Payroll & Associates Tax Services - Employees have something to look forward to!

Today’s budget speech not only gave employees something to look forward to from March 2008, but also proposed benefits that we, as employees, may see in the next year.

Once the following is legislated, an increase in take-home pay will be the result.

Employee benefits that are repayable

Employees often find themselves in situations where the gross amount of certain benefits such as maternity pay, retention payments and performance bonuses must be repaid to their employer, as certain conditions have not been fulfilled.

Currently, given the wording in the Act, the employee cannot claim back the tax which has already been paid on the amounts and is effectively taxed on this benefit that they ultimately never had the benefit of. However, in the near future, proposed changes in legislation may see employees being able to claim the tax paid as a deduction, certainly contributing to a more fair tax regime.

It will be interesting to see how this is practically implemented i.e. would the employee still be liable to repay the full 100% back to the employer and then just have the employer deduct the tax overpaid against future earnings, or would the employee only pay back say 60% and have the employer reclaim the other 40% from SARS? – We wait in anticipation!

Personal use of cellular phones and laptops

This is probably one of the most exciting proposed amendments for employers and deals with an area that has caused a great deal of arguments between SARS and employers as it is a “grey” area of employees’ tax.

SARS’s current view is that employees should pay tax on the private usage of company owned cellular phones and laptops. In many instances it is unclear how this private use should be determined (i.e. free or cheap services or use of a company owned asset) with these resulting in different fringe benefit amounts. In practice SARS tried to argue that employers should apply a globular fixed percentage (say 20% of the cell phone bill) as personal use. Employees on the other hand believed that these were business tools and they should not pay any benefit on the incidental private use of these business assets. Furthermore, the amount of additional tax to be collected on a monthly basis was generally not significant (e.g. a benefit of 20% of a cell bill of R500 amounts to a maximum of R40 in tax) and this challenge merely annoyed taxpayers and employees.

Furthermore, complying with the process to prove there was no private use caused an admin burden for the employer far in excess of the benefit, specifically where the employees were required to provide an analysis between business and private calls.

It is now proposed that employees will not be taxed on the private usage of company owned cellular phones and laptops. The private usage would be regarded as purely incidental.

Standard Income Tax on Employees (SITE)

In instances where an employee has not worked for a full tax year or there was a “broken period” in his employment his taxes where calculated as if the income earned was for the full tax year thus resulting in a higher amount of tax being deducted. The SITE deducted from his remuneration was previously not refundable.

However, it is now proposed that SITE tax is refunded on assessment in such instances.

Travelling allowances

A welcome change is the deemed cost tables for travelling allowances that will be updated for inflation, to account for higher interest rates and increasing fuel prices.

Once legislated, employers and employees should review the amount of the employees travel allowance to ensure that the employees get the full benefit upon assessment. The new amount should be based on the cost price of their vehicles and their estimated business travel.

Together with the new proposed tax rates for individuals, the above mentioned proposed changes would surely be an added bonus for employees in terms of their take-home pay. It will further reduce the admin burden placed on employers and overall contribute to a more fair tax regime.