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FAQ - 16 October 2014

15 October 2014   (0 Comments)
Posted by: Author: SAIT Technical
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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 53(1)].

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 4.1.2.6 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)…”



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