The following is the News flash 2022-43 published by the PAGSA regarding the COIDA Notice – Open Day for Employers

CODA NOTICE: OPEN-DAY MEETINGS TO ASSIST EMPLOYERS

The Compensation Fund is holding three days of Open Day meetings for employers at the Birchwood Hotel and Conference Center, Boksburg, from 11 October until 13 October 2022 starting at 08h30 and ending each day at 14h30.

The intention of the meetings is (and I quote):
“… to assist employers with queries that are not resolved and to make sure that they are finalised on the day. Employers will get an opportunity to directly engage with the processing officials (Specialists).”

If the Open Day format is well-attended, the Fund will consider holding more of these events in future.

COIDA Notice

Compensation Fund (CF) are inviting employers who wish to be assisted with the following services:

EMPLOYER REGISTRATION FUNCTIONS
1. Application for the employer registration (manual and online)
2. Application for re-registration (Manual application)
3. Application for the change of nature of business (manual and online)
4. Application for the Deregistration
5. Trade Name updating
6. Address updating
7. Processing of Employer’s Banking Details
EMPLOYER ASSESSMENT FUNCTIONS
1. Clearing of employers who are flagged for audit
2. Application for the Revision of Assessment
3. Submission of Return of Earnings (To be assisted with the online submission)
EMPLOYER COMPLIANCE
1. Educate on the obligations of the employers
2. Auditing process conducted by the CF to ensure full compliance by the employers
GAUTENG COID PROVINCE
1. Assisting with the Claims
2. Enquiries on Claims
3. Registration on CompEasy system
4. Verification of claims for employers
ICT
1. Online Employer Registration Errors
2. System errors on the submission of the ROEs
CALL CENTRE
1. Application for the Tender Letter
2. Capturing of employer’s email address
3. CompEasy password and User’s Password reset
For further clarity, please call
Mr Tsholanang Moagi (Organising Committee member) at 0780498531 (only during working hours) or the CF Call Centre at 0800 32 1322 and 086 0105 350

The following is the News flash 2022-48 published by the PAGSA regarding the COID Notice – Deregistration with the Compensation fund by Inactive Employers (Notification to Compensation Fund)

The following notice does not relate to SARS in any way, only the Compensation fund.

COMPENSATION FUND NOTICE: DEREGISTRATION BY INACTIVE EMPLOYERS

Background

Legal entities with employees as defined by the Compensation for Occupational Diseases and Injuries Act (COIDA) are required to register as employers with the Compensation Fund.

Note that this requirement excludes domestic employers until the COIDA Amendment Bill is promulgated and made effective.

One registered with the Fund, all employers must every year submit the Return of Earnings (ROE) form (usually by the extended due date of 31 May) that declares the total earnings of all employees for the past year of assessment (March to February), as well as the estimated total earnings for the year of assessment that lies ahead.

If the employer ceases to operate a business or no longer has any employees, the entity must deregister as an employer with the Compensation Fund as soon as possible.

Compensation Fund Deregistration Notice

The full notice (including the deregistration form) can be found in Government Gazette No. 46269.

For your convenience, the main points of the notice are included at the end of this Newsflash.

It is important to note if the entity fails to notify the Compensation Fund that it is no longer active as an employer, the Fund will assume that the employer is still operating and will expect ROE’s.

This will result in an estimated Notice of Assessment that will include penalties and interest and that is legally binding for payment by the employer.

Deregistration Administration

It has come to my attention that deregistration is not an online process and must be done manually.

Unfortunately there are complaints that the manual process is cumbersome, and possibly flawed in that some deregistration applications seem o ‘disappear’.

The PAGSA has requested the Fund to convert the current process to an online application as soon as possible.

THE NOTICE ISSUED BY THE COMPENSATION COMMISSIONER UNDER COMPENSATION FOR OCCUPATIONAL INJURIES AND DISEASES ACT, 1993

In terms of Section 6A (b) of the Compensation for Occupational Injuries and Diseases Act, 1993 (Act 130 of 1993 as amended by Act 61 of 1997), I, Vuyo Mafata, in my capacity as the Compensation Commissioner, and acting in terms of Section 4 (1) (l), wish to publish and communicate the following:

a) The CF-1C Application for Employer Deregistration Form;
b) To request Employers to notify the Compensation Fund (CF) where they have ceased to operate a business or no longer have employees to be covered by the CF;
c) The fully completed CF-1C Forms must be forwarded to [email protected] (please contact the CF Call Centre at 0800 321 322/0860 105 350 for further clarity);
d) Should the Employer fail to notify the CF on the status of their business, the CF will assume that an employer is still operating and estimate assessments for all outstanding ROEs. Any Notice of Assessments issued with such estimates will be legally binding by the Employer for payment;
e) Failure to make a payment will result in interest and penalties charged on overdue amounts.

