HR Pulse

Taxation Laws Amendment Act and how it affects you

As the current focus in the field of employee benefits is the Taxation Laws Amendment Act, 2013 and Employment Tax Incentive Act, I jumped at the opportunity to attend the South African Reward Association employee benefits breakfast on 12 February at the Johannesburg Country Club to find out more about the consequences of the acts and the changes these will bring. These changes require employers to review and consider amendments to their employment agreements and policies, as these do impact how employees are remunerated.

Beatrie Gouws, a director in National Treasury's legal tax design unit, hosted the discussion on the Taxation Laws Amendment Act and gave a wonderfully easy-to-understand presentation informing us of the seven things we can expect from the amendments to the taxation laws. Here are five changes the Taxation Laws Amendments Act will bring that you need to know about NOW.

1. Any bursary granted by an employer to an employee or employee's relative is exempt from income tax subject to the following conditions:

As from 1 March 2013, a bursary is granted to a relative of an employee is exempt from income tax, if:

-The employee's remuneration is not more than R250 000 (was R100 000) during the year of assessment, and

-The amount of the bursary or scholarship granted is not more than R30 000 (was R10 000) in the case of tertiary education, and R10 000 in the case of basic education.

2. The tax treatment of individual-based insurance policies will be aligned

Currently, two types of personal disability insurance cover are provided:

-Income protection (covers actual loss of future income) contributions are tax deductible and pay-outs are taxed.

-Capital protection (covers the loss of income-earning capacity, e.g. loss of a limb) contributions are not tax deductible and tax-free on pay-out.

As from 1 March 2015, there will be no deduction for premiums/contributions, and pay-outs on all personal insurance cover will be tax free. This will affect both personal and employer-provided policies, says Beatrie.

3. Excess deduction donations will roll over

Current state of affairs: The government provides incentives to people who donate to public benefit organisations. Deductible donations, however, are limited to 10% of the taxable income per donor per year of assessment, meaning that any excess donation is permanently lost.

As from 1 March 2014: According to Beatrie, any excess donations will be allowed as a deduction in the subsequent years of assessment – but subject to the 10% rule every year.

4. There will be a provident fund post-retirement annuity alignment

At the moment, provident fund members can't deduct their own contributions for income tax purposes and they are not required to annuitise at the time of retirement.

From 1 March 2015, this changes. According to Beatrie, provident fund members will be required to annuitise at retirement, but existing members' vested rights will be protected by not having to annuitise in the following situations:

- Regarding any accumulated retirement savings as at 1 March 2015 and any subsequent growth thereon, and

- For any provident fund members above 55 years as at 1 March 2015, any contributions made after 1 March 2015 to that provident fund and any growth thereon.

These changes are needed to align provident funds with other retirement funds. This means that those people who are members of provident funds will also be able to receive the same tax deduction and protection as from 1 March 2015.

5. Anti-avoidance share schemes income will be recognised

The problem: There are a number of schemes where employers are using dividends to provide a lower-taxed income (disguised salary) to their employees.

Beatrie says that the "proposed anti-avoidance measure is targeted at share schemes where the sole intent is to generate dividends for employees without the employees ever obtaining direct control of the shares.

"As from 1 March 2014, it is proposed that dividends be taxed as ordinary revenue in the hands of the recipient if the dividend was received in terms of services rendered or by virtue of employment or holding of office (other than in respect of restricted equity instruments or shares held by the recipient)."

Keep an eye out for my next article where I will focus on Beatrie's discussion on the Employment Tax Incentive Act, its regulations and the consequences for you.

Frew Murdoch is the assistant editor of HR Pulse. She has a BA degree in communications and English and a passion for HR technology. Christine Botha, co-author of 'Ethics in HR Management: A guide for HR professionals and line managers', had this to say: "I stumbled across your review of our Ethics Guide published 28 June 2012 and wish to thank you for the positive and complimentary comments made – this was a lovely surprise and most rewarding. I will certainly pass this on to all co-authors of the Guide."