claims throughout the year and view a summary at the end of the tax year. All you need to do is simply enter your kilometers travelled, destination details and rate of reimbursement, easy!

If you are responsible for running your company’s payroll, you could also benefit from Sage Pastel Payroll & HR’s tax seminars. Lastly, you can make use of the free 30-day trial period to test-drive our smart online payroll solution – this solution is easy and will ensure all the Budget Speech changes are taken care of for you, allowing you to work smartly and efficiently.

Says Sumay Dippenaar, Marketing Manager at Sage Pastel Payroll & HR: “Against the backdrop of a looming national election and a difficult global economy, this is certainly going to be an interesting Budget Speech to watch. Whatever emerges from Minister Gordhan’s speech, our tools and content will help you to understand what this year’s budget will mean for you as an employee or as the owner of a business.”

Madelein van der Watt, Development Manager at Sage Pastel Payroll & HR predicts that Minister Gordhan will not surprise the country with any new taxes and that he will continue to allocate most of the personal income tax relief to lower income earners and the elderly. Sin taxes on alcohol and tobacco products as well as fuel levies are likely to go up, as has become tradition. The lion’s share of revenue allocation during this year’s budget announcement should likely go to health services, education and social grants.

FFor the latest legislative news, connect with Sage Pastel Payroll & HR on Twitter (Payroll News), Facebook or LinkedIn.To read more about the upcoming Budget Speech, click here.

In the 2013 Budget speech, Finance  Minister, Pravin Gordhan, emphasised that one of Government’s most pressing development challenges is to expand work opportunities for young people: “There has been extensive debate on how this should be done and the answer is that a wide range of measures are needed, including further education, training, public employment opportunities and support for job creation in the private sector.”

Learnerships help young people to obtain a formal qualification, while gaining relevant workplace experience. While there are many benefits to the prospective learners, there are also advantages to the employer implementing the learnership. Employers have the peace of mind that their employees are not away from the office for extended periods of time and while they are away, they are improving their relevant work based skills to be more productive and efficient at what they are employed to do.

In 2002, the Government introduced a Learnership Allowance Incentive, for employers to:

  • Encourage job creation by reducing the cost of hiring and training employees through learnerships
  • Promote skills development
  • Encourage human capacity development

However, there is a very specific legislation that guides the process and it poses certain challenges. Tax Talk spoke to Rob Cooper, tax expert and Director of Legislation Updates and Proposed legislation at Sage VIP, part of the Sage Group plc, about some of the recent changes made to the Learnership Allowance Incentive.

Cooper says: “To encourage employers to participate in learnerships, an allowance in the form of a deduction from the company’s taxable income has been available for many years. To qualify for the learnership allowance, employers must register the learnership with SETA. There is a R30 000 allowance at the start of the learnership, and a further R30 000 upon the successful completion. The value of the actual incentive has always been influenced by the when the learner is registered and the learner’s failure to complete. However, with new legislation introduced in January, the scenario will change.”

Cooper explains: “In the past, the allowance (deduction) was only allowed during the year in which the learnership agreement was officially registered with SETA.  For a variety of reasons, registration often takes a couple of months and this resulted in reduced value.”

“In future, employers will no longer have to register learnerships from the moment of the inception. A learnership will be deemed to have been registered for the duration of the agreement that falls within the employer’s year of assessment. However, it is necessary that the learnership is registered within 12 months after the year of assessment.”

“The second issue relates to failure to complete. In the past, the allowance was not granted if the learner previously failed to complete a prior registered learnership of similar nature to the new learnership.  Typically, the employer was not aware of prior learnerships (i.e. the information was not easily accessible or the quality of the information was not reliable, as it is dependent on feedback from other employers). Attempts to obtain this information also delayed the registration process.”

“In future, employers will no longer have to find out details of the individuals’ learnerships entered into with other employers.  Learnership allowances will only be refused if the learner failed the same type of learnership with the same employer (or associated institution).”

