Background

Under section 9(4) of the Employment Tax Incentive Act, employers may only claim ETI within each six-month PAYE reconciliation period:

• 1 March – 31 August, and
• 1 September – end of February.

Any unclaimed ETI amount is deemed to be nil from the first day after the reconciliation period. Historically, this has meant that retrospective claims were not permitted.

SARS has investigated employers who attempted to claim ETI amounts from earlier periods, beyond the six-month limit. This resulted in the Tax Court matter:

1. Taxpayer M v Commissioner for the South African Revenue Service (IT 45585, heard January 2022).
   

Core Issue

Taxpayer M submitted a revised declaration seeking a refund of R1.4 million in unclaimed ETI, after the reconciliation period had closed and the EMP501 had already been filed.

SARS rejected the claim, arguing that the ETI Act imposes a strict “use it or lose it” rule.

Court Ruling

The Tax Court found in favour of the employer. Key points included:

• The ETI’s purpose is to stimulate employment; forfeiting benefits due to timing would conflict with this purpose.
• The Act’s “deeming provisions” prevent double-claiming but are not intended to deny legitimate ETI due to administrative timing.
• Employers are entitled to correct their submissions and receive any under-claimed ETI for the relevant period.

The judgment has not been appealed.

SARS has since clarified its stance:

• It is aware of the judgment but does not agree with the interpretation of the law.
• The case could not be appealed for procedural reasons, but SARS maintains its legal view.
• SARS points to its Draft Guide to the Employment Tax Incentive (Issue 5), which emphasises:
  • Tax Court judgments do not create legal precedent, even though they may be persuasive.
  • SARS’s interpretation of the legislation remains unchanged.

SARS's Continuing Position

Despite the court ruling, SARS still holds that:

• If an employer does not claim ETI within the prescribed reconciliation period,
• the amount is deemed nil from the first day after this period,
• and retrospective claims will not be approved.

• The PAGSA’s longstanding understanding remains: historical ETI claims are not allowed under section 9(4).
• The Tax Court ruling provides persuasive support but does not override SARS’s operational approach.
• Employers may still attempt to submit historical claims; however,
  • SARS is expected to disallow them, and
  • disputes may need to be escalated to the Tax Court for resolution.

There is now a clear divergence between:

• the Tax Court’s interpretation, suggesting ETI should not be forfeited for administrative timing reasons, and
• SARS’s continued stance, grounded in its Draft ETI Guide, that unclaimed ETI becomes nil after the period closes.

Employers should carefully weigh the potential benefits and risks of submitting retrospective ETI claims, bearing in mind that SARS is prepared to challenge such claims and may require resolution through the courts.