Accrual principal to be relaxed

Payroll admin simplified

Rob Cooper: Payroll expert at VIP Softline
Rob Cooper.VIP.jpg
In one of the most significant changes to employees’ tax requirements in decades, the accrual principle is proposed to be relaxed for variable remuneration items such as commissions, travel payments, overtime and bonuses. 

This comes as one of the proposed changes to the Income Tax Act issued for public comment in July this year. “While at this early stage much thought still has to be put into the practical implications of this change, there is no doubt that it will significantly simplify payroll administration over the tax year end for employers and for the South African Revenue Service (SARS), and is to be welcomed,” says Rob Cooper, a Payroll tax expert at Softline VIP, part of the Sage Group plc. 

“One of the pillars that our tax law stands upon is the concept of ‘accrual’. Amounts are generally interpreted to have accrued when there is an unconditional entitlement to that amount. This causes problems for payroll systems that have to withhold employees’ tax on amounts that accrued in one tax year, but were only quantified and processed in the next tax year.  

Adjustments to monthly payments to SARS, tax certificates and reconciliations are the inevitable result of adjusting amounts back into a tax year that has already closed,” explains Cooper. Other proposed changes to the Income Tax Act include the extension of the medical tax credit principle. 

“From March 2012, we saw the introduction of medical tax credits (tax rebates) for employees under 65 years of age who contribute to a medical scheme.  

Changes were also made to the income tax relief granted on assessment to individuals for their out-of-pocket medical expenses subject to certain conditions. The draft changes now extend to the medical tax credit principle for contributions to include those employees who are 65 years of age or older.  

The values proposed for their tax credits are the same as those currently used for employees under 65 years of age, and are based on the number of dependents,” says Cooper. 

The deduction system of income tax relief for out-of-pocket medical expenses has been replaced by a medical tax credit system, with varying degrees of relief for over and under 65 year old employees, and for those who are disabled or with a disabled spouse or child dependent. 

“What is of concern is that the tax relief granted for medical contributions and out-of-pocket medical expenses has been whittled away by the changes made last year and the proposed changes in the draft legislation, particularly for those taxpayers who earn above the 30% marginal tax rate. 

Individuals over the age of 65 and those who are pensioners, in particular, have been hit hard in recent years by dividend tax changes and interest tax relief amongst other measures. A further reduction in the assistance from the state for medical contributions and medical expenses is going to hurt these individuals. 

The same can be said for families with a disabled person,” says Cooper. The proposed changes to the tax law also include some fine tuning made to the provisions which allow employers a deduction from income of R30 000 at the start and the end of a learnership. 

These changes address the delays in registration of the learnership with a SETA which can reduce the value of the incentive, as well as the disallowance of the incentive will be limited to learnerships that the employee failed while working for the current employer. 

There have also been some proposed changes to the taxation of employer-owned insurance policies that will impact on employees. Ends.
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