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Employees’ tax withholding obligations in respect of share incentive arrangements

Monday, 19 June 2017   (0 Comments)
Posted by: Author: Peter Dachs
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Author: Peter Dachs (ENSafrica)

In terms of paragraph 2(1) of the Fourth Schedule to the Income Tax Act, 1962 (the “Act”), every employer, who is a resident of South Africa, or representative employer in the case of any employer who is not a resident, (whether or not registered as an employer under paragraph 15) who pays or is liable to pay any amount by way of remuneration to any employee shall, unless the Commissioner for the South African Revenue Service (“SARS”) has granted authority to the contrary, deduct or withhold from that amount by way of employees’ tax, an amount that will be determined as provided in the Fourth Schedule in respect of the liability for normal tax of that employee and must pay the amount so deducted or withheld to the Commissioner for SARS within seven days after the end of the month, during which the amount was deducted or withheld or within such further period as the Commissioner may approve.

The term “remuneration” is defined in paragraph 1 of the Fourth Schedule to the Act to mean any amount of income that is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered, subject to certain specific inclusions, one of which is any amount referred to in section 8C that is required to be included in the income of a person, and subject to certain that are not relevant for current purposes.

Therefore, any amount referred to in section 8C that is required to be included in the income of a person constitutes “remuneration” for purposes of employees’ tax. To the extent that a section 8C gain arises upon the vesting of an equity instrument in terms of a share incentive arrangement, the employees’ tax implications should be determined.

Paragraph 11A(1) of the Fourth Schedule to the Act provides, inter alia, that where the remuneration of an employee includes any amount referred to in section 8C, which is required to be included in the income of that employee, the person from whom the equity instrument was acquired is deemed to be a person who pays or is liable to pay to that employee the amount of the section 8C gain. 

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