Chapter 7. Appendix
7.1 Relevant Extracts from the Income Tax Act
Section 1. Interpretation. —In this Act, unless the context otherwise indicates—
“gross income”, in relation to any year or period of assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such resident; or
(ii) in the case of any person other than a resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such person from a source within or deemed to be within the Republic,
during such year or period of assessment, excluding receipts or accruals of a capital nature, but including, without in any way limiting the scope of this definition, such amounts (whether of a capital nature or not) so received or accrued as are described hereunder, namely—
(a) any amount, including any voluntary award, received or accrued in respect of services rendered or to be rendered or any amount (other than an amount referred to in section 8(1)) received or accrued in respect of or by virtue of any employment or the holding of any office: Provided that—
(i) the provisions of this paragraph shall not apply in respect of any benefit or advantage in respect of which the provisions of paragraph (i) apply;
(b) any amount, including any voluntary award, received or accrued in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of any office or employment or of any appointment (or right or claim to be appointed) to any office or employment: Provided that—
(a) the provisions of this paragraph shall not apply to any lump sum award from any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund;
(b) any such amount which becomes payable in consequence of or following upon the death of any person shall be deemed to be an amount which accrued to such person immediately prior to his death;
(c) a retirement fund lump sum benefit or retirement fund lump sum withdrawal benefit;

(i) the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of assessment of any benefit or advantage granted in respect of employment or to the holder of any office, being a taxable benefit as defined in the said Schedule, and …. ;

8. Certain amounts to be included in income or taxable income.—
(1)
(a)
(i) There shall be included in the taxable income of any person (hereinafter referred to as the “recipient”) for any year of assessment any amount which has been paid or granted during that year by his or her principal as an allowance or advance, excluding any portion of any allowance or advance actually expended by that recipient—
(aa) on travelling on business, as contemplated in paragraph (b), unless an allowance or advance has been granted by an employer in respect of the use of a motor vehicle as contemplated in paragraph 7 of the Seventh Schedule;
(b) For the purposes of paragraph (a)(i)(aa) —
(i) any allowance or advance in respect of transport expenses shall, to the extent to which such allowance or advance has been expended by the recipient on private travelling (including travelling between his place of residence and his place of employment or business or any other travelling done for his private or domestic purposes), be deemed not to have been actually expended on travelling on business;
(ii) subject to the provisions of subparagraph (iii), where such allowance or advance has been paid to the recipient in order that it may be utilized for defraying expenditure in respect of any motor vehicle used by the recipient, the portion of the allowance expended by the recipient during the year of assessment for business purposes shall, unless an acceptable calculation based on accurate data is furnished by the recipient, be deemed to be an amount calculated by applying the rate per kilometre determined in the manner prescribed by the Minister of Finance by notice in the Gazette for the category of vehicle used, on a distance travelled during the said year for business purposes (other than private travelling as contemplated in subparagraph (i));
(iii) where such allowance or advance is based on the actual distance travelled by the recipient in using a motor vehicle on business (excluding the said private travelling), or such actual distance is proved to the satisfaction of the Commissioner to have been travelled by the recipient, the amount expended by the recipient on such business travelling shall, unless the contrary appears, be deemed to be an amount determined on such actual distance at the rate per kilometre fixed by the Minister of Finance by notice in the Gazette for the category of vehicle used: Provided that where an allowance or advance is deemed to have accrued under section 7B to the recipient in the year of assessment during which that allowance or advance is paid, the distance travelled for business purposes in respect of which that allowance or advance is received shall be deemed to have been travelled during the year in which that allowance or advance is paid;
(iiiA) where the portion of the allowance or advance which is claimed by the recipient to be actually expended is calculated based on accurate data furnished by the recipient in respect of any vehicle—
(aa) in the case of a vehicle that is being leased, the total amount of payments in respect of that lease may not in any year of assessment exceed an amount of the fixed cost determined by the Minister in the notice contemplated in subparagraph b(ii), for the category of vehicle used;
(bb) in any other case—
(A) the wear and tear of that vehicle must be determined over a period of seven years from the date of original acquisition by that recipient and the cost of the vehicle must for this purpose be limited to R400 000, or such other amount determined by the Minister by notice in the Gazette; and
(B) the finance charges in respect of any debt incurred in respect of the purchase of that vehicle must be limited to an amount which would have been incurred had the original debt been R400 000, or such other amount determined by the Minister in terms of subitem (A);
(iv) where any motor vehicle which is owned or leased by an employee, his spouse or his child, whether directly or indirectly by virtue of an interest in a company or trust or otherwise, has been let to the employer or any associated institution in relation to the employer, the sum of the rental paid by the employer or associated institution and any expenditure defrayed by the employer or associated institution in respect of the vehicle, shall be deemed to be an allowance paid to the employee in respect of transport expenses, and in such case the said rental shall for the purposes of this Act (excluding this paragraph) be deemed not to have been received by or to have accrued to the lessor of such motor vehicle, and for the purposes of paragraph 2(b() of the Seventh Schedule such employee shall be deemed not to have been granted the right to use such motor vehicle.

 
Fourth Schedule
AMOUNTS TO BE DEDUCTED OR WITHHELD BY EMPLOYERS AND PROVISIONAL PAYMENTS IN RESPECT OF NORMAL TAX AND PROVINCIAL TAXES
“remuneration” means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered, including —
(a) any amount referred to in paragraph (a), (c), (cA), (d), (e), (eA) or (f) of the definition of “gross income” in section 1 of this Act;
(b) any amount required to be included in such person’s gross income under paragraph (i) of that definition, excluding an amount described in paragraph 7 of the Seventh Schedule;
(bA) any allowance or advance, which must be included in the taxable income of that person in terms of section 8(1)(a)(i) other than –
(i) an allowance in respect of which paragraph (c) or (cA) applies; or
(cA) 80 per cent of the amount of any allowance or advance in respect of transport expenses referred to in section 8(1)(b), other than any such allowance or advance contemplated in section 8(1)(b)(iii) which is based on the actual distance travelled by the recipient, and which is calculated at a rate per kilometre which does not exceed the appropriate rate per kilometre fixed by the Minister of Finance under section 8(1)(b)(iii): Provided that where the employer is satisfied that at least 80 per cent of the use of the motor vehicle for a year of assessment will be for business purposes, then only 20 per cent of the amount of such allowance or advance must be included;
(cB) 80 per cent of the amount of the fringe benefit as determined in terms of paragraph 7 of the Seventh Schedule: Provided that where the employer is satisfied that at least 80 per cent of the use of the motor vehicle for a year of assessment will be for business purposes, then only 20 per cent of such amount must be included;
(cC) 100 per cent of so much of the amount paid or granted as an allowance or advance referred to in section 8 (1) (b) (iii) as exceeds the amount determined by applying the rate per kilometre for the simplified method in the notice fixing the rate per kilometre under section 8 (1) (b) (ii) and (iii) to the actual distance travelled;

 
Seventh Schedule
BENEFITS OR ADVANTAGES DERIVED BY REASON OF EMPLOYMENT OR THE HOLDING OF ANY OFFICE
DETERMINATION OF CASH EQUIVALENT OF VALUE OF TAXABLE BENEFIT
RIGHT OF USE OF MOTOR VEHICLE
Paragraph 7.
(1) For the purposes of this paragraph, “determined value”, in relation to a motor vehicle, means—
(a) where such motor vehicle (not being a vehicle in respect of which paragraph b(ii) of this definition applies) was acquired by the employer under a bona fide agreement of sale or exchange concluded by parties acting at arm’s length, the original cost thereof to the employer (excluding any finance charge or interest payable by the employer in respect of the employer’s acquisition thereof); or
(b) where such motor vehicle—
(i) is held by the employer under a lease; or
(ii) was held by the employer under a lease and the ownership thereof was acquired by him on the termination of the lease,
the retail market value thereof at the time the employer first obtained the right of use of the vehicle or, where at such time such lease was a lease contemplated in paragraph (b) of the definition of “instalment credit agreement” in section 1 of the of the Value-added Tax Act, 1991 the cash value thereof as contemplated in the definition of “cash value” in the said section; or
(c) in any other case, the market value of such motor vehicle at the time when the employer first obtained the vehicle or the right of use thereof:
Provided that—
(a) where an employee has been granted the right of use of such motor vehicle as contemplated in subparagraph (2) and such vehicle, or the right of use thereof, was acquired by the employer not less than 12 months before the date on which the employee was granted such right of use, there shall be deducted from the amount determined under the foregoing provisions of this subparagraph a depreciation allowance calculated according to the reducing balance method at the rate of 15 per cent for each completed period of 12 months from the date on which the employer first obtained such vehicle or the right of use thereof to the date on which the said employee was first granted the right of use thereof; and
(b) where such motor vehicle was acquired by the employer from an associated institution in relation to the employer and the employee concerned had, prior to such acquisition, enjoyed the right of use of such motor vehicle, the determined value shall be the determined value as at the date on which the employee was granted the right of use of such motor vehicle for the first time.
(2) Where an employee has been granted the right to use any motor vehicle as contemplated in paragraph 2 (b), the cash equivalent of the value of the taxable benefit shall be so much of the value of the private use of such vehicle (as determined under this paragraph in respect of the period of use) as exceeds any consideration given by the employee to the employer for the use of such vehicle during such period, other than consideration in respect of the cost of the licence, insurance, maintenance or fuel in respect of such vehicle.
(3)
(a) Where an employer’s rights and obligations under a lease in respect of a motor vehicle are transferred to his employee the employer shall for the purposes of this Schedule be deemed to have granted the employee the right to use such vehicle for the remainder of the period of the lease.
(b) In such case—
(i) any rentals becoming payable by the employee under the lease shall be deemed to be a consideration payable by him for the said right; and
(ii) the determined value of the vehicle shall be deemed to be an amount determined in accordance with the provisions of subparagraph (1)(b);
(4) Subject to subparagraph (10), the value to be placed on the private use of such vehicle shall be determined for each month or part of a month during which the employee was entitled to use the vehicle for private purposes (including travelling between the employee’s place of residence and his or her place of employment) and the said value shall—
(a) as respects each such month, be an amount equal to 3,5 per cent of the determined value of such motor vehicle: Provided that where the motor vehicle is the subject of a maintenance plan at the time the employer acquired the motor vehicle or the right of use thereof, that amount shall be reduced to an amount equal to 3,25 per cent of the determined value of the motor vehicle; and
(b) as respects any such part of a month, be an amount which bears to the appropriate amount determined in accordance with item (a) for a month the same ratio as the number of days in such part of a month bears to the number of days in the month in which such part falls.

(5) No reduction in the value determined under subparagraph (4) shall be made for the purposes of item (b) of that subparagraph by reason of the fact that the vehicle in question was during any period for any reason temporarily not used by the employee for private purposes.

(6) Where more than one motor vehicle is made available by an employer to a particular employee at the same time and the Commissioner is satisfied that each such vehicle was used by the employee during the year of assessment primarily for business purposes, the value to be placed on the private use of all the said vehicles shall be deemed to be the value of the private use of the vehicle having the highest value of private use or such other vehicle as the Commissioner may direct: Provided that the preceding provisions of this subparagraph shall not apply where the provisions of subparagraph (7) or (8) are applied.

(7) Where it is proved to the satisfaction of the Commissioner that accurate records of distances travelled for business purposes in such vehicle are kept, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of the vehicle, calculated under subparagraph (4), by an amount that bears to that calculated value the same ratio as the number of kilometers travelled for business purposes bears to the total amount of kilometers travelled in such vehicle during that year of assessment.

(8) Where it is proved to the satisfaction of the Commissioner that accurate records of distances travelled for private purposes in such vehicle are kept and the employee bears—
(a)
(i) the full cost of the licence for such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of such vehicle calculated under subparagraph (4) by an amount that bears to the amount of the cost of the licence for such vehicle the same ratio as the number of kilometers travelled for private purposes bears to the total number of kilometers travelled in such vehicle during that year of assessment;

(ii) the full cost of the insurance of such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of such vehicle calculated under subparagraph (4) by an amount that bears to the amount of the cost of the insurance for such vehicle the same ratio as the number of kilometers travelled for private purposes bears to the total number of kilometers travelled in such vehicle during that year of assessment; or

(iii) the full cost of the maintenance of such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of such vehicle calculated under subparagraph (4) by an amount that bears to the amount of the cost of the maintenance for such vehicle the same ratio as the number of kilometers travelled for private purposes bears to the total number of kilometers travelled in such vehicle during that year of assessment;
(b) the full cost of fuel for private use of such vehicle, the Commissioner must upon the assessment of the employee’s liability for normal tax for the year of assessment reduce the value placed on the private use of the vehicle during that year of assessment calculated under subparagraph (4) by an amount determined for the total kilometers travelled for private purposes by applying the rate per kilometre for fuel fixed by the Minister in the Gazette for the purposes of section 8(1)(b (ii) and (iii);

(10) For the purposes of this paragraph the private use by an employee of a motor vehicle shall be deemed to have no value, if—
(a)
(i) the vehicle is available to and is in fact used by employees of the employer in general;

(ii) the private use of the vehicle by the employee concerned is infrequent or is merely incidental to its business use; and

(iii) the vehicle is not normally kept at or near the residence of the employee concerned when not in use outside of business hours; or
(b) the nature of the employee’s duties are such that he or she is regularly required to use the vehicle for the performance of those duties outside his or her normal hours of work, and he or she is not permitted to use that vehicle for private purposes other than—
(i) travelling between his or her place of residence and his or her place of work; or
(ii) private use which is infrequent or is merely incidental to its business use.

(11) For the purposes of this paragraph, “maintenance plan”, in relation to a motor vehicle, means a contractual obligation undertaken by a provider in the ordinary course of trade with the general public to underwrite the costs of all maintenance of that motor vehicle, other than the costs related to top-up fluids, tyres or abuse of the motor vehicle, for at least a period of not less than three years and a distance travelled by the motor vehicle of not less than 60 000 kilometers from the date that the provider undertakes the contractual obligation: Provided that the contractual obligation may terminate at the earlier of—
(a) the end of the period of three years; or
(b) the date on which the distance of 60 000 kilometers is travelled by that motor vehicle.

 
7.3 Calculation of VAT on the company car fringe benefit deemed supply
GG 13651 GN 2835 of 22 November 1991:
Directions for purposes of section 10(8) and (13)
DEPARTMENT OF FINANCE
I, Barend Jacobus du Plessis, Minister of Finance, hereby prescribe in terms of subsections (8) and (13) of section 10 of the Value-Added Tax Act, 1991 (Act No. 89 of 1991), that the consideration in money for the supplies contemplated in the said paragraphs be determined in the manner as set out in the Schedule.
Schedule
(1) In this Schedule, any word or expression to which a meaning has been assigned in the Act, bears the meaning so assigned thereto, and, unless the context otherwise indicates—
“determined value”, in relation to a motor vehicle, means—
(a) where a motor vehicle, except a motor vehicle contemplated in paragraph (b)(ii) of this definition was acquired by a vendor under an agreement of sale or exchange concluded by parties acting at arms’ length, the original cost thereof to him, excluding any finance charges, interest, sales tax or value-added tax; or
(b) where such motor vehicle—
(i) is held by the vendor under a lease; or
(ii) was held by the vendor under a lease and the ownership thereof was acquired by him on the termination of the lease,
the retail market value thereof at the time the vendor first obtained the right of use of the motor vehicle or, where at such time such lease was a financial lease for the purposes of the Sales Tax Act, 1978 (Act No. 103 of 1978), the cash value thereof as contemplated in paragraph 2 of Schedule 4 to that Act, or, where at such time such lease was an instalment credit agreement as contemplated in section 1 of the Act, the cash value thereof as defined in section 1 of the Act reduced by the amount of value-added tax; or
(a) where such vehicle was acquired otherwise than contemplated in paragraphs (a) or (b), the market value of such motor vehicle at the time when the vendor first obtained the vehicle or right of use thereof:
Provided that where an employee has been granted the right of use of such motor vehicle and such vehicle, or the right of use thereof, was acquired by the vendor not less than 12 months before the date on which the employee was granted such right of use, there shall be deducted from the amount so determined under the aforegoing provisions of this definition a depreciation allowance calculated according to the reducing balance method at the rate of 15 per cent for each completed period of 12 months from the date on which the vendor first obtained such vehicle or the right of use thereof to the date on which the said employee was first granted the right of use thereof; and
“the Act” means the Value-Added Tax Act, 1991 (Act No. 89 of 1991).
(2)
(a) For the purposes of the proviso to subsection (8) of section 10 of the Act, the consideration in money for the deemed supply shall be 0,3 per cent of the determined value of the motor vehicle for each month or part thereof calculated as from 1 October 1991.
(b) If the method of determination of consideration in money contemplated in subparagraph (a) is used with reference to a motor vehicle, that method of determination of consideration in money shall also be used for the succeeding 11 months in respect of the motor vehicle in question.
(3) For the purposes of the proviso to subsection (13) of section 10 of the Act, the consideration in money for the deemed supply shall be—
(a) 0,3 per cent of the determined value of the motor vehicle (for each month or part thereof calculated as from 1 October 1991) where the motor vehicle is a motor car as contemplated in the Act and the vendor was in terms of section 17(2) of the Act not entitled, or would not have been entitled had that section been applicable prior to the commencement date, to deduct the full amount of input tax in terms of section 16(3) of the Act in respect of such motor car when it was supplied to or imported by him; or
(b) in a case other than contemplated in paragraph (a) 0,6 per cent of the determined value of the motor vehicle (for each month or part thereof calculated as from 1 October 1991): Provided that where the employee pays a consideration for the right of use of such motor vehicle, the consideration in money determined monthly in terms of this paragraph shall be reduced by the lesser of the consideration paid by the said employee or the amount of the consideration in money determined monthly:
Provided that where the employee bears the full cost of repairs and maintenance of the motor vehicle and no compensation in the form of an allowance or reimbursement is payable by the vendor to the employee in respect of the said cost, the consideration in money so determined monthly shall be reduced by the lesser of—
(i) R85; or
(ii) the amount of the consideration in money determined monthly:
Provided further that the consideration in money calculated in this paragraph, after the application of the provisos, shall be reduced to the extent that the right to use the motor vehicle is granted by the vendor in the course of making exempt supplies.
BJ DU PLESSIS,
Minister of Finance.
 
7.5 Regulation: Fixing of Rate/km for Travel reimbursements

GN 3112 of 3 March 2023: Fixing of rate per kilometre in respect of motor vehicles for the purposes of section 8(1)(b)(ii) and (iii) of the Act
(Government Gazette No. 48162)
SOUTH AFRICAN REVENUE SERVICE

Under section 8 (1) (b) (ii) and (iii) of the Income Tax Act, 1962 (Act No. 58 of 1962), I, Enoch Godongwana, Minister of Finance, hereby determine that the rate per kilometre referred to in that section must be an amount determined in accordance with the Schedule hereto.
(Signed)
E GODONGWANA
Minister of Finance

1. Definition.— In this Schedule, “value” in relation to a motor vehicle used by the recipient of an allowance as contemplated in section 8 (1) (b) (ii) and (iii) of the Income Tax Act, 1962, means—
(a) where that motor vehicle (not being a motor vehicle in respect of which paragraph (b) (ii) of this definition applies) was acquired by that recipient under a bona fide agreement of sale or exchange concluded by parties dealing at arm’s length, the original cost thereof to him/her, including any value-added tax but excluding any finance charge or interest payable by him/her in respect of the acquisition thereof;
(b) where that motor vehicle—
(i) is held by that recipient under a lease contemplated in paragraph (b) of the definition of “instalment credit agreement” in section 1 of the Value-Added Tax Act, 1991; or
(ii) was held by him/her under such a lease and the ownership thereof was acquired by him/her on the termination of the lease, the cash value thereof as contemplated in the definition of “cash value” in section 1 of the Value-Added Tax Act; or
(c) in any other case, the market value of that motor vehicle at the time when that recipient first obtained the vehicle or the right of use thereof, plus an amount equal to value added tax which would have been payable in respect of the purchase of the vehicle had it been purchased by the recipient at that time at a price equal to that market value.

2. Determination of rate per kilometre.—
The rate per kilometre referred to in section 8(1)(b)(ii) and (iii) must, subject to the provisions of paragraph 4, be determined in accordance with the cost scale set out in paragraph 3, and must be the sum of—
(a) the fixed cost divided by the total distance in kilometres (for both private and business purposes) shown to have been travelled in the vehicle during the year of assessment: Provided that where the vehicle has been used for business purposes during a period in that year which is less than the full period of that year, the fixed cost must be an amount which bears to the fixed cost the same ratio as the period of use for business purposes bears to 366 days;
(b) where the recipient of the allowance has borne the full cost of the fuel used in the vehicle, the fuel cost; and
(c) where that recipient has borne the full cost of maintaining the vehicle (including the cost of repairs, servicing, lubrication and tyres), the maintenance cost.

