SARS’ new rule: Is travel compensation still worth the chase?


Tanya Tosen – Put Payroll On A Banting Diet

Much more can be done to Improve Employee Remuneration

What can be done to remunerate employees better? The simple answer is plenty. Yet many employers do not get the most out of employee package structuring. This is one of those areas where there are “too many experts”, and correctly so, as this spans the professional functionality of remuneration specialists, tax advisors, auditors, financial planners and trustees.

Therefore, depending on which professional you ask, you will get different responses, for example, tax advisors will comment on that there is no tax risk, whilst they have no experience in remuneration methodology and financial planning.

Conversely, trustees will always promote better retirement planning and more risk benefits, which are indeed important, but should this be more important than putting a child through the best possible education. The correct answers only come when you deal with holistic experts that can demonstrate to you an approach of “total reward statements”.

Tough Times Means no More Holy Cows

With economic times being what they are, employers cannot afford large increases. It also becomes difficult to give good increases if you are retrenching staff. The question then is, what can be done to pay employees better.

If you have ever offered an employee a job and needing to “gross-up” the package because the take-home pay is not enough, the reason is most likely not your costing of the job, but rather not having the correct package structure flexibility.

The Supreme Court of Appeal says you can Salary Sacrifice

On November 30th 2015, it was confirmed that the Supreme Court of Appeal has delivered a final judgement on remuneration structuring. The simple message is that it is absolutely legal to structure remuneration and allow a salary sacrifice. A word of caution before you proceed.

The principle has been confirmed. The Supreme Court of Appeal (SCA) made it very clear that a package structuring agreement and correct documentation, which will include policies and often a Package Structuring Tool, is compulsory. With no ambiguity, the SCA said it will simply not believe oral evidence and the actual legitimacy depends on correctly executed documents.

What is the Golden Rule?

An employee should be allowed to structure their remuneration to meet personal financial requirements. Where this is not done, the employer is “paying” for benefits or allowances which employees do not want. This means hard earned employee remuneration is paid towards benefits which the employee does not value. It may make your employee benefit broker happy, but it does not mean anything for your employee. Rather give your employee the choice to utilize flexible benefits to maximize their package.

Flexible Items

The most commonly allowed items to a flexible-package are retirement funding, group life, disability, income protection, funeral cover, employee vehicle insurance, travel allowance, company vehicles, medical aid, gap cover, thirteenth cheque etc.

Why do all Companies not do this?

Employers are generally not well informed of what legally can be done. In addition, the functions within the company who should promote this flexibility are usually concerned about additional administration. The administration is actually not that much more, where you are currently administering the employee benefit provider and payroll systems.

What is New?

The budget 2017/18 had plenty of bad news for employers, but there has been serious relief given for employee child bursaries’.


Employee Children Bursaries – Tax Saving Structuring

Employee Children Bursaries – Tax Saving Structuring

The ability for employees and business owners to pre-tax structure their children’s school and university fees, remain one of the few available, but seldom used tax planning opportunities. This is the only tax break allowed on private expenses and have been extended in the 2017/18 Budget Speech.

The saving depends on the cost of school fees, tax brackets and number of children. For qualifying employees, the saving ranges between R3,600 to R23,400 per child per annum.

The most common reasons why employers, business owners and their advisors have been reluctant to offer this to employees include –

  • Technical uncertainty on how the tax relief must be package structured correctly and concerns that a tax scheme may be operated which may later be challenged by SARS audit.
  • Resources to implement, roll out and administer the scheme.
  • Capacity to deal with employee questions, tax risk management, proper communication on the saving to employees.
  • The cost of top end tax advisors to see through implementation and administration.

We offer an outsourced employee children bursary scheme, with no cost to the employer. The cost of this service is an administration fee, funded from the tax saving –

a) Assessment on whether employees qualify, and the tax saving achieved.

b) Salary structuring agreement.

c) Instruction for payroll.

d) One invoice per month for all participating employees with reconciliation.

e) Tax policy documentation, tax opinion and other supporting documentation to ensure full tax legal compliance and tax risk management.

Our service includes our defence against any SARS employees’ tax audit or employee personal tax audit, at no cost to the employer, including any costs of defence at the Tax Board or Tax Court.

The Increasing Need for Flexible Benefits

The Increasing Need for Flexible Benefits

Today’s South African organisation finds itself entrenched in difficult and uncertain market conditions resorting to cost saving solutions such as retrenchment, down-scaling and redundancy. Consequently, this has a notable ripple effect on attraction and retention strategy.

Ensuring the right talent remain with the organisation, in an environment where every Rand counts, has now become increasingly difficult, yet, critical to sustainability. Introducing flexibility to the remuneration package is an effective means of enhancing the employee value proposition and strengthening employee retention, without increasing salary costs.

