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Tax consequences of an employee in terms of the Employment Tax Incentive Act

06 February 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: My client has an employment tax incentive (ETI) audit, and I am very concerned about the finding and a possible "loophole”/ area of confusion in the act that is now a reality. 

In a nutshell SARS wants to adjust an ETI claimed for an employee because they say the employee was employed before 1 October 2013. 

Facts of the situation: 

Employee was employed by this employer before 1 October 2013, but he resigned and was re-employed a few months later. There was a break-in employment for a period of two months the employee was however re-employed in the same tax year. 

I am confused because the ETI act does not mention anything about "new” employees section 6 only mentions this:

"(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”The National Treasury guide/explanatory notes for the ETI does not mention the situation where employees resign, and returned a few months later. I can’t find any disqualification for this exact situation, i.e. nowhere does it say that an employee is disqualified if that employee has ever worked for that employer previously  before 1 October 2013. 

This is going to cause some confusion and I am not sure what to do. This problem would flow onto casual employees, temporary or contract employees, seasonal workers etc. Please could I have some assistance?

A: We agree that the current section 6 of the Employment Tax Incentive Act does not prohibit a person who was previously employed before 1 October 2013 and again employed after 1 October 2013 to be a "qualifying employee”. The current wording in section 6(e) is different to the wording in the draft ETI bill which at such time did in fact (see below) restrict the allowance to employees who were employed for the first time at such employer. 

Draft Bill wording:

e) In relation to the employer, was not an employee of the employer or an associated institution prior to 1 October 2013.

Current ETI Act wording:

(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

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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