 

3. Cost scale.—

Where the value of the vehicle— Fixed Cost
R Fuel Cost
c/km Maintenance Cost
c/km
does not exceed R100 000 33 760 141.5 43.8
exceeds R100 000 but does not exceed R200 000 60 329 158.0 54.8
exceeds R200 000 but does not exceed R300 000 86 958 171.7 60.4
exceeds R300 000 but does not exceed R400 000 110 554 184.6 65.9
exceeds R400 000 but does not exceed R500 000 134 150 197.6 77.5
exceeds R500 000 but does not exceed R600 000 158 856 226.6 91.0
exceeds R600 000 but does not exceed R700 000 183 611 230.5 102.1
exceeds R700 000 but does not exceed R800 000 209 685 234.3 113.1
exceeds R800 000 209 685 234.3 113.1

4. Simplified method.—
Where—
(a) the provisions of section 8 (1) (b) (iii) are applicable in respect of the recipient of an allowance or advance; and
(b) no other compensation in the form of a further allowance or reimbursement (other than for parking or toll fees) is payable by the employer to that recipient,
that rate per kilometre is, at the option of the recipient, equal to 464 cents per kilometre.

5. Effective date.—
The rate per kilometre determined in terms of this Schedule applies in respect of years of assessment commencing on or after 1 March 2023.

7.6 Decision Table for Income Tax Calculation based on Various Rate/km values

Decision Table for Income Tax Calculation based on Various Rate/km values used for Travel reimbursements
Prescribed Rate/km Employer Rate/km Tax Certificate Codes Cost Scale Rate/km Comments
R4,64 R4,64 3703 Not material Not Assessed: Code 3703 is not income
R4,64 R5,00 3702 & 3722 R4,00 Assessed: R5,00 > R4,00 (EE must pay)
R4,64 R5,00 3702 & 3722 R6,00 Assessed: R5,00 < R6,00 (EE is refunded)

Chapter 6. Conclusions and Guidance
6.1 Income Tax Calculation of Travel Compensation
Focusing on travel income only, my understanding of the principle of the SARS calculation of income tax at the end of the tax year for travel allowances and travel reimbursements, is as follows:
1. Using the ITR12 annual return facilities, the employee declares the vehicle’s determined value, the vehicle’s opening and closing kilometers for the year (the difference is total km travelled), plus his daily business travel km as recorded in his logbook.

2. SARS calculates the Cost Scale rate/km from the information declared in the ITR12.

3. SARS calculates the business travel expense deduction by multiplying the business kilometers from the logbook by the Cost Scale rate/km.

4. SARS calculates the total income for travel from the tax certificate as follows:
• For travel allowances: Equals the Code 3701 amount
• For travel reimbursements: Adding together the code 3701, 3702 and 3722 amounts.

5. SARS calculates taxable travel income by deducting the business travel expense from the total travel income but limits the value of the business travel deduction to the total travel income amount.

6. SARS calculates income tax from the taxable income amount.
The above is no doubt a simplistic view of the principles that underly the SARS travel income tax calculation, but hopefully it is reasonably accurate, at least in principle.
It does indicate that for travel allowances and travel reimbursements, the most important factor in aligning the PAYE and Income tax calculations is the rate/km that is used by both calculations.
This suggests that a rate/km greater than the Cost Scale rate/km should not be used in the payroll – it will backfire on the employee when SARS raise an assessment at the end of the year.
Because of the advantages of simpler administration and fairness to all employees, serious consideration should be given to standardising on using the Prescribed ratedkm in the payroll to prevent remuneration from being calculated.
Other factors that can result in there being differences between the PAYE and the Income tax calculated on travel amounts are:
1. The ‘80%/20%’ estimate in the payroll of the value of the business travel deduction for travel allowances versus the final calculation by SARS on assessment of the business travel deduction using the actual business travel kilometers from the logbook (multiplied by the Cost Scale rate/km).

2. The employee’s kilometers (business and private) for the year are estimated in the payroll when forecasting the value of the travel allowance amount for the year ahead, whereas at the end of the tax year the actual kilometers travelled from the logbook are used for the income tax calculation.

The inevitable difference in the number of kilometers will result in a difference between the remuneration and the income value that is calculated SARS For assessment.
6.2 ‘Best Practice’ For Travel Reimbursements from March 2018
The amended legislation effective from 1 March 2018 states that the portion of the travel reimbursement that is calculated at a rate/km greater than the Prescribed rate/km must be reported under code 3722.
This encourages employers to use a rate/km that is not greater than the Prescribed rate/km (R4,64 for 2024) for all employees, but be aware of what might happen on assessment if the Prescribed rate/km is greater than the Cost Scale rate/km for the vehicle used.
The following table gives you a rough idea of when a combination of different determined values and total kilometers travelled result in a Cost Scale rate/km that is close to the 2024 Prescribed rate/km of R4,64.
Table: Combinations of Determined values and Total kilometers travelled that result in a R4,64 rate/km

Determined Value Total Kilometers Cost Scale Rate/Km
100 000 12 115 4.64
200 000 24 020 4.64
400 000 51 780 4.64
600 000 108 500 4.64
800 000 179 760 4.64

Assuming that a travel allowance is not paid in addition to the travel reimbursement (if a travel allowance is paid, the employee cannot elect to request the employer to use the Prescribed rate/km), the following principles are provided to assist you:
For travel reimbursement administration in the payroll, if the rate/km used by the employer Is not greater than the Prescribed rate/km, or even better, is linked to equal the Prescribed rate/km, then:
1. There will be no code 3722 remuneration, therefore no PAYE, SDL, UIF, ETI, etc. will be calculated.

2. Only code 3703 will be reported on the tax certificate reflecting the reimbursed amount calculated up to the Prescribed ratekm which is neither remuneration nor income.

3. The code 3703 amount will not be used in the income tax calculation.

4. A logbook is not required by SARS.

5. The employer benefits by:
• Having no SDL and UIF contribution costs calculated
• If the company’s rate/km is linked to the Prescribed rate/km, increases from year-to-year are easy.

6. The employee benefits from:
• No PAYE withholding to reduce take-home pay
• No UIF contribution on the travel reimbursement
• No logbook or ITR12 obligation for travel declaration.

 
Alternatively, If the employer’s rate/km is greater than the Prescribed rate/km:
1. There will be a portion that is remuneration subject to PAYE, SDL, UIF, ETI etc.

2. The tax certificate will contain the following codes:
a. Code 3702: The income portion (amount up to the Prescribed ratekm)
b. Code 3722: The remuneration and income portion (amount above the Prescribed ratekm)

3. The total travel reimbursement (code 3702 plus code 3722) will be assessed for income tax

4. The employee must keep a logbook and submit the details on his ITR12

5. The difference in the value calculated at the employer’s rate/km and the Cost Scale rate/km used by SARS will result in either an assessment or a refund of income tax.
If the employer’s rate/km is greater than the Prescribed rate/km, and if the cost scale rate/km of the employee’s vehicle is less than the employer’s rate/km, it would be best to reduce the employer’s rate/km to the Cost Scale rate/km of the employee’s vehicle to prevent the employee from being assessed for income tax on the excess value resulting from the employer’s rate/m being above the Cost Scale rate/km.
6.3 Travel Compensation and Package Structuring
The subject of remuneration package structuring (or ‘Cost to Company’ or ‘Cost to Employer’) is complex and could be the subject of a morning webinar on its own. To keep the terminology short, I am going to use the term ‘package’ for all of these concepts.
A discussion of the principles of package structuring must start with the labour law concept of remuneration.
The BCEA defines remuneration to be the amount paid in cash or in kind in return for one person (the employee) working for another (the employer). Payments in cash are obvious, and payments in kind are employer-paid contributions to medical schemes, retirement funds, funeral schemes, etc., as well as benefits in kind.
By definition, allowances are not BCEA remuneration. Allowances are payments made to allow word to be done, not in return for work done. Therefore, in labour terms, allowances cannot be a component of a package.
The employer and the employee agree (usually contractually) on the services that the employee will provide to the employer, and they further agree on the remuneration that the employer will pay in return for his services rendered. This remuneration is then the employee’s package.
The purpose of a ‘package’ is therefore to reward the employee for his services.
The purpose of business travel compensation is to compensate an employee who has incurred the employer’s business travel expenses. Therefore, the supply of a company car (which could be only for private travel), the granting of a travel allowance or the payment of a travel reimbursement, compensates the employee for incurring the employer’s business expense.
In principle this is a reimbursement of business expenses incurred by the employee. Reimbursements are not remuneration, and therefore don’t belong in a package structure. Travel compensation should be paid ‘on top’ of the package, along with variable remuneration such as commission and overtime, and statutory costs such as UIF, SDL and OID).
In principle then, company cars, travel allowances and travel reimbursements cannot be included as a component of the employee’s package otherwise the employee would be paying the employer’s expense out of his own pocket, which would be unfair to the employee.
However, ‘principle’ and ‘practice’ are quite often two different things, so where does leave this us as far as travel compensation is concerned?
Company cars
Company cars are a regular feature in the packages of managers and senior executives, and companies that provide company cars have mostly sorted out the question of fairness of value in terms of ‘who gets what car’ in their company car policy.
There is an important difference between company cars and travel allowances in that the use of a company car can be legally granted to an employee solely for private travel.
If there is only private travel, structuring a company car into a package does not break the principle that the employer’s expense should not be paid for by the employee out of his package, and justifies including the company car as a package component.
However, this is not always the case – the company car often has both a private and a business value embodied in its ‘cost’ value.
From this it appears that if the employee is prepared to do the job for the package total that rewards his services, and as long as the employee understands that if there is a business portion of the use of the company car is coming out of his own pocket, then you have an agreement.
Kyk Noord en gaan voort.
Travel allowance
The problem with a legitimate travel allowance is that its value will always include a business travel portion.
As discussed in Chapter 2, the business cost of the travel allowance should be marginally increased to provide an element of private use value that is essentially ‘salary’.
The business portion of the travel allowance cannot be included in the package, while the private portion can be included. If included, the private portion must have an accurate cost value otherwise it would make no sense to include it in a costing structure whose purpose it is to control the employer’s costs.
The private travel value of a travel allowance can only be calculated with accuracy at the end of the tax year, but the value is needed from the start of the tax year for the package calculation. Therefore, the estimated value of the private portion must be used, in the full knowledge that the final private travel value at the end of the tax year will differ from the estimated value.
In practical terms, this boils down to the same thinking as for the company car.
If the employee is prepared to do the job for the package that is offered as the reward, and as long as the employee understands that the business expense portion of the travel allowance is coming out of his own pocket, then you have an agreement.
However, be aware that once included as a component in the package, the value of a travel allowance can become a bit of hot potato.
Generally, in line with remuneration package structuring principles, as the travel allowance value increases, the cash component value gets less.
Employees will start to request a lower travel allowance value in order to get more cash, until one day somebody realises that they are not getting the full value of their claim for business travel expenses on assessment because the claim value is limited to the travel allowance value.
They will then demand a higher travel allowance value, and the employer might get into a risk position by overestimating the value of the travel allowance, and the cycle will repeat itself.
This is perhaps an unfair comment but including a travel allowance into a package gives one the impression that the company is ducking its responsibility to manage its business travel expenses by shifting control from the employer to the employee.
Travel reimbursement
It is crystal clear that a travel reimbursement is the employer’s expense, and therefore it cannot be used as a package component.
Conclusion
In my opinion, the general answer to a difficult question is that –
1. Company cars can and are often included in a package
2. Travel allowances can but should not be included in a package – if they are, then only the private travel portion should be included, and what then is the value of the private travel?
3. Travel reimbursements cannot be included in a package.
6.4 Comparison of the Tax calculations
Note that only the remuneration and employees’ tax aspects of company cars have been addressed in this workbook. Company cars require extensive management, and then there is also the impact on company tax and company costs in general to be considered.
In order to compare the tax efficiency of company cars, travel allowances and travel reimbursements, we need to be able to compare apples to apples as far as possible.
This is not easy, as they are different things.
Fortunately, the starting point of the tax calculation being the determined value of the motor vehicle used for the travel, is now calculated in the same way for all three types of travel compensation.
Let us use the following base values for the comparison calculation –
• Determined value: R228 000
• Total kilometers: 30 000 km
• Prescribed rate R3,78 per km.
Remember that these are values that apply to the motor vehicle irrespective of whether it is a company car, or a privately-owned car subject to either a travel allowance or a travel reimbursement being paid.
Also, it is assumed that it is a perfect world, and the kilometers recorded in the logbook at the end of the year, are the same as the kilometers that were used to estimate the travel allowance value at the start of the year.
The following table compares the results of applying these values to the tax calculation for the three methods of business travel compensation. Note an old value of R3,78 per km is used (instead of R4,64 for 2024), but the principle of the calculations, the result, and the conclusion stays the same.
Low Business travel (20% of total travel)
VARIABLES FOR THE TAX CALCULATIONS
Determined Value Business Km Private Km Total Km Prescribed Rate/km Private Ratio Inclusion Rate Marginal Increase
228,000 5,000 20,000 25,000 3.78 80% 80% 0%
TAX CALCULATIONS
DESCRIPTION INCOME PAYROLL ASSESSMENT
Travel Compensation Business Portion Private Portion Private Portion (%) Total Value Remun. Value Business Expense Taxable Income
Company Car 0 0 95,760 95,760 76,608 19,152 76,608
Travel Allowance 18,900 75,600 0 94,500 75,600 18,900 75,600
Travel Reimbursement 18,900 0 0 0 0 0 0

High Business travel (80% of total travel)
VARIABLES FOR THE TAX CALCULATIONS
Determined Value Business Km Private Km Total Km Prescribed Rate/km Private Ratio Inclusion Rate Marginal Increase
228,000 20,000 5,000 25,000 3.78 20% 20% 0%
TAX CALCULATIONS
DESCRIPTION INCOME PAYROLL ASSESSMENT
Travel Compensation Business Portion Private Portion Private Portion (%) Total Value Remun. Value Business Expense Taxable Income
Company Car 0 0 95,760 95,760 19,152 76,608 19,152
Travel Allowance 75,600 18,900 0 94,500 18,900 75,600 18,900
Travel Reimbursement 75,600 0 0 75,600 0 75,600 0
What conclusions can be drawn from these comparisons?
1. The remuneration and taxable income values for company cars and travel allowances are surprisingly close to one another.
This is probably as a result of the intention to align the travel allowance and company car provisions, and some clever actuarial work on spreadsheets by SARS to arrive at the 3,5% pm for company cars, as well as the SARS Cost Scale table from which the SARS cost rate/km is calculated.

2. The travel reimbursement is the best option.
6.5 Comparison of Attributes
In this workbook I have pointed out some of the pros and cons of the three methods of travel compensation as we moved through their requirements and provisions.
In order to help you to decide which is the best method for your business, I have drawn up a table that summarises the main attributes of each method of travel compensation.

DESCRIPTION Company Car Travel Allowance Travel Reimbursement
Employer – discretion over base tax value No discretion Discretion Discretion
Risk to the employer of non-compliance Low High Very low
Administration burden on the employer High Medium Medium
Is there a Remuneration value Yes Yes Generally, No
Is there a negative impact on SDL and UIF costs Yes Yes Generally, No
Taxed in the payroll on the Employer’s expense Possibly Yes No
Employee must keep a logbook & submit claim Yes Yes If > Prescribed rate
Easy for employees to understand Yes No Yes

 
6.7 Last thoughts on Travel Compensation
There are good reasons to use travel reimbursements in your company –
1. The employer controls the rate/km (and therefore the eventual cost to the employer)
2. Depending on the rate/km used, the travel reimbursement is excluded from remuneration, whereas the travel allowance and company car add to the company’s total remuneration amount.
3. Using a travel reimbursement lowers the employer’s costs of the SDL and UIF contribution costs – depending on the numbers, this could result in a substantial saving for the employer.
4. There is no confusion in the minds of employees or employers that this is the employer’s business expense, and that it simply does not belong in a package.
The only downside of the travel reimbursement is that the employer must administer the claim forms for the reimbursements, but as suggested earlier, using spreadsheets for the business travel claims can simplify and reduce administration for both the employer and the employee.
My advice –
Change to a travel reimbursement policy but ensure that the rate per kilometre does not exceed the Prescribed rate to prevent the reimbursement from being assessed.
6.8 Proposals to Change the Travel Compensation Legislation
Travel compensation legislation has been changed over the years to close loopholes and to keep up with the changing nature of employment.
It remains a difficult area for employers, employees, SARS, and the legislators.
For several years the PAGSA has proposed that the policy makers consider phasing out travel allowances over a few years, to be replaced by travel reimbursements.
We will have to wait and see if this ever happens.

Chapter 5. Travel Reimbursements
5.1 Introduction to Travel Reimbursements
The business travel compensation principles discussed in the introductory sections of Chapter 2 underpin the understanding and the compliant administration of business travel compensation, and it is important that they are always kept in mind.
This Chapter discusses ‘travel reimbursements’, one of the three business travel compensation options that an employer can choose from when compensating an employee who incurs the employer’s business travel expenses when traveling for business purposes.
Of the three business travel compensation options, there are a number of reasons why employers choose travel reimbursements for their travel policy, but probably the main reason is because the concept is straight forward and easily understood, particularly by the employee who does the travel.
More on this at the end of this Chapter and in the closing Chapter 6.
5.2 Travel Reimbursement Principles
The correct term for this special type of reimbursement is a “reimbursive travel allowance”, but to keep it short and sweet, the term “travel reimbursement” is used in this workbook.
The name “reimbursive travel allowance” underlines the dual nature of this method of business travel compensation – it has an aspect of an allowance, but it is more closely aligned to a reimbursement – so I feel comfortable to refer to it as a ‘travel reimbursement’.
It has the nature of a reimbursement because it is paid after being claimed by the employee as and when he travels for business purposes and incurs the employer’s business travel expense.
It is not paid regularly is generally the case with allowances.
However, it is not a ‘true’ reimbursement because the exact value of the expense is not reimbursed.
The value to be reimbursed is estimated (or ‘deemed’) according to the requirements of section 8(1)(b)(iii) of the Income Tax Act (see the Legal Framework in the next section). Because it does not have an exact value, it moves the reimbursement somewhat towards being classified as an allowance, which you will remember is an amount that is “… based on the expected business-related expenditure.”
Reimbursements resulting from expenses incurred by an employee on behalf of an employer are always business related, and the same applies to travel reimbursements.
The employee claims the business kilometers that he travelled, the reimbursement is generally not taxable or if a portion of it is taxable then business travel expenses can be deducted on assessment if a logbook is submitted to SARS.
It is important to understand the difference between a reimbursement of an employee’s business travel expenses (the subject of this Chapter), and a reimbursement of an employee’s private travel expenses.
A reimbursement of private travel expenses is not provided for in the legislation.
However, some employers choose to financially assist an employee with private travel expenses, but this assistance would be fully taxable with no deduction possible, reported as either additional salary (code 3601) or preferably a taxable general allowance (code 3713).
Refer to the introductory section of Chapter 2 that explains this scenario in more detail.
The important concept of ‘private travel’ is also discussed in a section of Chapter 2.
5.3 Legal Framework for Travel Reimbursements
The legal foundation of the travel reimbursement requirements are set out below for your information (or to be skipped over  ). They are referred to when we get to the tax calculation and tax certificate reporting rules.
The travel reimbursement requirements are provided for in sections 8(1)(b)(iii) and (iiiA), as well as in the Fourth Schedule definition of remuneration subparagraph (cC) that was introduced with effect from 1 March 2018.
Outside of the legislation, the following documents are important:
• The ‘Fixing of Rate per Kilometer in Respect of Motor Vehicles’ Regulation [Gazette # 48162]
• The SARS BRS (Business Requirements Specification that provides the tax certificate reporting rules)
• The SARS IN14 (Interpretation Note number 14).
Section 8(1)(b)(iii) – ‘Deemed’ Rate per Kilometer

“where such allowance or advance is based on the actual distance travelled by the recipient in using a motor vehicle on business (excluding the said private travelling), or such actual distance is proved to the satisfaction of the Commissioner to have been travelled by the recipient, the amount expended by the recipient on such business travelling shall, unless the contrary appears, be deemed to be an amount determined on such actual distance at the rate per kilometre fixed by the Minister of Finance by notice in the Gazette for the category of vehicle used:
Provided that where an allowance or advance is deemed to have accrued under section 7B to the recipient in the year of assessment during which that allowance or advance is paid, the distance travelled for business purposes in respect of which that allowance or advance is received shall be deemed to have been travelled during the year in which that allowance or advance is paid”

[my emphasis added]
Section 8(1)(b)(iiiA) – ‘Actual’ Rate per Kilometer
The provisions of this subsection allow an employee to calculate a rate per kilometer that is based on the employee’s records of the actual costs of ownership of the vehicle including purchase costs, financing costs, and wear-and-tear. My understanding is that this option is seldom used. Because the wording is long and complex, for the sake of keeping this workbook as simple as possible, the wording of section 8(1)(b)(iiiA) has not been included.
Fourth Schedule Definition of Remuneration

“remuneration” means … including –
(cC) 100 per cent of so much of the amount paid or granted as an allowance or advance referred to in section 8 (1) (b) (iii) as exceeds the amount determined by applying the rate per kilometre for the simplified method in the notice [described as the ‘Prescribed‘ rate in the SARS BRS] fixing the rate per kilometre under section 8 (1) (b) (ii) and (iii) to the actual distance travelled;

[subparagraph (cC) inserted into the definition with effect from 1 March 2018]
Before continuing with the discussion of the practical aspects of travel reimbursement administration, it is worth repeating a statement made in the SARS Interpretation Note # 14:

“Any allowance, advance or reimbursement is a reflection of business-related expenditure or anticipated business-related expenditure of the employer.”

