Sage VIP explains how the Taxation Laws Amendment Act will affect your payroll in 2014

“The new tax year is imminent and companies should take special note to verify that their HR and Payroll systems incorporate the changes introduced by Finance Minister, Pravin Gordhan during his Budget Speech on Wednesday, 26 February 2014,” says Yolandi Esterhuizen, the Legislation manager at Sage VIP, a leading payroll and HR solutions provider.

 

“If the stipulated changes are not reflected in HR and Payroll systems as from 1 March 2014, it might result in incorrect PAYE calculations.”

 

A positive outcome from the budget speech is the fact that Parliament proposed an increase in the cumulative exemption for retirement and severance benefits from R315 000 to R500 000. “This will result in a higher tax free portion once these benefits are paid out,” says Esterhuizen. According to the Minister, the white paper on National Health Insurance as well as the financing paper will be tabled in Cabinet soon which might result in an improved health system. It is still unsure how the NHI will be funded, but it will possibly have an effect on payrolls.

“Government is also looking into a mandatory system of retirement for all employees due to the fact that about 6 million individuals do not enjoy employer-sponsored retirement plans” says Esterhuizen.

“There was speculationthat the tax brackets would not be amended. However, it was adjusted in line with inflation,” says Esterhuizen.

There were no surprises on the front of tax tables for individuals and special trusts, tax rebate amounts and tax thresholds, with inflationary adjustments being made.

 

The tax tables for individuals and special trusts for the year ending 28 February 2015 are:

Taxable Income (R)

Rate of Tax (R)

0-174 550

18% of taxable income

174 551 – 272 700

31 419 + 25% of taxable income above 174 550

272 701 – 377 450

55 957 + 30% of taxable income above 272 700

377 451 – 528 000

87 382 + 35% of taxable income above 377 450

528 001 – 673 100

140 074 + 38% of taxable income above 528 000

673 101 and above

195 212 + 40% of taxable income above 673 100

 

Tax rebates

The primary tax rebate amount has been adjusted to R12 726, while a secondary rebate for persons of 65 years and older is set at R7 110.  A tertiary rebate for persons of 75 years and older is R2 367.

 

Tax thresholds

Below the age of 65, the tax threshold has been set at R70 700, ages 65 to 74 now have a tax threshold of R110 200, while ages 75 and over have a tax threshold of R123 350.


“An employee is entitled to receive a subsistence allowance when the employee is obliged to spend at least one night away from his or her usual place of residence
due to the duties of his or her office or employment. The value of the deemed allowance or advance where the accommodation is in South Africa has been amended to R335 per day for meals and incidental costs and R103 per day for incidental costs only. The schedule of rates for accommodation outside the country will be published on the SARS website,” says Esterhuizen. Payments that exceed these limits will be assessed by SARS.

 

The medical tax credits have also been increased to R257 for the main member and first dependent and R172 for every additional dependent thereafter. The medical tax credits for employees who are 65 or older are the same as for employees who are younger than 65 years of age. No deduction for employees who are 65 and older will be allowed anymore. 


Travel allowance costs have also been adjusted. “The SARS prescribed rate per kilometre increased from R3.24 to R3.30.  The fixed cost, fuel and maintenance cost values have been amended and it is advisable to recalculate the value of all employees’ travel allowances from 1 March 2014,” says Esterhuizen.

 

Value of the vehicle (incl. VAT)

Fixed cost

Fuel cost

Maintenance cost

 (R)

(R p.a.)

(c/km)

(c/km)

0-80 000

25 946

92.3

27.6

80 001 – 160 000

46 203

103.1

34.6

160 001 – 240 000

66 530

112.0

38.1

240 001 – 320 000

84 351

120.5

41.6

320 001 – 400 000

102 233

128.9

48.8

400 001 – 480 000

120 997

147.9

57.3

480 001 – 560 000

139 760

152.9

71.3

Exceeding 560 000

139 760

152.9

71.3

 

Esterhuizen concludes: “In going forward, employers should also take note of the impact of the Taxation Laws Amendment Act, 2013, on payroll systems. It is advisable for employers to ensure that these changes are being applied to their payroll system, to keep the company compliant and up to date with legislation.

