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FAQ - 14 February 2018

Wednesday, 14 February 2018   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Can an employee get a refund for PAYE calculated incorrectly?

Q: In terms of the provisions of the Fourth Schedule to the Income Tax Act, and as a result of Paragraph 11B which was repealed by section 10(1) of Act No. 223 of 2015 (with effect from 1/3/2016), an employer is not allowed to refund any PAYE deducted from the remuneration of an employee. The refund of over-deducted PAYE shall be made by the Commissioner of SARS in terms of paragraph 29 of the Fourth Schedule. No Tax refund will be given to an employee, only on assessment, however what do we do in the case where an employee has invested funds in an RA (Lump Sum amount in Jan or Feb) and would like a Tax benefit where they are then due a refund? What if the payroll was calculating incorrectly for the year? What if employees have saved taxed on their bonuses? What if employee resigned, no pay this month, and tax bracket therefore decreases?

A: Paragraph 11 of the Fourth Schedule allows for “any error in regard to the calculation of employees’ tax” to be corrected.  It requires SARS to issue a directive to the employer, so would require a request to be made to SARS. 

The current practice generally prevailing is that an employer “may not refund over-deducted employees’ tax to an employee” … “where it subsequently transpires that the remuneration qualifies for exemption under section 10(1)(o)(ii) – the employee must claim a refund on assessment. 

You are correct that paragraph 11B (5) allowed for a payment of the excess, see below, by the employer to the employee.  It applied where at the end of any tax period the employees tax required to be deducted or withheld from any net remuneration paid or payable by an employer to an employee during the tax period consists solely of an amount of Standard Income Tax on Employees and the total amount of employees tax actually deducted or withheld by the employer from such net remuneration exceeded such Standard Income Tax on Employees required to be deducted or withheld from such net remuneration.  It then allowed the employer to repay to the employee the amount of such excess.

It further provided that any amount of employees’ tax which has been repaid by an employer to an employee (as above) may be deducted by the employer from any subsequent payment of employees’ tax due by him, or could be refunded to the employer by SARS. 

We understand that employers, particularly where they use payroll programs, adjust the employees tax in the February EMP201 – this is not a refund. 

Retirement annuity fund contributions

We don’t understand your comment that “a RA … is a monthly refund to an employee”.  Paragraph 2(4) of the Fourth Schedule to the Income Tax Act deals with that and we copy it here:

“The amount required to be deducted or withheld from any remuneration under this Schedule by way of employees’ tax must be calculated on the balance of the remuneration remaining after deducting therefrom—

(b) at the option of the employer, any contribution to a retirement annuity fund by the employee in respect of which proof of payment has been furnished to the employer, but limited to the deduction to which the employee is entitled under section 11F having regard to the remuneration and the period in respect of which it is payable;

(bA) any contribution made by the employer to any retirement annuity fund for the benefit of the employee, but limited to the deduction to which the employee is entitled under section 11F having regard to the remuneration and the period in respect of which it is payable; …”

The section 6A and 6B rebates (or medical credits)

This is dealt with in paragraph 9(6) of the Fourth Schedule and reads as follows:

“There must be deducted from the amount to be withheld or deducted by way of employees’ tax as contemplated in paragraph 2 the amount—

(a) of the medical scheme fees tax credit that applies in respect of that employee in terms of section 6A; and

(b) where the employee is entitled to a rebate under section 6 (2) (b), of the additional medical expenses tax credit that applies in respect of that employee in terms of section 6B (3) (a) (i),

if—

(i) the employer effects payment of the medical scheme fees as contemplated in section 6A (2) (a); or

(ii) the employer does not affect payment of the medical scheme fees as contemplated in section 6A (2) (a), at the option of the employer, if proof of payment of those fees has been furnished to the employer.” 

2. Is there a final "time" at which EFT payments to the SARS should be made?

Q: We have a case where the taxpayer made his provisional tax payment for 2018 first period on the 31 August 2017. The bank sent the taxpayer an emailed notification that the payment had been effected, but the payment only showed on the taxpayer's provisional tax account the next day, therefore being late. A penalty has been raised which we have lodged a Request for Remission against and since has been disallowed. When is the final time for payments?

A: You have not provided us with the basis that SARS provided for refusing to remit the penalty.  Under section 224 of the Tax Administration Act the “decision by SARS not to remit an understatement penalty under section 223(3), is subject to objection and appeal under Chapter 9.” 

From the information provided, this relates to the imposition of a percentage-based penalty – see section 213(1) of the Tax Administration Act.  We copied the following from that:

“(1) If SARS is satisfied that an amount of tax was not paid as and when required under a tax Act, SARS must, in addition to any other ‘penalty’ or interest for which a person may be liable, impose a ‘penalty’ equal to the percentage of the amount of unpaid tax as prescribed in the tax Act.” 

In terms of paragraph 27(1), of the Fourth Schedule to the Income Tax Act, “if any provisional taxpayer fails to pay any amount of provisional tax for which he or she is liable within the period allowed for payment thereof in terms of paragraph 21 or 23, or paragraph 25 (1), the Commissioner must, under Chapter 15 of the Tax Administration Act, impose a penalty, which is deemed to be a percentage based penalty imposed under Chapter 15 of the Tax Administration Act, equal to ten per cent of the amount not paid.”  Note the word ‘must’ that is used here. 

EFT payments made to SARS using the internet banking (EFT) services offered by certain banks are generally treated as received by SARS if the payment is made before the time required by the bank.  Certain banks require the payment to be actioned before 15:00 and if not made then, the payment will only be made the following day.  If the payment was made before such a time, SARS should treat it as having been made in time, even where the actual transfer is done by the bank on a later day.  SARS actually told us that the payments made in time, so to speak, will reflect in their bank account (the SARS one) on the same day.  They say they have bank accounts at all the banks and the payment therefore doesn’t go to another bank which could result in a delay. 

So, if the payment was made ‘in-time’, the taxpayer would be able to challenge the levying of the penalty on the basis that it was incorrectly levied.  If not, the taxpayer must request (now in the objection) remittance of the penalty under Part E of Chapter 15 (sections 216 – 220) of the Tax Administration Act.  

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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