5.4 SARS Interpretation of a Reimbursement
As discussed in Chapter 2, SARS interprets the concept of a reimbursement as follows:

“A reimbursement of business-related expenditure occurs when an employee has incurred and paid for business-related expenses on behalf of an employer without having had the benefit of an allowance or an advance, and is subsequently reimbursed for the exact expenditure by the employer after having proved and accounted for the expenditure to the employer.”

This interpretation of reimbursements in general applies equally to the special category of travel reimbursements.
Travel Reimbursement vs Travel Allowance
The underlying principles for a travel reimbursement are similar to those for a travel allowance, but the method of calculation of the compensation, the taxation thereof, and the tax certificate reporting rules, differ radically.
The purpose of a travel reimbursement is to compensate an employee for travelling for business purposes in any motor vehicle that is privately owned – it is not to assist the employee to purchase a motor vehicle, nor is it to reimburse an employee for private travel expenses.
Reimbursements of Business travel expenses using Public Transport
A travel reimbursement is calculated by multiplying the number of kilometers travelled by a rate per kilometer, and there are rules that specify how it must be taxed and reported on a tax certificate.
The public transport vehicle can be a motor vehicle, a bus, a taxi, or a train, and the travel could be for either private or business purposes.
If the employer assists the employee financially for travel in public transport, then if the travel purpose is:
1. Business:
Proof of the travel expense would allow the employer to pay a general reimbursement
2. Private:
This financial assistance would be taxable with no deduction possible, reported as either additional salary (code 3601) or preferably as a taxable general allowance (code 3713).
Refer to the introductory section of Chapter 2 that explains this scenario in more detail.
Employees that qualify for a travel Reimbursement
Travel reimbursements may only be paid by an employer to an employee who uses a privately-owned motor vehicle for the business travel (and who has a valid driver’s licence).
The car does not have to be owned by the employee – it can belong to a friend or a family member.
The Employer’s Travel Reimbursement policy
One of the advantages to the employer of using travel reimbursements is that the employer has control over the rate/km used to calculate the reimbursement. The employer can decide to use any rate/km that he likes, or for that matter, a range of rates for different categories of employees.
In this way, the employer has control over the cost of business travel in his organisation.
Having decided on the rates per km that he is prepared to pay, the employer then has a duty to administer the travel reimbursements correctly in terms of the law.
These procedures will be discussed in the sections below.
5.5 Tax Calculation Principles
In general, amounts that are paid to an employee in the form of what I call a legally compliant reimbursement, are neither remuneration nor income, are not processed in the payroll, and are not reported on a tax certificate. They are the employer’s expense and are accounted for in the company’s financial reporting.
The following are the requirements for a legally compliant reimbursement.
The reimbursement must “further the trade of the employer”, and there must be:
1. Instruction from the employer to incur the expense
2. Proof of the value of the expense (vouchers, invoices, etc.) must be provided to the employer
3. If an asset was purchased and reimbursed, then the asset must be owned by the employer.
Points 1 and 2 apply to travel reimbursements.
Reimbursements do not have to be reported on tax certificates except for:
1. Travel reimbursements (the reporting rules will be discussed below)
2. Subsistence allowances (which SARS deem to be a reimbursement if paid below the daily expense limits).
Travel Reimbursement Calculation – Rules from 1 March 2018
As can be seen in the ‘Legal Framework for Travel Reimbursements’ section above, the Fourth Schedule definition of remuneration was amended by the addition of sub paragraph (cC) that provides the tax calculation rules for travel reimbursements from 1 March 2018.
Sub paragraph (cC) specifies that the remuneration portion of a travel reimbursement must be calculated as 100% of the portion of the travel reimbursement amount that exceeds an amount calculated by multiplying the business kilometers travelled by the ‘Prescribed’ rate/km (section 4 of the ‘Fixing of Rate’ regulation).
This remuneration portion of the travel reimbursement amount is subject to PAYE etc. in the payroll, as well as income tax on assessment, and must be reported under code 3722 (a ‘PAYE’ code).
The remaining portion of the travel reimbursement amount is not remuneration (therefore no PAYE) but it is income subject to income tax on assessment, and must be reported under code 3702 (an ‘IT’ code).
The introduction of sub paragraph (cC) to the Fourth Schedule resulted in changes to the tax certificate reporting rules for codes 3702 and 3703, and the introduction of a new code 3722 for the taxable portion of the travel reimbursement.
Travel Reimbursement – Tax Certificate codes from 1 March 2018
Code 3702 must be used to report a travel reimbursement if –
1. A code 3701 travel allowance is paid in addition to the travel reimbursement, or
2. The rate/km used to calculate the travel reimbursement exceeds the Prescribed rate/km
Note:
• Code 3702 value = Business km x the portion of the rate/km that exceeds the Prescribed rate/km
• Code 3702 is not remuneration (no PAYE), but it is income (income tax will be calculated).
Code 3703 must be used to report a travel reimbursement if –
1. Codes 3701, 3702, and 3722 are not reported (their value is R0,00), and
2. The rate/km used to calculate the travel reimbursement does not exceed the Prescribed rate/km.
Note:
• Code 3703 value = Business km x a rate/km that does not exceed the Prescribed rate/km
• Code 3703 is not remuneration and is not income, therefore no PAYE and no Income tax.
Code 3722 must be used to report a portion of a travel reimbursement if –
1. The rate/km used to calculate the travel reimbursement exceeds the Prescribed rate/km
Note:
• Code 3722 value = Business km x (the rate/km used to reimburse less the Prescribed rate/km)
• Code 3722 is remuneration and income, therefore PAYE and income tax will be calculated.
Code 4582 – The remuneration portion of the following allowances and benefits
For the purposes of section 11F (that limits the deduction in respect of contributions to retirement funds to 27,5% of remuneration), SARS requires the remuneration value of certain codes where the remuneration value differs from the income value stated on the tax certificate, to be accumulated and reported against code 4582.
Effective from 1 March 2018, code 4582 must reflect the total of the remuneration value of:
1. Code 3701 (80% or 20% of the travel allowance)
2. Code 3802 (80% or 20% of the company car fringe benefit if the vehicle is purchased)
3. Code 3816 (80% or 20% of the company car fringe benefit if the vehicle is rented).
Travel Reimbursement Calculation Scenarios
The application of the legislation amendment, the changes to the Fixed Rate regulation, and the related changes to the PAYE BRS tax certificate reporting rules are illustrated in the following table.

2024 SCENARIOS TOTAL REIM-BURSED TRAVEL ALLOWANCE REMUNERATION? INCOME?
BASE VALUES NO YES YES
TOTAL KM R/KM 3701 3703 3722 3702
20 000 3.64 72 800 0 72 200 0 0
20 000 4.64 92 800 0 92 800 0 0
20 000 5.64 112 800 0 0 20 000 92 800
20 000 3.64 72 800 10 000 0 0 72 800
20 000 4.64 92 800 10 000 0 0 92 800
20 000 5.64 112 800 10 000 0 20 000 92 800
Determined Value for Travel Reimbursements
The determined value of a motor vehicle that must be used as the starting point of the calculation of the determined rate per kilometre is defined in a regulation to the Income Tax Act that is included in the legislation in the appendix to this manual for your convenience.
The determined value for travel reimbursements is calculated in exactly the same way as for the travel allowance, and to save duplication in this workbook, can be referred to in the travel allowance chapter.
Prescribed Rate/km for Travel Reimbursements
Again, the calculation of the Prescribed rate/km for the motor vehicle used for the business travel reimbursement is exactly the same as the calculation for travel allowances, and to save duplication can be referred to in the travel allowance chapter.
5.6 Summary of the Main Aspects of Travel Reimbursements
The following are the main aspects of a travel reimbursement.
1. Employees who qualify for a travel reimbursement in terms of section 8(1)(b)(iii) are those who –
a. Travel for business purposes (with a valid driver’s licence …  ),
b. In a motor vehicle that is privately-owned.

2. The employer –
a. Must set the rate/km for travel reimbursements in its travel policy
b. May only pay a travel reimbursement to ‘qualifying’ employees
c. Must process the travel reimbursement through the payroll
d. Must allocate the correct tax certificate codes depending on the rate/km used
e. Must report the travel reimbursement correctly on the tax certificate.

3. The employee –
a. Must claim his business travel in accordance with the employer’s policy and procedures
b. Should maintain a business travel logbook to be in a position to claim business travel expenses
c. Should claim business travel expenses if there is taxable income by submitting his logbook details.
Note that a reimbursement for travel expenses is only a travel reimbursement if its value is calculated by:
• Multiplying the number of business kilometers travelled
• By a rate per kilometre.
Any other type of compensation paid by the employer in relation to the vehicle or the travel is either a travel allowance, or a normal reimbursement of an employer’s business expense incurred by the employee, or an additional payment to assist an employee with private travel costs (fully taxable with no deduction allowed).
See the section in the Travel Allowance Chapter 4 for more details in this regard.
5.7 Income Tax calculation on Assessment
The SARS income tax calculation on travel income is summarised in Chapter 6.
Every employee who is paid a travel reimbursement, should keep a logbook of his business travel if the rate/km paid by the employer exceeds the Prescribed rate/km, resulting in a code 3702 on his tax certificate.
In fact, all employees that travel for business purposes should maintain a logbook irrespective of which of the three methods of business travel compensation the employer uses.
Employers should consider setting up standard spreadsheets for the employee’s weekly / monthly business travel claim form that contains at least the following fields that are required for the logbook:
• Date
• Number of business kilometers (total for the day)
• Reason for travel (name of the client / area / reason etc.).
This spreadsheet then doubles as the employee’s logbook at the end of the tax year, as well as being used by the employer to administer the travel reimbursement and management information.

Chapter 1. Introduction, Scope, and Terminology
The purpose of this workbook and the webinar that accompanies it is to bring employers up to date with the latest legal and administrative requirements for the three methods of travel compensation that are paid or granted to employees to compensate them for incurring the company’s business travel expenses (company cars, travel allowances, and travel reimbursements), and at the same time to give some guidance in down-to-earth terms on how to apply these requirements in your payroll office.
The workbook is based on the legislation and regulations that are in force for the 2023/24 year of assessment.
Extracts from the latest legislation and SARS documents are included in the workbook where they are relevant, and the most important legislation has been included in the appendix for your convenience.
1.1 Legislation and Regulations Referenced
The following documents were referenced when writing this workbook.
Legislation
1. Income Tax Act: Definitions – Gross Income
2. Income Tax Act: Section 8 – Certain Amounts to be included in Income or Taxable income
3. Income Tax Act: Section 23(m) – Deductions not allowed in Determination of Taxable income
4. Income Tax Act: Fourth Schedule – Amounts to be Deducted or Withheld in respect of Normal tax
5. Income Tax Act: Seventh Schedule – Benefits or Advantages derived by Reason of Employment
SARS Interpretation Notes and Guides
6. SARS IN 13 S23(m) Limitation of Deductions (15 Mar 2011)
7. SARS IN 14 Allowances, Advances & Reimbursements (Mar 2021 – Issue 5)
8. SARS IN 72 Right of Use of Motor Vehicle (Mar 2013)
9. SARS IN 82 Input Tax on Motor Cars VAT (Mar 2015)
10. SARS Guide for Employers for Allowances for 2023 PAYE-GEN-01-G03
11. SARS Guide 2022 03 Allowances 2023 PAYE-GEN-01-G03 Rev 12
12. SARS Guide 2022 03 Fringe Benefits Version 11 23 Feb
SARS Regulations, Notices, and Specifications
13. SARS PAYE BRS (Business Requirements Specification) version 22.0 issued on 24 February 2023.
14. Calculation of VAT on the company car fringe benefit deemed supply (Gazette No. 13651 22 Nov 1991)
15. Fixing of Rate per Kilometre in Respect of Motor Vehicles (Gazette No. 48162)
16. Retail Market Value of the Right to use a Motor Vehicle (Gazette No. 38744)
17. SARS Travel eLogbook
18. SARS Tax Statistics 2022 – PIT Tables
PAGSA Information Documents (Newsflashes and Proposals)
19. PAGSA NF 2016-31 Change to Code 4582 for 2016 Mid-year Submissions
20. PAGSA NF 2017-19 Code 4582 and PAGSA AGM Follow-up
21. PAGSA NF 2017-21 Code 4582 and SARS Final Notice
22. PAGSA NF 2022/13 – Rate per kilometer: 2023 Tax year
23. PAGSA NF 2023-07 Payroll Tax Amendments for 1 March 2023
24. PAGSA Annex C 2022 11 – Proposals for Legislation changes
25. PAGSA Comments 2012 05 Allowances Draft Int Note
26. PAGSA Comments 2012 05 Company Car Draft Int Note
1.2 Terminology Conventions used in this Workbook
To keep the wording in this workbook short and simple, the following terminology conventions have been used:
• All references to ‘he’ or ‘his’ includes ‘she’ or ‘her’ in the case of a female taxpayer, and ‘it’ or ‘its’ in the case of a taxpayer other than an individual and is not intended to be discriminatory.
• Tax year (of an employee) is used instead of ‘year of assessment’ and refers to the period of 12 months or shorter from March to February during which an employee was employed and remunerated.
• In the Income Tax Act, reference to a person includes both natural and non-natural persons.
• The term Travel Reimbursement is used in this workbook but is referred to in the legislation and SARS publications as a Reimbursive Travel Allowance
• The term Company car is used instead of ‘company motor vehicle’ as referred to in the legislation
• The term ‘employee’s tax’ is used instead of ‘PAYE’.
The following abbreviations might be used in this workbook –
• ITA Income Tax Act
• TLAA Taxation Laws Amendment Act
• TALAA Tax Administration Laws Amendment Act
• SDLA Skills Development Levies Act
• UICA Unemployment Insurance Contributions Act
• ETIA Employment Tax Incentive Act
• BCEA Basic Conditions of Employment Act
• LRA Labour Relations Act
• EEA Employment Equity Act
• UIA Unemployment Insurance Act
• UICA Unemployment Insurance Contributions Act
• COIDA Compensation for Occupational Injuries and Diseases Act
• PAGSA Payroll Authors Group of South Africa

