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Must PAYE be withheld from the payment of an arbitration award?

Thursday, 22 January 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: I would like to confirm that I have given my client the correct information. The case is as follows:

An ex-employee took my client to CCMA for unfair dismissal and won an arbitration award of 2 months’ salary.  The Commissioner’s award states:

"The respondent is ordered to pay the applicant compensation equivalent to two months’ salary calculated at his rate of pay at the time of dismissal as follows: R17280.00 x 2 months = R34560.00”

My client paid R34560.00 less PAYE of R7308.38 and UIF R148.72 = R27102.90 as per the definition of Gross income in the Income Tax Act Section 1 (c), (d), and (f).

My client has now received a fax from the labour lawyers saying:

"The award itself is very clear as to what amount has to be paid and by which date such payment had to take place in full.  Take further notice that no deductions are permitted from arbitration awards and that the awarded amount must be paid in fill.”

Does this not go against the definition of gross income? What would be the correct advise to give?

A: The obligation to withhold employees’ tax applies in our view, notwithstanding the CCMA order, as paragraph 3 Fourth Schedule of the Income Tax Act deems the amount to be subject to the withholding obligation as is therefore the amount after taxes withheld. The obligation to pay the CCMA award will therefore be the after tax amount.

In our view the amount stated as being for unfair dismissal is in respect of the termination of employment which are capital amounts specifically included in para (d)(i) of the definition of gross income in section 1 of the Income Tax Act. The amount of employees tax to be withheld by the employer from this amount must be ascertained from SARS through a directive in terms of para 9(3) Fourth Schedule of the Income Tax Act.

The SARS legal position and tax obligation is set out in detail in SARS’ Interpretation Note 26.

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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