Page 1117 - SAIT Compendium 2016 Volume2

EXPLANATORY MEMORANDUM ON THE TAXATION LAWS AMENDMENT BILL, 2015
II. Reasons for change
Currently, the additional medical expenses tax credit from qualifying medical expenses, and fees that exceed three times the credit for those over the age of 65, are not incorporated in the monthly PAYE and provisional tax calculations but rather are claimable on assessment at the end of the year. Employees over the age of 65 are experiencing a decrease in their take-home pay throughout the year 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, these individuals experience cash ow dif culties through the year.
III. Proposal
In order to alleviate this burden, it is proposed that medical tax credits related to medical scheme contributions by those over 65 be taken into account for both monthly PAYE and Provisional tax computation.
IV. Effective date
The proposed amendments will come into operation on the date of promulgation.
1.6. BURSARY AND SCHOLARSHIP EXEMPTION FOR BASIC EDUCATION: GRADE R TO 12
[Applicable provision: Section 10(1)(q)(bb)]
I. Background
In 1 March 2013, changes were made in section 10(1)(q) to exempt all bona de bursaries awarded by an employer to an employee from income, subject to certain limitations. Section 10(1)(q)(ii)(bb) sets different limits on the exemptions on bursaries for NQF 1 to 4 and NQF 5 to 10 quali cations as set out in the National Quali cations Framework Act, 2008, in respect of bursaries or scholarships granted to relatives of employees. The intention of the amendment was to increase the level of the exemption and cover both basic and further education.
II. Reasons for change
Item A of subparagraph (bb) of paragraph (ii) of section 10(1)(q) makes provision for the exemption of the rst R10 000 of a bursary or scholarship granted to the relatives of employees in respect of quali cations to which an NQF level 1 up to and including 4 has been allocated by SAQA under the NQF Act. This implies that the exemption applies to quali cations that begin at NQF level 1. Under the NQF Act, NQF level 1 begins at grade 9. Grades R to 8 do not qualify as receiving an NQF level. Effectively, the 2013 amendments inadvertently excluded grades R to 8, which is most of basic education from qualifying for the bursary or scholarship exemption.
III. Proposal
In order to remove the anomaly created by the 2013 amendments, it is proposed that changes be made to section 10(1) (q) to expand the exemption to include grades R to 8 as intended.
IV. Effective date
The proposed amendments will be deemed to have come into operation from 1 March 2013 and apply in respect of year of assessment commencing on or after the date.
1.7. CLARIFICATION OF THE INTERACTION BETWEEN TAXATION OF SHARE INCENTIVE TRUSTS, TIME OF DISPOSAL RULES AND ATTRIBUTION OF GAINS TO TRUST BENEFICIARY RULES
[Applicable provisions: Paragraph 11(2)(j), new paragraph 13 (1)(a)(iiB), new paragraph 64C, paragraph 80(1) and new paragraph 80(2A) of the Eighth schedule ]
I. Background
Over the years, a number of changes have been made in the Income Tax Act to accommodate the employee share incentive trusts. These share incentive trusts function as a warehousing vehicle in terms of which the trust acquires shares and hold these shares within the trust for future distribution to qualifying employee bene ciaries.
II. Reasons for change
There is an anomaly in the interaction between taxation of share incentive trusts in section 8C and time of disposal as well as attribution of capital gains to bene ciaries in the 8th schedule. It has come to our attention that paragraph 11(2) (j) of the Eighth schedule has been misinterpreted to mean that there is no disposal event at all by a trust in respect of an equity instrument.
III. Proposal
The amendment seeks to address the anomaly that the disposal of an equity instrument by the trust to the qualifying bene ciary constitutes a non-event for capital gains tax purposes in terms of paragraph 11(2)(j) of the 8th schedule. The clari cation sought by the amendment is to defer the recognition of the capital gain in the trust when an employee share trust disposes of shares to an employee until the equity instrument is unrestricted and vests for purposes of section 8C. In particular, ve amendments are proposed in this regard.
a. The rst amendment is the deletion of paragraph 11(2)(j) of the 8th schedule. The reason for the deletion of this paragraph is to correct the misinterpretation that there is no disposal event at all by a trust.
b. The second amendment is the insertion of new paragraph 13 (1)(a)(iiB) of the 8th schedule which deals with the time of disposal of an equity instrument by the trust to the qualifying employee bene ciary. The intention of this provision is to ensure that the granting of the restricted instrument by a trust to a qualifying employee bene ciary constitutes a time of disposal event. The capital gains tax implications are deferred and/or postponed until such time the equity instrument is free from restrictions and vests in the hands of a qualifying employee bene ciary for the purposes of section 8C.
SAIT CompendIum oF TAx LegISLATIon VoLume 2 1109