[The full notice that includes the CF-1C form and the notice discussed above can be found in Government Gazette No. 46269]

The following is the News flash 2022-49 published by the PAGSA regarding the Comments Invited – Budget 2023

COMMENTS INVITED: BUDGET 2023 – PROPOSALS TO CHANGE PAYROLL-RELATED TAX LEGISLATION

The PAGSA has been invited to submit suggestions for changes to payroll-related tax legislation to be included in Annexure C of the 2023 Budget Review.

If a proposal is included in the Budget Review, then in the normal course of the legislation amendment cycle that follows the budget presentation, the change will become law from the effective date published in the promulgated amendment Act (normally 1 March of the following tax year).

Please email your request for changes to the legislation to [email protected] before 20 November 2022.

The following is the News flash 2022-51 published by the PAGSA regarding the SARS Notice: Fourth Schedule par 2(2B) instruction

SARS NOTICE: ENHANCEMENTS TO THE FOURTH SCHEDULE PAR 2(2B) INSTRUCTIONS PROCESS

The following SARS notice brings the Fourth Schedule paragraph 2(2B) process into the enhanced tax directive system.

The SARS Notice follows:

“SARS NOTICE

IMPLEMENTATION OF TAX DIRECTIVE SYSTEM ENHANCEMENTS SCHEDULED FOR 9 DECEMBER 2022

The introduction of Par 2(2B) of the Fourth Schedule requires that employees’ tax be calculated and withheld at a fixed tax rate from an annuity, if a taxpayer receives remuneration from more than one source during a year of assessment and where one or more of those sources is from an employer who is a retirement fund or is licensed as an insurer under the Insurance Act.

These employers are required to apply the fixed tax rates prescribed and made available on e@syFile™ Employer or eFiling by SARS. The policy intention aims to ensure that the monthly employees’ tax is calculated correctly so that the taxpayer does not have a substantial tax shortfall due by you to SARS or due to you by SARS on assessment. These tax rates are calculated using prevailing tax rates and information pertaining to the taxpayer at the time of processing.

1. Given that such information may change and require a revised tax rate, an enhancement is required to cater for specific individual fixes as and when necessary and provide an indication to the retirement fund or a long-term insurer whether the tax rate results from:
• An initial full run
• A re-run
• A partial run
• A full year.

2. As is currently the process, once the tax rates have been calculated, the cover letter and tax rate file are generated, and made available to the employer on e@syfile™ Employer and eFiling (for employers with 50 or less employees).

3. Enhancements to the user roles on eFiling will be implemented to specify and provide clarity for the various user profiles with respect to the following functionalities:
• View – the user will be able to only view the letter containing the fixed tax rates related to Par 2(2B) of the Fourth Schedule.
• Completion – the user will be able to view and download the file and complete application forms.
• Submission – the user will be able to view and download the file, complete and submit application forms.

4. The IRP3(s) form has been improved to allow for employer share schemes that are longer than 5 years. The fields to indicate the qualifying periods during which the exemption under section 10(1)(o)(ii) may apply and other relevant fields were increased from 5 to 15 fields.

Sincerely,

ISSUED ON BEHALF OF THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE

December 2022”

The following is the News flash 2022-52 published by the PAGSA regarding the UIF Notice: Approved Auditors appointed by UIF for TERS audit

UIF NOTICE: APPROVED AUDITORS APPOINTED BY UIF FOR TERS AUDIT

On 8 December 2022, the UIF Commissioner signed a notice containing a list of auditing firms that have been approved by the Fund and mandated to audit employers for compliance with the TERS benefit requirements.

The following are the approved firms that will be contacting selected employers to arrange for information gathering:

1. The Accounting Village (Pty) Ltd;
2. NKS Chartered Accountants;
3. Inqaba Kadiya Consulting (Pty) Ltd;
4. Leolo and Partners Chartered Accountants;
5. Morobi Chartered Accountants;
6. Ndemex Business Solution; and
7. Ligwa Advisory Services.

If an employer receives a request from one of these firms, it is legitimate and must be complied with.

