Changes to Tax Laws for 2022/23
PAGSA Newsflash 2022-03 discusses the general changes to tax-related legislation that are effective from 1 March 2022. The following tax Amendment Bills were issued on 28 July 2021 and after comments and discussions, were promulgated and issued as final Amendment Acts on 19 January 2022:
1.Taxation Laws Amendment Act [TLAB]
This Act deals with the substantive changes to the Income Tax Act proposed in the 2021 budget. 2.Tax Administration Laws Amendment Act [TALAB]
This Act deals with the administration-related changes proposed in the 2021 budget to the various Acts that fall under SARS. 3.Rates and Monetary Amounts and Amendment of Revenue Laws Act [Rates Bill]
This Act confirms the tax tables, rebates and threshold changes proposed in the 2021 Budget. A second batch of tax amendment Bills was issued on 12 August 2021 to provide financial assistance to employers and employees suffering financial distress as a result of the July 2021 civil unrest. These Bills were discussed in PAGSA Newsflashes 2021-39, -40, -42, -43, -45, and 47, and because their effective period has come to an end, are not discussed in this Newsflash. Two of the changes included in the final amendment Acts are not discussed in this Newsflash:
1.The extension to the reduction of the value of the ‘long services award’
2.The change to the definition of ‘monthly remuneration’ in the Employment Tax Incentive Act. Both of these two changes have some complications, and the PAGSA has been in discussion with SARS to get clarity and to resolve the issues since the final Bills were submitted to Parliament in November 2021. To not delay this Newsflash any further, the other simpler changes are discussed in the sections that follow, and the more contentious changes still under discussion will be published individually as soon as we have final clarity. General Employment-Related Tax Amendments
Clarifying the Fringe benefit for employer contributions to a Retirement fund
Background
Since the introduction of the retirement reforms from 1 March 2016, paragraph 2(l) of the Seventh Schedule to the Act provides that employer-paid contributions to a retirement fund on behalf of an employee must result in a taxable fringe benefit in the employees’ hands. If the employer-paid contribution is to:
1.A defined contribution fund (a fund that consists solely of a ‘defined contribution component’), and the value of the fringe benefit equals the value of the contribution
2.A fund containing a ‘defined benefit component’ or an ‘underpin component’ (defined in paragraph 12D(1) of the Seventh Schedule) is a defined benefit fund, and the value of the fringe benefit is calculated according to a prescribed formula that includes a ‘fund factor’ that is provided to the employer by the retirement fund. When a retirement fund provides a retirement benefit in relation to a ‘defined contribution component’ and a self-insured risk benefit, an anomaly arises in that self-insured risk benefits were not seen to be a defined contribution component, resulting in the classification of the total contribution to the fund as a defined benefit component and the fund as a defined benefit fund. The fringe benefit was therefore calculated by using the prescribed formula. Final Amendment
To address this anomaly, the definitions in Seventh Schedule paragraph 12D(1) have been amended to:
1.Change the definition of a ‘risk benefit’
2.Add the definition of a ‘risk benefit policy’
3.Change the definition of a ‘defined contribution component’ to specify that as an alternative, it can result from a ‘risk benefit’ that is provided by a policy of insurance or a ‘risk benefit policy’. This means that a retirement fund that provides both defined contribution component retirement benefits and self-insured risk benefits is a defined contribution fund and the fringe benefit is therefore equal to the total employer-paid contribution. The value of the risk premiums under self-insured risk benefits will be determined based on the cost to the employer (i.e. the actual contribution made by the employer).