Chapter 7. Miscellaneous Matters of Interest
7.1 Intention to Extend the Covid-19 R350 Social Grant
This proposed change does not impact on payroll systems nor on employers but is of importance to all South African citizens and to the economy, so it is included in this workbook for your information.
In Government Gazette Number 48056 (14 February 2023), the Minister of Social Development has called for comments on the intention of the Government to extend the period of the Covid-19 Social Relief grant of R350 pm for another 12 months.
The current grant will come to an end on 31 March 2023 if it is not extended.
If it is extended, the grant will continue until 31 March 2024.
Note that there is no intention to increase the value of the grant – it remains set as R350 pm.
7.2 UIF E-Compliance Certificate System
Still reeling from the Covid-19 lockdown hardship period and the TERS benefit application difficulties, the UIF authorities decided to replace their manual Compliance Certificate system by launching their new E-Compliance Certificate system (E-CC) at the end of January 2021.
There was no discussion with employment bodies such as the PAGSA, nor was the system tested externally before it was released.
It didn’t take long to discover that the E-CC system had problems such as:
• If any gaps in the submission of monthly declarations going back to 2002 were identified, the Certificate was refused, and the employer was asked to recreate the declaration data …
• Employees appointed in month 1 were added to the payroll in that month, but their remuneration details were too late for the payroll run, and were added to month 2’s remuneration, resulting in the system identifying month 1 as a ‘gap’ month because a UIF contribution was not made in that month.
• Changes in ownership of the company, or section 197 transfers, also appear to result in a ‘declaration gap’ being identified.
It appears that the E-CC system traces an employee’s history of employment movement from one employer to the next by using the employee’s ID number, and if there is a ‘declaration gap’ at a previous employer because that employer did not submit a declaration, then the current employer is penalised by the system refusing to issue a Compliance Certificate.
Many, many emails were sent to the Fund by the PAGSA and other organisations complaining about these and other problems, as well as the negative impact on the economy and increased unemployment because some organisations could no longer tender for new business, but to no avail.
The UIF authorities politely refused to arrange meetings with external employment and business organisations.
Finally in April 2022, a meeting was arranged that included the PAGSA and other employment organisations, and these organisations presented detailed reports of the problems as well as suggestions for solutions.
Halfway through the presentation of the PAGSA’s report, the Fund announced that the E-CC system would be temporarily shut down and that a notice would be issued to the effect that a UIF Compliance Certificate was no longer required for tenders and other requirements.
After prompting by the same group of organisations, this was followed by a “What Now?” meeting in August 2022, during which we again agreed to present a consolidated report of the problems and our proposals for a solution.
7.3 Modernisation of UIF Declarations
When creating the file that employers must email every month to the Fund to declare the employee data for that month, payrolls must obey a specification document known as the ‘E03’ Declaration Specification (‘E03’ because this specification was first drawn up in 2003).
During 2016 and 2017 the PAGSA and the UIF authorities met regularly to bring the E03 specification up to date, but after considerable progress was made, the project was halted before it could be finalised and implemented.
After the meetings in April and August 2022, the Fund agreed in December 2022 to resume the regular meetings with the PAGSA that had been the hallmark of our excellent relationship for nearly 25 years.
This laid the foundation for regular meetings between the Fund and the PAGSA that started in January 2023, and at the time of writing (late February 2023) there have been 3 productive meetings.
The purpose of these meetings is to revise and modernise the E03 specification document so that payrolls can provide the additional employee data that the Fund needs to be able to issue E-Compliance Certificates correctly in certain scenarios that under current circumstances are difficult for the Fund.
Hopefully payrolls will also be able to provide additional data that will assist the Fund to approve benefit claims more accurately and cost efficiently.
These meetings are ongoing and hopefully will result in a much-improved E03 specification document that will benefit all three parties (payrolls, employers, and the Fund).
PAGSA Working Groups
Two PAGSA working groups have been set up to investigate the main two areas of problems being remuneration issues, as well as to investigate possible changes to uFiling that could result in significant benefits to all parties in a number of areas.
The leaders of the two PAGSA teams presented their investigation and suggestions to the Fund for their consideration in a long but productive meeting on 21 February 2023.
7.4 SARS Opinion: Application of Section 7B to UIF Contributions
In order to understand the SARS opinion on the application of section 7B to the calculation of UIF contributions, read the detailed discussion of Section 7B in section 4.2 of this workbook, summarised below for your convenience.
Section 7B Summary
The general taxation rule is that income, including remuneration as defined by the Fourth Schedule of the Income Tax Act, must be taxed on the earlier of the date of accrual (when there is an unconditional entitlement to the money), and the date of payment.
For many years before 2013, the PAGSA drew the attention of the tax authorities to the administration difficulties experienced by payroll suppliers and employers when certain types of remuneration accrue in the last month (or months) before the end of a tax year but can only be paid in the first month (or months) after the start of the new tax year when the amounts are available and/or can be quantified.
From this can be seen that retrospective adjustments place a significant administration burden on payrolls, payroll offices, and in some cases also on SARS (adjustments to EMP201’s, tax certificates, and EMP501 reconciliations).
After many requests from the PAGSA, section 7B of the Income Tax Act was added and introduced the concept of ‘variable remuneration’ from 1 March 2013 as the solution. Variable remuneration is deemed to accrue when it is paid to the employee, and it is therefore taxed when it is paid.
In other words, all remuneration types that are ‘variable remuneration’ are taxed and administered in the month in which they are paid, not the month in which they would normally have accrued.
Which Remuneration Types are Variable Remuneration?
Section 7B divides the various types of Fourth Schedule remuneration into two groups:
1. Variable Remuneration:
Section 7B specifies nine ‘variable’ remuneration types including commonly occurring remuneration types such as overtime, bonuses, commission, travel allowances and travel reimbursements, as well as night shift and standby allowances, and BCEA leave that is paid out on termination. [Recently added to variable remuneration from 1 March 2023 is an amount “that is determined based on the employee’s work performance” (see ‘Changes to the Legislation’ below).]
Variable remuneration is deemed to accrue on the date of payment and must be taxed when paid.
2. Non-variable Remuneration:
All remuneration types that are not variable remuneration, are referred to as non-variable remuneration, of which the most obvious examples are salaries and wages.
Non-variable remuneration must be taxed at the earlier of the date of accrual, or the date of payment.
Note that while section 7B was introduced to simplify payroll and tax certificate administration for employers over the period spanning the end of one tax year and the start of the next tax year, section 7B applies equally to any period during a single tax year.
Explanation of the Application of Section 7B
Fourth Schedule remuneration, divided into variable and non-variable remuneration portions, is used to calculate four payroll-related taxes – PAYE, SDL, ETI, and UIF contributions.
In its definition of remuneration, the UICA (Unemployment Insurance Contributions Act) links the remuneration that payrolls must use to calculate UIF contributions to the Fourth Schedule definition of remuneration with some exclusions (see the Appendix to this section for the UICA definition of remuneration).
Because the UICA definition of remuneration is linked to the definition of Fourth Schedule remuneration that in turn is apportioned into variable and non-variable remuneration by section 7B of the Income Tax Act, UIF remuneration is also apportioned into variable and non-variable remuneration.
In this way, the requirements of section 7B of the Income Tax Act are applied to the definition of remuneration in the Unemployment Insurance Contributions Act.
Principles of ‘Late-paid’ Remuneration
It can happen in practice that remuneration that is owing to an employee when services are terminated cannot be paid in the month of termination because the amounts are either not available (e.g., overtime schedule delays, petrol credit card statements, etc.), or they cannot be quantified at the time of termination (e.g., performance and profit share bonuses, commissions, etc.).
The remuneration owing is then paid in a month (or months) after the termination of employment when the individual is no longer employed and is referred to in this workbook as ‘late-paid’ remuneration.
‘Late-paid’ remuneration can be made up of either variable remuneration, or non-variable remuneration, or both.
PAYE, SDL and ETI
‘Late-paid’ remuneration is a payment in respect of past employment and past services rendered, consequently there is no doubt that an employees’ tax withholding obligation will arise for PAYE, SDL, and ETI.
There is no provision in the Income Tax Act or the Skills Development Levies Act that removes this obligation.
As far as ETI is concerned, at the time of writing this workbook (late February 2023) the PAGSA is still in discussions with SARS to determine the correction application of section 7B in the Employment Tax Incentive Act.
UIF
As far as UIF contributions are concerned, the ‘Application of the Act’ in section 4(1)(a) of the UICA states that the Act applies to all employers and employees other than “… an employee and his or her employer, where such employee is employed by that employer for less than 24 hours a month”. [my emphasis]
This means that if an employee is employed for less than 24 hours in a month, the UICA does not apply to that employee for that month. Therefore, a contribution for that month must not be calculated and paid, and similarly in terms of the UIA (the Unemployment Insurance Act), a declaration must not be submitted to the Fund.
The question that remains is how to apply section 4(1)(a) of the UICA to the concept of ’late-paid’ remuneration read with section 7B of the Income Tax Act.
Application of Section 7B to UIF Contributions
If the ‘late-paid’ remuneration that is paid to an ex-employee a month (or more) after termination, is:
Variable remuneration:
‘Late-paid’ variable remuneration is deemed to accrue in the month in which it is paid, being a month (or months) after employment has ended. The individual is not employed in the deemed accrual month and is therefore excluded from the ambit of the UICA by the “… where such employee is employed …” requirement of section 4(1)(a) as discussed above.
Accordingly, a UIF contribution must not be calculated on ‘late-paid’ variable remuneration and a declaration reflection the variable remuneration must not be submitted to the Fund.
Equally, there is no UIF liability for the SARS EMP201 for that month.
Note that any additional PAYE and SDL calculated on the ‘late-paid’ remuneration in respect of that month must be included in the SARS EMP201 for the month in which the ‘late-paid’ variable remuneration is paid.
As stated above, we are waiting for the conclusion of discussions with SARS as far as ETI is concerned.
Non-variable remuneration:
‘Late-paid’ non-variable remuneration must be taxed on the earlier of the date of accrual (i.e., when there is an unconditional entitlement to the money), or the date of payment.
The earlier of these two dates will be the last month of employment i.e., the month of termination, unless the remuneration accrued in a month prior to the month of termination in which case it would be that month.
To simplify the wording in this workbook, when the term ‘month of accrual’ is used in the context of non-variable remuneration paid after termination, it can refer to either the month of termination or an earlier month.
The individual is not excluded from the UICA by section 4(1)(a) in the month of accrual (the employee is still employed in that month) and unless the remuneration for that month already exceeded the monthly UIF limit, the additional UIF contribution on the ‘late-paid’ variable remuneration must be calculated.
The UIF declaration that was submitted in respect of the month of accrual must be adjusted and re-submitted. The UIF liability on the SARS EMP201 must also be adjusted for the additional UIF contribution amount (as well as for any additional PAYE or SDL).
Note that in most cases, ‘late-paid’ remuneration is variable remuneration (overtime, commission, and bonuses).
It is possible (but unlikely) that ‘late-paid’ remuneration is both variable and non-variable, but if it is, the accrual rules must be applied to each portion of remuneration.
To confirm the above conclusions, the PAGSA requested a legal opinion from SARS.
SARS Legal Opinion
The SARS legal opinion went back and forth several times to clarify some matters that arose from the original opinion, and these are extracted and quoted verbatim.
References in this response to sections are to sections of the Unemployment Insurance Contributions Act, 2002 (the Contributions Act), unless otherwise specified.
The Unemployment Insurance Fund (the Fund) was established by the Unemployment Insurance Act, 2001. The duty to contribute to the Fund arises under section 5 of the Contributions Act. That section obliges all employers and employees “to whom this Act applies” to contribute to the Fund.
To determine who the Contributions Act applies to, section 4 must be looked to. In terms of section 4(1)(a), the Contributions Act applies to all employers and employees except where the employee is employed for less than 24 hours a month.
The word “is” is important, because it signifies continuing employment, not past employment.
As indicated in your e-mail, the employee’s employment was terminated in a previous month. As a result, he is not “employed” by the employer for at least 24 hours in the month the payment was received and the duty to contribute does not therefore arise.
In light of the above, the Contributions Act does not apply to this person and no UIF contribution is deductible by the employer from the bonus paid.
This does not mean that the recipient is an independent contractor. No services are being rendered at the time the payment is being made. The recipient is neither an independent contractor, nor an employee.
The reason is simply that under section 4(1)(a), the Contributions Act does not apply and no duty to contribute arises.
We do however agree that “remuneration” is being paid, as the bonus is paid in respect of past services rendered, and an employees’ tax withholding obligation will arise.
Section 7B will apply in the normal manner.
Clarification of the Application of Section 7B
I confirm that this is indeed SARS’s view on the correct interpretation of the UI Contributions Act. I will just add the following clarification:
• The types of remuneration mentioned in your other mail, such as a bonus or commission, now have specific accrual dates, under section 7B, which is the date of payment. So the ordinary rules relating to accrual don’t apply. They will accrue after employment is terminated, and so are not subject to UIF.
• However, amounts that accrue during the time that the employee is employed, but are simply paid late, will remain subject to UIF.
Clarification of the Employment Status of the Individual
Your email below has reference.
We would like to point out that the parts of our response … to which you refer, namely, “The recipient is neither an independent contractor, nor an employee” and “No services are being rendered at the time the payment is being made”, are specific within the context of UIF.
The only reason why the employee is not considered an employee for UIF purposes is because the person was employed for less than 24 hours a month according to the exclusion in section 4(1)(a) of the Contributions Act.
Clarification of PAYE and SDL Obligations
For purposes of employees’ tax (PAYE) we confirmed in our response that there would be an employees’ tax withholding obligation on the basis that the person received “remuneration” as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, 1962.
In the subsequent response … it was also confirmed that SDL will be payable.
Accordingly, the exclusion from the definition of “employee” is only for UIF purposes and should not be interpreted similarly for SDL and PAYE purposes.
SARS Legal Opinion Ends
Impact of ‘Late-paid’ Remuneration on Unemployment Benefit Claims
If the ex-employee (contributor) claims an unemployment benefit from the Fund soon after the month of termination, then it is possible that when the ‘late’ remuneration is paid in a later month (or months), the benefit application will be in the process of being approved by the Fund, or if already approved, benefit amounts might have already been paid to the claimant.
Variable Remuneration
If the ‘late-paid’ remuneration consists of only variable remuneration (as it usually is), then there is no obligation on the employer to contribute and there is also no requirement to declare this variable remuneration to the Fund.
Because it is not declared, the Fund will not know about a ‘late’ payment of variable remuneration and will not have to allocate administration resources to resolve these difficult benefit application problems as they did in the past.
In short, ‘late-paid’ variable remuneration will not impact negatively on either the approval of an unemployment benefit application, or the payment of an already approved unemployment benefit.
As far as ‘credit days’ are concerned, they are determined by the Fund directly after a benefit claim has been approved, and even if the Fund becomes aware of the ‘late’ payment of variable remuneration, this will not change the determination of ‘credit days’.
Non-variable Remuneration
An additional contribution amount must be calculated and paid on ‘late-paid’ non-variable remuneration unless the monthly UIF limit was already exceeded in the accrual month when the contribution for that month was first calculated.
The declaration in respect of the accrual month must be adjusted and re-submitted to reflect the additional remuneration and contribution.
The ‘late’ payment of non-variable remuneration can impact on the unemployment benefit application:
1. The ‘late-paid’ non-variable remuneration will presumably change the value of the ‘average’ remuneration calculated over the previous 6 months, and this can change the value of the previously calculated benefit.
2. When the ‘late-paid’ non-variable remuneration is declared to the Fund after the month of termination, this will give the Fund the impression that the claimant has been re-employed. The Fund will then not approve the unemployment benefit application, or if it has already been approved and partly or fully paid out, then this will presumably be reversed.
The determination of ‘credit days’ for a claimant should not be affected because the credit days that were determined by the Fund directly after the benefit claim was first approved, already included the credit days for the accrual month, and the additional contribution does not change this calculation.
Appendix: Income Tax Act Section 7B – Variable Remuneration
7B. Timing of accrual and incurral of variable remuneration.—
(1) For the purposes of this section—
“employee” means an employee as defined in paragraph 1 of the Fourth Schedule;
“employer” means an employer as defined in paragraph 1 of the Fourth Schedule;
“variable remuneration” means—
(a) overtime pay, bonus or commission contemplated in the definition of “remuneration” in paragraph 1 of the Fourth Schedule;
(b) an allowance or advance paid in respect of transport expenses as contemplated in section 8 (1) (b) (ii) or (iii);
(c) any amount which an employer has during any year of assessment become liable to pay to an employee in consequence of the employee having during such year become entitled to any period of leave which had not been taken by the employee during that year;
(d) any night shift allowance;

(e) any standby allowance;
(Pending amendment: Para (e) to be substituted by s. 2 (1) (a) of Act No. 20 of 2022 with effect from 1 March, 2023 and applicable in respect of amounts accrued or expenditure incurred on or after that date.)
(f) any amount paid or granted in reimbursement of any expenditure as contemplated in section 8 (1) (a) (ii); or
(Pending amendment: Para (f) to be substituted by s. 2 (1) (a) of Act No. 20 of 2022 with effect from 1 March, 2023 and applicable in respect of amounts accrued or expenditure incurred on or after that date.)
(g) any amount of “remuneration” as defined in paragraph 1 of the Fourth Schedule (other than a bonus) that is determined based on the employee’s work performance.
(Pending amendment: Para (g) to be added by s. 2 (1) (b) of Act No. 20 of 2022 with effect from 1 March, 2023 and applicable in respect of amounts accrued or expenditure incurred on or after that date.)
(Date of commencement: 1 March, 2023.)
(2) In determining the taxable income derived by any person during a year of assessment, any amount to which an employee becomes entitled from an employer in respect of variable remuneration is deemed to—
(a) accrue to the employee; and
(b) constitute expenditure incurred by the employer, on the date during the year of assessment on which the amount is paid to the employee by the employer.

: Provided that where the employee is deceased before the date of payment, the amount is deemed to accrue to the employee and constitutes expenditure incurred by the employer, on the day during the year of assessment prior to the date of the employee’s death.
(Pending amendment: Proviso to be added to sub-s. (2) by s. 2 (1) (c) of Act No. 20 of 2022 with effect from 1 March, 2023 and applicable in respect of amounts accrued or expenditure incurred on or after that date.)
(Date of commencement: 1 March, 2023.)
[Note that the 2022 amendments that are effective from 1 Mach 2023 are highlighted in the frames above]
Unemployment Insurance Contributions Act
Definition of an Employee
“employee” means any natural person who receives any remuneration or to whom any remuneration accrues in respect of services rendered or to be rendered by that person, but excludes an independent contractor;
Definition of Remuneration
“remuneration” means “remuneration” as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, but does not include any amount paid or payable to an employee—
(a) by way of any pension, superannuation allowance or retiring allowance;
(b) which constitutes an amount contemplated in paragraphs (a), (cA), (d), (e) or (eA) of the definition of “gross income” in section 1 of the Income Tax Act; or
(c) by way of commission;
Section 4. Application of Act.—
(1) This Act applies to all employers and employees, other than –
(a) an employee and his or her employer, where such employee is employed by that employer for less than 24 hours a month; [my emphasis]
7.5 SARS Modernisation of Personal Income Tax Act
Background
The name of this massively important project for payroll suppliers, employers, and tax practitioners, has been changed recently from ‘SARS Vision 2024 PIT’, to “SARS Modernisation of PIT” as the project name.
‘PIT’ is an abbreviation for ‘Personal Income Tax’ and is a generic term for various forms of taxes for individuals that includes PAYE, Provisional tax, and Income tax.
In this workbook I refer to the project as “PAYE Modernisation” for short.
As far as the PAGSA is concerned, this project started in February 2020 when SARS briefed the PAGSA in a private meeting. At the meeting, the Payroll Authors Group of South Africa welcomed these plans and committed to support SARS with the project, and to ensure that payroll systems are changed in line with the SARS changes.
Shortly after our meeting, SARS issued the following ‘awareness’ notice in the public domain.
SARS Notice: Revenue Service on building smart modern Revenue Authority
The South African Revenue Service (SARS) has embarked on a journey to reimagine a future revenue authority where increasingly its work will be informed by data-driven insights, self-learning computers, artificial intelligence and interconnectivity of people and devices.
SARS’ workforce will be empowered to optimally function within this exciting changed and changing world of work.
Commissioner Kieswetter emphasizes: “We cannot ignore the power of a data and technology enabled organization, and the impact it will have on the future world of work. We can however prepare for it by consciously and actively managing the interplay between human effort and artificial intelligence.
Today we take a conscious step towards building a smart modern SARS, with unquestionable integrity, that is trusted and admired.”
The SARS of the future must be able to respond to this new environment while fulfilling the organization’s Higher Purpose of enabling Government to build a capable state that will ensure the wellbeing of all South Africans.
Since joining SARS in May last year, Commissioner Edward Kieswetter has constantly emphasized the need to boost the organization’s technological capacity and deriving insights from data, for a ‘re-imagined SARS of the future’.
The Commissioner has also been on an extensive consultation campaign with staff which has redefined SARS’ strategic objectives. This has created a need for a high-level internal and external recruitment drive to attract highly talented professionals and executives to bring SARS up to speed with advances in big data and artificial intelligence in the tax and customs environment.
SARS’ strategic objectives include, amongst others, providing clarity and certainty of tax obligations, making it easier for taxpayers to comply, detecting those who do not comply and making it hard and costly for them.
The organization is also in the process of modernising its systems to provide digital and streamlined services and rebuild public trust and confidence in the tax and customs administration.
As a result, SARS has advertised strategic leadership positions to attract talented and passionate executives to fill the roles of Chief Data Scientist, Chief Technology Innovation Officer, Chief Financial Officer, Chief Procurement Officer, Director Business Segment: Large & International Taxpayers (formerly Large Business Centre), Director Individual Segment: Wealthy & Complex Taxpayers, and nine regional Directors as well as a Director: Taxpayer Engagement, to list a few.
SARS is keen to grow and develop internal staff by recruiting some of these positions from within, but the Commissioner also want to use this opportunity to enrich the current “gene pool” with future oriented skills and some fresh perspective.
“This recruitment process will reaffirm SARS’ commitment to the transformation agenda of our country and the advancement of employment equity and diversity in the workplace,” the SARS Commissioner said.
Kieswetter added that “We cannot simply talk about the Fourth Industrial Revolution. It is upon us, and we must redouble our efforts to future proof ourselves by building an intelligent organization that will provide a world-class service to compliant taxpayers, but equally detect those who are non-compliant and make it costly and hard for them”.
“Our Vision 2024 is to build a smart modern SARS, with unquestionable integrity, trusted by government, the public and our international peers,” he concluded.
This notice was followed by an announcement in the 2020 Budget Review.
2020 Budget Review – Notice of Intention
The legal framework and administration of pay-as-you-earn (PAYE) will be reviewed with a view to implementing a more modern, automated process for employers that is easy to understand, access and maintain.
The reform is intended to promote accurate and timely withholding from employees and payments to SARS.
It is expected to reduce the administrative burden for employers, payroll administrators and SARS. In addition, employees will be able to monitor their tax obligations during the course of the year, and the annual return process for employers will be simplified. Over time, this reform is likely to mean that most individual salaried taxpayers will not have to file personal tax returns.
February 2020 Overview of the main Objectives of the Project
1. Accurate and timely withholding from employees and payments to SARS
2. Will reduce administrative for employers, payroll administrators and SARS
3. Employees will be able to monitor their tax obligations during the tax year
4. The annual return process for employers will be simplified
5. Over time, most salaried taxpayers will not have to file personal tax returns.
2020 Covid-19 and 2021 Civil Unrest
Budget 2020 was followed swiftly by the announcement by the State President of the Covid-19 State of Disaster on 15 March 2020.
All possibilty of taking the modernisation project forward went out the window as the Tax and ETI Relief legislation was put into place as a matter of extreme urgency. This of course was followed a year later by a repeat process of issuing legislation to assist those affected by the July 2021 civil unrest actions.
It was only from later in 2021 that focused attention could be given to the project.
PAGSA Explanatory Documents
During the latter half of 2021, the PAGSA compiled seven lengthy documents for SARS that outlined important aspects of the processing of employment taxes in payrolls for consideration by the Modernisation team at SARS.
The purpose of these documents was to give SARS a better understanding of payroll processes and employer administration of PAYE, SDL, UIF, and ETI.
We also engaged with SARS in a number of virtual meetings to explain the practical difficulties of processing PAYE, SDL, UIF, and ETI on a weekly, fortnightly, and monthly basis as opposed to a relatively simple tax year end process to calculate income tax when all the amounts are known and final.
Meeting on 25th January 2023
The process was taken a step further in a recent meeting between SARS and the PAGSA on 25th January 2023 during which more detail was discussed.
2023 Budget Announcement
Third-party data and personal income tax administration reform
Chapter 4 of the 2023 Budget Review included the following statement of intention.
The pay-as-you-earn (PAYE) and personal income tax administration reform announced in the 2020 Budget has given pensioners the option to agree to more accurate PAYE withholding rates to take account of multiple sources of income, as well as enabling 2.9 million individual taxpayers to be automatically assessed without the need to file personal income tax returns.
The reform will continue over the medium term with a view to reducing the administrative burden for employers, payroll administrators and SARS, as well as individual salaried taxpayers.
Work has commenced, in consultation with employers and representative organisations, to provide employer and employee data on a monthly basis in a fully automated fashion.
Over time, the need for employer PAYE annual reconciliation is expected to fall away, and the reform will be extended to third-party data providers.
[Rob: Payroll suppliers, employers, employees, and tax practitioners: Take a deep breath … ]
PAGSA Comments
Following the Budget 2023 announcement, it is now in the public domain that at the heart of the project is the submission of tax certificates by payrolls and employers on a monthly basis as opposed to the bi-annual submission of tax certificates and reconciliations that we have become accustomed to.
This is a massive step in the right direction, but it will not be easy.
To mention just one important aspect of this change, payrolls ‘annualise’ (or forecast for the full tax year) remuneration paid during the year in order to be able to calculate PAYE from the annual statutory tax table, and also to ‘smooth’ the PAYE calculation during the course of the tax year.
The result of ‘annualisation’ is that despite the ‘ups-and-downs’ of variable remuneration and the ‘ins-and-outs’ of irregular remuneration payments during the year, the total PAYE withheld by payrolls at the end of the tax year is (in my opinion) very accurate and therefore fair and free of risk to all parties.
History tells us that the total PAYE stated on the tax year-end tax certificates by payrolls matches the assessment calculation of income tax very closely (unless the employee has other streams of income or deductions that the employer/payroll cannot be aware of or take into account).
Effective from 1 March 2022, paragraph 2(2B) was added to the Fourth Schedule of the Income Tax Act to allow SARS to specify a tax rate that must be used in the payrolls of retirement fund administrator and insurers for the withholding of PAYE for pensioners who have other streams of income in addition to their annuity income.
This new requirement was discussed in detail in the webinars presented in September 2022. Those of you who attended one of those webinars can reference the Chapter of the webinar workbook dealing with ‘Fixed Rate’ Tax Calculations and also the webinar slides to refresh your minds on the details and importance of Fourth Schedule paragraph 2(2B) calculations.
The September 2022 webinar workbook notes are Archived in Chapter 12 of this workbook to assist you.
The paragraph 2(2B) requirement is another aspect of monthly payroll administration that could be affected by monthly tax certificate submissions. Tax certificate code 3220 (Fixed Rate Indicator) and the possibility of payrolls having to issue a tax certificate for every period in which the PAYE tax calculation rate has changed, need to be carefully thought through (see section 7.3b for more detail on code 3220).
We will have to wait and see how the requirement to cater for the paragraph 2(2B) requirement ‘forced’ SARS Fixed Rate directives unfolds in our discussions.
Corrections of incorrect employee and remuneration data from month-to-month also comes to mind as an important aspect to provide for in a simple, user-friendly, and practical manner in the new Modernisation process.
The Next Step
This is not for us to decide, but before payrolls (and SARS) can make changes to their systems to implement the submission of tax certificates on a monthly basis, there must be a Monthly BRS document the specifies the new requirements, fields, rules, etc.
‘Heads-up’ for Payroll Suppliers
It goes without saying that the design and programming changes that will have to be made to payroll systems to cater for the new PAYE Modernisation requirements will have a huge impact on PAGSA payroll supplier members.
The same applies to SARS – the SARS systems that process tax certificate submissions will also have to be changed.
If the roll-out of the PAYE Modernisation project (that includes monthly tax certificate submissions) proceeds as planned, then payroll suppliers must prepare themselves for significant changes to their payroll systems during the 2023/24 tax year.
As stated in the opening ‘Background’ section, the PAGSA has supported SARS from the start to assist them with the difficult task of rolling out the Modernisation project and will continue to do so.
Exciting times lie ahead for all of us in the payroll world, no doubt with a few bumps in the road, but in my opinion, with a big light at the end of the tunnel to look forward to.

