FAQ - 4 May 2016
04 May 2016
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Is PAYE deductible from independent
Q: A contractor earns income from the services they provide and has no other
clients, and this is their only source of income.There are no set hours and the contractor is available for weekly
meetings and ad hoc telephone and email advising. I wanted to find out if PAYE
can be deducted from the income they earn.
A: A person making payment to an individual
(in respect of services rendered) would have an obligation to deduct employees’
tax from that payment unless the individual rendered the services in the course
of a trade carried on independently (as required by proviso (ii) to the
definition of remuneration in paragraph 1 of the Fourth Schedule to the Income
Tax Act). In this regard a person will be deemed not to carry on a trade
independently if the services are required to be performed mainly at the premises
of the person by whom payment is made or the person to whom the services are
rendered AND the person rendering the services is subject to the control or
supervision of any other person as to the manner in which his duties are
performed or as to his hours of work.
It is the
employer's duty to determine whether a person is an independent contractor or
an employee and whether employee's tax should therefore be deducted or
not. The employer is in the best position to interpret the facts of each
case. If the employer incorrectly classifies a person as an independent
contractor, the employer will be liable for the relevant employee's tax
together with the relevant penalties and interest.
current practice generally prevailing in this regard is set out in Interpretation
Note 17 (issue 3). The note deals with the statutory tests (including how
to apply the statutory tests) and common law dominant impression test.
The table on page 17 is very useful.
general principle was explained as follows by Judge Streicher in the Niselow
case. The Judge said that "…an employee is a person who makes over
his or her capacity to produce to another; an independent contractor, by
contrast, is a person whose commitment is to the production of a given result
by his or her labour…" The judge then concluded by saying that the
relationship between the parties must remain one in terms of which the person
doing the work undertook to produce a certain result and not to render personal
services to person paying for it to be a contract in terms of which independent
services are rendered.
that "there are no set hours” the individual "is available for weekly meetings,
and ad hoc telephone and email advising” and that the individual "receives NO
other income”. The other income earned by the individual would only be
relevant if the individual is a labour broker (unlikely from the facts
provided). The hours of work and the place where the work is done are
relevant to the statutory test.
the proceeds from the sale of an aircraft capital in nature?
want to know whether the proceeds on sale of an aircraft held in a normal trust
(which has never generated any income) will have to be treated as a capital
gain or not.
A: In applying the law to your scenario it is submitted that the
intention of the trust and the trustees will have to be determined. And
this must be done both at acquisition and at disposal of the
The essential question here is
whether or the receipt (accrual) from the disposal of the aircraft is of a
capital nature. If the taxpayer were to argue that the receipt on
disposal of the aircraft is capital in nature the taxpayer bears the burden to
prove on a balance of probabilities that the proceeds were of a capital nature.
The fact that it is an asset, in itself, is not sufficient. We accept
that there is no special inclusion in gross income in terms of paragraph (n) of
that definition in section 1(1) of the Income Tax Act.
Our courts have dealt with this
issue on many occasions – the most recent being 9 February 2016. Judge
van Der Merwe confirmed in this SCA case (CSARS v Capstone 556 (Pty) Ltd) that
"…our courts have … consistently applied the test that a gain made by an
operation of a business in carrying out a scheme of profit-making, is income
and vice versa.” With ‘income’ the judge of course refers to ‘gross
The Judge continued as follows:
"Where a profit is the result of
the sale of an asset, the intention with which the taxpayer had acquired and
held the asset is of great importance and may be decisive. In essence,
the question is whether the asset was acquired for the purpose of reselling it
at a profit and assumed the character of trading stock…”
Disclaimer: Nothing in these queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.