Page 191 - SAIT Compendium 2016 Volume2

IN 5 (2) Income Tax acT: InTeRPReTaTIon noTes IN 5 (2)
3.5 Determination of deemed employees’ tax
Paragraph 11C (3) of the Fourth Schedule states that the deemed employees’ tax payable by the company in terms of paragraph 11C (2) of the Fourth Schedule must be determined on an amount of remuneration deemed to have been received by a director, as contemplated in paragraph 11C (1) of the Fourth Schedule.
3.6 Calculation of deemed remuneration
Paragraph 11C (1) of the Fourth Schedule deems a director to have received a minimum amount of remuneration every month from the company. This minimum amount is determined by the formula:
Y = _T_ N
in which:
‘Y’ represents the monthly amount to be determined;
‘T’ represents the remuneration of the director paid or payable by that private company in respect of the last year of assessment of that director, provided that:
(i) If the remuneration for the last year of assessment (referred to in symbol ‘T’ above) has not been determined as yet, then the remuneration of the preceding year must be used, but it must be increased by an amount equal to 20 per cent of that remuneration.
(ii) If the remuneration for the year preceding the last year of assessment has also not been determined as yet, then the company must request the Commissioner to determine the remuneration for the purposes of the formula.
(iii) The following adjustments must be made—
• lump sum payments contemplated in paragraphs (d), (e) and (f) of the de nition of ‘gross income’ in
section 1 of the Act must be excluded;
• gains made on the exercise, cession or release of a right to acquire any marketable security contemplated
in section 8A of the Act must be excluded;
• allowable contributions to pension and/or retirement annuity funds may be deducted [see paragraph 2(4)
of the Fourth Schedule]; and
• in the case of a director over 65 years, the contributions by the director to a registered medical aid scheme
may be deducted [see paragraph 2 (4) of the Fourth Schedule].
‘N’ represents the number of completed months in the year of assessment in respect of which ‘T’ was derived. Note: Where more than 75% of ‘T’ in the formula consists of xed monthly payments, the above deeming provisions will not be applicable, with effect from years of assessment commencing on or after 1 March 2004.
3.7 Right of recovery of deemed employees’ tax paid by company
Paragraph 11C (4) of the Fourth Schedule gives the company the right to recover, from the relevant director, the employees’ tax that it has paid on the deemed remuneration. This paragraph has also been amended by section 85 (1)(c) of Revenue Laws Amendment Act 45 of 2003 to extend the rights of employers to recover tax deducted in the above circumstances from directors.
3.8 Employees’ Tax Certi cate (IRP 5)
Paragraph 11C (5) of the Fourth Schedule states that the director will not be entitled to receive an employees’ tax certi cate in respect of the amount of employees’ tax paid by the company on the deemed remuneration if the company has not recovered the employees’ tax from the director.
3.9 The director derives more than 75% of xed monthly payments
Paragraph 11C (6) of the Fourth Schedule states that paragraph 11C (2) does not apply to a director of a private company where more than 75% of the amount contemplated in ‘T’ in respect of the last year of assessment, represents xed monthly payments of remuneration paid by that company to that director.
3.10 Relief for hardship
Paragraph 11 of the Fourth Schedule provides for an application for relief from employees’ tax where the employee is experiencing hardship.
4. Application of the law
It is evident that the amended requirements of the Fourth Schedule provide for the following:
4.1 Close Corporations
A member of a close corporation and any person, who, in relation to a close corporation, holds an of ce or performs functions similar to the of ce or functions of a director of a company other than a close corporation, is a director of a private company.
4.2 Are the directors different from other employees?
The provisions of the Fourth Schedule that are applicable to other employees apply to a director who is entitled to remuneration as de ned in paragraph 1 of the Fourth Schedule. This means that the employer must withhold PAYE from the ‘remuneration’ paid or payable to the director on the same basis as with any other employee.
4.3 The employer’s liability for PAYE on the deemed remuneration
It is a requirement that the employer pays monthly PAYE on the deemed remuneration, as calculated by the formula
in paragraph 11C (1) of the Fourth Schedule, whether or not the director is entitled to ‘remuneration’ as de ned.
4.4 Who is liable for the monthly PAYE?
Where the PAYE on the actual remuneration exceeds the employees’ tax calculated on the deemed remuneration, the PAYE on the deemed remuneration must be paid by the company and the difference must be paid by way of a deduction from the director’s actual remuneration. If the converse applies in that the PAYE on the deemed remuneration exceeds the employees’ tax on the actual remuneration, the PAYE on the amount deemed to be remuneration must be paid by the company.
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