”Implementing a learnership programme within your company will definitely contribute to job creation, especially for young people. However, it is important to keep track of all the legislative changes.  Make sure that your company is operating within the parameters of the basic conditions of employment and its legal requirements. It is crucial to being a responsible citizen,” concludes Cooper.

For more information, employers are invited to attend the Sage VIP, Payroll and Tax Seminar. You can book your seat at:  www.vippayroll.co.za.

Rob Cooper is a tax expert and Director of Legislation Updates and Proposed legislation at Sage VIP, part of the Sage Group plc. 

Rob Cooper

Rob Cooper

“Changes proposed to South Africa’s Basic Conditions of Employment Act (BCEA), Labour Relations Act (LRA) and Employment Equity Amendment Bill (EEAB) will have a significant impact on how employers conduct their business in 2013,” says Cooper.

“In the draft Employment Equity Amendment Bill (EEAB), specific attention should be paid to the concept of equal pay for work of equal value, which can result in a new form of unfair discrimination.”

Cooper explains: “In cases where employment conditions, including remuneration, are applied differently to employees who do the same or similar work, then the employer must be able to show that the differences are based on fair criteria such as experience, skills, responsibility and qualifications. If the employer cannot do this, the differentiation would constitute unfair discrimination.”

“In practice it would mean that if a company employed factory workers on a permanent basis and at times of high demand took on additional workers from a labour broker and they worked side by side doing the same job, then both permanent and labour broker-supplied workers must be paid at the same rate,” says Cooper.

“Because the employer must pay the labour broker his fee on top of the wages for the workers, the result will be that brokered labour will cost more than permanent labour. This is logical and the premium that the employer must pay for flexibility.”

“Importantly, the intention is to align the Employment Equity Act with other general labour laws that need to be applied in cases where an individual supplied to a client by a labour broker is seen as an employee of that client.  One can only assume at this early stage that these employees, supplied by the labour broker, will have to be included in the client’s equity plan as well as in the labour broker’s equity plan.”

“The draft Employment Equity Act further changes the way in which companies implement affirmative action. According to Cooper, the groups of people who benefit from the affirmative action provisions will be limited to those who were South African citizens before democracy (April 1994) or to those who were prevented by the policies of apartheid from becoming citizens before 1994, and their descendants. This means that the employment of foreign nationals or those who became citizens after the democratic era (April 1994), will not assist employers to meet their affirmative action targets.”

Employment Services Bill

According to Cooper, the Employment Services Bill is another very important piece of legislation for employers to be aware of as it moves towards finalisation.

“The overall intention of this brand new piece of legislation is to empower the Department of Labour to provide a comprehensive range of employment services (free of charge) to members of the public in an attempt to achieve the Government’s objectives of: more jobs, decent work and sustainable livelihoods.  Any initiative that reduces unemployment is to be welcomed,” says Cooper.

The Government is aiming at making employment services open and accessible to all. This includes the following:

  1. Registering work vacancies and seekers, matching resulting opportunities, and facilitating the placement of seekers with employers or other work opportunities.
  2. Provision of advisory services for training, social security benefits, dealing with vulnerability, vocational and career counselling, assessment of work seekers to determine suitability, and improving work-related life skills.

UIF (Unemployment Insurance Fund) legislation

Changes to the UIF legislation have been pending for quite some time and will hopefully move through Parliament towards the end of this year.  Broadly, the proposed changes envisage increasing the value of the UIF benefit, as well as extending the grace period during which benefits can be claimed, from 6 to 18 months,” says Cooper.

He says there is also an intention to remove certain exclusions of which there are no details but hopes that this will include the exclusion of commission from the remuneration on which the contribution is calculated, which results in commission being excluded from the value of the contribution and the benefit.  Unemployed people, who were earning a low basic salary plus commission, are negatively affected by a benefit that is in line with only their basic salary.

Cooper is encouraging employers to attend Sage VIP’s Payroll and Tax Seminar in March and April 2013. “The seminar is regarded by many as a definitive guide to the changes in payroll and tax legislation and we endeavour to present it in a practical and interactive manner that does not focus on the legal aspects alone. The presentation will also aim at communicating future trends that will impact payroll and HR,” said Cooper.

