South Africa | Taxation Laws Amendment Bill 2025: Proposed payroll-related amendments

South Africa | Taxation Laws Amendment Bill 2025: Proposed payroll-related amendments

South Africa’s Taxation Laws Amendment Bill, 2025 proposes amendments affecting payroll, employers and employees under the Income Tax Act, 1962, with key effective dates of 1 September 2024 and 1 March 2026.

What is changing
Inclusion of previously exempt foreign employment income in 'remuneration proxy'
  •  From 1 March 2026, the definition of “remuneration proxy” in section 1(1) will be amended to require that remuneration proxy be increased by any amount that was exempt under section 10(1)(o) during the relevant period in the previous year of assessment.
  •  This includes foreign employment income previously exempt under section 10(1)(o)(ii).
  •  The amendment also applies to remuneration exempt under section 10(1)(o)(i), including ship crew members and officers.
  •  The change is intended to prevent an artificially reduced remuneration proxy where exempt foreign income was excluded in the prior year, which could result in unintended tax advantages.
What is 'remuneration proxy'
  •  Remuneration proxy is the employee’s total remuneration, as defined in the Fourth Schedule, received from an employer, or any associated institution as defined in paragraph 1 of the Seventh Schedule, in the previous tax year, excluding any residential accommodation fringe benefit.
  • If the employee was not employed by the employer or any associated institution for the entire preceding tax year, the actual remuneration proxy value is annualised using 365 days.
  •  If the employee was not employed in the preceding tax year, the first month’s remuneration proxy value in the current tax year is annualised.
Where remuneration proxy is used
  •  Remuneration proxy is used to determine exempt and taxable values for:
    • exempt bursaries granted to an employee’s relatives or family members
    • immovable property, residential use, acquisition of asset fringe benefit
    • residential accommodation fringe benefit
    • loans for immovable property, low or no-interest debt fringe benefit
  •  The amendment will apply to years of assessment commencing on or after 1 March 2026.

Uniform tax treatment of death benefits across retirement fund components
  •  The definition of 'savings component' in section 1(1) will be amended to clarify that from 1 September 2024, lump sum death benefit payments from the savings component will be treated consistently with the vested and retirement components.
  •  Lump sum payments from all three components, vested, retirement and savings, paid on death will qualify as retirement fund lump sum benefits.
  •  This ensures taxation using the favourable retirement fund lump sum tax tables, rather than marginal income tax rates applicable to savings withdrawal benefits.
  • This will affect funds and fund administrators.

Clarification of savings withdrawal benefit on termination of membership
  •  Currently, savings withdrawal may not be less than R2,000, before charges or transaction costs.
  •  The definition of 'savings withdrawal benefit' will be amended to clarify that where a member terminates membership in a fund, the total remaining balance in the savings component may be withdrawn in full.
  •  This withdrawal of the full balance is permitted without limitation, even if a withdrawal was already made during the same year of assessment.
  • The amendment will apply to years of assessment commencing on or after 1 March 2026.
  • This will affect funds and fund administrators.

Cross-reference alignment for severance benefits and section 8(1)(b)(iv)
  •  The definition of “severance benefit” in section 1(1) will be amended to clarify that “associated institution” refers to the definition in paragraph 1 of the Seventh Schedule.
  •  Section 8(1)(b)(iv) is similarly amended to align references to employer or associated institution with the definitions in the Seventh Schedule.
  •  These amendments are technical cross-reference updates only.
  •  These changes come into operation on 1 March 2026 and apply in respect of years of assessment commencing on or after that date.

Further guidance will be issued once the Acts are promulgated.

Official source

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