The full UIF Notice follows on the next page of this Newsflash, and on the page that follows, is an example of the information that employers / payroll systems must make available for the verification.

The notice from the UIF follows:

“POST VERIFICATION AUDIT TO BE CONDUCTED ON ALL EMPLOYERS

Dear Employers,

The Unemployment Insurance Fund (UIF) would like to take this opportunity to inform all Employers and Bargaining Councils, who were paid under the COVID-19 TERS benefit, Of the upcoming post-verification exercise to be conducted by the following audit firms who duly appointed by UIF:
1. The Accounting Village (Pty) Ltd;
2. NKS Chartered Accountants;
3. Inqaba Kadiya Consulting (Pty) Ltd;
4. Leolo and Partners Chartered Accountants;
5. Morobi Chartered Accountants;
6. Ndemex Business Solution; and
7. Ligwa Advisory Services

The post verification exercise commenced during October 2022 and shall endure for a period Of twelve (12) months. The various Memorandum of Agreements entered into between UIF and the employers, empowered the CIF to audit employers at any given time by an appointed auditor and “or internal verification team. The I-JIF is now accordingly invoking these provisions.

The audit will be conducted at the premises of the employers for verification purpose. In preparing for the audit, please make the following minimum information available:
– Bank statements (showing all COVID-19 TERS benefits received to date from UIF and funds paid to employees by the employer);
– Payroll reports (Periods January 2020 to June 2021);
– Contracts Of employment or appointment letter for affected employees;
– Reconciliation of COVID-19 TERS funds (Total COVID-19 TERS funds received from UIF against or a comparison to COVID-19 TERS benefits paid to employees.

We humbly request the employers to cooperate with the above appointed service providers and provide them with access to information and personnel where needed, The Unemployment Insurance Fund is POPIA compliant and has signed a Non-Disclosure Agreement (NDA) with all the firms.

UIF will ensure that the information obtained will be process for the audit purpose only, All due diligence processes were conducted on all audit firms. It should be noted that further information may be required during the audit process. ”

EXTRACT OF THE REQUEST BY THE APPROVED AUDIT FIRMS

We wish to notify you that our firm has been requested by the UIF to conduct a post verification exercise on your firm and would accordingly require access to various documentation to complete this exercise.

5. We accordingly request that we be provided with the following information within three (3) working days following receipt of this letter:
5.1 Bank statements, showing all COVID19TERS funds received to date from the UIF and money paid to employees by the employer;
5.2 Payroll reports (January 2020 to the last month of application);
5.3 Signed Memorandum of Agreement (“MoA”) with the UIF;
5.4 Reconciliation of COVID19TERS funds (total COVID19TERS funds received from the UIF against or a comparison to funds paid to employees);
5.5 A bank confirmation letter submitted to the UIF initially with the claims applications;
5.6 Communication letter/email sent to staff relating to the temporary closure of the business indicating the periods that the UIF claims were applied for;
5.7 Proof of payment of COVID19TERS funds to employees;
5.8 Proof of any refunds made by your firm to UIF; and
5.9 A schedule of forced leave days for employees listed in your COVID19TERS benefit application/s.
6. We will in due course provide you with a sample list of employees for which we will require the following further information:
6.1 Contracts of employment or appointment letters;
6.2 Payslips from January 2020 to the last month of your benefit application/s;
6.3 Clocking reports or attendance registers pertaining to the lockdown period applied for;
6.4 IRP5’s for 2021 and 2022;
6.5 Salary increase letters, where applicable; and
6.6 Termination letters, where applicable; and
6.7 Any other documentation or records deemed appropriate to fulfilling the post-verification exercise.
7. Our above request is in no manner exhaustive and should further documentation and/or records be required to fulfil the post-verification exercise, we trust that you will provide same.

Your assistance in this post-verification exercise is appreciated.

The following is the News flash 2022-53 published by the PAGSA regarding the SARS Notice: Trade testing of Tax Directive enhancements

SARS NOTICE: TRADE TESTING OF THE TAX DIRECTIVE ENHANCEMENTS

SARS are in the process of enhancing their tax directive systems and are asking for employers and tax practitioners to help to with the testing of the changes.

The new processes should not impact on payroll systems, but payroll suppliers in their capacity as employers are welcome to join the testing.

As you can see from the notice below, the roll-out date of the enhancements is scheduled for April 2023 which will mean that the testing window will probably be in February and March 2023.

