Minister of Finance Pravin Gordhan delivered a balanced Budget yesterday in which individual tax rates remain unchanged but tax brackets have been increased.
Good news for individual taxpayers was personal income tax relief totalling R8,1-billion, a third income tax rebate of R2000 for individuals older than 75 and an increase in the monthly limits for Medical Aid deductions from R670 to R720 for principal members and first dependants and from R410 to R440 for each additional dependant.
The budget also allows for conversion of medical tax deductions to tax credits from March 2012 and for an employer’s contribution to retirement funds on behalf of an employee to be a taxable fringe benefit in the hands of the employee. Individuals will then be allowed to deduct up to 22,5% of their taxable income for contributions to pension, provident and retirement annuity funds with a minimum annual deduction of R12 000 and an annual maximum of R200 000.
Also positive were changes to employer lump sum benefit taxation. In the past retrenched employees or those receiving termination lump sums due to age, sickness, accident ,injuries or mental incapacity could receive a R30 000 tax-free amount subject to the application of a directive from SARS. Now, in the new tax year beginning 1 March, retrenched workers receiving a lump sum will be subject to special rates for lump sums provided by an employer or funds withdrawn from pre-existing retirement funds up to the R315 000 exemption level, meaning they could obtain R345 000 tax-free.
The limit for occupational injuries and diseases will rise from R261 893 to R277 860 a year from 1 April this year.
“A significant change is the manner in which the value of company cars will be determined,” says Grant Lloyd, MD of Softline Pastel Payroll. “In the new tax year the value will be the cost of the car, excluding finance and interest charges. This means that VAT and any maintenance plan purchased is included in the original cost and company car values will have to be re-calculated from 1 March.”
The fringe benefit value of a company car is calculated at 3,5% if the vehicle was not subject to a maintenance plan at the time it was acquired by the employer and at 3,25% if there was a maintenance plan. The fringe benefit that is calculated must be reduced by any payment made to the employer by the employee other than the cost of licences, insurance, maintenance and fuel, which can no longer be deducted.
Lloyd says SARS has now moved to ensure that use of company cars and claiming of travel costs by employees using a company vehicle is more accurately represented by implementing a new requirement.
“While the car tax benefit used to be taxed at 100%, the onus is now on employers to apply either an 80% or a 20% tax rate when including the new fringe benefit value of a company car into an employee’s remuneration for the calculation of PAYE in the payroll.
“This means that responsibility rests with the employer to indicate what percentage of the mileage the car will travel will be for business purposes. If it is 80% then the employer may only submit 20% of the allowance to the employee’s tax. Only one taxable percentage may be used during the assessment year. Any change means that the fringe benefit amounts for previous periods must be re-calculated.
There are also new tax reconciliation facilities for employers to assist in the reconciliation of PAYE transactions. One of the facilities is the Employer Statement of Account (EMPSA) and the others is the Reconciliation Assistant.
Lloyd says EMPSA has great potential to help employers take control of their PAYE account at SARS. “It is structured for problem solving as problems occur, so there is no sudden panic at year end. Employers will no longer be able to submit an EMP501 on which the EMP201 liabilties, the EMP 201 payments or the tax totals from the tax certificates do not balance as has been possible in the past. The system will force employers to correct the areas that do not balance in the Reconciliation Assistant.
Lloyd recommends that employers download these guides from the SARS eFiling website and familiarise themselves with the software and its functionality. “This will ultimately be to their advantage.”
To assist SME businesses with the changes outlined in the new Budget, Softline Pastel Payroll will incorporate all of the changes to tax bracket values, travel allowances, tax relief rebates and medical aid.
A date embedded trigger in the software tax table update ensures that all of the changes will only be applied from 1 March, even if the update download is conducted before the end of February. Automated Payroll and HR software ensures that payrolls are accurate and legally compliant the moment the new Budget takes effect.