Budget a balancing act

By Rob Wilkie, CFO Sage South Africa

Rob Wilkie

Rob Wilkie

Whilst last year’s budget was all about infrastructure expansion investment, this year the emphasis is in keeping the budget deficit in check.

Mr Gordhan announced in his 2013 budget speech that tax collections would be R16.9 billion less than the estimate made in the 2012 budget. This was largely as a result of weaker economic growth, labour unrest and lower commodity prices. Economic growth for 2012 is expected to be sluggish at 2.7% with mining strikes and stoppages costing the economy approximately R15.3 billion.

As a consequence, the budget deficit increased to 5.2% of GDP. In other words, government spending exceeded tax revenue collected by R185 billion. In business terms, government made an operating loss in 2012.

In order to reduce the deficit (or rate of cash burn) Gordhan said that he would not increase taxes or impose drastic austerity measures, but would instead reduce the rate at which public spend was escalating. He said he would do this by utilising government’s contingency reserve (R23.5 billion); reprioritising expenditure to strategically important initiatives (R52 billion); and reducing financial mismanagement and corrupt expenditure (6% of GDP).  If successful, the growth in government spending would be reduced to 2.3% in real terms (7.8% including the effects of inflation) and the budget deficit brought back to 3.1% over 3 years. Additional borrowings of R497 billion would be required to fund the deficit, increasing government debt to R1,7 trillion or 40% of GDP. Gordhan said that he was comfortable with this level of debt and SA’s ability to meet its debt service commitments.

If government were a business the budget would read as follows:

  • Business SA has made a loss equivalent to 5.2% of its turnover.
  • It does not want to increase its prices as existing customers may stop buying and new customer acquisitions decline.
  • To return to profitability (or reduce its loss) Business SA therefore has to reduce its cost base or at least slow its cost growth.
  • It will do this by a combination of resource reallocation to its priority initiatives and reduction of inefficiencies and wasteful expenditure.
  • Until such time as it is able to return to profitability Business SA will utilise its cash resources and credit lines to fund its losses.

It is a balancing act.  Do you cut deep; stop the cash burn but risk sustainability and preparedness for the next cyclical upturn? Or do you rather focus on efficiency gains and investment priorities, live with losses and more debt, but enhance sustainability and competitive edge?

Government has chosen the later, both for socio economic and structural reasons, but also because it has the capacity to borrow in order to sustain deficits. I believe they have got the balance right in this budget. It is now up to government to show the political will and commitment necessary to implement it.

Issued on behalf of Sage VIP Payroll

Finance Minister, Pravin Gordhan’s Budget Speech on Wednesday, 27 February 2013, introduced several changes that will have a direct impact on payroll and HR across South Africa. Leading payroll and HR solutions provider, Sage VIP, says that administrators will have to ensure that their payroll systems are updated as from 1 March 2013 to reflect the stipulated changes. “Not implementing these changes, in the first period of the new tax year, will result in incorrect PAYE calculations,” says Karen Schmikl, Legislation Manager at Sage VIP, part of the Sage Group plc.

The tax tables for individuals and special trusts for the year ending 28 February 2014 are:

Taxable Income (R)

Rate of Tax (R)

0 – 165 600 18% of taxable income
165 601 – 258 750 29 808 + 25% of taxable income above 165 600
258 751 – 358 110 53 096 + 30% of taxable income above 258 750
358 111 – 500 940 82 904 + 35% of taxable income above 358 110
500 941 – 638 600 132 894 + 38% of taxable income above 500 940
638 601 and above 185 205 + 40% of taxable income above 638 600

Schmikl says the tax rebate amounts have also had changes in line with inflation: “The primary tax rebate amount has been adjusted to R12 080, while a secondary rebate for persons of 65 years and older is set at R6 750.  A tertiary rebate for persons of 75 years and older is R2 250.”

