Print Page   |   Report Abuse
News & Press: Institute News

Technical FAQ: 9 April 2014

09 April 2014   (0 Comments)
Posted by: Author: SAIT Technical
Share |

Author: SAIT Tehnical

1. Employment tax incentive for seasonal workers

Q: Will the employment tax incentive be available for seasonal workers?

A: No reference is made in the Employment Tax Incentive Act (No. 26 of 2013) (hereinafter referred to as ‘the ETI’) as to the duration of the employment in order for an employee to constitute a qualifying employee. It is therefore submitted that seasonal employees and even employees only employed for one day may qualify. You may however want to give specific attention to the following sections of the ETI when determining if the employer would qualify in respect of an employee and what the allowance would be.

Provisions to take into consideration when determining if an employer qualifies in respect of an employee

Sec 6 of the ETI stipulates what constitutes a ‘qualifying employee’ and states the following:

‘6.   Qualifying employees.—An employee is a qualifying employee if the employee—

(a)  (i)  is not less than 18 years old and not more than 29 years old at the end of any month in respect of which the employment tax incentive is claimed;

(ii)  is employed by an employer operating through a fixed place of business located within a special economic zone designated by notice by the Minister of Finance in the Gazette and that employee renders services to that employer mainly within that special economic zone; or

(iii)  is employed by an employer in an industry designated by the Minister of Finance, after consultation with the Minister of Labour and the Minister of Trade and Industry, by notice in the Gazette;

(b)  (i)  is in possession of an identity card referred to in section 14 of the Identification Act, 1997 (Act No. 68 of 1997), issued to that employee after application for the card in terms of section 15 of that Act; or

(ii)  is in possession of an asylum seeker permit, issued to that employee in terms of section 22 (1) of the Refugees Act, 1998 (Act No. 130 of 1998), after application for the permit in terms of section 21 (1) of that Act;

(c)  in relation to the employer, is not a connected person as defined in section 1 of the Income Tax Act;

(d)  is not a domestic worker as defined in section 1 of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997);

(e)  was employed by the employer or an associated person on or after 1 October 2013 in respect of employment commencing on or after that date; and

( f )  is not an employee in respect of whom an employer is ineligible to receive the incentive by virtue of section 4.’ (Own emphasis added).

In terms of sec 6(e) of the ETI Act, the Incentive will only be available in respect of employees where their employment commenced on or after 1 October 2013. It is submitted that sec 6(e) of the ETI Act would be met if a person was employed before 1 October 2013 who left the employment in that period and who was re-employed on or after 1 October 2013.

Provisions to take into consideration when determining the incentive in relation to a seasonal worker

Should a worker leave the employment during the course of a month i.e. not at the end of the month, special note would have to be taken of sec 7(5) of the ETI Act which states the following:

‘If an employer employs a qualifying employee only for a part of a month, the amount of employment tax incentive to be received in respect of that month in respect of that qualifying employee must be an amount that bears to the total amount calculated in terms of subsection (2) or (3) the same ratio as the amount of remuneration paid by the employer in respect of that month bears to the amount of remuneration that would have been payable in respect of that month had the employer employed that employee for the entire month.’

Sec 7(5) therefore has the effect that the ETI would be equal to the following:

The amount of the incentive calculated in terms of sec 7(2) or (3) x actual remuneration paid to the employee in the month/the total remuneration that would have been payable had the employer employed the employee for the full month.

2. Should VAT be levied on labour costs?

Q: Should VAT be levied on labour costs? 

A: In order to determine if a supply should be subject to VAT, one would have to refer to sec 7 of the Value-Added Tax Act (No. 89 of 1991) (hereinafter referred to as ‘the VAT Act’). Sec 7(1) of the VAT Act states the following:

‘Subject to the exemptions, exceptions, deductions and adjustments provided for in this Act, there shall be levied and paid for the benefit of the National Revenue Fund a tax, to be known as the value-added tax—

(a)   on the supply by any vendor of goods or services supplied by him on or after the commencement date in the course or furtherance of any enterprise carried on by him ...’ (own emphasis added).

