5 Things all Payroll Managers should know for the year ahead

1.      Retirement fund tax changes

Where a pensioner is in receipt of more than one source of income, a tax debt may occur at year-end when all income is aggregated. To assist in these cases, the new legislation makes provision for SARS to determine the effective rate of tax in respect of the combined employment and/or pension sources of income of a taxpayer. The latest data available to SARS is used to determine a more accurate PAYE deduction percentage, and that rate will be provided to the retirement fund administrators for purposes of withholding PAYE based on that data. 

For pensions or annuities payable during March 2022 and for the periods thereafter, your retirement fund administrators will use this rate to deduct PAYE from your pension or annuity. The rate provided by SARS will be valid for the whole tax year unless circumstances that influence your year-end tax liability change.

2.      Curbing ETI abuse

The government has amended the Employment Tax Incentive Act to counteract schemes where employers claim the ETI in respect of simulated employment agreements. The definition of 'employee' is amended to ensure that the substance of the employment relationship will determine eligibility for the ETI claim, as opposed to its legal form. Students mainly involved in the activities associated with studying are excluded from eligibility, and the definition of remuneration is amended to help curb the abuse.

These amendments come into operation on 1 March 2022, which deviates from the initial intention to have a retroactive effective date of 1 March 2021.

3.      Clarifying the calculation of the fringe benefit in relation to employer contributions to a retirement fund

To address the anomaly that existed where self-insured risk benefits were not seen to be a defined contribution component, the definitions in the Seventh Schedule to the Income Tax Act, paragraph 12D(1) have been amended to change the definition of a risk benefit, add the definition of a risk benefit policy, and change the definition of a defined contribution component so that self-insured risk benefits are classified as a defined contribution component.

The changes come into operation on 1 March 2022 and apply in respect of years of assessment commencing on or after that date.

Relevant employers should contact their retirement funds to confirm whether the fund has changed from defined benefit to defined contribution in time for the March 2022 payroll run.

4.      Reviewing the nature of long-service awards for fringe benefit purposes

The government recognised that the current prevailing practice is for employers to grant their employees a wide range of awards in recognition of long service, and such awards can take a variety of forms that are not only limited to non-cash assets. These awards are extended to apply to reasonable awards granted for long service that adhere to all the current requirements in the Income Tax Act i.e. number of years in service together with the exemption limited to R 5 000.

The changes come into operation on 1 March 2022 and apply in respect of years of assessment commencing on or after that date.

5.      Extension of the Learnership Tax Incentive 'Sunset date'

In line with the Minister's 2021 Budget proposals, section 12H of the Income Tax Act has been amended to extend the learnership tax incentive by two years, from 1 April 2022 to 1 April 2024.

The change comes into operation on 1 April 2022 and applies in respect of learnership agreements entered into on or after that date.