Chapter 6. Tax Certificates
6.1 Principles of Tax Certificate Submissions
The SARS PAYE BRS (Business Requirements Specification) is a lengthy document (about 135 pages and growing year by year) and is not recommended for bedtime reading …
It is the result of an ongoing collaboration between SARS and the PAGSA (Payroll Authors Group of South Africa) that started in 1998 when SARS decided to scrap the continuous 3-part paper tax certificates of the eighties and early nineties (who remembers those nightmares days of printing tax certificates on 3-part continuous paper in an Epson dot-matrix printer …?), and to replace them with the electronic code-driven tax certificate reporting system that we are still using at present.
The SARS PAYE BRS is an essential document for both the PAGSA and SARS because it provides a specification of tax certificate requirements that is jointly used by both payroll suppliers and SARS so that the ‘hand shaking’ works smoothly between the download of the tax certificate file from the payroll systems of PAGSA members and the upload of that file into the SARS systems (SARS eFiling, SARS e@syFile, and the SARS Branch system).
The PAYE BRS specifies the technical details of, and the validation rules for, each and every employer and employee data field that must be reported on tax certificates. To be compliant, payrolls must obey these rules when creating the tax certificate file from the employee data held in the payroll’s database.
SARS would like to issue only one major release of the PAYE BRS at the start of each new tax year in the hope that it will remain valid for the whole of that tax year with only minor releases in between. However, there are generally two major releases each year, indicated by an increase to the first two digits of the BRS version number.
The tax certificate reporting codes and the validation rules are changed, added to, and sometimes frozen from year-to-year to align the tax certificate reporting requirements to the latest legislation changes.
Tax Certificate Testing – PAGSA Members and SARS
Every year, SARS makes a testing platform available to the PAGSA payroll supplier members that develop, install, and support computerised payroll systems in South Africa to test the ’hand-shaking’ between the tax certificate files that payroll systems create, and the validation checks implemented in the SARS systems.
The ‘ham in the sandwich’ between the systems of payroll suppliers and the SARS systems is the SARS PAYE BRS that species the rules for every data item that can be reported on tax certificates.
The testing platform remains open until SARS (and payrolls) are satisfied that the systems are functioning correctly.
Employers Filing Season
The Interim (or mid-year) tax certificate filing season for employers is September and October, following directly after the closing of the first 6-month tax certificate cycle on 31 August.
The Final (or tax year-end) tax certificate filing season for employers is April and May, providing a one-month gap between the closing of the second 6-month tax certificate cycle on 28 February and the opening of the filing season on 1 April to allow employers time to make tax year-end corrections and adjustments.
[Rob: I have always wondered about this ‘gap’ month but presumably its purpose is to assist employers to comply with the accrual rules that allocate amounts back into the tax year that has just ended]
It sometimes happens that SARS delays the opening date of the filing season by a week or two due to ongoing testing between the systems of the payroll supplier members of the PAGSA and SARS, and then issues a notice to that effect.
The closing date is always 31 Oct for the first 6-month tax certificate cycle, or 31 May for the second 6-month cycle.
Submissions received after the closing date will be subject to penalties and interest.
Tax certificate Submissions before the Opening Date
Some employers, perhaps not aware of the opening date, submit their tax certificates early. This is definitely not recommended practice.
The version of SARS e@syFile and SARS eFiling systems that will be in operation at an earlier date will be a version that will probably not include the changes specified in the latest SARS PAYE BRS. It is also possible that the latest software is not yet available from your payroll supplier when an early submission is made.
I belong to the cautious school as far as computerised systems are concerned, and if possible, I prefer to long enough for any teething problems to be sorted out (about 5 weeks into the employer filing season) and then submit.
Tax certificate Submissions after the Closing Date
But don’t leave it until too late – submissions received after the closing date will be subject to penalties and interest. And offering loadshedding problems as an excuse for late submission definitely won’t cut it … 
6.2 Tax Certificate Requirements (February 2023 Final Reconciliation)
After discussions between SARS and the PAGSA in the first quarter of 2022 to incorporate the legislation changes that came into effect from 1 March 2022, SARS issued PAYE BRS version 21.2 on 27 April 2022.
PAYE BRS version 21.2 was intended for tax certificate submissions for the 2022/23 tax year:
1. The Interim (or Mid-year) tax certificate submissions at the end of the first 6-month tax certificate cycle on 31 August 2022, as well as for
2. The Final (or Tax year-end) tax certificate filing season for employers at the end second 6-month tax certificate cycle on 28 February 2023 (unless updated later during the 2022/23 tax year).
Ignoring minor changes to the BRS, the following are the changes that you should be aware of.
Code 3100 – Income Tax Reference number
The validation rules have been changed to describe the scenarios under with it is mandatory or conditional to report the employee’s Income tax number.
There are now 7 validation rules that must be satisfied – payroll suppliers are advised to check these rules carefully before incorporating them in their payroll systems.
Code 3220 – Fixed Rate Taxation Indicator
This field is now used to indicate the rate that was used by the payroll to calculate PAYE was:
1. A paragraph 2(2B) fixed tax rate, or
2. The non-standard employment rate of 25%.
Note that PAYE BRS version 21.2 states that if an employee’s tax calculation is changed from a fixed rate (either 25% or the para 2(2B) rate) to the tables or vice versa, a separate tax certificate must be submitted for each tax calculation period within the tax year.
This requirement has been discussed with SARS since the release of version 21.2 and it has been agreed that this requirement will be removed from code 3220 at a later stage (see code 3220 in the ‘August 2023 Tax Certificates Requirements’ section below).
Codes 3230, 3231, 3232, and 3233 – Directive Reporting Codes
Structural changes were made in the PAYE BRS for the 2021/22 tax year that must be obeyed when reporting directives on tax certificates.
Further changes have been made to the directive codes for the 2022/23 tax tear.
Code 3601 – Income
Long service awards paid in cash must now be reported under new code 3835.
Code 3801 – General Fringe Benefits
Long service awards granted as an ‘Acquisition of an Asset’ benefit must now be reported under new code 3835.
Long service awards granted as a ‘Use of an Asset’ benefit must now be reported under new code 3835.
Code 3806 – Free or Cheap Services
Long service awards granted as a ‘Free/Cheap Services’ benefit must now be reported under new code 3835.
Code 3835 – Free or Cheap Services
The total of the cash plus the three fringe benefit long service awards (before the deduction of the R5 000 reduction) long service awards must now be reported under new code 3835.
Long Service Award Archive
For your convenience, in the Archive Chapter 13 of this workbook I have included a full write-up of the changes to Long Service Awards that were made effective from 1 March 2022 and caused a lot of confusion.
Section 13.5 of this workbook has been included below to provide more detail regarding the long service award tax certificate codes.
Tax Certificate Codes for Long Service Awards
The latest PAYE BRS (SARS PAYE Business Requirements Specification) version 21.0.1 for the 2023 tax year includes the new codes and rules for long service award reporting on tax certificates that provide for the amended long service award requirements from 1 March 2022.
Long Service Award Codes
Note the following:
1. In all cases, the long service amounts reported under the codes indicated below must be the ‘gross’ amount before the ‘up to’ R5 000 reduction. SARS will apply the reduction in the assessment income tax calculation by reducing the total of code 3622 and code 3835 by the lesser of this total and R5 000.
2. Only qualifying long service award amounts that meet the long service conditions must be reported according to the long service codes discussed below. If the amount doesn’t qualify as a long service award, it must be reported against its normal tax certificate code.
Code 3601 – Income
Long service awards paid in cash are excluded from code 3601 and must be reported under code 3622.
Code 3622 – Long Service Cash Award
Long service awards paid in cash must be reported under code 3622.
Code 3801 – General Fringe Benefits
Long service awards granted as an ‘Acquisition of an Asset’ benefit or as a ‘Use of an Asset’ benefit must be reported under new code 3835. An ‘Acquisition of an asset’ or a ‘Right of use of an asset’ fringe benefit must only be reported under code 3801 if it is not a long service award.
It follows, for example, that it is possible for two benefits to be granted as an ‘Acquisition of an asset’, one in respect of a long service award (therefore reported under code 3835), and the other one is not a long service award (therefore reported under code 3801).
Code 3806 – Free or Cheap Services
Long service awards granted as a ‘Free/Cheap Services’ benefit must be reported under new code 3835.
Code 3835 – Long Service Fringe Benefit Awards
The total of the fringe benefit long service awards must be reported under code 3835.
Pending Changes to PAYE BRS version 21.2
The definition of ETI Monthly Remuneration has been amended from 1 March 2022 to exclude fringe benefits and to only include remuneration paid in cash.
To determine the value of ETI Monthly Remuneration amount all amounts reported under tax certificate codes 36xx and 37xx are regarded as being cash amounts and can be taken into account.
Still under discussion with SARS are the non-cash portions of dividends and travel allowances (the company car petrol card).
These changes will hopefully be finalised and added to the PAYE BRS for the 2023/24 tax year.
6.3 Tax Certificate Requirements (August 2023 Interim Reconciliation)
SARS PAYE BRS version 22.0 was issued on 24 February 2023 and at the time of writing (end of February 2023) is the latest version available.
Note that because the versions of the PAYE BRS are backwards compatible, version 22.0 includes the version 21.2 changes that are discussed in the section above for February 2023 tax certificate submissions.
Only the changes for the August 2023 Interim (or mid-year) tax certificates are discussed here.
Demographic Information Codes
Code 2025 – Employer Contact Person First Name
The length of this field has been increased from 30 to 50 characters
Code 2036 – Employer Contact Person Surname
The length of this field has been increased from 30 to 50 characters
Code 3040 – Employee First Two Names
The type of field has been changed from FT (Free Text) to A (alpha) characters.
PAYE Calculation
Code 3220 – Fixed Rate Taxation Indicator
This field is now used to indicate the rate that was used by the payroll to calculate PAYE was:
1. A paragraph 2(2B) fixed tax rate
2. The non-standard employment rate of 25%.
Note
PAYE BRS version 21.2 states that if an employee’s tax calculation is changed from a fixed rate (either 25% or the para 2(2B) rate) to the statutory tables and vice versa, a separate tax certificate must be submitted for each tax calculation period within the tax year.
This requirement was discussed with SARS since the release of version 21.2 and this ‘multiple tax certificate’ requirement has been removed from PAYE BRS version 22.0 for August 2023 submissions.
This is a complex issue. Code 3220 is closely linked with:
1. The SARS ETV checks (see section 7.4 below)
2. The new paragraph 2(2B) requirements for pensioners in receipt of annuity income (see Chapter 12)
3. The Modernisation of PAYE project and monthly tax certificate submissions (see section 8.5).
We will face these complexities when we get there, but a very interesting road lies ahead.
But sometimes it is good to revisit old practices and rules, and start from scratch again with a new, more modern and flexible approach.
Directive Codes
Code 3231 – Directive Issued Date
The validation rules have been tightened to ensure that this date is reported when it should be.
Code 3232 – Directive Income Source Code
The validation rules have been tightened to ensure that the directive is applied to only specified income codes.
Code 3233 – Directive Income Amount
The validation rules have been tightened to ensure that there must be a positive directive amount if specified income codes are reported on the tax certificate.
Code 3234 – Directive Type Indicator
This field has been removed. SARS are no doubt comfortable that the remaining directive fields are enough to indicate that the tax certificate contains directive information.
IRP3 Reason Code
Code 4150 – Reason Code for IT3(a)
This code can only have a value of ‘2’ (or ‘02’) to indicate that the employee earns less than the tax threshold if code 3699 (Gross Employment Income) is less than the tax threshold.
6.4 Employment Taxes Validation (ETV)
After the employers filing season for the tax year end (April and May), SARS use the underlying demographic and financial data on the tax certificates to recalculate PAYE and SDL and check their calculated amounts against the PAYE and SDL totals that are calculated by payrolls and reported on the tax certificate.
The total UIF contribution is not checked because payrolls calculate the contribution on monthly UIF-defined remuneration up to the monthly contribution limit (R 17 712 from 1 June 2021), and monthly totals are not yet available to SARS on the year-to-date tax certificates.
After excluding certain categories of tax certificates from the validations, and allowing for a small margin of error, any differences are then reported to the employer by SARS using the same submission channel that the employer used to submit the tax certificates to SARS.
The employment taxes are not checked by SARS during the Interim employers filing season (September to October) because there is not enough information on the tax certificate to allow SARS to annualise remuneration for the PAYE calculation in the same way as what payrolls do.

Chapter 3. Labour Law Amendments
3.1 Employment Equity Amendment Bill
Employment Equity Amendment Bill – Status
This very long-running amendment Bill was first issued as a draft Bill in Gazette No. 41922 on 21 September 2018.
The PAGSA commented on the proposed changes at that stage, and again when more changes were made to the Bill over the years, the latest of which was published in December 2021.
The final Bill has been approved by the National Council of Provinces and the National Assembly on 17 May 2022 but must still be promulgated (signed into law by the State President) and then given an effective date before its requirements can be implemented.
LATE FLASH:
The State President has just signed the final Bill, so it has been promulgated and we now have an Employment Equity Amendment Act.
However, at the time of writing, (14 April 2023), the Gazette containing the EE Amendment Act had not yet been published. This means that at this point in time we still do not have an effective date from which the changes will be put into operation, but that is dependent on the issuing of the proposed sectoral targets for public comment.
See the ‘LATE FLASH’ in the ‘Sectoral Targets Discussions’ section below.
Note that the information in this workbook that follows beneath has not been changed. The workbook reflects the amendments included in the final Amendment Bill, and the Amendment Act will not differ from the final Amendment Bill that was approved by Parliament.
Objections to the Bill
Promulgation was expected to happen in September 2022, but this did not happen.
My assumption (unconfirmed) is that the signing of the Bill has been delayed because some organisations have threatened to take lodge formal objections against the proposed sectoral targets along the lines of:
“The “Employment Equity” Bill will allow a Minister to set race quotas across the private sector, enforceable by multimillion rand fines, if it is allowed to become law”, and
“If the Employment Equity is amended it will mean that an employer will be bound to use the sectoral targets fixed by the minister and consultation with employees would be rendered meaningless.”
It appears that these organisations are prepared to take their objections all the way to the Constitutional Court.
Sectoral Targets Discussions
Before an effective date can be announced, the new sectoral targets (see the next section) that have been under discussion for more than a year must be finalised (there are 18 financial sectors and only one of them had been finalised by September 2021).
It stands to reason that the portion of the Amendment Bill that provides for sectoral targets cannot be implemented until the sectoral targets are issued in a Gazette that allows 30 days for comments and only once finalised, can then be published in a regulation.
I assume that parts of the EEA2 will be revised and published for comments as part of the same process.
LATE FLASH:
At the time of writing, (14 April 2023), I was informed by the Equity Directorate as follows.
Kindly note that, now that the EE Amendments have been promulgated, we are required to publish the proposed Sector EE Targets for public comment for 30 days. Kindly be on the look-out for the publication.
Thereafter, we will consider the public comments and then the Minister will publish the Final Regulation of the Sector EE Targets for implementation.
We will [then] announce the effective date for implementation.
Implementation?
Once promulgated, in my opinion the most practical date to make the new requirements effective is from the start of October, the first day of the ‘Employment Equity Year’ for most employers (1 October 2023).
On 31 August 2022, the Department of Employment and Labour’s Acting Deputy Director-General (DDG) of Labour Policy and Industrial Relations, Thembinkosi Mkalipi, announced that the signing of the Bill by the President was expected to happen sometime before the beginning of next year [this has not happened], and that the effective date will be on 1 September 2023.
However, there is a remote possibilty that the ‘Equity Year’ dates are revised (see the PAGSA proposal towards the end of this section). If this proposal to standardise the ‘Equity Year’ is accepted, the effective date could then be 1 March 2024.
Lastly, the PAGSA has made the Equity authorities aware that payroll suppliers and employers need sufficient time in which to change payroll systems and to implement the changes at clients.
Employment Equity Amendment Bill – Summary of the Changes
Change to the definition of a Designated Employer
All employers must comply with the ‘Unfair Discrimination’ requirements of Chapter II of the EE Act, but only ‘designated employers’ must comply with the ‘Affirmative Action’ requirements of Chapter III.
In a significant change that will reduce red tape for ‘smaller’ employers in future, the definition of a “designated employer” will be amended by the deletion of paragraph (b) that currently includes as a designated employer:
“a person who employs fewer than 50 employees but has a total annual turn-over that is equal to or above the applicable annual turn-over of a small business in terms of the Schedule 4 of this Act;”
Once promulgated, designated employers will be defined as follows –
(a) a person who employs 50 or more employees;
(b) … [to be deleted]
(c) a municipality, as referred to in Chapter 7 of the Constitution;
(d) an organ of state as defined in section 239 of the Constitution, but excluding the National Defence Force, the National Intelligence Agency and the South African Secret Service; and
This means that once the changes are made effective, all employers with less than 50 employees will be excluded from Chapter III (‘Affirmative Action’) and will no longer have to submit an annual Equity plan.
Note that those employers that in future will no longer be designated once the changes are made effective and that then do not have to comply with the ‘Affirmative Action’ requirements of Chapter III of the Employment Equity Act, must still comply with the ‘Unfair Discrimination’ requirements of Chapter II of the Act.
To obtain an Employment Equity Compliance Certificate for state tenders:
1. All employers must comply with the National Minimum Wage Act
2. All employers must comply with the ‘Unfair Discrimination’ requirements of Chapter II of the Employment Equity Act
3. Designated employers must in addition submit annual employment equity plans and be seen to be making progress against the targets and goals specified in those plans.
Voluntary compliance
Section 14 of the current EE Act allows an employer that is not a designated employer to notify the Director-General that it intends to comply voluntarily with the ‘Affirmative Action’ Chapter and submit an Equity plan as if it were a designated employer.
The Employment Equity Bill proposes to repeal (delete) section 14, which on the face of it means that in terms of section 53 (see below), employers with less than 50 employees will no longer be able to voluntarily submit an Equity plan and to then tender for government business. This is not correct.
As stated above, non-designated employers with less than 50 employees can still be issued with a Certificate of Compliance to enable them to do business with Government if they comply with:
• Chapter II of the EE Act (‘Unfair Discrimination’), and
• The National Minimum Wage Act.
Section 14 has been repealed to remove the administration burden of notifying the Director General.
Section 15A (Establishment of Sectoral Targets)
According to the Department of Employment and Labour, the purpose of introducing the sectoral numerical targets is to focus on targets tailored for the specific characteristics of each sector to achieve:
“the equitable representation of suitably qualified people from designated groups at all occupational levels in the workforce by designated employers”.
Section 15A has been added to the EE Act to provide for numerical targets for any sector as follows:

As required by section 15A, the Minister of Employment and Labour will publish a notice in the Gazette identifying national economic sectors for the purposes of the Employment Equity Act. This notice may set different numerical targets for different occupational levels, or regions within a sector, or on the basis of any other relevant factor.
Application of the new Sectoral Targets in Practice
In the absence of finalised sectoral targets, the intention is that they must be applied to the employer’s workforce profile (the EEA2) and won’t impact on the financial reporting (the EEA4).
This was confirmed by the Equity Directorate:
“The Sector EE targets will only affect the composition of the workforce/ employees covered and reported in EEA2 Report – the EEA4 covers the remuneration paid to the employees/ workforce covered in the EEA2.
This means that once released, the new sectoral targets will influence the EEA2 Workforce Profile plans (the employer’s ‘headcount’ numbers). The results over the years will be measured against the employer’s EEA2 5-year plan and the results of the sectoral target restructuring will be reflected in financial terms in the EEA4 tables.
The intention appears to be that all current equity plans will fall away when the new requirements are made effective, and the new plans will have to be aligned with five-year sectoral targets.
At the moment there are more questions than answers on the practical aspects of the implementation of the new sectoral targets, so we have asked the equity authorities in advance to prepare a Guide to assist employers.
Section 20 (Employment Equity Plan)
Section 20 is proposed to be amended by the addition of the following:
“The numerical goals set by an employer in terms of subsection (2) must comply with any sectoral target in terms of section 15A that applies it. “
Section 53 (State Contracts)
This section has a new subsection 6 that states that:
“(6) The Minister may only issue a certificate in terms of subsection (2) if the Minister is satisfied that the employer–
(a) has met any sectoral targets in terms of section 15A that applies to it or has provided reasonable grounds, as contemplated by section 42(4), justifying its failure to comply;
(b) has submitted a report in terms of section 21;
(c) has not been found by the CCMA or a court within the previous twelve months to have –
i. breached the prohibition on unfair discrimination in Chapter 2; or
ii. failed to pay the national minimum wage in terms of the National Minimum Wage Act, 2017.”
Employment Equity – Practical problems and PAGSA Proposal
Terminology
In the interests of effective communication, I have used these abbreviated descriptions for the following concepts:
1. ‘Equity Year’
o The employment equity reporting year declared by the employer at the top of page 2 of the EEA2
o The 12-month period applied by the employer to calculate, consolidate, and analyse employee data for submission of the EEA2 and EEA4 reports to the Equity Directorate
2. ‘Equity Submission Period’
o The period during which the EEA2 and EEA4 reports must be submitted by the employer.
You won’t see these abbreviated descriptions in the legislation or the regulations, but the equity authorities are comfortable with their use.
Problems in Practice
The ‘Equity Year’ varies between employers for historical reasons, but it appears that most employers have an ‘Equity Year’ of 1 October to 30 September of the following year.
However, the manual submission dates open on 1 September and closes on 1 October, which means that:
1. The employee data in the payroll in respect of September is only finalised towards the end of September, therefore on the opening date of 1 September data in the payroll is incomplete and therefore inaccurate.