Payroll professionals, by the nature of their function, have a good sense of what other organisations in the industry are doing in terms of effectively structuring the delivery of remuneration to their employees. Their understanding of competitive package structuring practices in the market ideally positions them to provide guidance to Human Resources in this regard.

The concept of incorporating flexible benefits within the remuneration structure is becoming widely recognised. It is a typical feature of the Cost-to-Company (CTC) structure. CTC structures, with flexible benefits, offer employees an opportunity to structure the benefits portion of their package to suit their current financial and personal needs.

The CTC with flexible benefits approach provides employees with the following advantages –

  • It enables employees the opportunity to make informed choices by tailoring parts of the remuneration package to fit with their personal and financial circumstances;
  • The employee is not forced to participate in benefits that they may not value or require;
  • The employee will not be worse off as their package remains the same and the employee can elect benefits is such a way that they still maintain their desired net take home pay; and
  • It aligns with retirement reform rules on where employer contributions to pension and provident funds will become fully taxable and employee will receive a corresponding tax deduction up to 27.5% Or a maximum of R 350 000 per annum, which ever applies first.

The advantages of this approach also extends to the employer as follows –

  • There are no hidden costs which allow better budgetary control and management of remuneration costs;
  • It enables employers to be better positioned to attract and retain quality personnel through effective delivery of remuneration;
  • The structure is tax-compliant, resulting in no unforeseen liabilities in the event of a tax audit; and
  • The approach allows for the harmonisation between employee remuneration, ensuring compliance to Section 6(4) of the amended Employment Equity Act (EEA) 55 of 1998.

The key considerations regarding the introduction of flexibility as part of the remuneration package are outlined below.

  • Exclusively costed arrangement – An arrangement where the cost of risk benefits and administration fees are separated from the retirement funding portion of the contribution towards the retirement fund and allows the employee to structure the contribution in a manner which ensures that the retirement savings portion is optimised.
  • Fund Salary (Pensionable Emolument) – flexibility in fund salary will allow the employee an option to either increase or decrease the base upon which retirement funding and risk benefits contributions are calculated. In this way employees can either maximise retirement and risk benefits or increase their net pay through a lower contribution.
  • Multiples of Risk – where flexibility of risk benefits are provided in terms of a range of multiples of fund salary, employees can flex the benefit up or down depending on specific needs and life stage. Again, this will allow for either maximising the benefit or increasing net take home pay by choosing a lower multiple of risk cover.
  • Medical Aid – by allowing the flexibility of choosing between a selection of plans on offer within the medical aid scheme, the employee can choose a plan that balances their medical cover needs with contribution rates.

Implementing flexible benefits within the remuneration structure will not only serve to help employees understand the full value of their remuneration package, but promotes fair and equitable pay practices. Where flexible benefits are aligned with the TGP approach, employees can enjoy maximum flexibility. Furthermore, employees can exercise personal choices on how their remuneration package is optimally delivered, thereby contributing to the attraction and retention of employees.

Increase of the Scale of Benefits

Increase of the Scale of Benefits

The Unemployment Insurance Amendment Act, No. 10 of 2016 (“the Act”), is aimed at having a positive effect on the country’s labour force. Furthermore, there are likely to be positive effects on the economy as well.

The Act will see those who lose their jobs receive money for a longer period when they apply for unemployment benefits. The UIF benefits have been increased from 238 days to 365 days. A further change here is that employees will be able to apply for benefits over twelve (12) months as opposed to six (6) months as was the situation prior to the amendment.

Some further amendments relate to maternity leave. Expectant mothers were not able to claim maternity benefits because they could not claim until the child was born. This meant that only once the child was born, the benefits could be claimed for and were received upon the mother returning to work. Expectant mothers may now claim eight weeks before estimated due date, which should grant the benefits to the mother when necessary and not post-fact. The maternity benefit has also been increased from 45% of normal pay to 66%.

On 17 March 2017, the Minister of Labour, Mildred Nelisiwe Oliphant amended the Unemployment Insurance Fund scale of benefits contained within Government Gazette notice No. 588. The value of the benefit pay-out by the Fund has been amended. The changes in the amounts are an increase in the per annum rates, from R 178 464 to R 212 539 and an increase in the monthly amount to R 17 712 and an increased weekly amount of R 4 087.

The UIF thresholds were last adjusted in 2012. As a result of the new threshold values that will come into effect on 01 April 2017, these contributions will now increase to up to R 177.12 per month for employees who earn above the previous threshold value of R 14 872 and were capped at a maximum contribution of R147.82.