The tax thresholds have also been adjusted. Below the age of 65, the tax threshold has been set at R67 111; ages 65 to 74 now have a tax threshold of R104 611; while ages 75 and over have a tax threshold of R117 111.

“An employee is entitled to receive a subsistence allowance when the employee is obliged to spend at least one night away from his or her usual place of residence. The value of the deemed allowance or advance where the accommodation is in South Africa has been amended to R319 per day for meals and incidental costs and R98 per day for incidental costs only. The schedule of rates for accommodation outside the country has been published on the SARS website,” says Schmikl.

The medical tax credits have also been increased to R242 for the main member and first dependent and R162 for every additional dependent thereafter.

Travel allowance costs have also been adjusted. “The SARS deemed rate per kilometre increased from R3.16 to R3.24.  The fixed cost, fuel and maintenance cost values have been amended and it is advisable to recalculate the value of all employees’ travel allowances from 1 March 2013,” says Schmikl.

Value of the vehicle (incl. VAT)

Fixed cost

Fuel cost

Maintenance cost

 (R) (R p.a.) (c/km) (c/km)
0 – 60 000 19 310 81.4 26.2
60 001 – 120 000 38 333 86.1 29.5
120 001 – 180 000 52 033 90.8 32.8
180 001 – 240 000 65 667 98.7 39.4
240 001 – 300 000 78 192 113.6 46.3
300 001 – 360 000 90 668 130.3 54.4
360 001 – 420 000 104 374 134.7 67.7
420 001 – 480 000 118 078 147.7 70.5
exceeding 480 000 118 078 147.7 70.5

The Residential Accommodation Fringe Benefit abatement value has increased from R63 556 to R67 111. Schmikl says many companies provide their employees with housing assistance or home loans. This imposes a fringe benefit calculation, which is burdensome if the company transfers the house to the low-income employee.  However, Treasury intends to review the fringe benefit tax calculation to lower the burden, which is positive news.

“There were speculations that an additional tax bracket would have been added for higher income earners. However, with the small number of individuals in the top income bracket, this would not have made a significant contribution to the revenue required,” says Schmikl.

A positive outcome from the budget speech is the fact that Parliament will be considering tax incentives for employers, as part of a scheme to share the costs of employing young work seekers. However, it is still unclear how and when this will be implemented.

According to Schmikl, the Retirement Reform might be implemented in March 2014. “This will result in fringe benefit calculations when an employer contributes towards the employees’ retirement funds which include pension and retirement annuity funds. A 27.5% deduction is proposed on contributions with a maximum annual deduction of R350 000,” says Schmikl.

She continues: “In going forward, employers should also take note of the impact of the Taxation Laws Amendment Act, 2012, on payroll systems. This includes a change in the way employers deal with rental cars as company cars and the taxation of variable remuneration. It is advisable for employers to ensure that these changes are being applied to their payroll system, to keep the company compliant and up to date with legislation.

For more information on the Budget Speech or to reserve a seat for the Annual Payroll Tax Seminar, please visit www.vippayroll.co.za

Sidebar 1

Rental Cars as Company Cars

Under normal circumstances, vehicles provided as company cars to employees are owned (purchased or leased) by the employer. Currently, if the company rents a vehicle on a medium term basis and grants the use of it to an employee, the market value is used as the determined car value. Going forward, SARS wants to provide for scenarios where the vehicle is rented by the employer and is subject to an operating lease.

As from 1 March 2013 the actual cost incurred under that operating lease, plus fuel cost is used as the fringe benefit value, as long as the rental arrangement can be viewed as an operating lease. There are specific conditions to comply with, for it to be seen as an operating lease:

  • The employer must rent the vehicle from a company that is in the business of renting cars
  • The vehicle may be rented by the public for a period of less than a month
  • The cost of maintaining the vehicle must be done by the rental company
  • Risk of the loss or damage must not be assumed by the employer

The taxation of company cars, which are not subject to an “operating lease”, stays unchanged.

