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Monthly incremental PAYE deductions on anticipated year-end bonuses

14 November 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: We have a situation where the client is deducting tax on bonus from the staff during the year, so as to ensure they have a "tax free” bonus in December. The query is whether the tax deducted during the year may be refunded to the employee in the event the employee leaves the company’s employment prior to receiving the bonus. In my opinion the monies paid over to SARS may only be refunded by SARS on assessment. Some information regarding the deduction:

A dummy parameter is set up on payroll allocating earnings to SARS code 3605 and the system then taxes this accordingly

It is important to note that the system calculates tax and Tax on bonus (tax on annual payments) separately (so even when the dummy bonus amount is reduced to 0 when the employee leaves, it will not reduce the normal tax as that has been allocated to "tax on bonus”)

This allocation runs from March – November (so it remains in the current tax year). If the employee leaves this allocation is completely reversed so that 0 can reflect on the tax certificate. In December we reverse the entire allocation and pay the bonus out under the bonus parameter also allocated to Reporting code 3605.

A: As the bonus is variable remuneration the employees’ tax must only be withheld in the month of payment.  We therefore assume the additional amount was deducted in terms of paragraph 2(2) of the Fourth Schedule.  That paragraph reads as follows:

"Any employer may, at the written request of any employee, deduct or withhold from any amount of remuneration an amount by way of employees’ tax greater than that required to be deducted or withheld …, and shall remit such amount to the Commissioner, and the provisions of this Schedule relating to employees’ tax shall mutatis mutandis apply in respect of such amount.”  

There is no provision in the Income Tax Act or the Fourth Schedule which allows the employer to refund the employees tax in this instance.  Even where the bonus was repaid, the SARS guide states that "the Employees’ Tax paid on this amount may under no circumstances be refunded to the employee.”  

We therefore agree with you that the amount over deducted can only be refunded on assessment.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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