EXTENTION OF LEARNERSHIP ALLOWANCES AND EMPLOYMENT TAX INCENTIVE

B4With the focus on skills development and job creation, the existing allowance for learnership agreements has been extended to all agreements entered into before 1 April 2022. Similarly the Employment Tax Incentive (ETI) has been extended to 28 February 2019.

Section 12H of the Income Tax Act[1] allows an employer to claim a “learnership allowance” in respect of registered learnership agreements entered into or completed during a year of assessment. For purposes of section 12H the learnership agreement must be registered in accordance with the Skills Development Act.[2] A qualifying employer is entitled to two types of allowances, namely an annual allowance (deductible in any year of assessment during which a learner is a party to a registered learnership agreement) and a completion allowance (deductible in the year in which the learner successfully completes the learnership).

In order to qualify for the section 12H allowance the learnership agreement must furthermore have been entered into before a certain date. This period has been extended from 1 October 2016 previously to 1 April 2022.

Also, with effect from 1 October 2015, the amount of the allowance depends on the level of qualification held by the learner. In this regard, employers qualify for both the annual as well as the completion allowance of R40,000 in respect of learners who hold a qualification equal to the National Qualifications Framework (NQF) level 1 to 6. In respect of learners who hold a qualification equal to NQF level 7 to 10, the employer qualifies for an annual and completion allowance of R20,000 each.

In respect of a person with a disability, the employer qualifies for an additional allowance of R20,000 where the learner has a qualification equal to NQF level 1 to 6, and an additional R30,000 where the learner has a qualification equal to NQF level 7 – 10, i.e. a total allowance of R60,000 and R50,000 respectively.

The ETI[3] was introduced by Government on 1 January 2014 to address the socio and economic problem of youth development. Eligible employers may reduce the monthly employees’ tax withheld and payable to SARS in terms of the Fourth Schedule to the Income Tax Act with the amount of the ETI. It was initially indicated that this allowance will cease on 1 January 2017. However, the incentive has now been extended to 28 February 2019.

In addition to the ETI, an employer may also be eligible for a deduction of a learnership allowance during a year of assessment if the requirements of section 12H of the Income Tax Act are met as set out above.

[1] 58 of 1962

[2] 97 of 1998

[3] Employment Tax Incentive Act No. 26 of 2013

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

GONE ARE THE DAYS OF TAX-FREE SALARIES ABROAD

B3Many South African taxpayers earning a salary abroad have for many years been able to benefit from so-called “double non-taxation”. This would be the case where salaries are earned in countries where the employer country would not tax salaries earned in that country, and where a domestic South African income tax exemption would also be available to such South African employees. The UAE for example is renowned therefore that it levies very little, if any, taxes on non-resident employees employed in that jurisdiction. This regime interacts quite well with the South African exemption from income tax provided to South African employees working abroad and in terms of which South Africa would in many cases also not levy income tax on salaries so earned abroad. In other words, a salary earned abroad may potentially not be taxed in either the country of source or residence (i.e. South Africa).

In terms of section 10(1)(o)(ii) of the Income Tax Act[1] salaries earned abroad would be exempt from South African income tax if the salary is earned for services rendered outside of South Africa, and the employee would be absent from South Africa for at least 183 days in a tax year, of which at least 60 are consecutive.

In the annual national budget speech earlier this year, Government warned of its intention to withdraw relief for South African individuals working abroad and effectively achieving double “non-taxation” on salaries so earned. This threat has now been borne out by the proposed withdrawal of the exemption in section 10(1)(o)(ii) of the Income Tax Act, proposed in terms of the draft Taxation Laws Amendment Bill published on 19 July 2017. As is explained by the draft Explanatory Memorandum to the Bill,

“It has come to Government’s attention that the current exemption creates opportunities for double non-taxation in cases where the foreign host country does not impose income tax on the employment income or taxes on employment income are imposed at a significantly reduced rate.”

The draft Bill proposes that section 10(1)(o)(ii) be deleted effectively for tax years commencing on or after 1 March 2019. This would effectively mean that South African residents will be taxable in South Africa on salaries earned abroad to the extent that the source country does not levy tax on the income so earned. To the extent however that income is taxed abroad too, South Africa should grant a credit against taxes payable here in terms of either an applicable double tax agreement or the provisions of section 6quat of the Income Tax Act.