Sidebar 2

Variable Remuneration

Remuneration should be taxed when it is paid to the employee or when it is accrued (whichever happens first). This principle sometimes causes problems as a payment can be accrued in a tax year but only be quantified and paid in the next tax year. From 1 March 2013, variable remuneration should be taxed in the month that it is paid to the employee and not when it accrues. This is quite a significant change as this will relief the administrative burden of managing these payments.

Variable remuneration is defined as:

  • Overtime
  • Bonuses
  • Commission
  • An allowance or advance paid in respect of transport expenses such as a travel allowance
  • Leave Paid out

Finance Minister Pravin Gordhan delivered a safe, no real surprises budget today (Wednesday 27 February) with R7 billion personal tax relief, being 2.5 billion less than in the previous tax year 2012/13.

Personal income tax brackets and rebates have been slightly adjusted to reduce the effect of inflation on tax payable. The amount an individual can earn before being required to pay income tax has been increased for the 2013/14 tax year to R67 111 for individuals below the age of 65, R104 611 for individuals between the ages of 65 and 74 and R117 111 for individuals over 75 years.

The annual tax rebates for individuals have been increased. The primary annual tax rebate for individuals under the age of 65 to R12 080, for individuals aged between 65 and 75 to R6 750 and those aged 75 and older to R2 250.

The lowest tax bracket remains at a tax rate of 18% (annual taxable income up to R165 600) and the highest tax bracket remains taxable at 40% (annual taxable income of more than R638 600).

Effective from 1 March 2012 the medical aid capping system was replaced with a tax credit, bringing in equality for all taxpayers under the age of 65 and improved benefits for lower earners, a move in line with international best practice. The medical aid tax credit system is also used in the new tax year, commencing 01 March 2013.

Monthly tax credits for medical scheme contributions (reduction of tax payable) will be increased from R230 to R242 for each of the first two beneficiaries on a medical scheme and from R154 to R162 for each additional beneficiary on the medical scheme for the 2013/14 tax year.

“The medical aid tax credit system will likely result in lower earners receiving greater benefits, which is a good thing,” comments Philip Meyer, technology director of payroll and HR software specialist Sage Pastel Payroll & HR.

One of the biggest changes were for individuals whose taxable income is from one employer and is below R250 000 a year. They are not required to submit income tax returns, however they will still be liable to pay income tax. Previously, this annual earnings limit was R120 000. For example, if an individual earns a gross salary of R20 000 per month (no entitlement to commissions or bonuses), they no longer have to file their tax returns.

This means that there will be more pressure on employers to ensure that tax deductions and calculations on payslips are accurate.

Another big proposed change in the Budget Speech effective from March 2014 is that an employer’s contribution to retirement funds on behalf of an employee will be treated as a taxable fringe benefit in the hands of the employee. Individuals will from that date be allowed to deduct up to 27.5 per cent of the higher of taxable income or employment income for contributions to pension, provident and retirement annuity funds with a maximum annual deduction of R350 000.

Contributions above the cap are carried forward to future tax years. Therefore, all company contributions towards pension, provident and retirement annuity funds will become a fringe benefit and it will increase the total tax deduction. If the company contribution is low, it will only have a small impact on the individual. However, if the company contribution towards pension, provident and retirement annuity funds is substantial, it will have a bigger effect on the individual’s net pay and because the taxable earnings are greater, the individual will have to pay more tax.

Environmental taxes go up and will affect a large portion of the RSA population.

From 3 April 2013, the general fuel levy will rise by 15 cents per litre to R2.13 while the Road Accident Fund levy will increase by 8 cents per litre to 96 cents per litre of petrol.
Plastic bag levy – The levy on plastic shopping bags has encouraged consumers to reduce their use. The levy will rise from 4 cents to 6 cents per bag from 1 April 2013.

Incandescent light bulb levy – To promote energy efficiency a levy on incandescent light bulbs was introduced in 2009. The levy is to be increased from R3 to R4 per bulb from 1 April 2013.

