EMPLOYEES' TAX - SOLUTIONS

All paragraph references are references to the FOURTH Schedule unless stated otherwise

QUESTION 1 R

* Salary 28,000

* Bonus - included after the annual equivalent has been calculated -

* Right of use of motor vehicle = Remuneration (Par cB)

136 800 x 85%
= 116 280 x 3.5% x 80%
= 3,256 per month 3,256

Travel
* Allowance: Reimbursive travel allowance (4,6 - 3,98) x 650 403
(Par (cC) of definition of remuneration)

Remuneration (Definition in Par 1) 31,659

* Pension Fund Deduction (Par 2(4)(a))- R28 000 x 7.5% = R2 100

Actual = 2 100 limited to the lesser of: -2,100
R350 000 / 12 = R29 167 OR
27.5% of:
- remuneration: R31 659 x 27.5% = R8 706,23
Therefore limited to actual

* No deduction - Donation must be made by EMPLOYER on behalf of

employee. No deduction if employee makes donation herself (Par2(4)(f))
-
Balance of remuneration (Par 2(4)) 29,559

Annual equivalent excluding annual amount 354,708

Tax thereon (Par 9(1)) (R354 708 - R321 600) x 31% + R67 144 77,407
Less Primary rebate (S6(2)(a)) -14,958
Less Medical credit (319 x 12) -3,828
Tax liability on taxable income excluding annual amount 58,621

Annual equivalent (as above) 354,708

* Plus annual bonus 35,000

* Subsistence Allowance
No inclusion because she was actually away for business (not remuneration
i.t.o Par bA) -

Annual equivalent (including bonus) 389,708

Tax thereon (Par 9(1)) (R389 708 - R321 600) x 31% + R67 144 88,257
Less Primary rebate (Par 9(1)) -14,958
Less Medical credit (319 x 12) (Par 9(6)(a)) -3,828
Tax liability on taxable income including annual amount 69,471

Tax on bonus (R72 806 - 61 956) 10,850

Tax per month (R61 956 / 12) 4,885
Employees' tax for February 2021 15,735
EMPLOYEES' TAX - SOLUTIONS

QUESTION 2
All paragraph references are references to the FOURTH Schedule unless stated otherwise

PART A
REMUNERATION (Par 1) (excl annual pmts)

Salary 20,000
Restraint of trade (Par a) Annual payment -
Medical aid fringe benefit:
Employer contributions (Par b) (3 500 x 20%) 700
Travel allowance (Par cA) 2 200 * 80% 1,760
Reimbursive travel allowance (Par cC) (2,4 - 3,98) x 340 -

Remuneration 22,460

Less: Pension fund contributions (Par 2(4)(a)) (2,000)

Actual contribution: R2,000
Limited to lesser of: R350 000 / 12 29,167
OR 27.5% of:
Remuneration: R22 460 x 27.5% 6,177
Therefore R6 177 limited to actual

Balance of remuneration (Par 2(4)) 20,460

Annual Remuneration after deductions before tax (20 460 x 12) 245,520

Tax on annual equivalent (Par 9(1)) (R37 062 + 26% x (R245 520 - R205 900)) 47,363
Less: rebate (Par 9(1)) (14,958)
Less: Medical credit (Par 9(6)(a)) (319 x 2) + (215 x 2) x 12 (12,816)
Employees tax on remuneration excl annual pmt 19,589

/12 for the month of January 2021 (excluding annual payment) 1,632

REMUNERATION (incl annual pmts)

Annual equivalent 245,520

Restraint of trade (Par a) 60,000
Subsistence allowance (annual PMT - once off) (Par Portion not utilised will be included R175 x 2 in 350
bA) January (month after allowance is received).

305,870

Tax [(R305 870 - R205600) x 26%] + R37 062 63,054

Less rebate (Par 9(1)) (14,958)
Less Medical credit (Par 9(6)(a)) (12,816)
35,280

Total employees' tax on annual equivalent

Total employees' tax 35,280
Employees' tax on remuneration (excl annual pmt) 19,589
Employees' tax on annual payment 15,691

THUS: EMPLOYEES' TAX WITHHELD IN JANUARY 2021

On remuneration 1,632
On annual payments 15,691
Total employees' tax withheld in January 2021 17,323

PART B
INCOME TAX LIABILITY 2021

Salary (Par c of GI def in S1) (R20 000 x 12) 240,000

Restraint of Trade (Par cA of GI def in S1) 60,000

Medical aid fringe benefit (Par I of GI def in S1) Employer contributions (700 x 12) 8,400
(Par 2(i) & Par 12A of 7th Schedule)

Subsistence allowance (S8(1)(c)) - not used or paid back (no deduction allowed) 350