Therefore, in terms of sec7(1), in order for a supply to be subject to VAT, there would have to be (1) a supply (2) of goods or services (3) in the course of furtherance of any enterprise carried on by the vendor.

A ‘supply’ is defined in sec 1 of the VAT Act as well as a ‘vendor’ (which definition must be read with sec 23 of the VAT Act). Furthermore, ‘goods’ or ‘services’ are also defined in sec 1. We will therefore only focus on the ‘problem-area’ which will be the definition of an ‘enterprise’ (more specifically, Proviso (iii) to the definition of ‘enterprise’).

An ‘enterprise’ is defined in sec 1 of the VAT Act as follow:

‘(a) in the case of any vendor, any enterprise or activity which is carried on continuously or regularly by any person in the Republic or partly in the Republic and in the course or furtherance of which goods or services are supplied to any other person for a consideration, whether or not for profit ...

Provided that—

...

(iii)(aa) the rendering of services by an employee to his employer in the course of his employment or the rendering of services by the holder of any office in performing the duties of his office, shall not be deemed to be the carrying on of an enterprise to the extent that any amount constituting remuneration as contemplated in the definition of "remuneration” in paragraph 1 of the Fourth Schedule to the Income Tax Act is paid or is payable to such employee or office holder, as the case may be;

(bb) subparagraph (aa) of this paragraph shall not apply in relation to any employment or office accepted by any person in carrying on any enterprise carried on by him independently of the employer or concern by whom the amount of remuneration is paid or payable...’ (own emphasis added).

 

Proviso (iii)(aa) has the effect that if its requirements are met, that the services rendered would be deemed not to be the carrying on of an enterprise as defined in sec 1 of the VAT Act and consequently no VAT would have to be levied by the person in terms of sec 7(1), which means that no VAT would have to be paid by the payer. The purpose of this proviso (iii)(aa) is to ensure that, as a general rule, no VAT is levied on a person’s remuneration which was subject to Employees tax. VAT would therefore only be levied if par (iii)(bb) are applicable and the person rendering the service is a ‘vendor’ (albeit as a result of voluntary or compulsory registration in terms of sec 23 of the VAT Act).

An ‘employee’ is not defined in sec 1 of the VAT Act and one cannot consult the definition of ‘employee’ in par 1 of the Fourth Schedule to the Income Tax Act (No. 58 of 1962) (hereinafter referred to as ‘the Act’) to ascribe a meaning thereto. It may therefore occur that a person who is not an ‘employee’ according to the definition in par 1 of the Fourth Schedule to the Act may still be an employee for VAT purposes and that the person may then still fall within par (iii)(aa) of the proviso to the enterprise definition in sec 1 of the VAT Act. 

Par (iii)(aa) provides that the services will be excluded from the definition of an ‘enterprise’ to the extent that the person derives ‘remuneration’ as defined in par 1 of the Fourth Schedule to the Act. ‘Remuneration’ is defined as follows in par 1 of the said Schedule:

‘... means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered, including

(a) any amount referred to in paragraph (a)(c)(cA)(d)(e)(eA) or ( f ) of the definition of "gross income” in section 1 of this Act;

(b) any amount required to be included in such person’s gross income under paragraph (i) of that definition, excluding an amount described in paragraph 7 of the Seventh Schedule;

(bA) any allowance or advance, which must be included in the taxable income of that person in terms of section 8 (1) (a) (i), other than—

(i)            an allowance in respect of which paragraph (c) or (cA) applies; or

(ii)           an allowance or advance paid or granted to that person in respect of accommodation, meals or other incidental costs while that person is by reason of the duties of his or her office obliged to spend at least one night away from his or her usual place of residence in the Republic: Provided that where—

(aa) such an allowance or advance was paid or granted to a person during any month in respect of a night away from his or her usual place of residence; and