 

For more information on the Budget Speech or to reserve a seat for the Annual Payroll Tax Seminar, please visit www.vippayroll.co.za.

 

 

Sidebar

 

·         Low Cost Housing (Acquisition of an Asset fringe benefit)

There are many companies assisting their employees to obtain housing. This imposes a fringe benefit if low-cost housing is transferred to the employee. As from March 2014, if immovable property (for example a house) is given to an employee, then no fringe benefit should be calculated provided that:

      the remuneration of the employee for the year of assessment prior to which the employee acquires the immovable property was R250 000 or less and

      the market value on the date of acquisition of the immovable property is R450 000 or less and

      the employee should not be a connected person to the employer.

 

·         Medical Aid

From March 2014 medical aid benefits for employees who are 65 or older will be calculated exactly the same on the payroll as employees who are younger than 65. Employees who are 65 or older will not be entitled to a deduction from remuneration, but will instead be entitled to a tax credit. The medical tax credits amounts for employees who are 65 or older will be exactly the same as the tax credits for employees who are younger than 65. The employee will be taxed on the company contribution, unless the employee is retired from such employer.

 

·         Bursaries and Scholarships 

If a bona fide bursary or scholarship is granted to any person (‘open’ bursary) to study at a recognised educational or research institution, there will be no tax implication. If the bona fide bursary or scholarship is granted to an employee (‘closed’ bursary), the bursary will be exempt from tax if the employee agrees to repay the employer if the employee does not complete the studies. If the bursary or scholarship is granted to the relative of the employee (‘closed’ bursary), the bursary will be exempt from tax unless:

      the employee’s remuneration for the previous year of assessment was above R250 000 (the full amount of the bursary should be taxed) or

      if the employee’s remuneration for the previous year of assessment was R250 000 or less, the first R10 000 of the bursary is exempt for an NQF level 1-4 qualification, and the first R30 000 of the bursary is exempt for an NQF level 5-10 qualification.

 

Where the employee was not employed by the employer for the whole of the preceding year, the remuneration he/she received from the employer for the portion of the year he/she was employed by the employer must be calculated pro rata for the full 365 days.

 

If the employee was not employed by the employer for any portion of the preceding year, the employee’s remuneration for the first month he/she is employed by the employer, must be calculated pro rata for a full 365 days.

 

This was backdated in the Taxation Laws Amendment Act, 2013 and is therefore applicable as from March 2013.

 

·         Retirement Reforms

From March 2015 an employer’s contribution to retirement funds on behalf of an employee will be treated as a taxable fringe benefit in the hands of the employee. Individuals will from that date be allowed to deduct up to 27.5 per cent of the higher of taxable income or employment income (remuneration) for contributions to pension, provident and retirement annuity funds with a maximum annual deduction of R350 000. Contributions above the cap are carried forward to future tax years. This means that retirement funding income (RFI) will no longer be applicable.

 

·         Income Replacement Policies

Currently an employee contribution (including the fringe benefit as a deemed contribution) is tax deductible in the hands of the employee. This will not change for 2014-2015. However, as from 1 March 2015, no deduction will be allowed (i.e. it will not be tax deductible anymore).


About Sage VIP

 

Sage VIP is a leading supplier of payroll and human resource management solutions in South Africa and Africa, having a comprehensive African partner network that comprises of 35 African countries.  Sage VIP’s extensive service offering and comprehensive range of products epitomises ease of use, stability and reliability.  The flexibility that the Sage VIP service offering provides is uniquely catered to each client’s company and legislative needs, whether it is an SME or a multinational corporation.  

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