The SARS Notice follows:

“SARS NOTICE

Dear Stakeholder

TAX DIRECTIVES: TRADE TESTING DATES AND SOFTWARE IMPLEMENTATION

SARS will introduce enhancements to the Tax Directives process as indicated in the IBIR-006 Tax Directives Interface Specification Version 6.501. The trade testing dates are still to be confirmed and the implementation of the software is planned for implementation in April 2023. You will receive communication with regards to the exact dates for trade testing and the implementation date closer to the time.

The Tax Directives Interface Specification is available on the SARS website www.sars.gov.za and you are encouraged to review it prior to testing.

Please follow these steps to submit test files:
Step 1: Before testing can commence, you will need to email 10 taxpayer reference numbers to [email protected] to ensure the numbers are active. In the email subject line, use “Tax reference numbers for Trade Testing”. A maximum of 10 taxpayer reference numbers will be allowed.
Step 2: You will be notified via the same email address to confirm when testing may commence.

For trade testing queries please email [email protected]

Sincerely,

ISSUED ON BEHALF OF THE COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE

December 2022”

The following is the News flash 2022-54 published by the PAGSA regarding the Comments invited: Proposals National Minimum Wage rates

COMMENTS INVITED: PROPOSALS REGARDING THE NATIONAL MINIMUM WAGE RATES

The National Minimum Wage Commission is established by the National Minimum Wage Act and is mandated to every year investigate and measure the impact of the national minimum wage rates against a list of seven economic factors, of which employment (or unemployment) is arguably the most important.

Following the annual investigation, the Commission prepares a report that includes a recommendation to either increase, leave unchanged, or reduce, the minimum wage rates for the following year, and submits it to Government for a final decision.

The final adjusted national minimum wage rates are usually issued in late January or early February and at the request of the PAGSA at the inception of this process, are made effective from 1st March for the tax year that follows.

The Commission has invited us to submit written representations on the effectiveness and impact of the national minimum wage for their consideration, taking into account the following medium-term target:

“All wage-eaming workers must earn enough to maintain a decent standard of living, defined as sufficient to support themselves and their families at a level that is both socially acceptable and economically viable, The target should ensure that the value of the national minimum wage does not decline relative to the median wage.”

Please email your comments regarding the national minimum wage to [email protected] no later than 8 January 2023

The following is the News flash 2023-02 published by the PAGSA on January 30, 2023 regarding the UIF E03 Specification Revision project

UIF E03 SPECIFICATION REVISION PROJECT

Background

Employers, payroll suppliers, and the Unemployment Isurance Fund experienced many problems during the TERS period of 2020 and 2021, followed rapidly by more problems resulting from the surprise introduction of the Electronic Compliance Certificate system in January 2021 that was then temporarily withdrawn in April 2022.

Despite many emails and attempts to discuss these problems during this period, communication with the Fund was not satisfactory.

However I am happy to say that towards the end of 2022, the Unemployment Insurance Fund and the PAGSA agreed to re-establish regular meetings, and in a meeting held on 1 December 2022 this process was formalised.

It was agreed that the regular meetings between the Fund and the PAGSA that we experienced over the past 25 years would be re-established and we have already had two meetings in January 2023.

Revision of the E03 Specification

The purpose of these meetings is to revise the E03 specification document so that payrolls can provide the Fund with the additional employee data that the Fund needsto be able to record employee remuneration accurately under certain circumstances, and to issue E-Compliance Certificates correctly in certain scenarios.

The Road Ahead

Two PAGSA task teams have been set up to research some problematic aspects of remuneration declaration, as well as investigating possible technical changes to Ufiling.

You will be advised of progress as the investigation proceeds.

In the meantime, it would be best to make provision in your payroll development schedule for the second half of 2023 for possible changes to the UIF E03 declaration specification.

The following is the News flash 2023-03 published by the PAGSA on February 8, 2023 regarding the SARS PIT Modernisation Project

SARS PIT MODERNISATION PROJECT – UPDATE FOR ALL MEMBERS

Background

In a meeting in February 2020, SARS briefed the PAGSA on their plans for the SARS Vision 2024 PIT project.

During 2021, the PAGSA compiled seven lengthy documents for SARS that outlined important aspects of payroll processing of employment taxes for the Vision 2024 team at SARS.

The purpose of these documents was to give SARS a better understanding of various aspects of payroll administration, and we engaged with SARS in a number of 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 when all the figures are known and final.

Meeting on 25th January 2023

The process was taken a step further in a meeting between SARS and the PAGSA on 25th January 2023 during which more detail was discussed.