Travel allowance:
Travel allowance - fixed (S8(1)(b) (R2 200 x 12) 26,400
Reimbursive travel allowance (S8(1)(b)(iii)) (R2.40 x 340 x 12) 9,792
Total allowance 36,192

26 000 km 26,000
Private km (18,000)
Business km therefore 8,000

Deemed cost:
Fixed cost R55 894 / 26 000 km 2.150
Fuel 1.181
Maintenance 0.468
3.799

Business Portion 8 000 km x R3,799 / km 30,390

Limited to actual travel allowance 36,192
Inclusion of unexpended travel allowance (R36 192 - R30 090) 5,802

Taxable income before s11F 314,552

Pension Fund Contribution (S11F): (24,000)

Actual contributions (R2 000 x 12) 24,000
Limited to the lesser of: 350,000
OR 27.5% of the greater of: 90,714
- remuneration (R22 460x12) + R60 350 (part a) 329,870
- taxable income before deduction 314,552
Taxable Income before deduction and CGT 314,552
Therefore R90 714 limited to actual

Taxable Income 290,552

Tax Payable: [(290 552 - 205 900) x 26%] + 37 062 59,071

Primary rebate (S6(2)(a)) (14,958)
Less: Medical credit (S6A(2)(b)) (12,816)
s 6B Medical credit (S6B(3)(c)):
Employee contributions (R3 500 x 80% x 12 months) 33,600
Fringe Benefit 8,400
42,000
Less: 4 x Medical Credit (R12 816 x 4) (51,264)
-
Less: 7.5% x taxable income 285 406 x 7.5% (21,791) -
x25% -
31,297
Less: Employee's Tax Paid Part a (35,280)
Tax refundable (3,983)
EMPLOYEES' TAX - SOLUTIONS

QUESTION 3
All paragraph references are references to the FOURTH Schedule unless stated otherwise

a) Employees' tax of Birdie Balloo for December 2020 (Excl. annual amounts)

Salary 17,200
Pension fund contributions -
fringe benefit (17200 x 0.08) 1,376
Medical aid fringe benefit
(Par b) (R3 400 x 50%) 1,700

Remuneration (Par 1) 20,276

Less: Pension fund contributions (Par 2(4)(a)) -4,876

Actual contribution: (17200*0,08)+3500 4,876
Limited to lesser of: 350000 / 12 29,167
OR 27.5% of:
Remuneration: R20 276 x 27.5% 5,576
Therefore R5 576 limited to
actual

Balance of remuneration (Par 2(4)) 15,400

Annual equivalent 15 400 x 12 184,800

Tax 184 800 x 18% 33,264

Less: Rebate (Par 9(1)) -14,958
Less: Medical credit
(Par 9(6)(a)) [(319 x 2) + 215] x 12 -10,236

8,070

Calculation for 1 month R8 070/12 = 673

Employees' tax of Birdie Balloo for December 2020 (Incl. annual amounts)

Annual equivalent 184,800

Bonus 75,000
Subsistence allowance Not utilised in November (170 x 7) (Deemed to be
(Par bA) remuneration) 1,190
Long service award (Par b) 7,900
Less: Exemption Cash - no exemption 0 7,900
Balance of remuneration 268,890

Tax (Par 9(1)) (268 890 - 205 900) * 26% + 37 062 53,439
Less: Primary Rebate (Par 9(1)) -14,958
Less: Medical credit
(Par 9(6)(a)) (319 x 2 + 215) x 12 -10,236
28,245

Tax on annual equivalent including annual amounts 28,245

Tax on remuneration (excl. annual amounts) -8,070
Tax on annual amounts 20,175

Tax on annual amount 20,175

Tax for December 8 070/12 673
Total tax for December 2020 20,848

b) Employees' tax of Birdie Balloo - Allan Gray-pension fund

Pension 18,900

Annual equivalent R18 900 x 12 226,800

Tax (Par 9(1)) (R226 800 - R205 900) x 26% + R37 062 42,496
Less: Primary rebate (Par 9(1)) -14,958
27,538

Employees' Tax withheld in January 2021

Employees tax per month (R27 538/12) 2,295

Lump sum received in February 2021

According to directive (Par 9(3)(a)) 28,222

Total employees' tax deducted for February 2021 (R2 295 + R28 222) 30,517
EMPLOYEES' TAX - SOLUTIONS

QUESTION 4 Marks
All paragraph references are references to the FOURTH Schedule unless stated otherwise

Query 1
Part 1

The amount received will not constitute remuneration as defined since Dr John
Deere is an independent contractor. Although the services were performed
2
mainly in the Kruger National Park, he was not under the control and
supervision of the management of the Kruger National Park.
(Par ii exclusion to the definition of remuneration in Par 1)
No employees Tax should therefore be withheld. 1
Therefore, the R760 000 will be subject to Provisional Tax B

