Page 386 - SAIT Compendium 2016 Volume2

IN 26 Income Tax acT: InTeRPReTaTIon noTes IN 27
• The employer had failed to protect the employee after it had received numerous complaints that she was being sexually harassed by her supervisor.
• The employer had contravened sections 6(1) and 6(3) of the Employment Equity Act, 1998 that deals with sexual harassment.
• The employee’s privacy and constitutional rights had been violated
The court ordered that compensation for unfair dismissal and damages for sexual harassment be paid to the employee. The compensation and damages are made up as follows:
• R12 000 for unfair dismissal;
• R20 000 in respect of future medical costs (psychological counselling); and
• R50 000 for damages in respect of the employee’s impairment of dignity.
The tax implications for the amounts awarded are as follows:
• R12 000 for unfair dismissal
The amount awarded in this respect will be taxed under paragraph (d) of ‘gross income’, as dealt with above in paragraph 4.1.1.
• R20 000 in respect of future medical costs (psychological counselling)
In view of the facts of this particular case, this payment will not be taxed under paragraphs (c), (d), or (f) of the de nition of ‘gross income’ in section 1 of the Income Tax Act.
• R50 000 for the employee’s impairment of dignity
In view of the speci c facts of this case, this amount will not be taxed under paragraphs (c), (d), or (f) of the de nition of ‘gross income’ in section 1 of the Income Tax Act.
The legal costs actually incurred by the employee, in relation to the taxable amount of the award, will be allowed as a tax deduction. However, since the employer was ordered to pay these legal costs, the recovered amounts that were allowed as a tax deduction will be taxed in the employee’s hands. It follows that any portion of the legal costs that was not allowed as a tax deduction will not be taxed. This effectively means that the legal costs recovered from the employer will be tax-neutral in the hands of the employee.
Income Tax Interpretation Note 27
Personal liability of employers, representative employers, shareholders and directors for outstanding employees’ tax
DATE: ACT: SECTION: SUBJECT:
1. Purpose
4 February 2005
INCOME TAX ACT, 1962 (the Act)
The Fourth Schedule to the Act
Personal liability of empoloyers, representative employers, shareholders and directors for outstanding employees’ tax
The purpose of this interpretation note is to highlight the personal liability of certain employers, representative employers, shareholders and directors where the employer or representative employer failed to deduct or withhold employees’ tax or where employees’ tax has been deducted or withheld but not paid over to the South African Revenue Service (SARS) within the required period.
2. Background
• •
Under the pre-amended legislative framework the right of SARS to recover outstanding employees’ tax from —
an employer who paid or became liable to pay remuneration in a duciary capacity or capacity as a trustee in an insolvent estate, an executor or an administrator of a bene t fund, pension fund, provident fund, retirement annuity fund or any other fund, was limited to the extent of the assets belonging to the administered entity; and
a representative employer who paid or was liable to pay remuneration in its representative capacity was limited to the extent of the assets belonging to the represented entity.
3. The law
3.1 The amendments
• Subparagraphs (1) and (2) of paragraph 16 of the Fourth Schedule have been amended by section 86 (a) of Revenue Law Amendment Act 45 of 2003.
• Paragraphs 16 (2A), (2B), (2C) and (2D) were introduced into the Fourth Schedule by section 86 (b) of the Revenue Laws Amendment Act 45 of 2003 and these subparagraphs are applicable with effect from 22 December 2003.
3.2 The relevant provisions in the Fourth Schedule read as follows:
3.2.1
The liability to deduct employees’ tax and pay over to SARS is regulated by paragraph 2(1) of the Fourth Schedule
‘2.(1) Every—
(a) (b)
employer who is a resident; or
representative employer in the case of any employer who is not a resident, (whether or not registered as an employer under paragraph 15) who pays or becomes liable to pay any amount by way of remuneration to any employee shall, unless the Commissioner has granted authority to the contrary, deduct or withhold from that amount by way of employees’ tax an amount which shall be determined as provided in paragraph 9, 10, 11 or 12, whichever is applicable, in respect of the liability for normal tax of that employee, or, if such remuneration is paid or payable to an employee
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