Page 1103 - SAIT Compendium 2016 Volume2

MEMORANDUM ON THE OBJECTS OF TAX ADMINISTRATION LAWS AMENDMENT BILL, 2015
2.6 Income Tax Act, 1962: Amendment of paragraph 1 of Fourth Schedule
Ad para (a): This is a technical correction to clarify the meaning of the de nition of ‘employee’ for purposes of the Fourth Schedule.
Ad para (b): The proposed amendment changes the reference to a ‘member’ of a trust to that of a ‘settlor or bene ciary’ as a matter of style consistency.
Ad para (c): The additional reference to ‘liability for normal tax’ in the de nition of ‘provisional tax’ is a clari cation as to which payment is referred to.
Ad para (d): Paragraph 18 presently deals with exemptions from provisional tax, whereas the de nition of ‘provisional taxpayer’ also contains exceptions. It is proposed to consolidate the two, with the substance of paragraph 18 being added to the exclusion in the de nition, and the consequential repeal of paragraph 18.
Ad para (e): The deceased estate of a person who dies on or after 1 March 2016 will, in terms of a proposal in the Taxation Laws Amendment Bill, 2015, be taxable in respect of all income and capital gains and losses realised in the estate with no attribution to heirs or legatees. The deceased estate will, with some exceptions, be taxed as a natural person. Various issues arise regarding the application, to a deceased estate, of the provisions governing the payment of provisional tax. A deceased estate exists for a relatively short period. The imposition of a liability for the payment of provisional tax will impose an additional administrative burden on executors. A deceased estate would also be exposed to the risk of underestimation penalties, e.g. if an income-producing asset comes to light at a later stage of the winding up process. It is therefore proposed that a deceased estate be exempted from the payment of provisional tax. The effective date of this amendment is 1 March 2016.
Ad para (f): The proposed amendment is of a consequential nature. The Taxation Laws Amendment Act, 2014, amended paragraph (cA) of the de nition of ‘gross income’, by deleting references to restraint payments derived by natural persons. Restraint payments to natural persons were then inserted in paragraph (cB) of that de nition. This amendment should have owed through to paragraph (a) of the de nition of ‘remuneration’ in the Fourth Schedule by the insertion after the term (cA) of the term (cB).
Ad para (g): Amounts referred to in section 8C(1A) are returns of capital ‘received or accrued’, and not ‘amounts included in income upon vesting of an equity instrument’ as is the case with the rest of section 8C. The Fourth Schedule general ‘remuneration’ de nition is not wide enough to include returns of capital. Paragraph (e) of the special inclusions in remuneration only includes a ‘gain’ determined under 8C, and not a return of capital. Paragraph 11A refers back to the special inclusion contained in paragraph (e) and also refers to a ‘gain from the vesting of an equity instrument’ and not a return of capital. There is thus no pay-as-you-earn (PAYE) withholding obligation on returns of capital, even though these are ‘pro ts’ relating to the instruments acquired due to employment. As there is no good reason why these amounts should be excluded from the PAYE net it is proposed that paragraph (e) of the de nition of ‘remuneration’ and paragraph 11A both be widened to include amounts received or accrued as contemplated in section 8C(1A). Also see page 142 of the Budget Review under employee share schemes which states that ‘the employees’ tax provision related to the return of capital, will be reviewed to remove anomalies’.
2.7 Income Tax Act, 1962: Amendment of paragraph 5 of Fourth Schedule See the entry for the amendment to section 3 in paragraph 2.1.
2.8 Income Tax Act, 1962: Amendment of paragraph 9 of Fourth Schedule
Ad para (a): The proposed amendment is of a consequential nature. The de nition of ‘Pension Funds Act, 1956’ was amended to make full citations unnecessary and this amendment removes the redundant citation.
Ad para (b): During the 2015 Budget Review the Minister of Finance indicated that ‘[e]mployees over 65 are experiencing a decrease in their take-home pay as a result of the move to medical tax credits, although they may claim back some of these amounts on assessment after the end of the tax year. To alleviate this burden, it [was] proposed that medical tax credits related to medical scheme contributions be taken into account for both PAYE and provisional tax purposes.’
Under section 6B(3)(a)(i) of the Income Tax Act over 65s are entitled to an additional tax credit for medical scheme fees in excess of three times the ordinary medical scheme fees tax credit. The intention of the Budget announcement was to allow the additional tax credit to be taken into account for PAYE purposes. No legislative change is required for provisional tax, as ‘tax liability’ in paragraph 21 of the Fourth Schedule already takes account of the medical tax credits, i.e. they are included by implication. The IRP6 forms also make provision for the medical tax credits. To effect this change as regards PAYE, a reference to the amount of additional medical expenses tax credit in section 6B(3)(a)(i) needs to be added to paragraph 9(6) of the Fourth Schedule.
2.9 Income Tax Act, 1962: Amendment of paragraph 11A of Fourth Schedule
See the entry for the amendment to paragraph (e) of the de nition of ‘remuneration’ in paragraph 2.6.
2.10 Income Tax Act, 1962: Repeal of paragraph 11B of Fourth Schedule
The discontinuation of the standard income tax on employees (SITE) was announced in the 2010 Budget Review and was implemented in a phased approach from 1 March 2011. The nal year of assessment during which this was applied has been reached and the provision for SITE in paragraph 11B is therefore repealed.
2.11 Income Tax Act, 1962: Amendment of paragraph 11C of Fourth Schedule
When paragraph 11C was inserted with effect from 1 March 2002, paragraph (i) of the proviso to subparagraph (1) provided for a transitional rule for years of assessment that ended on or before 28 February 2002. This provision is now obsolete and is accordingly being deleted.
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