These changes will take effect from 01 April 2017.

Herewith a link to the Government Gazette notice:

Anglo Clips Executive Wings

The undertaking falls short of shareholders’ demands, but marks an effort to ensure executives do not score big for developments beyond their control.

Anglo American has delivered on its promise and pared back the scope for mining executives to be excessively rewarded as a consequence of surging commodity prices and favourable exchange-rate movements.

The undertaking to limit rewards was not as much as some shareholders demanded at the 2016 annual general meeting, but it marked an effort to ensure that executives do not score big remuneration payouts for developments beyond their control. In particular, it should help ensure that executives do not pocket hefty bonuses in times of negative returns.

The mining group’s remuneration committee is also trying to limit the profit accruing to executives when they are awarded large tranches of shares during a slump in the share price.

After the shareholder revolt in 2016, when a record 41% of shareholders voted against the remuneration policy, CEO Mark Cutifani promised to heed their concerns.

In 2015, Cutifani was paid £3.4m, which seemed reasonable, but his package included an eye-popping 1-million shares. These were awarded to Cutifani in terms of the company’s long-term incentive plan, which allowed for the awarding of shares valued at up to 350% of his basic salary.

In 2015, Anglo’s share price fell a whopping 75%, which meant Cutifani was automatically in line for a huge share award. During the year, the share price plummeted from just more than £12 in January to just more than £2 by year-end. Those shares are now back at close to £12 thanks to a recovery in commodity prices.

The chairman of the remuneration committee, Philip Hampton, said the committee was determined to tackle concerns about windfall gains for executives caused by share price volatility and the mining industry generally.

To do this, the new policy divides the measurement of earnings per share — half to be measured on actual earnings and the other half to exclude commodity prices and exchange rate fluctuations.

“The committee considers that this change will help smooth volatility and result in outcomes which provide a better balance between items within management’s control and those outside it,” said Hampton.

Other changes are aimed at limiting the benefits from spikes and troughs in the share price. Long-term incentive awards will be more closely aligned to total shareholder returns, with the maximum award for the CEO being reduced to 300% from 350%.

The proposed new policy will cap the value that can be received from shares awarded in the past as well as the future.

Executives will receive none of the shares awarded in 2014 because the three-year targets for total shareholder return and return on capital employed were not met.

According to Reuters, Luke Hildyard, an executive at one of the UK’s largest pension fund associations, the Pensions and Lifetime Savings Association, said that while Anglo’s direction was to be welcomed, an annual bonus potentially worth 300% of a salary on top of fixed pay approaching £2m still seemed “far too generous”.

Anglo’s proposals may have been influenced by the association’s plans to encourage its members to take a tougher line in re-electing remuneration committees.

Anglo is just one of many London-listed companies to have experienced shareholder revolts in 2016. Others included BP, Smith & Nephew, Shire and Babcock.

But despite the protests, shareholder action has so far proved to be largely ineffectual. The British government is working on proposals to reform executive pay.

As published by Business Day
Author – Ann Crotty

Budget 2017: Tax Changes


The 2017 budget lived up to the expectation created by the Finance Minister with the medium term budget policy statement late last year in which it was made clear that R28bn in additional tax revenue must be generated.

Tax increases were announced as follows:

  • Introduction of top marginal tax rate of 45% on personal taxable income above R1 500 000;
  • Increase in tax rate applicable to trusts (excluding special trusts) from 41% to 45%;
  • In consequence of increased top marginal rate for individuals, effective CGT rate for natural persons increased from 16.4% to 18% and in the case of trusts other than special trusts from 32.8% to 36%. The effective CGT rate applicable to companies remains the same at 22.4%;
  • Increase in dividends tax rate from 15% to 20%. Effective corporate tax rate is 42.4% from 1 March 2017. Foreign dividends that don’t qualify for exemption will also now have an effective tax rate of 20%; and
  • Withholding tax on non-residents disposing of immovable property is increased from 5% to 7.5% for foreign individuals, from 7.5% to 10% for foreign companies and from 10% to 15% for foreign trusts.

SARS’ tax pocket guide, which you can access here, contains a summary of the latest rates for the upcoming fiscal year.