(bb) that person has not by the last day of the following month either spent the night away from his or her usual place of residence or refunded that allowance or advance to his or her employer,

that allowance or advance is deemed not to have been paid or granted to that person during that first-mentioned month in respect of accommodation, meals or other incidental costs, but is deemed to be an amount which has become payable to that person in that following month in respect of services rendered by that person;

(b)  50 per cent of the amount of any allowance referred to in section 8 (1) (d) granted to the holder of a public office contemplated in section 8 (1) (e);

(cA) 80 per cent of the amount of any allowance or advance in respect of transport expenses referred to in section 8 (1) (b), other than any such allowance or advance contemplated in section 8 (1) (b) (iii) which is based on the actual distance travelled by the recipient, and which is calculated at a rate per kilometre which does not exceed the appropriate rate per kilometre fixed by the Minister of Finance under section 8 (1) (b) (iii): Provided that where the employer is satisfied that at least 80 per cent of the use of the motor vehicle for a year of assessment will be for business purposes, then only 20 per cent of the amount of such allowance or advance must be included;

(cB) 80 per cent of the amount of the taxable benefit as determined in terms of paragraph 7 of the Seventh Schedule: Provided that where the employer is satisfied that at least 80 per cent of the use of the motor vehicle for a year of assessment will be for business purposes, then only 20 per cent of such amount must be included;

(d) any gain determined in terms of section 8B, which must be included in that person’s income under that section;

(e) any gain determined in terms of section 8C which is required to be included in the income of that person;

( f ) any amount deemed to be income accrued to that person in terms of section 7 (11),

but not including

(i)            . . . . . .

(ii)           any amount paid or payable in respect of services rendered or to be rendered by any person (other than a person who is not a resident or an employee contemplated in paragraph (b)(c)(d)(e) or( f ) of the definition of "employee”) in the course of any trade carried on by him independently of the person by whom such amount is paid or payable and of the person to whom such services have been or are to be rendered: Provided that for the purposes of this paragraph a person shall not be deemed to carry on a trade independently as aforesaid if the services are required to be performed mainly at the premises of the person by whom such amount is paid or payable or of the person to whom such services were or are to be rendered and the person who rendered or will render the services is subject to the control or supervision of any other person as to the manner in which his or her duties are performed or to be performed or as to his hours of work: Provided further that a person will be deemed to be carrying on a trade independently as aforesaid if he throughout the year of assessment employs three or more employees who are on a full time basis engaged in the business of such person of rendering any such service, other than any employee who is a connected person in relation to such person ...’ (own emphasis added).

Therefore, from the definition of ‘remuneration’ in par 1 of the Fourth Schedule, an amount would not constitute ‘remuneration’ if it is paid to an ‘independent contractor’ which, in turn, means that the person rendering the services (the independent contractor) is carrying on an ‘enterprise’ and VAT may be levied subject to the other VAT requirements (i.e. whether the other requirements of the definition of ‘enterprise’ is met, sec 7 requirements, whether the person is registered as a vendor in terms of the definition of ‘vendor’ in sec 1 read with sec 23, whether the services may be zero-rated in terms of sec 11(2) or whether the services may be exempt in terms of sec 12).

In order to determine if a person is an ‘independent contractor’ as set out in the definition of ‘remuneration’ in par 1 of the Fourth Schedule, is very fact-intensive. You would have to refer to Interpretation Note No. 17 (issue 3) Employees’ Tax: Independent Contractors to guide you in this regard. In short the Interpretation Note makes use of the ‘dominant impression test’, based on the South African common law to determine if a person is an ‘independent contractor’.