Part 2
If you traded using a company, employees’ tax should be withheld if the company
1
constituted a personal service provider (Par 1)
PSP:
any company where any service rendered on behalf of such company to a client of
such company is rendered personally by any person who is a connected person
in relation to such company, and
The service is rendered personally by the sole shareholder of the company (who is
therefore a connected person in relation to the company) to a client (i.e. Kruger 1
National Park)

Person (Dr Deere) would be regarded as an employee of such

client (KNP) if such services were rendered by such person Yes 1
directly to such client, other than on behalf of such company, or
(Alternative – not regarded as an employee but as an independent
(Alt: No)
contractor.
Where duties must be performed mainly at the premises of the
client and Dr Deere is subject to the control or supervision of No 0.5
such client, or

More than 80% of the income of such company consists of

amounts received from any one client.

Dr Deere received R760 000 from KNP. This constitutes 86% of

Yes 1
his total income. (760 000 / (120 000 + 760 000).
The escape clause is not applicable as company does not employ 3 or more full-time
1
employees who are not connected.

The company will therefore be regarded as a personal service provider (Included in

definition of employee in Par 1) and employees’ tax of 28% should be withheld by 1
KNP on the amounts paid to him.

Dr. Deere will still be liable for provisional tax on the R120 000 received from practice
in Phalaborwa.
Part 3
The company will not be regarded as a personal service provider (Par 1) if
company throughout the year of assessment employs three or more full-time
employees (other than shareholder or connected persons in relation to the 1
shareholder) who are on a full time basis engaged in the business of the company –

Two more full time employees will be appointed, bringing the total employees to three. 1

However, Dr John Deere’s mom is a connected person (S1) to the shareholder. 1

Only two of the employees (current employee and cleaning lady) are not
1
connected, therefore the exception does not apply.

The company will therefore still be classified as a personal service provider and
1
employees’ tax of 28% should be withheld by KNP on the amounts paid to him.

Query 2
Two elements need to be addressed – “remuneration” (loss of office) and
“employee” (foreign employee) that are dealt with in terms of the Fourth Schedule to 2
the Act.

“Remuneration” specifically includes a lump sum received from an employer on

the termination or variation of any office or employment (par (d) of the definition 1
of gross income). The amount for loss of office is therefore remuneration.

“Employee” includes a person who receives any remuneration or to whom any

remuneration accrues. The employee will thus be regarded as an “employee” 1
for the purposes of the Fourth Schedule.(Par 1)

Based on the above, employees’ tax needs to be withheld on loss of office payment to
1
directors.

However, the fact that the employee is a non-resident needs to be evaluated in terms
of the source rules. Non-residents are only subject to tax on income that is from a 1
South African source.

There is no specific guidance in section 9 regarding the source of remuneration. In

terms of common law, the source of an employee’s remuneration is where the head
1
office of the company is situated and the source of other services rendered is where
such services are rendered.

A directive needs to be obtained from SARS regarding the amount of tax that needs
1
to be withheld (par 9(3) and (4)).

It seems from the information that the source will be South African and the
1
payment is therefore subject to PAYE.
EMPLOYEES' TAX - SOLUTIONS

QUESTION 5
Part (a)
Please note: If a student discussed a labour broker or an independent contractor, even though some
of the requirements are similar to a personal service provider, these requirements were NOT
marked. It is essential that the student identified that they needed to discuss the requirements of a
personal service provider as Alizee CC is a close corporation and can therefore never be classified
as a labour broker or independent contractor. The conclusion mark was, however, considered in a
situation like this.

For Employees' Tax to be withheld the following elements should be

present:
- Employer
- Employee
- Remuneration 1

For Alizee CC to qualify as an employee the CC should meet the

requirements as a "personal service provider" as defined in the Fourth
Schedule. 1

A personal service provider (Par 1) is defined as:

- Any company or Trust 1
Alizee is a CC which qualifies as a company 0.5
- where any service rendered on behalf of such company (CC) is
rendered personally by any person who is connected person in
relation to such company (CC) 1
Services are personally rendered by Alizee the sole member (thus
connected) of the CC 0.5
- and more than 80% of the income from services rendered is received
from one client. 1
Income received from Daily News is R780 000 which is 82% of the
total income from services rendered (780 / 950) 1

(Or would be regarded as employee of such client, Or Duties mainly at premises

of client and under control or supervision of client - none of these are applicable) 0.5

Except where such company (CC) throughout the year of assessment

employs three or more full-time employees who are on a full-time basis
engaged (other than member of CC or connected person to such
member) 2
Alizee CC only employees 2 unconnected employees on a full-time
basis. This exception therefore does not apply. 0.5