2. If the employer waits until the end of September for the employee data to be complete and accurate, then there are at best only a couple of days in which to create the report and submit it manually before the closing date of 1 October.
This suggests that if the employer’s ‘Equity Year’ is 1 November 2022 to 30 October 2023, the manual reports will then be submitted between 1 Sep 2024 and 1 Oct 2024 because they are too late for the 2023 reporting year.
Another problem is that because employers have different ‘Equity Years’, the 12-month period reported on will include different periods of the year for different employers. As a result, and from a statistical comparison analysis view, the equity statistics for a year can be a ‘scrambled egg’ scenario resulting from different influences and events during the various 12-month periods.
The Covid hard lockdown period in 2020 is a classic example (hopefully not repeated).
The full Covid period fell into the ‘Equity Year’ for some employers, while only portions of the Covid period were included in other employer’s reports. The differences in the years being reported distorts the comparative statistical value for the country of the equity reports for that year – apples are not being compared to apples.
PAGSA Proposal to Equity Directorate
Without going into detail, the PAGSA has submitted a proposal to the Equity authorities:
1. To specify a single standard ‘Equity Year’ for all employers, and
2. To align this ‘standard’ year with the tax year (1 March to 28 February).
The opening and closing dates for submissions will then be the same as for tax certificate submissions and also for the Return of Earnings for the Compensation Fund (1 April to 31 May).
If this proposal is accepted by the Equity authorities (I am not holding my breath) the practical date of implementation should be 1 March 2024. At the time of writing this workbook (late February 2023), our proposal had neither been rejected nor accepted, so we must wait and see what transpires.
President assents to the Employment Equity Amendment Bill
LATE FLASH
I will discuss the implications of the new sectoral targets and their application in payrolls in the September 2023 ‘Mid-year Payroll Taxes Update’ webinars when the information is available.
The following News release (dated 12 April 2023) was published on the Government website on 14 April 2023.
President Cyril Ramaphosa has signed into law the Employment Equity Amendment Bill of 2020. The Amendment Bill seeks to advance transformation of South Africa’s workforce by setting equity targets for economic sectors and geographical regions and requiring enterprises to develop transformation plans.
The Bill amends the Employment Equity Act of 1998 (Act No 55 of 1998) with new measures to promote diversity and equality in the workplace.
Among its key provisions, the Amendment Bill empowers the Minister of Employment and Labour to set employment-equity targets for economic sectors, as well as regions where transformation is lagging.
The amendment Bill also empowers the Minister of Employment and Labour to regulate compliance criteria to issue Compliance Certificates as per Section 53 of the Employment Equity Act.
The amended Act allows the Minister of Employment and Labour to set regional targets given that racial diversity in South Africa often has regional differences.
The law requires employers with more than 50 employees to submit employment equity plans for their companies, spelling out how they will achieve these targets. Employers are then required to submit annual reports to the Department of Employment and Labour.
In the area of remuneration, the law requires employers to pay workers equal pay for equal work.
The Bill provides clear definitions of discrimination and sets out what workers can do when facing such discrimination – including lodging grievances with the Commission for Conciliation, Mediation and Arbitration, or the Labour Courts.
Companies seeking to do business with the state will be required to submit a certificate from the Department confirming that they are in compliance with the Employment Equity Act and its objectives, and that they do not pay their employees less than the national minimum wage.
As part of ensuring the employment equity objectives become reality, the law now compels labour inspectors to inspect workplaces and to issue employers with compliance orders.
The Department of Employment and Labour has committed to increase the number of labour inspectors and health and safety inspectors who will enforce compliance.
In closing, we must now wait and see what the impact of these significant new legislation requirements is going to be in the workplace and what the impact on the economy is going to be.

Chapter 5. The Proposed ‘Two‐pot’ Retirement system
The ‘Two-pot’ retirement system proposed in Budget 2022 is a very necessary component of the retirement reforms that were initially introduced from 1 March 2016 and then taken a step further from 1 March 2021.
However, the draft amendments that introduced the ‘Two-pot’ retirement system in 2022 are complex and fraught with potential ‘unintended consequences’, and it is no surprise that Budget 2023 announced that the effective date of their introduction has been postponed from 1 March 2023 until 1 March 2024 (if not later?).
Note the sections that follow are full of dates that refer to ‘2023’. Because of the postponement for a year, these dates are not correct.
In other words, ‘2023’ can be replaced by ‘2024’.
Because of the beneficial value of pre-retirement preservation for retirement fund member, the background to these important changes is discussed in reasonable detail even though the project has been postponed.
The postponement could result in the 2022 draft proposals being changed before they are finally introduced, but one assumes that the principles discussed in the following sections will not be changed significantly.
5.1 Background
The discussion that follows in this section of the workbook makes use of the following terminology:
• “Retirement Fund” is a generic term for Pension, Provident and Retirement Annuity Funds
• “Retirement Interest” (‘RI’) is the accumulated value of all contributions made to the fund plus investment growth and less administration expenses
• “Vested Right” is the right, usually created by legislation, to expect a certain outcome.
Retirement Reforms have been in the spotlight for many years, going as far back as the Michael Katz Commission investigations at the start of the millennium.
Extensively researched, widely canvassed and in my opinion, handled with admirable transparency by National Treasury, these reforms will improve the quality of life of South African citizens in their later years.
Fundamental reforms to our retirement fund regime have been under investigation since 2012 starting with a series of technical papers that were published by National Treasury that discussed various ways in which to promote retirement savings.
South Africa has a number of different retirement fund vehicles available to individuals including pension funds, provident funds, retirement annuity funds, pension preservation funds and provident preservation funds.
The generic term “Retirement Funds” includes pension, provident and retirement annuity funds, and is used in this workbook to keep it short.
Prior to 1 March 2016, each of these types of Fund was subject to different taxation rules for contributions as well as for withdrawals. This led to the implementation of the following aspects of the retirement reforms:
1. From 1 March 2016:
The harmonisation of the tax calculation rules for contributions to funds.
2. From 1 March 2021:
The preservation of the Provident fund retirement interest at retirement by annuitising (i.e., paying monthly annuity payments) what was previously a single lumpsum pay-out.
However, one of the planned reforms that has not yet been implemented is pre-retirement preservation.
Retirement fund members can currently access their pension or provident fund retirement benefit in full when they cease employment, and they also have a once-off option to withdraw any amount out of their pension preservation funds or provident preservation funds.
Information from retirement fund administrators and SARS indicates that early withdrawals of the retirement interest are taking place (sometimes by resigning from employment), despite the high tax rates that are applied.
The discussion paper entitled Preservation, portability and governance for retirement funds which was published on 21 September 2012, and the paper entitled 2013 Retirement reform proposals for further consultation which was published on 27 February 2013, both included options to increase the level of pre-retirement preservation.
This background brings us to the Budget proposals of February 2022 and the introduction of draft legislation during 2022 to provide for pre-retirement preservation.
Budget 2022 Proposal
The discussion paper entitled ‘Encouraging South African Households to Save More for Retirement’ was published in December 2021.
It outlines a set of reforms to enable pre‐retirement access to a portion of one’s retirement assets – while ensuring that the remainder is preserved for retirement. Public comments on the tax treatment of contributions to the two pots are being reviewed in preparation for public workshops, to be followed by legislative amendments.
Media Statement 29 July 2022
The 2022 Draft Revenue Laws Amendment Bill issued on 29 July 2022 contains key amendments on retirement reform to move towards a “two-pot” retirement system. The intention of the amendments is to enable South Africans to save for non-retirement purposes (e.g. emergencies) via their retirement funds, whilst preserving more of their savings for retirement.
These amendments aim to encourage members to preserve their retirement savings by making it more flexible to accommodate unforeseen pressures that members face during the span of their working life. It makes it possible for workers not to resign from their employment merely to access their retirement funds and would have assisted members during a crisis like the COVID-19 pandemic, when many employees faced reduced salaries or were not paid at all during that time.
The legislative proposals follow an intensive process of consultations, where various risks, challenges and possible perverse outcomes were identified. These amendments are the culmination of several years of consultations and engagements that took place between National Treasury, Labour, and Business stakeholders, and reflects input received from the public after the release of the discussion paper Encouraging households to save more for retirement in December 2021.
The amendments are technically complex [Rob: You can say that again], as they attempt to fit a pre-retirement withdrawal scheme into existing retirement savings vehicles primarily designed to cater for long term savings.
Explanatory Memorandum – Reasons for change
There are two primary concerns with the current design of the retirement system.
1. The lack of preservation of retirement savings before retirement.
For pension funds and provident funds, this access is dependent on an employee terminating employment. Individuals can then access their funds, in full, when changing or leaving a job.
In some cases, it can create an incentive to leave their employment to gain access to those funds in the short-term, ceasing prematurely the prospects of maintaining preservation for a longer period (at least until such time normal retirement age is attained per fund rules).
2. Some households in financial distress have assets within their retirement fund(s) that are not accessible, even in case of emergencies.
This issue worsened since the COVID-19 pandemic, with numerous calls for financially distressed individuals to be given immediate access to their retirement funds to alleviate financial hardship.
On 15 December 2021, Government published a discussion document entitled Encouraging South Africans to save more for retirement, which proposed a new retirement fund regime that aims to address both concerns – this in the form of a so-called “Two-pot” retirement savings system.
Individuals can contribute to a “savings pot” which is accessible (without resigning from their job), and a “retirement pot” which must be preserved until retirement (or death).
The aim is to have a system that will allow resources to be available when needed, but that will increase the level of savings that are dedicated to retirement.
Explanatory Memorandum – Changes to the Tax rules
The new two-pot system seeks to retain the principle of exempting contributions and growth, while taxing withdrawals and benefits (EET).
The tax treatment for withdrawals will be amended, as the value of any withdrawals from the “savings pot” and annuity income from the “retirement pot” will be included in that year’s taxable income.
This will therefore require changes to the “gross income” definition contained in section 1(1) of the Act.
The EET principle is retained to ensure that the income is taxed only once.
• From an economic perspective, this is best achieved if the tax is levied when the funds are disposed for consumption.
• From a behavioural perspective, this principle supports prudent savings decisions by providing the deduction when savings decisions are taken.
• From a policy consistency perspective, retaining the EET-basis underscores the logic of the 2016 reforms, as it puts all retirement fund types on the same footing.
• This offers flexibility to fund members, with simplified options for transfers of funds based on fundamentals.
• From an administrative perspective, the complexity of valuing the growth of the interest is kept to a minimum, as the final combined value is included in taxable income.
The public comments that were submitted on the tax design also indicated that this principle garnered strong public support: of the 15 comments that indicated a preference among the options, only one preferred an alternative design.
The decision to include non-annuitised withdrawals (i.e. withdrawals from the “savings pot”) in taxable income, rather than taxation through the respective lump-sum tables is based on the following reasons:
• It restores the progressivity of the Personal Income Tax (PIT) system by levying the rates applicable to other incomes
• It restores equity within the withdrawal system by taking other income sources into account when levying tax.
This means that taxpayers with other sources of income do not face an artificially low tax rate for withdrawals, but also ensures that taxpayers with low incomes do not face an artificially high tax rate on “savings pot” withdrawals.
• It ensures that a taxpayer in income distress who makes an emergency withdrawal is charged at a rate that may well be lower than their previous tax rate, rather than an artificially high rate.
• It is simple, certain, and transparent.
• From a behavioural perspective the intent is to ensure that fair application of the tax system discourages unnecessary early withdrawals, to the extent possible.
From the public consultation process, there was an even support for retaining the status quo (i.e. retaining the lump-sum tables) and taxing withdrawals at normal rates. The latter is an effective increase in tax rates for these withdrawals, premised on the reasons outlined above.
Commentators in support of this outcome indicated that this was a fair outcome.
5.2 Aspects of the ‘Two-pot’ Retirement reforms
In line with the details included in the discussion document, government proposes the following changes in principle to the main areas of retirement administration to enable the new ‘two pot’ system:
Funds
The creation of a new “retirement pot” and a “savings pot” that can each receive retirement contributions is necessary. These pots can be housed within the current types of retirement funds (a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund).
All prior contributions and growth (i.e. retirement interest) will have to be valued at the date immediately prior to implementation, to enable vesting of rights at that point in time (proposed to be 28 February 2023).
Legislatively this will have to be achieved by retaining the definitions of the existing retirement fund types for contributions up to 28 February 2023, referred to colloquially in this note as the “vested pot”.
The “retirement pot” and “savings pot” will then be accumulated from 1 March 2023 (the proposed effective date), which means that there is no seeding finance into either pots.
To effect these changes, section 1(1) of the Act will include the following new definitions: “savings pot”, “retirement pot” and “vested pot”.
Withdrawals
Amounts contributed to the “retirement pot” cannot be accessed before retirement.
At retirement date, the total value must be paid in the form of an annuity (including a living annuity). The current minimum amount for purchasing an annuity (de minimus of R165 000) will apply to the retirement pot’. This will therefore require that a “retirement withdrawal benefit” be defined in section 1(1) of the Act.
Amounts contributed to the “savings pot” can be accessed at any stage but take note that only one withdrawal can be made during any twelve-month period. The minimum withdrawal amount is proposed to be R2 000. These withdrawals will be subject to the fund rules allowing them.
For example, if Person A makes a withdrawal on 21 March 2025, the next withdrawal can only be made on or after 22 March 2026.
Withdrawals from the “savings pot” will be added directly to normal taxable income in the year of withdrawal.
This will therefore require that a “savings withdrawal benefit” be defined in section 1(1) of the Act. Should an individual opt not to make a withdrawal within a specific twelve-month period, the funds available in the “savings pot” come the subsequent twelve-month period will be available for withdrawal.
Permissible withdrawals from the “vested pot” will be taxed according to the respective withdrawal tables.
Full withdrawals from the retirement, savings and vested pots can take place if an individual ceases to be tax resident for a period of at least 3 years, with the appropriate tax treatment based on the facts and circumstances of the case. In these instances:
• the “vested pot” will be taxed in accordance with the pre-1 March 2023 tax provisions,
• the “savings pot” will be included in gross income and
• the “retirement pot” will be taxed in accordance with the lumpsum withdrawal tables.
Any funds available in the “savings pot” at retirement or death can either be withdrawn in full or transferred to the “retirement pot”.
Where the member opts to withdraw funds from the “savings pot” as a lumpsum on retirement, the available balance will be taxable as a retirement lumpsum benefit subject to the retirement lumpsum table.
This could result in a tax-free withdrawal of up to R500 000 (R550 000 from 1 March 2023) upon retirement.
Contributions
This is where the rubber hits the road for payrolls and employer administration.
A maximum of one-third of the total contribution can go to the “savings pot”, with the remaining amount going to the “retirement pot”.
Given that the ratios contributed into the respective pots can vary per individual (subject to meeting the one-third and two-thirds contribution maximums and minimums), contributions not allocated to the “savings pot” should be allocated to the “retirement pot”.
Members of retirement funds can receive a deduction on contributions up to the lesser of 27.5% of gross remuneration or R350,000 per tax year.
Any contributions above the deductible amount will only flow to the “retirement pot” for any offsets against section 11F. As a result, contributions in excess of the allowable deduction will not be permitted into the “savings pot”.
Section 10C will therefore need to be amended to cater for annuities received from the “retirement pot”.
Investment growth within the “retirement pot” and the “savings pot” will follow the same tax treatment as other retirement funds (i.e. tax is deferred until it is withdrawn or paid out as annuity benefits).
No further contributions can be made to the “vested pot” from pension funds, provident funds or retirement annuity funds, except for members of provident funds who were 55 years or older on 1 March 2021, as they are able to contribute to those funds until they either leave the fund or retire.
Vested rights
The current provisions for contributions to pension funds, provident funds, pension preservation funds, provident preservation funds and retirement annuity funds will continue to apply for contributions and accumulated interest before the implementation date (1 March 2023) therefore vesting is allowed up to 28 February 2023, together with the associated growth of that total, for each existing member until their retirement.
As such, individuals who resign from their employment will be able to access the value of their pension fund or provident fund as at 1 March 2023, plus any growth on that amount. Members of preservation funds will still be able to utilise their once-off withdrawal on amounts (and growth) within those funds.
Transfers
Individuals cannot transfer amounts out of the “retirement pot” but can only transfer to another “retirement pot” tax free. Transfers can be made into the “retirement pot” tax free from any other pot.
No transfers can be made into the “savings pot”, unless they are from another “savings pot” and subject to fund rules.
It is proposed that “retirement pots” and “savings pots” cannot be split between funds (i.e. you cannot transfer a “savings pot” to another provider without also transferring the relevant “retirement pot” to that same provider).
Given that a member could opt that 0% of the contribution flows to the “savings pot”, the practical result is that a member may well only have a positive balance in the “retirement pot”.
Therefore, a “retirement pot” could conceivably be a stand-alone pot, but a “savings pot” cannot stand alone from a “retirement pot” or be located at a different provider.
Examples:
Person A is employed and has R200 000 in a provident fund at the time of implementation of these amendments on 1 March 2023. From 1 March 2023 onwards, one-third of their contributions are deposited into an “savings pot” and two-thirds of their contributions are deposited into the “retirement pot”.
• After two years, there is R20 000 in the “savings pot”, R40 000 in the “retirement pot’ and R220 000 in the “vested pot”. Person A faces some financial difficulties and can withdraw the R20 000 from their “savings pot” without resigning to gain access to their retirement funds. Any amounts withdrawn from the “savings pot” would be included in Person A’s taxable income.
No further withdrawals from the “savings pot” can be made for another year.
• After another two years, Person A has R25 000 in the “savings pot”, R100 000 in the two-thirds “retirement pot” and R250 000 in the “vested pot”. Person A resigns to join another company. On resignation, the one-third “savings pot” and the two-thirds “retirement pot” can either stay in the current fund or be transferred to another fund which has a “savings pot” and a “retirement pot”, potentially at their new employer.
The one-third “savings pot” would still be accessible at any time.
For the “vested pot”, Person A would have the following options:
o Withdraw the R250 000 vested right, although the amount would be subject to tax according to the withdrawal tax table
o Transfer the R250 000 to another “vested pot” within a provident preservation fund. The amount would remain eligible for a once-off withdrawal of up to the full value at any point before retirement. The transfer would not have any tax consequences, but any future withdrawal(s) would be treated as indicated directly above.
o Transfer the R250 000 to the “retirement pot” to consolidate retirement interest, which would forfeit the once-off withdrawal. The transfer will not have any tax consequences.
• After another 10 years, Person A has reached retirement age. There is R75 000 in the “savings pot” and R600 000 in the “retirement pot”. Person A retires and can either withdraw the R75 000 from the “savings pot” as cash (taxed through the retirement lumpsum tables) or transfer any remainder to the “retirement pot”. Upon retirement Person A is required to purchase an annuity with the balance in the “retirement pot”, which would amount to R600 000 upon retirement, in the absence of any transfers from the “savings pot” or “vested pot”.
5.3 Summary of the Two-Pot Retirement System
The following summarises the points of the Explanatory Memorandum that accompanies the draft Amendments.
Please note that due to the postponement of the amendments, ‘2023’ is replaced by ‘2024’ in the following.
Contributions
1. All prior contributions and growth (hereinafter ‘the vested pot’), will be valued up to 28 February 2023 and continue to operate under the existing rules. Permissible withdrawals from the ‘vested pot’ will therefore be taxed according to the lump sum withdrawal tables.
2. No further contributions can be made to the ‘vested pot’ from pension funds, provident funds, or retirement annuity funds, except for members of provident funds who were 55 years or older on 1 March 2021, as they are able to contribute to those funds until they either leave the fund or retire.
3. As from 1 March 2023, contributions and growth will be split into two pots, the ‘retirement pot’, and the ‘savings pot’.
4. The two pots will be housed in the current types of available retirement funds, be it a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund.
5. A maximum of one-third of the total contribution can go to the ‘savings pot’, with the remaining amount going to the ‘retirement pot’.
Given that the ratios contributed into the respective pots can vary per individual (subject to meeting the one-third and two-thirds contribution maximums and minimums), contributions not allocated to the ‘savings pot’ should be allocated to the ‘retirement pot’.
Withdrawals
6. Amounts contributed to the ‘retirement pot’ cannot be accessed before retirement. At retirement date, the total value must be paid in the form of an annuity (including a living annuity). The current minimum amount for purchasing an annuity (de minimus of R165 000) will apply to the ‘retirement pot’.
7. Amounts contributed to the ‘savings pot’ can be accessed without any conditions, but only one withdrawal can be made during any twelve-month period. The minimum withdrawal amount is proposed to be R2 000. These withdrawals will be subject to the fund rules allowing them.
8. Full withdrawals from the retirement, savings and vested pots can take place if an individual ceases to be tax resident for a period of at least 3 years, with the appropriate tax treatment based on the facts and circumstances of the case. In these instances, the ‘vested pot’ will be taxed in accordance with the pre-1 March 2023 tax provisions, the ‘savings pot’ will be included in gross income and the ‘retirement pot’ will be taxed in accordance with the lumpsum withdrawal tables.
9. Any funds available in the ‘savings pot’ at retirement or death can either be withdrawn in full or transferred to the ‘retirement pot’.
10. Where the member opts to withdraw funds from the ‘savings pot’ as a lumpsum on retirement, the available balance will be taxable as a retirement lumpsum benefit subject to the retirement lumpsum table. This could result in a tax-free withdrawal of up to R500 000 (R550 000 from 1 March 2023) upon retirement.
Tax Rules
11. Members of retirement funds can receive a deduction on contributions up to the lesser of 27.5% of gross remuneration or R350 000 per tax year.
12. Any contributions above the deductible amount will only flow to the ‘retirement pot’ for any offsets against section 11F. As a result, contributions in excess of the allowable deduction will not be permitted into the ‘savings pot’.
13. Investment growth within the ‘retirement pot’ and the ‘savings pot’ will follow the same treatment as other retirement funds (i.e. tax is deferred until it is withdrawn or paid out as annuity benefits).
14. Withdrawals from the ‘savings pot’ will be added to taxable income in the year of withdrawal.
15. Individuals who resign from their employment will be able to access the value of their ‘vested pot’ as established on 28 February 2023, plus any growth on that amount. Members of preservation funds will still be able to utilise their once-off withdrawal on amounts (and growth) within those funds.
16. Individuals cannot transfer amounts out of the ‘retirement pot’ but can only transfer to another ‘retirement pot’ tax free. Transfers can be made into the ‘retirement pot’ tax free from any other pot. No transfers can be made into the ‘savings pot’ unless they are from another ‘savings pot’.
17. It is proposed that ‘retirement pots’ and ‘savings pots’ cannot be split between funds (i.e., you cannot transfer a ‘savings pot’ to another provider without also transferring the relevant ‘retirement pot’ to that same provider).
18. A ‘retirement pot’ could conceivably be a stand-alone pot, but a ‘savings pot’ cannot stand alone from a ‘retirement pot’ or be located at a different provider.
5.4 Alternative View of the Two-pot System
The following article is reproduced with acknowledgement to Webber Wentzel who have done an excellent job of giving another view by focusing on 10 important aspects of the ‘two-pot’ retirement system.
1. No need to re-enrol: Existing members of funds do not have to re-enrol to access the two-pot system, as existing funds will be adapted to accommodate it. Each fund will review its rules to do so.
2. Contributions will remain deductible: Up to specified caps contributions will remain deductible, but any contributions that are more than 27.5% of taxable income or R350,000 a year can only flow into the “retirement pot”.
3. Vested pot valued immediately: All contributions and growth that are accumulated before 1 March 2023 (the “vested pot”) will have to be valued at the date immediately prior to implementation to enable the vesting of rights. The conditions that were attached to those contributions will remain in place.
4. Savings pot starts in March: The “savings pot” will start to be accumulated from 1 March 2023, together with the “retirement pot”.
5. Withdrawals taxable: Any amounts withdrawn from the savings pot will be included in the member’s taxable income for that tax year and taxed at the relevant marginal rate.
6. Withdrawal limit: Only one withdrawal from the savings pot can be made a year, at a minimum of R2,000. All, or part of the amount accumulated in the savings pot up to the allowable withdrawal date each year can be taken out.
7. Adding the pots together: On reaching retirement age, the member can add the savings pot to the retirement pot to purchase an annuity or can withdraw the full amount in the savings pot as cash, which will be taxed according to the retirement lump sum tables. The lump sum tables have more favourable tax rates (maximum of 36%) relative to the marginal rate tables that apply to annual withdrawals pre-retirement from the savings pot (maximum of 45%).
8. Annuity purchase: On retirement, the total amount in the retirement pot must be used to purchase an annuity. The minimum amount that can be used to purchase an annuity is R165,000, amounts less than R165,000 in the retirement pot can be withdrawn as a lump sum.
9. Vested pot withdrawals: Before retirement, it is still possible for a member to withdraw funds from the vested pot, and, this withdrawal will be taxed according to the retirement lump sum tables.
10. Transfers: Although no amounts can be transferred out of the retirement pot, transfers can be made into it from other pots (vesting, savings or retirement). No transfers can be made into the savings pot, unless from other savings pots. The retirement pot and the savings pot must be held in the same retirement fund (e.g., you cannot hold the savings pot in your old employer’s fund and the retirement pot in your new employer’s fund).
5.5 PAGSA Comments on the Draft ‘Two-pot’ Requirements
At an early stage of the introduction of the ‘two-pot’ system in 2022, the PAGSA submitted comments to National Treasury from a payroll processing perspective expressing our concerns regarding the administration in payrolls of the draft requirements as they were proposed.
It is important to mention that the retirement funds will take the brunt of these changes, and they submitted a steady stream of comments to Treasury and SARS during 2022.
These comments no doubt led to the decision to postpone until 1 March 2024.
The PAGSA’s comments are focused on anticipated payroll processing difficulties and are summarised below.
Problem Statement – Allocation of the Excess of the total Contribution to the ‘Retirement pot’
The member of the fund can decide on the proportion of his or her total monthly contribution that must be allocated to the retirement and to the savings pot, subject to a maximum of one-third of the total contribution going to the “savings pot” and the remaining amount going to the “retirement pot”.
These ratios can vary per member (employee), and it appears that they can be changed by the member (employee) at any stage during the tax year, and that more than one change can be made during the tax year.
Tax Certificate reporting
1. Will there be separate tax certificate codes for contributions to the ‘savings pot’ and the ‘retirement pot’ for provident, pension, and retirement annuity funds for both the employee and employer?
2. How must the contributions be reported if the employee is a member of more than retirement fund?
Problem Statement – Allocation of the Excess of the total contribution to the ‘Retirement pot’
Employees can be members of more than one retirement fund (eg. a Provident fund and a Retirement Annuity fund) and both of the employee’s funds are processed in the payroll.
Our understanding is that the total contribution to both of these funds will be subject to the tax deduction limits of section 11F (the lesser of 27.5% of gross remuneration or R350,000 per tax year) for PAYE calculation purposes, and that any excess contribution above the deduction limit must be allocated to the “retirement pot” and not to the “savings pot”.
In this scenario, both the Provident fund and the Retirement Annuity fund have a “retirement pot”.
The question is:
How, and by whom, will the excess of the total contribution be allocated to the “retirement pots” of the two funds?
Problem Statement – Effective date
In our opinion, the complexity of the changes and the potential for ‘unintended consequences’ indicates that it would be advisable to postpone the proposed effective date of 1 March 2023 for at least one year.
5.6 Budget 2023 – Two-pot retirement system
On page 50 of Chapter 4 of the 2023 Budget the delay is confirmed as follows.
Following extensive public consultation, the first phase of legislative amendments to the retirement system is due to take effect on 1 March 2024.
The intent of these amendments is to enable pre-retirement access to a portion of one’s retirement assets, while preserving the remainder for retirement.
Retirement fund contributions will remain deductible up to R350 000 per year or 27.5 per cent of taxable income per year – whichever is lower.
Permissible withdrawals from funds accrued before 1 March 2024 will be taxed according to the lump sum tables.
Withdrawals from the “savings pot” before retirement will be taxed at marginal rates.
On retirement, any remaining amounts in the savings pot will be taxed according to the retirement lump sum table (for example, R550 000 is a tax-free lump sum on retirement).
Four areas required additional work:
1. A proposal for seed capital,
2. Legislative mechanisms to include defined benefit funds in an equitable manner,
3. Legacy retirement annuity funds
4. Withdrawals from the retirement portion if one is retrenched and has no alternative source of income.
The first three matters will be clarified in forthcoming draft legislation.
The final matter will be reviewed as a second phase of implementation.
5.7 Comments on the Budget 2023 Postponement
As a closure to the discussion in this workbook, it is perhaps of interest to include the following comments on the postponement of the ‘Two-pot’ system that were posted in the financial media after the 2023 Budget presentation.
[Rob: Incidentally, I hope that with the revised amendments that they find another name for this project. ‘Two-pot’ system sounds like packing for a camping trip …].
COMMENTS START
In a country where many face increased financial instability in retirement due to a lack of savings, government’s proposed ‘two-pot retirement system’ remains earmarked for implementation from 1 March 2024.
The system will allow you to access a portion (30%) of your retirement savings for emergencies, while ringfencing the remainder (70%) for your retirement.
However, while draft legislation around this was widely expected to be released today, this did not happen. Instead, the Budget Review makes vague reference to “forthcoming draft legislation” later this year.
Retirement reform executive at Old Mutual Michelle Acton says that although the industry is doing all it can to prepare for implementation, (companies) cannot undertake any work on system development until the reforms are passed into law. She adds that the amount of work needed to ensure readiness is far-reaching, as entirely new and sophisticated automated systems will have to be developed to enable fund members to efficiently access the allowed accessible portion of their savings.
Old Mutual estimates that the new level of accessibility will lead to a 300-400% increase in claims to be processed by administrators. The new two-pot system would have to allow for member-initiated claim functionality because, for the first time, members will have to register their claims without going through their employer. This is likely to require member engagement through an automated digital platform; the retraining and capacitating of entire new call centres; fraud and risk prevention measures.
“The administrative changes will be the biggest ever seen in the retirement industry in South Africa and means the need for an entirely new processing and service model. We will have to build a brand-new system overlayed on the existing system. This will take a massive amount of budget and resources which requires at least 12 to 18 months to build,” Acton says.
Finance minister Enoch Godongwana flagged four areas of retirement reform that needed “additional work” — a proposal for seed capital, legislative mechanisms to include defined benefits funds in an equitable manner, legacy retirement annuity funds and withdrawals from the ringfenced retirement savings if you are retrenched and have no alternative income.
Blessing Utete, managing executive of Old Mutual Corporate Consultants says the seeding relates to a portion of current savings being used to seed the accessible savings pot up to a regulated capped amount. “The Minister would have to provide specific details on how this would work to ensure the stability of funds and protection of member retirement funds and protection of member retirement fund outcomes,” Utete says.
Withdrawals tax — two-pot system
Withdrawals of any funds saved before 1 March 2024 will be taxed according to the retirement lump sum withdrawal tables. After 1 March 2024, any withdrawals from your “savings pot” will be taxed at marginal rates or the same rate at which you pay personal income tax.
So, if your tax rate is 40%, you will pay a 40% tax on whatever you withdraw from your “savings pot”.
It’s another disincentive, which is great and is likely to make retirement fund members think twice before making that withdrawal. When you retire, any remaining amounts in your “savings pot” will be taxed according to the retirement lump sum table where you can access a lump sum of up to R550 000 tax-free.
Retirement fund contributions will remain deductible up to R350,000 or 27.5% of your taxable income a year, whichever is lower.
Withdrawals tax – 2023 inflation adjustments
The tax brackets for retirement fund lump sum benefits, and lump sum withdrawals have been adjusted upwards by 10% to compensate for inflation. This means that when you retire, the first R550,000 lump sum you withdraw from your benefits will be tax-free (up from R500,000).
If you choose to make an early lump sum withdrawal before you retire, the initial tax-free amount is R27,500 (previously R25,000).
COMMENTS END

