FAQ - 16 October 2014
15 October 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Monthly ETI
calculation where a month has more than two fortnights
Q: I have a
client that disagrees with the way that my payroll software calculates the
Employment Tax Incentive (ETI).
According to all notes and telephonic conversations with the
software provider, the ETI calculation per month takes place on the actual
earnings received during that specific month. The problem comes in with
bi-weekly payrolls. During a financial year, there are 2 or sometimes 3 months,
where you have 3 fortnights in a month.
My client raised the question that SARS will never see 6
weeks (3 fortnights) as a month. The fact that the software calculates the ETI
for those 6 weeks, as a period of one month, also leads to a very high ETI
amount for that month, which is a concern for my client.
My client also has a problem with the ETI calculation for a
"normal” 2 fortnightly month. In this instance the month only consists of 28
days and this leads, according to him, to an under calculation of the ETI, as
it should have been calculated on a full month and therefore he loses money.
I have read a variety of articles about the ETI calculation,
but in all the articles, SARS or the authors only mentioned the earnings received
in a month and this highlights my client’s concern.
I understand the way that my software calculates the ETI, as
it is done on actual earnings received during that period and not on averaged
income. I just don’t know how to satisfy my client, as he does not accept the
answers that my software provider gave me and is worried that SARS will have a
problem with the payroll.
A: It is clear
from section 7(2) of the Employment Tax Incentive Act that the incentive is
determined as a percentage of the monthly remuneration of the employee. In terms of section 1 of the Act, ‘‘monthly
remuneration’’ where an employer employs a qualifying employee for part of a
month, means the amount that would have been payable in respect of that month
had that employer employed that employee for the entire month.
For the purposes of the definition of ‘‘monthly
remuneration’’, ‘‘remuneration’’ has the meaning ascribed to it in paragraph
(1) of the Fourth Schedule to the Income Tax Act.
Section 7(5) of the said Act provides that 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.
We agree with you that ‘SARS will never see 6 weeks (3
fortnights) as a month’. We are not sure
what you mean with it ‘also leads to a very high ETI amount for that
month’. Remember that the incentive has
a maximum of R1 000 per employee and it would be a contravention to claim more
than that in a particular month.
We therefore submit that the ETI must be determined to the
proportionate monthly remuneration and not on 3 fortnightly amounts.
2. Gold coins and
Capital Gains Tax
Q: I’ve heard
from various clients, that there is apparently a clause that exclude gold coins
minted in the 1800’s from capital gains tax. I was unable to confirm this
statement made by some of my clients. Will you be able let me know if there is
any truth to this claim.
A: The definition
of an 'asset' in paragraph 1 of the Eighth Schedule to the Income Tax Act includes
‘any coin made mainly from gold or platinum’.
It would be the definition of ‘currency’ that would exclude an old coin
or note no longer in circulation. It
would therefore not be currency. It
follows that notes or coins held as collectors’ items are assets for CGT
purposes. However, such collectors’
items if held by an individual constitute personal-use assets under paragraph
53(2), and any gain or loss on their disposal must be disregarded [paragraph
A ‘personal use asset’ does not include a coin made mainly
from gold or platinum of which the market value is mainly attributable to the
material from which it is minted or cast – see paragraph 53(2) in the Eighth
Schedule and paragraph 184.108.40.206 in SARS’s capital gains guide. SARS explains it as follows:
"A number of assets used for non-trade purposes are,
however, excluded as personal-use assets under para 53(3), for example, gold or
platinum coins (other than collectors’ items)…”