Budget 2022 - Reviewing the timing of accrual and incurral of variable remuneration
23 February 2022
Section 7B of the Income Tax Act allows for the taxation of what is referred to as ‘variable remuneration’ to be deferred to the date when the amount is actually paid to the employee rather than when it accrues to the employee.
On the tax deduction side, this deferral principle also applies to the employer incurring and paying variable remuneration with the time of the deduction triggered at the time of payment.
For this purpose, ‘variable remuneration’ includes:
- Overtime pay, bonuses or commission;
- an allowance or advance paid for transport expenses;
- an amount to which the employee becomes entitled as a result of unused leave;
- any night shift or standby allowance; or
- any amount paid or granted as a reimbursement.
Government acknowledges that the above list does not accommodate all possible types of variable remuneration which employees receive, such as performance-based payments where the payment is based on units produced. Accordingly, it is proposed that the definition be extended to include these performance-based variable payments.
Previously, these amounts would have been deducted by employers under section 11(a) on an accrual basis regardless of whether payment had been made or not as they would not have been specifically included and recognised as variable remuneration under section 7B.
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