Chapter 4. Tax Law Amendments
Four tax amendment draft Bills were issued by National Treasury and SARS on 29 July 2022 to give effect to the budget proposals presented on 23 February 2022.
The employment tax aspects of these Bills were commented on by the PAGSA and other organisations in August 2022, culminating in a meeting with National Treasury and SARS in September 2022 to discuss the comments. From there the revised Bills went to the Standing Committee on Finance, then National Assembly and National Council of Provinces approval, and finally promulgation by the State President on 5 January 2023, resulting in the following amendment Acts and one postponed amendment Bill.
1. Taxation Laws Amendment Act:
This Act deals with the substantive changes to the Income Tax Act proposed in the 2022 budget.
2. Tax Administration Laws Amendment Act:
This Act deals with the administration-related changes proposed in the 2022 budget.
3. Rates and Monetary Amounts and Amendment of Revenue Laws Act:
This Act confirms the tax tables, rebates and threshold changes proposed in the 2022 Budget.
4. Draft Revenue Laws Amendment Bill:
This Bill introduces the ‘Two-pot’ retirement system reforms (postponed for a year).
There are a number of changes in the 2022 tax amendment Acts that affect retirement funds and members of these funds, but except for one, these changes are outside of payroll administration and are not discussed here.
4.1 Retirement of a Provident Fund Member on Grounds other than Ill-health
Background
Major retirement reforms were implemented with effect from 1 March 2016 to standardise tax treatment and administration across the three types of retirement funds. To improve preservation of retirement benefits after retirement or early withdrawal, and to align the pay-out rules of provident funds with those of pension funds and retirement annuity funds, the retirement reforms that require mandatory annuitisation for provident fund members came into effect from 1 March 2021.
As from 1 March 2021, it is no longer necessary to differentiate between a pension, retirement annuity, and provident fund for retirement purposes as these funds now operate in the same way.
However, paragraph 4(3) of the Second Schedule to the Act retains a level of distinction as it stipulates that in the event that a member of a provident fund retires before he reaches the age of 55 years and such retirement is for reasons other than ill-health, any lump sum benefits received by or accrued to said member shall be taxed as a withdrawal benefit as opposed to as a retirement benefit.
Due to the fact that the provisions of paragraph 4(3) do not apply to types of retirement funds other than provident funds, an anomaly exists as paragraph 4(3) of the Second Schedule to the Act results in differentiated tax treatment for provident fund members and members of other types of retirement funds.
Budget 2022 Proposal
To address this anomaly and ensure uniform treatment across all types of retirement funds, Government proposed that paragraph 4(3) of the Second Schedule to the Act be repealed.
Legislation Change
Paragraph 4(3) of the Second Schedule is hereby amended by the deletion of subparagraph (3).
Effective date
The amendment will come into operation on 1 March 2023.
4.2 ETI Understatement Penalty
Budget 2022 Proposal
In view of the abuse of the Employment Tax Incentive (ETI) that has been encountered it is proposed that the Employment Tax Incentive Act be amended in order to facilitate the imposition of understatement penalties on ETI reimbursements improperly claimed.
This is achieved by classifying ETI reimbursements as refunds for purposes of the Tax Administration Act and specifically as refunds of tax for purposes of the ‘Understatement Penalty’ provisions.
The Changes to the Legislation
Section 221 of the Tax Administration Act is hereby amended by the substitution for the definition of ‘tax’ of the following definition:
“‘tax’ means a tax as defined in section 1, excluding a penalty and interest, and will for purposes of this Part include an employment tax incentive as contemplated in section 2(1) of the Employment Tax Incentive Act, 2013 (Act No. 26 of 2013);”.
Following comments, SARS agreed to clarify how the penalty will be determined to explain the interaction between section 4(2) of the ETI Act and the USP (understatement penalty) to ensure that penalties are not duplicated.
Effective date:
This proposed amendment will come into operation retrospectively on 1 September 2022.
The reason behind a retrospective effective date was no doubt to align the penalty on ETI reimbursements that are incorrectly claimed with the start of the second 6-monthly tax certificate submission cycle of September to February.
From memory, draft legislation can be implemented prior to promulgation as long as it is a matter of urgency, the amendment is clear, understandable, and properly communicated and explained.
Also from memory, this same situation arose in April 2020 with the Covid-19 draft Disaster Management Tax Relief Bill that introduced retrospective changes back to 1 April 2020 for the enhanced ETI requirements that were introduced under huge pressure and as a matter of extreme urgency.
4.3 Section 7B Variable Remuneration
Because it is such an important concept both now, and for in the future, this workbook goes into detail to explain the concept of ‘variable remuneration’ as well as aspects of its application in payrolls.
Background to Section 7B
The general taxation rule is that income, including remuneration as defined by the Fourth Schedule of the Income Tax Act, must be taxed on the earlier of the date of accrual (generally understood to be when there is ‘an unconditional entitlement to the money’), and the date of payment.
The Problem
For many years before 2013, the PAGSA drew the attention of the tax authorities to the administration difficulties experienced by payroll suppliers and employers when certain types of remuneration accrue in the last month (or months) before the end of a tax year but can only be paid in the first month (or months) after the start of the new tax year when the amounts are available and/or can be quantified.
The payroll for the last month of the tax year must be re-opened, the remuneration adjustments made, the payroll re-run, employees paid the additional net pay amount, the EMP201 in respect of that last month must be adjusted and paid with penalties, and possibly the tax certificates in respect of the previous tax year must be adjusted.
From this can be seen that retrospective adjustments place a significant administration burden on payrolls, payroll offices, and in some cases on SARS (adjustments to EMP201’s, tax certificates, and EMP501 reconciliations).
The Solution
After many requests from the PAGSA over the years prior to 2013, section 7B of the Income Tax Act was added and introduced the concept of ‘variable remuneration’ from 1 March 2013 as the solution.
All remuneration types that are ‘variable remuneration’ must be taxed in the month in which they are paid, not the month in which they would normally have accrued.
Remuneration Types that are Variable Remuneration?
Section 7B divides the various types of Fourth Schedule remuneration into two groups:
Variable Remuneration:
In plain English, ‘variable remuneration’ includes:
1. Overtime
2. Bonuses (annual, quarterly, performance, etc.)
3. Commission (commission is calculated based on a percentage, not on number of units produced)
4. Travel allowances (an allowance or advance paid in respect of business travel expenses)
5. Leave paid out (BCEA annual leave that is owing and paid on termination)
6. Reimbursive travel allowances (kilometer-based payment in respect of business travel expenses)
7. Night shift allowances
8. Standby allowances
9. Employer-paid reimbursements (these must be ‘true’ reimbursements as specified in the IT Act) , and
10. An amount that is determined based on the employee’s work performance (from 1 March 2023).
Variable remuneration is deemed to accrue on the date of payment and must be taxed when paid.
Non-variable Remuneration:
All remuneration types that are not variable remuneration, are referred to as non-variable remuneration, of which the most obvious examples are salaries and wages, as well as most allowances and fringe benefits.
Non-variable remuneration must be taxed at the earlier of the date of accrual, or the date of payment.
Budget 2022 Proposal
The 2022 Budget proposal explains the reason for the latest change to section 7B.
Section 7B of the Income Tax Act (1962) allows for the taxation of variable remuneration to be deferred to the date when the amount is paid to the employee rather than when it accrues to the employee. The act provides that any amount of variable remuneration paid by the employer to the employee is deemed to accrue to the employee on the date during the tax year in which the amount is paid.
Under the Income Tax Act, variable remuneration includes:
1. overtime pay, bonuses or commission;
2. an allowance or advance paid for transport expenses;
3. an amount the employee becomes entitled to as a result of unused leave;
4. any night shift or standby allowance; or
5. any amount paid or granted for a reimbursement as contemplated in the Act.
While the inclusion of commission caters for performance‐based payments that form part of the employee’s salary in the formal sector, it does not cater for the informal sector, where such payments may be calculated based on units produced (because the word “commission” means a percentage‐based payment and is not determined based on units produced). Government proposes that changes be made to section 7B to cater for these performance‐based variable payments.
Further to the above, the current provisions of section 7B of the Act need to be clarified to cater for instances where any type of variable remuneration accrues to the employee and the employee dies before the date of payment of the variable remuneration.
Standing Committee on Finance (SCOF)
In September 2022, the SCOF removed from the amendment Bill all reference to the informal sector from the draft amendment (remuneration based on units produced can be paid in both the formal and the informal sector), and explained the necessity of introducing payments that are calculated based on units produced as follows:
Although “commission” is included in the current list of variable remuneration, such commission only caters for performance-based payments that form part of the employee’s salary, it does not cater for instances where such payments are for example calculated based on units produced. This is due to the fact that the common meaning of “commission” refers to a percentage-based payment as opposed to an amount determined based on units produced.
The proposed amendment is essentially intended to cater for instances where a performance-based payment, over and above the employee’s wages, is dependent on the fulfilment of a suspensive condition by the employee.
An example would be of a salaried employee who packs boxes and is paid an incentive based on the number of boxes packed that exceed 1,000 boxes, checked in the month following the month in which the boxes were packed.
Final Change to Section 7B
The final Taxation Laws Amendment Act of 5 January 2023 states as follows:
“Section 7B of the Income Tax Act, 1962, is hereby amended—
(b) by the addition in subsection (1) in the definition of ‘‘variable remuneration’’ of the following paragraph:
‘‘(g) any amount of ‘remuneration’ as defined in paragraph 1 of the Fourth Schedule (other than a bonus) that is determined based on the employee’s work performance.’’; and
(c) by the addition in subsection (2) of the following proviso:
‘‘: Provided that where the employee is deceased before the date of payment, the amount is deemed to accrue to the employee and constitutes expenditure incurred by the employer, on the day during the year of assessment prior to the date of the employee’s death.’’.”
Effective date:
The proposed amendments will come into operation on 1 March 2023 and apply in respect of amounts accrued or expenditure incurred on or after that date, or deaths occurring on or after that date.
Comments on the Application of Section 7B
The section 7B requirements are gradually spreading into other legislation and payroll tax administration areas.
Unemployment Insurance Contributions Act
Section 7B is linked to the Unemployment Insurance Contributions Act by the definition of remuneration in the Fourth Schedule. Remuneration paid in a month (or months) after an employee’s services have been terminated can have two different results depending on whether the remuneration paid is ‘variable remuneration’ or ‘non-variable remuneration’.
This is discussed in the ‘Miscellaneous Matters of Interest’ Chapter of this workbook, section 8.4.
SARS Modernisation of Personal Income Tax Act (PIT)
As explained in the introduction to this section, section 7B was introduced in March 2013 to simplify the transition between the end of one tax year into the start of the next tax year for employers and payrolls.
However, section 7B applies equally to any period during a single tax year.
This might have an influence in future on the ‘SARS Modernisation of PIT’ project (see the ‘Miscellaneous Matters of Interest’ Chapter of this workbook, section 8.5).

