On 31 July 2020, the National Treasury published the 2020 Draft Taxation Laws Amendment Bill, 2020 ("Draft TLAB") Draft Tax Administration Laws Amendment Bill ("Draft TALAB")and the 2020 Draft Regulations Prescribing Electronic Services for public comment (by 31 August 2020). We set out below a brief overview of the material proposed changes.
Income tax: individuals, savings and employment
- Narrowing the scope of the deduction for employers in respect of bursaries and scholarships provided to employees or relatives of employees
- It is proposed that the scope of the tax exemption in respect of bursaries and scholarships provided by an employer (or in certain circumstances an "associated institution" in relation to an employer) to employees or to relatives of employees be narrowed with effect from years of assessment commencing on or after 1 March 2021, to exclude:
- in the case of bursaries or scholarships provided to employees or to relatives of employees, scenarios where a salary sacrifice is or may be involved; and
- in the case of bursaries or scholarships provided to relatives of employees, scenarios where the employer does not also provide similar scholarships or bursaries to enable or assist members of the general public to study.
- Clarifying the exclusion from taxable income of reimbursements to employees for business travel expenses
- The taxable income of an employee currently excludes any amount paid or granted to the employee in reimbursement of or as an advance for any expenditure incurred or to be incurred by the employee on the instruction of the employer in furtherance of the employer's trade, provided that the employee must provide proof to the employer that the expenditure was wholly so incurred and must account for the expenditure.
- It is proposed that the scope of this provision be expanded with effect from years of assessment commencing on or after 1 March 2021, to include the situation where the employee is allowed by the employer to incur expenditure at his/her discretion, not exceeding an amount determined by way of notice in the Gazette (i.e. in respect of meals and incidental costs), as a tax free reimbursement.
- Proposed expansion to the deduction in respect of employer contributions to retirement funds
- When calculating the taxable portion of a lump sum benefit received from a retirement fund which must be included in the gross income of the taxpayer, one of the applicable deductions is the person's own contributions to such retirement fund which were not deductible for income tax purposes.
- A retrospective amendment is proposed (effective from 1 March 2016 when the applicable deduction provision was introduced) to allow contributions made to the retirement fund by an employer on behalf of the employee and which were not tax deductible to qualify for deduction against the lump sum benefit.
- Amendments to provisions dealing with withdrawals from retirement funds upon formal emigration
- Members of preservation funds and retirement annuity funds may withdraw from such funds if they formally emigrate from South Africa for exchange control purposes and their emigration is approved by the South African Reserve Bank ("SARB"). However, it was announced in the 2020 Budget Review that the concept of emigration for exchange control purposes will be phased out.
- As a result, the requirement of formal emigration will be removed and a new requirement for the withdrawal of lump sum benefits from these retirement funds is proposed effective from 1 March 2021, namely, that the person is not a resident (i.e. for tax purposes) for an uninterrupted period of three years or longer. It appears that this requirement is intended to apply to three consecutive tax years, although the amendment refers simply to years.
- Expansion of anti-avoidance provisions relating to the funding of Trust
- The provision of an interest-free or low interest loan by a natural person (or at their instance by a company which is a connected person) to a trust or to a company which is a connected person in relation to a trust, can result in an annual donations tax liability for the natural person concerned.
- The proposed amendment, effective in respect of years of assessment commencing on or after 1 January 2021) brings into the ambit of the anti- avoidance rule the subscription for preference shares in a company which is a connected person in relation to a trust. In this instance, the subscription price for the preference shares will be deemed to be a loan for purposes of the anti-avoidance rule and any dividends declared in respect of the preference shares will be deemed to be interest in respect of the deemed loan.
- Rollover of Employment Tax Incentive Amounts
- Where an employer is not tax compliant, the Employment Tax Incentive ("ETI") may only be claimed when that employer becomes tax compliant, and the unclaimed ETI amounts are rolled over until the first month in which the employer is tax compliant.
- However, tax compliant employers must claim any unclaimed ETI amounts by the last month of each PAYE reconciliation period (i.e. by the end of August and February respectively) or such unclaimed ETI amounts will be forfeited. This has the unintended consequence that non-compliant employers may qualify for a longer rollover period for their unclaimed ETI amounts than tax compliant employers. It is accordingly proposed that non-compliant employers be subject to the same forfeiture rule at the end of August and February as tax compliant employers.
Income tax: business (general)
- Clarifying rollover relief in respect of "unbundling transactions"
- Section 46(7) of the Income Tax Act No. 58 of 1962 (the "Act") provides that a transaction which otherwise constitutes an "unbundling transaction" as contemplated in section 46(1)(a)(i) of the Act, will be excluded from the "roll- over" provisions of section 46, if immediately after any distribution of shares in terms of an unbundling transaction 20% or more of the shares in the unbundled company are held by a disqualified person either alone or together with any connected person (who is a disqualified person) in relation to that disqualified person.
- It is proposed that the reference to "connected persons" be removed and that deferral in terms of an unbundling transaction should not be allowed if, immediately after any distribution of shares in terms of an unbundling transaction, 20% or more of the shares in the unbundled company are held, in aggregate by disqualified persons.
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.