Tax administration act and PAYE
21 May 2012
Posted by: SAIT Technical
By Michael Stein (Friday Page)
The massive Tax Administration Bill (TAB) was passed by Parliament some time ago, but has not yet been promulgated as an act, not, I imagine, because it is being studied by President Zuma before being signed into law, but apparently because it is being translated into Afrikaans. Apart from its substantive provisions, which number 272, it contains a schedule that effects several hundred amendments to some twelve other tax acts. For some reason the TAB has also been used to make a PAYE amendment that has nothing to do with tax administration as such.
Schedule 1 to the TAB amends the Fourth Schedule to the Income Tax Act by adding an additional item to those that may be deducted from an employee's (taxpayer's) remuneration in the determination of his or her balance of remuneration. This is the amount on which the PAYE deductions by an employer are based.
The item is in para2(4)(cA) of the Fourth Schedule, which allows the deduction for a premium paid by an employer of an employee directly or indirectly for the benefit or on behalf of the employee to the extent that the policy of insurance on which the premium is paid covers the employee against the loss of income as a result of illness, injury, disability or unemployment.
The bizarre thing is that this amendment is retroactive to 1January 2011 and applies to premiums incurred on or after that date. But it will become law only once the TAB is promulgated as an Act. So an amendment that affects deductions of PAYE as from 1January 2011 will be in the law only more than a year later.
But there is more. This provision of Schedule 1 is itself likely to be deleted, because another version of para2(4)(cA) has been inserted into the Fourth Schedule by the Taxation Laws Amendment Act 24 of 2011. It takes effect as from 1March 2012 and for years of assessment commencing on or after that date. But the above provision in Schedule1 will presumably be deleted only once the TAB is promulgated as an Act.
Please do not blame me for this chaotic state of affairs. I am not the clown responsible for the chaos. I am only the messenger.
The version of para2(4)(cA) inserted by Act 24 of 2011 allows the deduction from an employee's remuneration in the determination of his or her balance of remuneration on which PAYE deductions are based for
‘any premium deemed to have been paid by the employee in terms of paragraph 12C(2) of the Seventh Schedule [to the Income Tax Act]'.
Paragraph 12C(2) includes as a taxable fringe benefit the amount of any expenditure incurred by an employer during a year of assessment in respect of any premiums payable under a policy of insurance directly or indirectly for the benefit of an employee or his or her spouse, child, dependant or nominee.
It goes on to state that when a premium is paid in terms of a policy of insurance contemplated in s23(m)(iii) of the Income Tax Act, the amount of any premium paid by the employer of the employee concerned must, to the extent that the amount has been deemed to be a taxable fringe benefit under the above provision, be deemed to have been paid by the employee.
Section23(m)(iii) allows an employee to deduct a deduction that is allowable under s11(a) of the Income Tax Act for premiums paid by him or her in terms of an insurance policy, to the extent that it covers the person concerned against the loss of income as a result of illness, injury, disability or unemployment and the amounts payable under the policy constitutes or will constitute income as defined.