3.2 Compensation Fund Amendment Bill
Aspects of the COID Bill (Compensation for Occupational Injuries and Diseases Amendment Bill) have been added to this workbook to bring this section up to date as at the time of writing (late February 2023).
Background
The COID Bill (Compensation for Occupational Injuries and Diseases Amendment Bill) was issued on 18 October 2018, and after a lengthy process of public comment, NEDLAC, internal discussions, etc. an amended COID Bill was published on 27 August 2020 in Gazette No. 43658.
This is the latest amendment Bill, but it has not yet been promulgated (signed into law by the State President).
According to media reports, there is opposition to the aspects of the COID Bill that prevent medical service providers (MSPs) from ceding their claims to third-party pre-funders and administrators for payment by the Fund.
Perhaps this is what is delaying promulgation.
LATE FLASH:
The State President has just signed the final Bill, so it has now been promulgated and we have a Compensation for Occupational Injuries and Diseases Amendment Act published in Government Gazette No. 48431 on 17 April 2023.
However, at this point in time we still do not have an effective date from which the changes will be put into operation.
Note that the information that follows beneath has not been changed by the promulgation. The workbook reflects the amendments included in the final COID Amendment Bill, and the COID Amendment Act will not differ from the final Amendment Bill that was approved by Parliament.
Structure of the COID Act
As far as the application of the COID Act is concerned, payroll suppliers (and employers) must comply with the ‘’front-end’ administration provisions as I call them. These are the requirements of the COID Act that provide for employers, employees, earnings, the ROE (Return of Earnings), and the annual assessment.
Employers are of course also interested in the ‘back-end’ administration requirements – claims, payment, etc.
The summary of the COID Bill that follows focuses on the proposed amendments to the ‘front-end’ requirements, but it also mentions one important change to the ‘back-end’ requirements.
Domestic workers to be included as Employees
The COID Act currently defines an employee to be:
“… a person who has entered into or works under a contract of service or of apprenticeship or learnership, with an employer, whether the contract is express or implied, oral or in writing, and whether the remuneration is calculated by time or by work done, or is in cash or in kind, and includes—
(a) a casual employee employed for the purpose of the employer’s business; …”
The definition goes on to include other categories of employees that are not important for this discussion, and then excludes:
“(v) a domestic employee employed as such in a private household;”
Once promulgated, the COID Bill will delete clause (v) above that excludes domestic employees from the definition of an employee. This means that from the effective date, domestic workers will be included as employees because they will no longer be excluded.
Domestic workers will then be entitled to the same benefits under the COID Act as other (commercial) employees.
It is interesting to note that the concept of a ‘domestic employee’ is only referred to in the wording of the exclusion that is planned to be deleted.
Domestic employees are not defined in the COID Act as they are in the BCEA and in the two Unemployment Insurance Acts. After the exclusion is deleted, there will no longer be any reference in the COID Act to a domestic employee – they get no special recognition in the Act at all. They will be employees just like any other (commercial) employee.
This means, for example, that in the event of the death of a domestic worker, the dependants of the deceased worker are entitled to claim a benefit.
Incidentally, the final COID Bill has widened the definition of a “dependant” by adding life partners, and a person who was married to the employee according to civil law, civil union, customary law, or any other marriage recognised in terms of any other law.
This has been supported by the ConCourt judgement (see section below).
‘Casual’ Domestic Workers
Note the ‘casual’ workers are defined to be employees, therefore a domestic worker who works on a ‘casual’ basis is an employee by definition.
The COID Act does not have a ‘less than 24 hours pm’ exclusion of employees as there is in the Unemployment Insurance Contributions Act.
For example, this means that a householder who employs a gardener once per week for mornings only (5 hours x 4 weeks = 20 hours; 5 hours x 5 weeks = 25 hours), must declare and pay the Compensation Fund for this individual.
Domestic Employers
Note that it is not necessary to change the definition of an ‘employer’ to include a ‘domestic employer’ because the definition is non-specific:
‘‘‘employer’ means any person or legal person, including the State, who employs an employee, …”
This means that the householder who employs a domestic worker is a (domestic) employer because the domestic worker is a (domestic) employee.
At this stage, we can only assume that domestic employers (householders) will have to submit an annual Return of Earnings in the same manner as commercial employers are required to do, and that they will be assessed on the earnings declared in the ROE in the same manner as commercial employers.
ConCourt Judgement – Domestic worker claims can go back 10 years
As discussed above, for many years domestic workers have been excluded from the protection umbrella of the Compensation Fund.
In a judgment handed down in November 2020, the Constitutional Court declared a section of the COID Act unconstitutional to the extent that it excludes domestic workers employed at households from the definition of ’employee’, preventing them from being able to receive compensation for illness or injury incurred at work. The dependants of these employees were also not able to claim if their breadwinner sustained a fatal accident at work.
The ConCourt order applies retrospectively for 10 years, and covers illness, injury, and death at the workplace.
To support the ConCourt order, the COID Bill added a new section headed “Transitional Arrangements” that states that domestic employers and domestic workers must submit a claim within three years from the effective date of the COID Amendment Act (once the COID Bill is promulgated) if they want to claim for any injury, disease, or death that occurred within the 10-year period prior to the promulgation date of the COID Amendment Act.

Domestic Employer Registration
According to section 4 of a notice issued in Gazette No. 44250 on 10 March 2021, the ConCourt ruling on domestic employees:
“means that all employers of domestic employees are obliged to register as employers with the Compensation Fund and submit the necessary returns as obliged by the Compensation for Occupational Injuries and Diseases Act 130 of 1993 (COIDA). All employers of domestic workers are therefore encouraged to register with the Compensation Fund without delay.”
In my opinion, prior to promulgation and an effective date, registration is voluntary, and this notice was simply an appeal to domestic employers to register.
Until the COID Amendment Bill that removes the current exclusion of domestic employees from the COID Act is promulgated and made effective, domestic employees are excluded, and there can be no such thing as a COIDA domestic employer if there is no such thing as a COIDA domestic employee.
Minimum Assessment Amount for Domestic Employers (Gazette No. 44702 on 15 June 2021)
This notice issued by the Director-General of the Department of Employment and Labour, introduces a minimum assessment amount of R381 for domestic employers in terms of section 83(1) of the COID Act, but it is unsigned, undated, and there is no effective date specified.
Presumably this notice was issued in preparation for the promulgation of the COID Amendment Bill, but it is not yet in operation.
LATE FLASH:
As an aside, the minimum assessment for employees in general was increased to R1,443 by Government Gazette Number 48065 issued on 17 February 2023, and for domestic employers it was increased to R498.
‘Earnings’ replaced by ‘Remuneration’
The concept of “earnings” that payrolls and employers must understand and comply with has been a problem for many, many, many … years (see the COID Earnings – Interpretation Issues section below for an explanation).
In a late but very important change to the COID Amendment Bill, the current definition of “earnings” is proposed to be replaced by the Fourth Schedule definition of “remuneration”.
This is such an important change that I have included the actual wording from the COID Amendment Bill, something that I don’t normally do in order to keep the workbook as simple as possible.

‘‘‘earnings’ means the remuneration [of an employee at the time of the accident or commencement of an occupational disease as calculated in terms of this Act] as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, 1962 (Act No. 58 of 1962), but does not include any amount paid or payable to an employee—
(a) by way of any pension, superannuation allowance or retiring allowance; and
(b) which constitutes an amount contemplated in paragraphs (a), (cA), (d), (e) or (eA) of the definition of ‘‘gross income’’ in section 1 of the Income Tax Act, 1962;’’

The wording in ‘bold’ between square brackets [] will be deleted from the current definition, and the wording from “as defined” until the end of the definition has been added.
This proposed definition of remuneration for the COID Act is exactly the same as the definition of remuneration in the Unemployment Insurance Contributions Act with one exception – ‘commission’ is excluded from the remuneration used to calculate the UI contribution, but (correctly in my view) commission is not excluded from the proposed definition for Compensation Fund purposes.
Could this be an indication that the unfair exclusion of commission from remuneration will be removed from the Unemployment Insurance Contributions Act at some stage in the future?
The PAGSA has been asking for this to happen for nearly twenty years … so we can but hope.
Assuming that this proposed amendment is promulgated in its current form, life will be much easier for all parties – payroll suppliers, employers, and the relevant statutory body – because the various definitions of remuneration will be closely aligned to one another for the following employment taxes:
• PAYE
• Skills Development levies
• Unemployment Insurance contributions
• Compensation Fund
• Employment Tax Incentive (that is until the change effective from 1 March 2022).
Of the legislation that the PAGSA supports, only the BCEA and the Employment Equity Act will have different definitions of remuneration.
Standardisation of the concept of remuneration is of huge value to all parties as it results in better understanding, simpler administration, less mistakes, and improved compliance.
And of course, this opens the door for the future consolidation of the systems that administer employer payments to some statutory bodies … unlikely, but it makes sense.
Lastly, and just for interest’s sake, about 6 years ago I presented a proposal to the Fund on behalf of the PAGSA to motivate the replacement of the concept of ‘earnings’ with that of the Fourth Schedule definition of remuneration. I hoped that something would come of this proposal in future years, but now that it has actually happened, I don’t think that it is as a result of the presentation – I think that there are other reasons.
COID Earnings – Interpretation Issues
For many years, different opinions have been expressed on the concept of “earnings” that employers and payrolls must apply for the annual Return of Earnings report (the ‘ROE’ or ‘W.As 8’) annual return. Different opinions create uncertainty, resulting in unnecessary calls to the call centres of PAGSA members and the Fund.
The provisions in the current COID Act (i.e. prior to the COID Amendment Bill discussed above) that refer to “earnings” are summarised below.
Currently, the Compensation Fund makes use of the concept of “earnings” for two purposes:
1. To calculate the value of the compensation at the time of the accident or illness
2. To calculate the employer’s annual assessment value from the ROE.
The calculation of the compensation benefit value is not important for payroll administration, but the concept of earnings used for the ROE results in the assessed amount that the employer must pay and is therefore very important for employers (and the Fund’s income).
It must be correctly understood and compliantly applied by employers in their payroll systems.
The COID Act currently defines “earnings” to be:
“… the remuneration of an employee at the time of the accident or the commencement of the occupational disease as calculated in terms of this Act”.
Remuneration is not defined by the COID Act, but it must be “calculated in terms of this Act”.
Section 60 then instructs the Director General to calculate the earnings of an employee “at the time of the accident” in order to determine the compensation value in such manner as in his opinion is best. This section then provides some guidelines to assist the determination of the earnings value for the calculation of the compensation amount from these earnings.
Section 63 deals with the calculation of earnings but is of no help to payrolls.
It appears to be clear from the above wording that the purpose of the current definition, section 60 and section 63 is to provide for the calculation of the compensation benefit “at the time of the accident or … the occupational disease”.
From this follows that the COID Act does not define earnings specifically for the purposes of the Return of Earnings, nor does the Act make any provision for the concept of earnings for assessment purposes.
This vacuum in the legislation resulted in the Fund, after consulting with and acting on advice from the PAGSA in the mid-nineties, creating an interpretation of earnings for the purposes of the ROE.
This interpretation, unchanged since then, is printed at the end of the Return of Earnings form that employers must complete annually and is the only guidance on the concept of earnings for ROE and assessment purposes that is available to payrolls and employers.
However, some aspects of this interpretation have been overtaken by time and should be revisited to align them with current remuneration principles and practices.
For example, the concept of a ‘package’ in the nineties was substantially different from that of ‘cost to company’ today, and a travel allowance is always difficult to value and to administer in practice.
Replaces the concept of ‘Mandators’ with that of ‘Contractors’ and ‘Subcontractors’
This change appears to be intended for building sites, roads, bridge building etc. The COID Bill aligns the legislation with modern terminology and practices and clarifies the responsibility to protect these workers.
Provides for rehabilitation facilities, services, and benefits
The current provisions that provide for the rehabilitation of employees who have been injured or contracted a disease while on duty, are outdated, inefficient, expensive to administer, and result in delays of payments to medical service providers.
Modernisation of this aspect of the COID Act is long overdue and will hopefully result in significant improvements.
The COID Bill provides comprehensively for ‘rehabilitation’, but while this is important, this workbook does not go into the details as this is one of the processes that I classify as ‘back-end’ administration.
Inspection, Compliance & Enforcement
The COID Bill Introduces a Chapter that provides for ‘Inspection, Compliance & Enforcement’.
To improve compliance the Compensation Fund announced its intention in June 2018 to appoint payroll auditors to improve controls in its enforcement systems.
Vusi Maluleke, deputy director: Employer Assessment for large accounts at the Fund, spoke some time ago of the training sessions that are being held across the country focusing on teaching employers how to register online and how to submit the annual Return of Earnings (ROE) online.
Maluleke said that over 300 000 companies failed to submit their Return of Earnings in the past three years. This is an alarming statistic.
COID Regulation Gazette No. 44409 on 1 April 2021: Correction of Regulation published 3 December 2020
On 3 December 2020, the Minister of Employment and Labour published a regulation in Gazette No. 43959 that amongst other matters, explained that the year in which the ending month falls, indicates the year of assessment.
For example: The 2021 year of assessment is the year starting 1 March 2020 and ending 28 February 2021.
This is the same naming principle as in the tax world, but unfortunately this standardisation was short-lived.
The Department corrected their earlier decision in Gazette No. 44409 of 1 April 2020 (‘yes’, on April Fool’s day) and clarified that the year in which the starting month falls, indicates the year of assessment.
For example: the 2022 assessment year is the year starting 1st March 2022 and ending 28th February 2023.
Those of us in the tax world who are used to the naming principle that the year of assessment is indicated by the year in which the ending month falls, will simply have to remember that the naming principle in the world of labour is different. Best practice is to refer to the start and end month of the year, then there is no possibility of a misunderstanding.
Assessment Classes
The Regulation specifies 13 x main assessment classes from ‘A’ to ‘M’, and within each of the main classes, a range of sub-classes (identified by a 4-digit code) that each employer registered with the Fund is allocated to.
The rates (a percentage) for each sub-class and for each year from 2021 (i.e. from 1 March 2021) to 2025 (up to 28 February 2026) are listed in a table in the notice. These rates multiplied by the total earnings declared each year by the employer in the annual Return of Earnings submission, result in the amount assessed by the Fund.
The assessed amount represents the employer’s expense of insuring itself against the risk of its employees suffering an occupational injury or disease while on duty, and this expense is of course the Compensation Fund’s income.
Domestic employers have been added under Class M (the 13th class) as sub-class 2500 and their assessment rate is ‘1,04’ from 2021 up to and including 2025.
To give the domestic employer rating some context, here are some examples of other industry ratings:
1. Coal Mining: ‘1,41’ for 2021, decreasing to ‘0,65’ for 2025 [Sub class = 0411]
2. Open cast Mining: ‘1,16’ for 2021, decreasing to ‘0,81’ for 2025 [Sub class = 0420]
3. Domestic employers: ‘1,04’ for 2021, unchanged to ‘1,04’ for 2025 [Sub class = 2500]
4. Municipal Service: ‘0,70’ for 2021, increasing to ‘0,81’ for 2025 [Sub class = 1800]
5. Breweries: ‘0,57’ for 2021, decreasing to ‘0,51’ for 2025 [Sub class = 0641]
6. Beauty and Hair Salons: ‘0,12’ for 2021, increasing to ‘0,18’ for 2025 [Sub class = 1920]
It is interesting to note that in some cases, the percentages have been reduced in the transition from 2020 to 2021.
Effective Date of the Regulation
The new assessment classes and the rates are effective from the 2021 year of assessment (1 March 2021)
Note that in my opinion, domestic employers must only register once the COID Amendment Bill is promulgated and made effective, but they can do so voluntarily before then.
*** PAGSA members can refer to Newsflash 2021-20
Return of Earnings and Earnings Threshold for 2023/2024
The Director-General of Employment and Labour issued Government Gazette Number 48065 on 17 February 2023 to announce that the period during which employers must submit the annual Return of Earnings for Actual earnings for 2022/2023, and Provisional earnings for 2023/2024, is 1 April 2023 to 31 May 2023.
As a result of a request submitted to the Fund, a second Gazette with the same number (48065) and the same date of issue (17 February 2023) specified the earnings thresholds as follow:
1. R 529 264 1 March 2022 to 28 February 2023
2. R 568 959 1 March 2023 to 28 February 2024.
President assents to the COID Amendment Act
LATE FLASH
I will discuss the implications of the inclusion of domestic workers and the replacement of ‘earnings’ by Fourth Schedule remuneration in the September 2023 ‘Mid-year Payroll Taxes Update’ webinars.
The following News release (dated 6 April 2023) was published on the Government website on 14 April 2023.
6 Apr 2023
President enacts greater protection for workers affected by occupational injuries and diseases
President Cyril Ramaphosa has signed into law the Compensation for Occupational Injuries and Diseases Amendment Bill, which extends coverage for occupational injuries and diseases to previously excluded vulnerable workers and improves compensation benefits to employees.
The Bill effects a range of amendments to the Compensation for Occupational Injuries and Diseases Act (Act No 130 of 1993) which governs compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees, or for death resulting from injuries or diseases.
The new provisions enacted by the President include one that gives effect to a Constitutional Court judgment in the matter of Mahlangu and Another v Minister of Labour and Others in which the Court declared parts of the Compensation for Occupational Injuries and Diseases Act unconstitutional.
The unconstitutionality related to the exclusion of domestic workers employed in private households from the definition of “employee” and the effective denial of compensation to such workers who contracted diseases or suffered disablement, injuries, or death in the course of their employment.
The amended legislation also protects the livelihoods of workers affected by occupational injuries or diseases by introducing a multi-disciplinary employee-based process of rehabilitation and reintegration of injured employees or employees who contracted occupational diseases.
This requires employers to exhaust all rehabilitation and reintegration processes before laying off an employee.
In turn, employers will be incentivised for full compliance with the provisions.
The new law also addresses institutional arrangements, such as the appointment of members of the Compensation Board.
In closing, we must now wait and see what the impact of these significant new legislation requirements is going to be in the workplace and what the impact on the economy is going to be.