Tax consequences of an employee in terms of the Employment Tax Incentive Act
06 February 2015
Posted by: Author: SAIT Technical
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
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.