[1] 58 of 1962

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

FURTHER REFINEMENTS TO THE ATTACK ON INTEREST FREE LOANS TO TRUSTS

B2We previously reported on the introduction of section 7C of the Income Tax Act, 58 of 1962. In terms of this targeted anti-avoidance provision, National Treasury sought to attack interest free loans granted to trusts by connected persons of that trust.

Typically, these loans would have arisen by virtue of an individual that would sell his or her asset to a trust of which he/she is a beneficiary for estate duty purposes on interest free loan account. By doing so, the asset’s value will grow in the trust, while the interest free loan will remain a non-appreciable, static asset in the hands of the beneficiary, thereby excluding future capital growth on the asset from estate duty when that individual should one day pass away.

Section 7C deems an interest component to arise on interest free or low interest loan accounts to the extent that interest is not charged at the prescribed rate. The amount of the deemed interest is then treated as an annual donation by the trust, thereby attracting donations tax on the value of the deemed donation made to the trust. Were the trust creditors to actually charge interest on the loans to the trusts on the other hand, this will lead to taxable income accruing in their hands, and which will be subject to income tax being charged thereon at prevailing income tax rates.

The new proposals contained in the draft Taxation Laws Amendment Bill, published on 19 July 2017, contain two significant reforms which further focus the extent of the anti-avoidance provisions of section 7C and counter two specific planning solutions being conceived in practice to counter the application of section 7C in its current form.

The first such proposal to take note of is that loans to trusts are no longer the sole target, but also interest free loans extended to companies (owned by trusts) by the beneficiaries of that trust. This is in an attempt to counter structuring solutions whereby loans owing by a trust were shifted by way of complex restructurings to companies owned by trusts.

The second proposal is aimed at loans due by trusts being transferred from the creditor individual to another, thereby effectively “breaking the link” between the person that extended the loan to the trust and the person now entitled to the amounts due by the trust. In other words, section 7C would only previously apply to the person who extended the loan to the trust. Since the person now holding the loan claim did not originally grant the loan to the trust, the provisions of section 7C, in its original form, would not have applied. The second new revision to section 7C counters this approach making it clear that a connected person acquiring a loan claim is also caught by the provisions of section 7C (and thus required to charge interest) irrespective thereof that that person did not itself extend any loan finance itself to the trust.

The above are still mere proposals, but are proposed to become effective 19 July 2017 if enacted (which appears likely). Taxpayers with loan accounts to trusts are therefore well-advised to seek guidance on how to treat such loan accounts going forward.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

 

5 TIPS FOR MANAGING YOUR SMALL BUSINESS PAYROLL

B11. Know your big deadlines

Dealing with accounting deadlines and employee returns is much less stressful when you know what you need to action well in advance. Make sure you have a good system in place that alerts you to important dates and if you need to do anything. Working ahead gives you time to sort out any concerns or problems.

  1. Invest in a payroll software

Payroll systems such as Sage Instant Payroll or Sage One Payroll will automate the whole process for you, taking care of things like NI and tax calculations, generating payslips for employees, keeping up with legislation and providing information for end of year tax returns.

  1. Keep up with payroll legislation

Changes in regulation may affect how you need to run your payroll, so it pays to keep abreast of major new laws. Benefits and tax change frequently and while you don’t necessarily need to know all the details, it’s worth staying informed and getting advice when you’re not sure.

  1. Have a financial back-up plan

Keeping on top of payments is crucial in any growing business. Setting up a good credit control system, sending out invoices promptly and always chasing late payments firmly as soon as they become due will help avoid cash flow disruption.

  1. If all else fails… outsource

If managing payroll yourself is proving a real headache, consider outsourcing to a payroll company. They’re experts at what they do, and can save you the hassle of managing everything yourself and staying on top of regulations and paperwork.

Reference:

  • “8 Tips For Managing Payroll | Small Business Advice | Sage Singapore”. Sage.com. N.p., 2017. Web. 29 June 2017.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)