Provisional Taxes Extended to Certain Remuneration-Earners
28 November 2016
By Esther van Schalkwyk, Senior Tax Consultant at BDO SA
The Tax Administration Laws Amendment Bill of 2016 (2016 TALAB) proposes to expand the definition of ‘provisional taxpayer’ to include certain remuneration-earners not subject to employees’ tax (PAYE). Persons who qualify as provisional taxpayers are required to estimate their taxable income and make prepayments of their income tax liability twice a year. The first provisional tax payment is due six months into the year (31 August for individuals) and the second payment is due at year-end (the last day of February for individuals).
Currently provisional taxpayers include natural persons who derive income from any amount other than ‘remuneration’ as defined or certain allowances or advances, and all companies and persons who are notified by the Commissioner that they are provisional taxpayers. Persons deriving ‘remuneration’ are regarded as employees. Employers must usually withhold employees’ tax from their employees’ remuneration on a monthly basis as a prepayment to SARS of the employees’ income tax liability. As a result of the monthly withholding of employees’ tax from remuneration, employees who derive remuneration as their only source of income do not have to register as provisional taxpayers. This exclusion from the definition of provisional taxpayer extends to individuals who derive remuneration in circumstances in which their employers are not registered for employees’ tax. Examples of cases in which employers do not have to register for employees’ tax include where none of the employees of an employer are liable to pay income tax (for example the employees fall under the income tax threshold) or if the employer is a non-resident and there is no ‘representative employer’ present in South Africa. In the latter case, the employees of the non-resident would neither be subject to employees’ tax on their remuneration nor provisional tax. In effect, the fiscus would only collect tax on the remuneration of these employees on assessment. This results in a deferment of the payment of income tax for those individuals.
The 2016 TALAB extends the definition of a provisional taxpayer to natural persons earning remuneration from an employer that is not registered as an employer for employees’ tax purposes. In the case of a foreign employer not having a ‘representative employer’ in South Africa, employees’ tax would not apply but the employee would be required to make provisional tax payments and submit a provisional tax return twice a year. This extension may have unintended consequences. For example, domestic workers whose employers would usually not be registered for employees’ tax purposes may now become subject to provisional taxes. Provisional taxes are, however, subject to the legislated de minimus rule that natural persons not carrying on a business are exempt from provisional taxes if their taxable income does not exceed the tax threshold or their taxable income from interest, dividends, foreign dividends and rental from the letting of fixed property does not exceed R30 000 per year. Many domestic workers earn more than R30 000 per year and the proposed amendment would, as a result, force these workers to register as provisional taxpayers even though they may not be liable for income tax if their taxable income falls below the income tax threshold. This seems to be an oversight.
The proposed extension of provisional taxes is likely to come into operation on 1 March 2017.
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