According to Juta’s Value-Added Tax, 2010, the effect of proviso (iii)(bb) to the definition of ‘enterprise’ in sec 1 of the VAT Act is that should a person not be regarded as an ‘independent contractor’ according to the requirements in the exclusionary par (ii) of the definition of ‘remuneration’ in par 1 of the Fourth Schedule to the Act (i.e. the person is subject to control and supervision of the client), that the person may still be seen as an ‘independent contractor’ for VAT purposes if the common-law dominant impression test regards him/her as such. According to the same publication, employees which are employees as stated in par (b), (c), (d), (e) or (f) of the definition of ‘employee’ in par 1 of the Fourth Schedule to the Act (i.e. labour broker or personal service provider)  and non-residents, which are for income tax purposes therefore excluded from being ‘independent contractors’, may still be independent contractors for VAT purposes in terms of proviso (iii)(bb) if the common-law dominant impression test regards them as such.

Conclusion

As stated above, should proviso (iii)(bb) apply, the person’s activities would form part of an ‘enterprise’ and VAT may be levied on the supply by the person if all of the other VAT requirements are met. In order to determine if a person is an independent contractor, one would have to use the ‘dominant impression test’ provided in the Interpretation Note No. 17 (Issue 3). Should there be an employee-employer relationship where the employee is not regarded as an ‘independent contractor’, then the supply of services by the employee would not form part of an ‘enterprise’ carried on by him/her and consequently no VAT would be levied by the employee as a result of proviso (iii)(aa) of the definition of ‘enterprise’ in sec 1 of the VAT Act.

Whether a contractor is a ‘labour broker’, ‘personal service provider’ or a person rendering services to a ‘labour broker’, is irrelevant in this regard. The dominant impression test must be used to determine if the contractor is an independent contractor.

3. VAT periods for companies

Q: Currently a company is paying VAT every second month. From which turn over should they be paying monthly?

A: Sec 27 of the Value-Added Tax Act (No. 89 of 1991) (hereinafter referred to as ‘the VAT Act’) determines the tax periods in which to account for VAT. Currently, the company is either a ‘Category A’ or ‘Category B’ vendor depending on when its tax periods end. In terms of sec 27(1) of the VAT Act, a vendor with a monthly tax period would be classified as a ‘Category C’ vendor. ‘Category C’ is defined as follows in sec 27(1) of the VAT Act:

‘... means the category of vendors whose tax periods are periods of one month ending on the last day of each of the 12 months of the calendar year...’ (own emphasis added).

Sec 27(3) determines that a vendor shall fall into Category C in either one of the following circumstances:

‘(a) the total value of the taxable supplies of the vendor (including the taxable supplies of any branches, divisions or separate enterprises of the vendor registered as separate vendors under section 50 (2))—

(i) has in the period of 12 months ending on the last day of any month of the calendar year exceeded R30 million; or

(ii) is likely to exceed that amount in the period of 12 months beginning on the first day of any such month; or

(b) the vendor has applied in writing for the tax periods in his case to be on a monthly basis; or

(c) the vendor has repeatedly made default in performing any of his obligations in terms of this Act,

and the Commissioner has directed that, with effect from the commencement date or such later date as may be appropriate, the vendor shall fall within Category C...’.

Therefore sec 27(3) determines that the total value of the company’s taxable supplies must have exceeded R30 million during the previous 12 months ending on the last day of any month or that it is likely to exceed R30 million for the following 12 months on the first day of any month.

It should be noted that in terms of sec 27(5)(a) of the VAT Act, in determining whether the total value of the taxable supplies exceeded or is likely to exceed R 30 million, the normal sec 10 value of supply rules should be used and no regard must be given to the VAT included in the supplies. Please also have a look at sec 27(5)(b) when making this determination.

Conclusion

The company will fall within ‘Category C’ when, on the last day of any month, the total value of its taxable supplies exceeded R 30 million for the previous 12 months or on the first day of the month, when it is likely to exceed R30 million in the following 12 months. It should also be noted that although the above requirements may not be met, the company may still apply to the Commissioner to be registered within Category C.


WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

MINIMUM REQUIREMENTS TO REGISTER

The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

Membership Management Software Powered by YourMembership  ::  Legal