Since then, SARS has requested that the “SARS Vision 2024 PIT” project name that was used from February 2020, should be changed to “SARS PIT Modernisation”.

‘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. It goes without saying that the changes to the administration of PAYE that will require payroll system development will have a direct impact on PAGSA payroll supplier members.

Heads-up for Payroll Suppliers

At this stage, if the roll-out of the Vision 2024 PIT project (that includes monthly tax certificate submissions) proceeds as planned, then payroll suppliers must prepare themselves for significant changes to their payroll systems soon after the start of the 2023/24 tax year.

You will be advised of progress as the project proceeds, and more detail will be issued to you as soon as it becomes available.

The following is the News flash 2023-07 published by the PAGSA on February 24, 2023 regarding the Payroll Tax Amendments: 1 March 2023

AMENDMENT ACTS: CHANGES THAT AFFECT PAYROLLS

The 2022 Budget proposals were followed by the issue of draft Amendment Bills and the further steps of the legislation amendment cycle during 2022, culminating in the issue on 5 January 2023 of the following Amendment Acts:

1. Taxation Laws Amendment Act [TLAA]: This Act deals with the substantive changes to the Income Tax Act proposed in the 2022 budget.
2. Tax Administration Laws Amendment Act [TALAA]: This Act deals with the administration-related changes proposed in the 2022 budget to the various Acts thatfall under SARS.
3. Rates and Monetary Amounts and Amendment of Revenue Laws Act [Rates Act]: This Act confirms the tax tables, rebates and threshold changes proposed in the 2022 Budget.
4. Draft Revenue Laws Amendment Bill [Revenue Bill]: This Bill introduced the ‘Two-pot’ retirement system reforms.

CHANGES THAT AFFECT PAYROLLS

There were very few changes to the legislation that have an impact on payrolls, the least that I can remember in decades, and with one exception of an earlier date for the ETI Understatement Penalty, they are all effective from 1 March 2023.

There are several changes that affect retirement funds and the members of these funds, but except for one, these changes are outside of payroll administration and are not discussed here.

The following amendments do have an impact on employers and payroll suppliers.

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);”.

Effective date:
This proposed amendment will come into operation on 1 September 2022. Note that in the draft amendment Bill issued in July 2022 this change was proposed to come into effect on 1 September 2022, long before the amendment was promulgated on 5 January 2023

The reason behind making the effective date retrospectively effective 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.

Following comments from concerned parties, 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 there is not a duplication of penalties.

Section 7B Variable Remuneration

This is a relatively minor change to section 7B, but section 7B is starting to make its presence felt in other areas of payroll administration, so you would be well-advised to become familiar with its requirements.

To assist you, this Newsflash goes into detail to explain the concept of ‘variable remuneration’, the changes introduced by the amending legislation, as well as aspects of the application of ‘variable and ‘non-variable remuneration’ both now
and in the future.

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 (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.
The payroll for the last month of the tax year must be re-opened, the remuneration adjustments made, the payroll rerun, employees paid the additional net pay amount, the EMP201 in respect of that last month must be adjusted and paid with penalties, and 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 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 (listed in the Appendix) 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.

Budget 2022 Proposal

The 2022 Budget proposal explains the reason for the change.

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 all reference to the informal sector (remuneration based on units produced can paid in both the formal and the informal sector) from the draft amendment, 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 of the Income Tax Act 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 must be applied differently depending on whether the remuneration paid is ‘variable remuneration’ or ‘non-variable remuneration’.

SARS has provided the PAGSA with an opinion on how to apply section 7B to UIF contribution requirements under circumstances where the employee is paid remuneration in a month (or months) after an employee’s services have been terminated. The application is different depending on whether the remuneration paid is ‘variable remuneration’ or ‘non-variable remuneration’.

The initial SARS opinion has raised more questions that are in the process of being clarified.

As soon as these opinions are finalised, a Newsflash will be issued.

SARS Modernisation of Personal Income Tax Act (PIT)

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.

This might influence the ‘SARS Modernisation of PIT’ project (see PAGSA NF 2023-03 for an update.

Again a Newsflash will be issued as soon as possible.

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.

Since 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 and apply in respect of years of assessment commencing on or after that date.

Budget 2023 Proposals

The PAGSA is busy finalising a Newsflash that will assist you with the 2023 Budget proposals, but at this early stage there are again relatively few changes that affect payrolls.