Alizee CC will therefore qualify as a PSP for income tax purposes and
Daily News is required to withhold employees' tax from the payments
made to Alizee CC. 2

Total 12
Max 10
Part (b)

Business income 1,000,000 0.5

Section 23(k) limits the deduction of expenses claimed by a personal

service provider:

Salary to employees
- allowed in terms of s23(k) (480 + 120 + 60) -660,000 1
Paper and printing supplies
Even though it might qualify as a valid s11(a) not allowed in terms of
s23(k) - 0.5
Contribution to pension fund -45,000 0.5
- allowed in terms of s23(k)
Home office expenses: electricity and domestic worker -
Expenses not allowed in terms of s23(k)
In terms of s23(k) premises must be used wholly exclusively for the
purposes of trade, home office therefore does not qualify. - 1
295,000

Tax liability of Alizee CC at 28% 82,600 1

Employees tax withheld by Daily News

780 000 x 28% -218,400 1
Amount to be refunded by SARS -135,800 1
Total 6.5
Max 6
EMPLOYEES' TAX - SOLUTIONS

QUESTION 6 PART A MT-Mark Mark

through allocation

Gross Income:
Salary (Par c) 80 000*10 800,000 0.5
Salary (Par c) 88 000*2 176,000 0.5
Bonus-not paid before end of yoa 7B, tax taken into account on a
payments basis Marking note: mark must be for the reason and not
the amount of zero - 0.5

Gym membership-(500 (0.5)-100(0.5))x12(0.5), gym membership is

not included in non taxable memberships for the 7th Schedule 4,800 1.5
Tablet-trading stock CE is cost price therefore 2 000-2 000 (Par
5(1) and Par 5(2) of 7th Schedule) - 1
Food provided at training-on business premises no
value/during business hours (Par 8(3)(a) of 7th Schedule)
Marking note: marks must be for the reason and not the amount of
zero - 1
Food at awards event-special occasion no value (Par 8(3)(b) of
7th Schedule) Marking note: marks must be for the reason and
not the amount of zero - 1
Cufflinks - Marking note: no mark if reduced by R5 000-only If 12
000 included with no adjustments 12,000 1
Private use of laptop incidental-no value (1), business use no
value (1 (Par 6(4)(a) of 7th Schedule)) Marking note: marks must
be for the reason and not the amount of zero - 2
Income from business (15000 x 80%) 12,000 1

Specific inclusions in taxable income:

Subsistence allowance (S8(1)(c))2 220 (0.5) -(452'(0.5)*5(1) part of
a day counts as a day, do not need to be away for every night just
at least one) Ltd to 0 - 2
Travel allowance (S8(1)(b)) 120 000
Less business use:
146 753 (0.5)/21 000 (0.5)= 1
6.99
Fuel-169.4c 0.5
Repairs-77,8c 0.5
6,99+1,694+0,778=
9.46

Simplified method R3,98 not an option not reimbursive allowance

9,46x4 000(0.5)= Mark for multiplying cost per km with business
kms of 4 000 0.5
37,840
120 000-37 840 82,160

Deductions:
Tool set: R2 500 capital in nature <R7 000 so fully written off
(S11(e)) -2,000 1
Printing costs:
S20 A n/a but Pre trade expenditure - cannot create a loss (1) -10,000
15 000 x80% (1)-2 500 x 80% (1 mt) rest is carried forward
3
Taxable income 1,074,960

Total 18.5
Max 18
EMPLOYEES' TAX - SOLUTIONS

QUESTION 6 PART B Marks

a)
Is IT Assist a Personal Service Provider (Definition in Par 1 of 4th
Schedule):

Is it a company or trust , it is a company 0.5

Service rendered personally by connected person 0.5

Tau is connected 100% shareholding 0.5

Are 3 or more (0.5) full time (0.5) employees employed throughout

the year (0.5) who are not connected persons (0.5)? 2.0
No 0.5

Would the person rendering the service otherwise be regarded as

employee (0.5), yes is actually an employee already (0.5) and
same type of work - repairs (0.5) 1.5

Are duties mainly at clients premises (0.5) and is person subject to

client control and supervision (0.5)-in this case no (0.5) done at
home in capacity as sole proprietor 1.5

Does more than 80% of income come from one client 0.5
R250 000+R15 000-= R275 000 0.5
250 000/275 000 0.91 0.5
Yes 0.5

Only 1 of 3 criteria in box need to be met, 2 are met and therefore:

Conclusion: This would be a personal service provider 1.0
Total 10.0
Max 8.0

Quote 250,000 0.5

250 000x28% -70,000 0.5
Net amt 180,000
Total 1.0
Max 1.0
b)
Quote 250,000 0.5
250 000x45% -102,500 0.5
Net amt 147,500

Total 1.0
Max 1.0