News FlashesMarch 4, 20202

CRS News Flash 3 March 2020 – SOUTH AFRICA – CRS Tax Pocket Guide 2020/2021 Tax Year

MARCH 2020 – SOUTH AFRICA

CRS TAX POCKET GUIDE 2020/2021

It is important that employers note the following:

Tax rates from 1 March 2020 to 28 February 2021

Note:

  • 80% of the travelling allowance must be included in the employee’s remuneration for the purposes of calculating PAYE (pay as you earn).
  • The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.
  • No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle, and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (e.g. if the vehicle is covered by a maintenance plan).
  • The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.

The actual distance travelled during a tax year and the distance travelled for business purposes substantiated by a logbook are used to determine the costs which may be claimed against a travelling allowance.

AA rate per kilometre

Where the reimbursed rate exceeds the prescribed rate of R3.98 (previously R3.61) cents per kilometre, irrespective of the business kilometres travelled, there is an inclusion in remuneration for PAYE purposes. The full inclusion amount is subject to PAYE, unlike the fixed travel allowance where only 80% of the amount is subject to PAYE.

However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.



Retirement fund lump sum benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on death, retirement or termination of employment due on attaining the age of 55 years, sickness, accident, injury, incapacity, redundancy or termination of the employer’s trade.

Severance benefits consist of lump sums from or by arrangement with an employer due to relinquishment, termination, loss, repudiation, cancellation or variation of a person’s office or employment.

Retirement fund contributions

Amounts contributed to pension, provident and retirement annuity funds during a year of assessment are deductible by members of those funds.

Amounts contributed by employers and taxed as fringe benefits are treated as contributions by the individual employees.

The deduction is limited to 27.5% of the greater of the amount of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits).

The deduction is further limited to the lower of R350 000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions exceeding the limitations are carried forward to the immediately following year of assessment and are deemed to be contributed in that following year.

The amounts carried forward are reduced by contributions set off against retirement fund lump sums and retirement annuities.

AA rate per kilometre

Where the reimbursed rate exceeds the prescribed rate of R3.98 (previously R3.61) cents per kilometre, irrespective of the business kilometres travelled, there is an inclusion in remuneration for PAYE purposes. The full inclusion amount is subject to PAYE, unlike the fixed travel allowance where only 80% of the amount is subject to PAYE.

However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.

Example: If an employee is reimbursed for 17 891 business kilometres travelled at R4.20 cents per kilometre and the prescribed rate is R3.98 cents per kilometre, the amount that will be included in remuneration for purposes of calculating the PAYE is calculated as (R4.20 cents – R3.98 cents) x 17 891. Based on this calculation an amount of R3 936 will be included in remuneration when PAYE is calculated. PAYE will therefore be withheld, on a payment basis, on the amount exceeding the prescribed rate of R3.98 cents per kilometre, irrespective of the total amount of business kilometres travelled.

Employer-owned vehicles

The taxable value is 3.5% of the determined value (the cash cost including VAT) per month of each vehicle.

Where the vehicle is:

  • The subject of a maintenance plan when the employer acquired the vehicle the taxable value is 3.25% of the determined value; or
  • Acquired by the employer under an operating lease the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel.
  • 80% of the fringe benefit must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.
  • On assessment the fringe benefit for the tax year is reduced by the ratio of the distance travelled for business purposes substantiated by a logbook divided by the actual distance travelled during the tax year.
  • A further relief is available on assessment for the cost of licence, insurance, maintenance and fuel for private travel if the full cost thereof has been borne by the employee and if the distance travelled for private purposes is substantiated by a logbook.

Donations

Deductions in respect of donations to certain public benefit organisations are limited to 10% of taxable income (excluding retirement fund lump sums and severance benefits). The amount of donations exceeding 10% of the taxable income is treated as a donation to qualifying public benefit organisations in the following tax year.

Dividends

Dividends received by individuals from South African companies are generally exempt from income tax, but dividends tax at a rate of 20% are withheld by the entities paying the dividends to the individuals.

Foreign dividends

Most foreign dividends received by individuals from foreign companies (shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 20%. No deductions are allowed for expenditure to produce foreign dividends.

Interest-free or low-interest loans

The difference between interest charged at the official rate (currently 7.25% p.a.) and the actual amount of interest charged is to be included in gross income.

Interest exemptions

Interest from a South African source earned by any natural person under 65 years of age, up to R23 800 p.a., and persons 65 and older, up to R34 500 p.a., is exempt from income tax.

Interest earned by non-residents who are physically absent from South Africa for at least 181 days during the 12-month period before the interest accrues and the debt from which the interest arises is not effectively connected to a fixed place of business in South Africa, is exempt from income tax.

Skills development levy

A skills development levy (SDL) is payable by employers at a rate of 1% of the total remuneration paid to employees. Employers paying annual remuneration of less than R500 000 are exempt from the payment of skills development levies.

Unemployment insurance contributions

Unemployment insurance contributions are payable monthly by employers, on the basis of a contribution of 1% by employers and 1% by employees, based on the employee’s remuneration below a certain amount.

Employers not registered for PAYE or SDL must pay the contributions to the Unemployment Insurance Commissioner.



Contact our legislation team at info@crs.co.za if you require any additional information.
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