Variable remuneration

By Michael Stein (Friday Page)

Executive summary (SAIT Technical)

Section 7B will apply from 1 March 2013. This section effectively applies a cash basis of taxation to variable remuneration paid to an employee from the perspective of both the employer and employee. Variable remuneration is essential overtime pay, bonuses, commission, travel allowances and leave pay.

Full article

A new section, s7B has been inserted into the Income Tax Act to deal with ‘variable remuneration', which is, essentially, overtime pay, bonuses, commission, travel allowances and leave pay that an employer is liable to pay for leave not taken by an employee.

If the employee is entitled to any of these amounts during the tax year, they will be deemed to accrue to him and be regarded as expenditure incurred by the employer during the tax year in which they are actually paid by the employer. This means, in effect, that a cash basis of taxation effectively applies to both parties as far as these amounts are concerned.

Section7B will start to apply from 1March 2013.

A consequential amendment has been proposed to para2 of the Fourth Schedule to the Income Tax Act by the Administration Laws Amendment Bill. Paragraph2 requires employers to deduct PAYE from remuneration paid or payable to an employee. A new para2(1B) has been inserted. It states that, notwithstanding the usual rule, an employer must deduct PAYE on variable remuneration on the date on which it is paid to the employee by the employer. This rule applies even though the amount might be ‘payable' earlier, but has not actually been paid. The PAYE must be deducted only when it is actually paid.