Motor vehicle carbon dioxide emissions tax – The tax on motor vehicle carbon dioxide emissions, which is intended to encourage consumers to buy vehicles with lower carbon emissions, will increase from 1 April 2013. For passenger cars, the tax will rise from R75 to R90 for every gram of emissions per kilometre above 120 gCO2/km. In the case of double cabs it will increase from R100 to R125 for every gram of emissions per kilometre above 175 gCO2/km.

Following overseas trends, a policy paper on carbon emissions tax is to be published in 2013 with the view of introducing a carbon tax from 2015.

Subsistence allowances paid to employees who travel for business within South Africa, will be tax-free provided the amount paid for meals and incidental costs does not exceed R319 per day. An amount not exceeding R98 per day for incidental costs only will also be exempt.

To assist SME businesses with the changes outlined in the new Budget, Sage Pastel Payroll & HR is incorporating all of the Budget changes to tax bracket values, medical aid benefits, and tax relief rebates.

“Automated Payroll and HR software ensures that payrolls are accurate and legally compliant the moment the new Budget stipulations take effect in the new tax year. Currently there are 75 tax certificate totals that need to be considered when producing payslips, therefore manually doing the calculations is a daunting task and errors can creep in easily,” says Meyer.

To find out how the Budget Speech affects your pocket, go to www.pastelpayroll.co.za and enter your current monthly salary and allowances in the free online Sage Pastel Payroll & HR Salary Tax Calculator.

SARS has recently changed the reference number for third party agent appointments from ITA88 to AA88. This change is already available in the latest e@syFile Version 6.2.2. SARS has also updated the guidelines for agent appointments. Go towww.sars.gov.za to view the new Agent Appointment Process and Employer Guide.

Example
John Doe who is 37 years old is employed on a full-time basis. During the 2012/2013 tax year of assessment, John earned a salary of R18,000 per month and a travel allowance of R3,000 per month. During December 2012 John also received a bonus of R15,000 and a taxable bursary of R3,000. John contributes monthly to a Pension fund to the value of R500, a medical aid of R2,300 and he has a deduction towards an income replacement policy of R100 each month. John is the main member on his medical aid, and has two other beneficiaries loaded on the medical aid. Below, please find the tax comparison for John for 2012/2013 vs. 2013/2014 tax year.

John will enjoy a tax saving of R1,696.

Calculation 2012/2013 Tax Year 2013/2014 Tax Year
A Salary R18,000 R18,000
B Add Travel Allowance Taxable Portion R3,000 * 80% = R2,400 R3,000 * 80% = R2,400
C Subtract Pension Fund R500 R500
D Subtract Income Replacement Policy R100 R100
E Annual Regular Income [A+(B*80%)-C-D] *12 R237,600 R237,600
F Add to Annual Earnings Bonus R15,000 R15,000
G Add to Annual Earnings Bursary R3,000 R3,000
H Total Annual Earnings [A+(B*80%)-C-D] * 12 + [F + G] R255,600 R255,600
I Tax per table R52,980 [((I-R250,000)*30%)+R51,300] R52,308 [((I-R165,600)*25%)+R29,808]
J Less rebate R11,440 R12,080
K Less Medical Aid Tax Credits Per Beneficiaries R7,368 [(R230+R230+R154)*12] R7,752 [(R242+R242+R162)*12]
L Tax Payable By Employee Per Year [I-J-K] R34,172 R32,476
M Example of Tax Payable Per Month [L/12] R2,847.67 R2,706.33

Nifty Budget Speech Quick Links:

  • Budget Speech Support Tools, view the tools.
  • Full Budget Speech Transcript, view here.
  • View the new 2013/14 Tax Rates (tax tables), click here.
  • Book your seat for the Budget Speech changes Seminar, book now.
  • Free online Salary Tax Calculator, use now.
  • Try the Free Salary Tax Calculator on your smartphone. Go to m.taxcalc.pastelpayroll.co.za
  • Free Online Logbook, click here.

Issued on behalf of Sage Pastel Payroll & HR

To enter the Sage Pastel Payroll Budget Speech competition to win an iPad, click here. Competition closes 8 March 2013.