South Africa: Employees’ Tax Highlight Stemming From The 2013 Tax Amendments

Last Updated: 7 August 2013
Article by Dan Foster

Proposals to Employees' Tax proposed in the 2013 Draft Taxation Laws Amendment Bill

  1. Dividends paid on unvested shares held via employee share schemes will be taxed as remuneration in the hands of the employee, not as exempt dividends. Such dividends will be exempt from the Dividends Withholding Tax and be a deductible expense for the employer, like other remuneration

    What this means:

    Employees receiving dividends from restricted shares acquired from their employer will in future incur employees' tax on this income, instead of the Dividend Withholding Tax (15%). For employees earning over R638 601pa, the tax to be levied will be at the marginal rate of 40%. For lower income earners, earning under R258 750pa, this will be between 0-25%. This change will apply equally to senior management incentive plans as to broad-based schemes operated via BEE trusts. It will also entail additional PAYE compliance processes by employers who operate such schemes. While Treasury understandably wants to stop abuse of the tax system, by for example senior executives being paid exempt dividends instead of salary, the change has very broad and far-reaching consequences. It will be interesting to see how unions, for example, react to their members now suffering income tax on BEE dividends. Many BEE arrangements also relied on funding models which assumed dividends would be tax exempt.
  2. Deduction for premiums paid to income protection policies has been abolished. Proceeds (e.g. disability annuity) will however be exempt from tax

    What this means:

    Individuals are currently incentivised to insure their income-producing capacity by taking out Income Protection Policies, since the premiums are tax deductible (while the annuities received in the event of an accident are taxable). This incentive will be removed in an attempt to cultivate uniformity in the tax treatment of policies that relate to personal cover for individuals. This is difficult to understand from an overall policy perspective. The resulting policy annuity will however be exempt. It is understandable that Treasury should seek consistency in the tax system, but it remains a fact of human behaviour that people will not be encouraged to take out such policies just because the proceeds are now exempt. The issue here is that most people will possibly be discouraged from planning for a future catastrophe such as disability brought on by an accident especially if the tax benefit depends upon the occurrence of some future event that may or may not occur. We shall simply see more uninsured people, which is not good for anyone. The extra tax revenue generated will be minimal, so it is difficult to grasp the rationale Treasury seeks to apply here.
  3. Charitable donations in excess of 10% of taxable income can be carried forward to future years of assessment, not lost as non-deductible. This proposed amendment is therefore likely to encourage high income earners to make charitable donations.
  4. Pension proposals to proceed as outlined in the Budget and Treasury consultation papers. Employer contributions to all funds to become a taxable fringe benefit. Aggregate of employee and employer contributions to be tax deductible for the employee up to a limit of 27.5% of the greater of remuneration or taxable income, capped at R350 000 per annum. No limit on corporate tax deduction for employer contributions to funds

    What this means:

    As expected, the tax system for retirement contributions has been overhauled High-earning individuals will be the most hard hit and will be discouraged from making provision for their retirement in excess of the R350 000 monetary cap per annum. The insurance and retirement fund industries may also suffer from this proposed amendment, which could push up costs for everyone else in the funds. It is also unclear how these changes will impact foreigner nationals working in South Africa, and the interaction with tax treaties, since tax on retirement savings can be a deal breaker for expatriate assignment costs to employers, and to potential immigrants.
  5. New fringe benefit valuation rules for employer contributions to defined benefit retirement schemes
  6. Mandatory retirement annuity requirement extended to Provident Funds from 1 March 2015. Therefore lump sum limited to 1/3rd of fund, as is now the case for Pension Funds. New rules to preserve historic rights, i.e. balance in fund at 1 March 2015 is not subject to compulsory annuitisation.

    What this means:

    The grandfathering provisions are very welcome and should prevent a rush to extract funds.
  7. Extended fringe benefit concession for transfer of low cost housing to employees.

    What this means:

    Extended tax exemption for bursaries provided to relatives of employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions