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  • Sage VIP explains how budget speech and Taxation Laws Amendment Act will affect payroll in 2013

Sage VIP explains how budget speech and Taxation Laws Amendment Act will affect payroll in 2013

Not implementing the changes in the first period of the new tax year will result in incorrect PAYE calculations, says Karen Schmikl, legislation manager at Sage VIP.


Johannesburg, 01 Mar 2013
Karen Schmikl, Legislation Manager at Sage VIP, part of the Sage Group
Karen Schmikl, Legislation Manager at Sage VIP, part of the Sage Group

Finance minister Pravin Gordhan's Budget Speech on Wednesday, 27 February 2013, introduced several changes that will have a direct impact on payroll and HR across South Africa.

Leading payroll and HR solutions provider, Sage VIP, says administrators will have to ensure their payroll systems are updated as from 1 March 2013 to reflect the stipulated changes.

"Not implementing these changes, in the first period of the new tax year, will result in incorrect PAYE calculations," says Karen Schmikl, Legislation Manager at Sage VIP, part of the Sage Group.

The tax tables for individuals and special trusts for the year ending 28 February 2014 are:





Taxable Income (R)

Rate of Tax (R)

0 - 165 600

18% of taxable income

165 601 - 258 750

29 808 + 25% of taxable income above 165 600

258 751 - 358 110

53 096 + 30% of taxable income above 258 750

358 111 - 500 940

82 904 + 35% of taxable income above 358 110

500 941 - 638 600

132 894 + 38% of taxable income above 500 940

638 601 and above

185 205 + 40% of taxable income above 638 600

Rental Cars as Company Cars

Under normal circumstances, vehicles provided as company cars to employees are owned (purchased or leased) by the employer. Currently, if the company rents a vehicle on a medium term basis and grants the use of it to an employee, the market value is used as the determined car value. Going forward, SARS wants to provide for scenarios where the vehicle is rented by the employer and is subject to an operating lease.
As from 1 March 2013 the actual cost incurred under that operating lease, plus fuel cost is used as the fringe benefit value, as long as the rental arrangement can be viewed as an operating lease. There are specific conditions to comply with, for it to be seen as an operating lease:
* The employer must rent the vehicle from a company that is in the business of renting cars
* The vehicle may be rented by the public for a period of less than a month
* The cost of maintaining the vehicle must be done by the rental company
* Risk of the loss or damage must not be assumed by the employer
The taxation of company cars, which are not subject to an "operating lease", stays unchanged.

Schmikl says the tax rebate amounts have also had changes in line with inflation: "The primary tax rebate amount has been adjusted to R12 080, while a secondary rebate for persons of 65 years and older is set at R6 750. A tertiary rebate for persons of 75 years and older is R2 250."

The tax thresholds have also been adjusted. Below the age of 65, the tax threshold has been set at R67 111; ages 65 to 74 now have a tax threshold of R104 611; while ages 75 and over have a tax threshold of R117 111.

"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. The value of the deemed allowance or advance where the accommodation is in South Africa has been amended to R319 per day for meals and incidental costs, and R98 per day for incidental costs only. The schedule of rates for accommodation outside the country has been published on the SARS Web site," says Schmikl.

The medical tax credits have also been increased to R242 for the main member and first dependent and R162 for every additional dependent thereafter.

Travel allowance costs have also been adjusted. "The SARS deemed rate per kilometre increased from R3.16 to R3.24. 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 2013," says Schmikl.

Value of the vehicle (incl. VAT)

Fixed cost

Fuel cost

Maintenance cost

(R)

(R p.a.)

(c/km)

(c/km)

0 - 60 000

19 310

81.4

26.2

60 001 - 120 000

38 333

86.1

29.5

120 001 - 180 000

52 033

90.8

32.8

180 001 - 240 000

65 667

98.7

39.4

240 001 - 300 000

78 192

113.6

46.3

300 001 - 360 000

90 668

130.3

54.4

360 001 - 420 000

104 374

134.7

67.7

420 001 - 480 000

118 078

147.7

70.5

exceeding 480 000

118 078

147.7

70.5

The Residential Accommodation Fringe Benefit abatement value has increased from R63 556 to R67 111. Schmikl says many companies provide their employees with housing assistance or home loans. This imposes a fringe benefit calculation, which is burdensome if the company transfers the house to the low-income employee. However, Treasury intends to review the fringe benefit tax calculation to lower the burden, which is positive news.

"There were speculations that an additional tax bracket would have been added for higher income earners. However, with the small number of individuals in the top income bracket, this would not have made a significant contribution to the revenue required," says Schmikl.

Variable Remuneration

Remuneration should be taxed when it is paid to the employee or when it is accrued (whichever happens first). This principle sometimes causes problems as a payment can be accrued in a tax year but only be quantified and paid in the next tax year. From 1 March 2013, variable remuneration should be taxed in the month that it is paid to the employee and not when it accrues. This is quite a significant change as this will relief the administrative burden of managing these payments.
Variable remuneration is defined as:
* Overtime
* Bonuses
* Commission
* An allowance or advance paid in respect of transport expenses such as a travel allowance
* Leave Paid out

A positive outcome from the budget speech is the fact that Parliament will be considering tax incentives for employers, as part of a scheme to share the costs of employing young work seekers. However, it is still unclear how and when this will be implemented.

According to Schmikl, the Retirement Reform might be implemented in March 2014. "This will result in fringe benefit calculations when an employer contributes towards the employees' retirement funds, which include pension and retirement annuity funds. A 27.5% deduction is proposed on contributions with a maximum annual deduction of R350 000," says Schmikl.

She continues: "In going forward, employers should also take note of the impact of the Taxation Laws Amendment Act, 2012, on payroll systems. This includes a change in the way employers deal with rental cars as company cars and the taxation of variable remuneration. 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.

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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 24 African countries. Sage VIP's extensive service offering and comprehensive range of products epitomises ease of use, stability and reliability. The flexibility 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.

Sage VIP was voted as the Business and Professional Services Company of the Year for 2012 in the 'Deloitte Best Company to Work For Survey', for the third year running.

Sage

The Sage Group is a leading global provider of business management software to small and medium-sized companies, creating greater freedom for them to succeed. Sage understands how and why each business is unique. It provides products and services that suit varying needs, are a pleasure to use and are secure and efficient. Formed in 1981, Sage was floated on the London Stock Exchange in 1989 and entered the FTSE 100 in 1999. Sage has over 6 million customers and more than 13 500 employees in 24 countries covering the UK and Ireland, mainland Europe, North America, South Africa, Australia, Asia and Brazil.
For further information, please visit www.sagesouthafrica.co.za and www.sage.com.

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