Other tax changes proposed in the budget include:

  • Expanding the VAT base to include VAT on fuel. This is in addition to the fuel levy;
  • The section 10(1)(o)(ii) 183/60 day exemption for employment income to be amended to allow the exemption only where the employment income is taxed in the foreign country;
  • The definition of ‘resident’ to be amended for VAT purposes to address issues with VAT becoming a cost to certain non-resident companies effectively managed and controlled in South Africa;
  • The VAT zero rating associated with international travel is expected to be changed;
  • Currently VAT is imposed in South Africa upon the supply of certain electronic services and that cloud computing and services provided for by online applications also be subject to VAT;
  • Services supplied relating to securities or shares in a foreign incorporated company listed on the JSE should be subject to zero-rated VAT and accordingly changes to the VAT Act should occur to clarify the tax treatment of these services;
  • The section 7C amendment to prevent the use of low or non-interest bearing loans to trusts for the transfer of wealth is to include such loans as given to companies owed by a trust. Furthermore the provision will be extended to exclude trusts not used for estate planning and employee share trusts;
  • Income Tax Act to allow individuals to elect to retire, and the date on which the lump sum benefit accrued to the individual depended on the date on which the individual elected to retire and not on the normal retirement age. Currently, once the individual elects to retire, the Income Tax Act does not cater for the transfer of lump sum benefits from one retirement fund to another. It is proposed that transfers of retirement interests be allowed from a retirement fund to a retirement annuity fund, subject to fund rules;
  • The eligibility threshold for employer provided bursaries and scholarships is to increase from R400 000 per annum to R600 000. The monetary limits are proposed to increase from R15 000 to R20 000 for NQF7 and below and from R40 000 to R60 000 for NQF 7 and above;
  • Paragraph 12A of the Eighth Schedule (applicable on reduction of debt) does not currently apply to mining companies. This disparity will be addressed;
  • The relief provided in paragraph 12A for dormant group companies or companies under business rescue should be extended to section 19;
  • The practice of settling debt by a means other than cash, such as the conversion of debt into equity, is to be allowed. Provision will be made to recoup capitalised interest where an interest deduction was previously claimed;
  • Specific countermeasures will be introduced to address share sales disguised as share buy backs;
  • Short term shareholding structures aimed at circumventing debt reduction provisions are to be addressed;
  • With a REIT’s assets not qualifying as allowance assets in a reorganisation transaction, the legislation will be amended to provide for reorganisation transactions involving REITs;
  • Currently the qualifying purpose exemptions for third-party backed shares are too narrow. Provisions are to be further refined to cover all qualifying purposes;
  • Refinements to the venture capital company regime, more specifically to investment returns and the qualifying company test;
  • Large multinational companies will be required to submit country by country transfer pricing policies to SARS from 31 November 2017;
  • Amendments to the Tax Administration Act to curtail inconsistencies arising out of the transitional rules for the calculation of interest on tax debts;
  • Only the portion of travel expenses reimbursed by the employer exceeding the fixed distance or rate as determined, is to be regarded as remuneration for the purposes of determining employee’s tax;
  • The annual cap of R350 000 on contributions to pension, provident and retirement annuity funds be spread over the tax year for determining monthly employee’s tax;
  • Clarification will be made that the chairperson of the Tax Board has the final decision as to whether or not an accountant or commercial member must form part of the constitution of the Tax Board; and
  • All decisions by SARS not subject to objection and appeal are to be subject to the remedies under section 9 of the Tax Administration Act.

These and other proposed tax amendments will be discussed in more detail by Jerry Botha at the SAIT Budget and Tax Update and the SARA Annual Tax Update respectively. For more details, see the links below.


Historically, it was unclear whether amounts paid to a non-executive director were subject to the deduction of employees’ tax and whether the prohibition against certain deductions by salaried employees applied to them. This being as a result of a non-executive directors arguably not earning remuneration as defined in the 4th Schedule to the Income Tax Act. No. 58 of 1962 (“the Act”)

This uncertainty further extended into the application of proviso (iii) to the definition of an “enterprise” as contained in Section 1(1) of the VAT Act, 89 of 1991 (“the VAT Act”), as this proviso excludes from the ambit of VAT the activities of an employee but nevertheless applies to the activities of an independent contractor.

During the 2016 budget speech, it was announced that an investigation into these uncertainties will be launched and clarity provided.  This resulted in the issuance by SARS of two welcomed binding rulings. These are, Binding General Ruling 40 (“BGR40”) which deals with employees’ tax implications for a non-executive director and Binding General Ruling 41 (“BGR41”), which deals with the VAT implications.

In terms of BGR40, SARS ruled that non-executive directors do not earn remuneration and therefore amounts paid to them are not subject to employees’ tax. In addition, BGR40 puts it beyond doubt that the prohibition against deductions as contained in section 23(m) of the Act does not apply to non-executive directors.

In terms of BGR41, SARS ruled that non-executive directors may be required to register for and charge VAT in respect of fees earned provided all requirements are satisfied.

While the rulings only apply from 1 June 2017, it is arguable that the rulings merely give effect to what has always been the position under South African tax law.