The Taxation of Income and Benefits Received by Employees in the Public Service 2004/05

Transcription

1 The Taxation of Income and Benefits Received by Employees in the Public Service 2004/05

2 CONTENTS THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE FOR THE PERIOD 1 MARCH 2004 TO 28 FEBRUARY 2005 (2005 YEAR OF ASSESSMENT) 2004/05 FOREWORD This document is a general guide and does not go into technical and legal detail that is often associated with tax. It should, therefore, not be used as a legal reference. The information, in this guide, deals with the 2004/05 year of assessment (tax year) that covers the period 01 March 2004 to 28 February Should you require additional information concerning any aspect of taxation Contact your local SARS branch Visit SARS online at Contact your own advisors Prepared by Law Administration SOUTH AFRICAN REVENUE SERVICE 16 February INTRODUCTION CALCULATION OF INCOME TAX Taxable income Employees tax (PAYE and SITE) Registration Assessment 2 3. WORKER COMPENSATION, WORK FACILITIES AND SERVICE BENEFITS TAXATION OF WORKER BENEFITS Salary Offi cial journey s Travelling allowance Reimbursements for business travelling using private transport Accommodation expenditure and special daily allowances where an employee has to spend at least one night away from his or her usual place of residence Deemed amounts for offi cial journeys inside South Africa for the 2004/05 year of assessment Deemed amounts for offi cial journeys outside South Africa for the 2004/05 year of assessment Resettlement expenditure 6 5. TAXATION OF WORK FACILITIES State and other housing (offi cial quarters) Uniforms and protective clothing 7

3 6. TAXATION OF SERVICE BENEFITS Housing allowance Medical assistance Service bonus (13th Cheque) Transport between residence and work Long service awards Cash award Encashment of leave Annual leave 9 7 CONCLUSION... 9 ANNEXURE A ANNEXURE B INTRODUCTION This brochure explains the income tax treatment of worker compensation, work facilities and service benefi ts payable to employees of the State. For purposes of this document the term the State includes national departments, provincial administrations, provincial departments and organisational components. 2. CALCULATION OF INCOME TAX 2.1. Taxable income You are required to pay income tax on your salary, allowances and any other taxable benefi ts you receive as an employee of the State as well as on any other income you may receive from other sources. A year of assessment for an individual commences on 1 March of each year and ends on the last day of February of the following year. The fi nal income tax payable by an employee can only be calculated once the total taxable income earned (less certain deductions) by the employee for the full year of assessment has been determined. The income tax payable is calculated according to a scale of rates, which is a table setting out the applicable rates of tax that are payable at the different levels of taxable income. The scale of tax rates applicable to the year of assessment ending on 28 February 2005 (the 2005 year of assessment) is set out in Annexure A Employees tax (PAYE and SITE) The income tax payable by an employee for a year of assessment is discharged by way of a monthly deduction based on the scale of rates, deducted from the employee s monthly income. This is known as employee s tax or Pay-As-You-Earn (PAYE) and /or Standard Income Tax on Employees (SITE) and is a system that allows you to pre-pay your annual income tax. PAYE consists of PAYE and SITE. SITE is deducted from the fi rst R of your remuneration, thereafter PAYE is applicable. Employees tax is therefore a withholding tax on employment income and will be set off against the fi nal income tax liability of the employee for the year of assessment. After the end of each year of assessment, the State issues an IRP 5 certifi cate to each of its employees. This certifi cate refl ects the employee s total annual remuneration for the year of assessment, the deductions taken into account in determining the employees tax, and the total amount of SITE and PAYE deducted from the annual remuneration Registration If the net remuneration, or the annual equivalent thereof, of an employee is less than R per year of assessment, and the employee is not in receipt of travel, or certain THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE 1

4 other allowances, additional part-time employment income, investment income, rental income and/or business income, the employee generally does not have to register for income tax purposes. If an employee s net remuneration or the annual equivalent thereof exceeds R per year of assessment, the employee must register for income tax purposes. An IT 77 form must be completed and submitted to SARS. As a registered taxpayer, the employee must complete a tax return after the end of each year of assessment. This return must be submitted to the local SARS branch offi ce for assessment before a specifi ed date Assessment On receipt of the employee s tax return, SARS calculates the fi nal tax and issues an assessment that refl ects the taxable income, the employees tax deducted during the year as well as the tax payable or refundable to the employee. If the assessment refl ects an amount of tax still due by the employee, the outstanding tax must be paid on or before the second date indicated on the assessment to any SARS branch offi ce. Failure to pay in time will result in interest being added to the outstanding amount, and may even result in prosecution. If an amount of tax is refundable to the employee, it will be refunded soon after the assessment has been issued. 3. WORKER COMPENSATION, WORK FACILITIES AND SERVICE BENEFITS The tax consequences of the following remuneration, allowances and fringe benefi ts in the public service are discussed in this brochure: Worker compensation normally consists of: Salary Offi cial journeys Travelling allowance Reimbursive travelling allowance Accommodation expenditure and special daily allowances Accommodation expenditure and special daily allowances for local offi cial visits Special daily allowance for offi cial visits abroad Resettlement expenditure Work facilities State and other housing (offi cial quarters) Uniforms and protective clothing Service benefits Home owner s allowance Medical assistance Service bonus (13th cheque) Transport between residence and work Long service award Cash award Encashment of leave Leave payouts 4. TAXATION OF WORKER COMPENSATION 4.1. Salary Salary will be payable in 12 equal instalments A salary payment is fully taxable in the month received by the employee, and therefore subject to the deduction of PAYE Official journeys Travelling allowance Certain employees of the State are in receipt of a travelling allowance for travelling on offi cial business. The business portion of a travelling allowance (i.e. the portion that is utilised to cover travelling for business purposes) is not taxable. The total allowance is refl ected on the IRP 5 certifi cate of the employee, and the tax return issued by SARS makes provision for the employee to calculate and deduct the business portion of the allowance. The business portion of the allowance is calculated by multiplying the kilometres travelled for business purposes by the cost per kilometre. Calculating business kilometres The distance travelled for business purposes can be proved by a logbook in which the business kilometres, destinations and dates on which the travelling occurred must be refl ected. If a logbook is not kept, the Income Tax Act prescribes that the fi rst kilometres of the total distance travelled during the year of assessment must be 2 THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE 3

5 regarded as private kilometres and that the rest of the total kilometres travelled is deemed to be for business purposes, up to a limit of kilometres. For example, if the employee travelled kilometres in total during the year of assessment, kilometres will be private and kilometres will be deemed to be for business purposes. Even if a logbook is not kept, it remains a requirement that accurate records of opening and closing odometer readings must be kept to verify the total distance travelled for the year of assessment. Accurate opening and closing odometer readings are essential and must be disclosed at all times, as required on the income tax return. The distances of kilometres and kilometres are reduced proportionately where a motor vehicle is used for less than a full year. Calculating the cost per kilometre The cost per kilometre can be proved by submitting proof of actual expenses for the total distance (i.e. private and business) travelled during the year of assessment. The cost per kilometre is then calculated by dividing the actual expenses by the total distance travelled. If the employee cannot prove actual expenses, the Income Tax Act prescribes the calculation of a cost per kilometre, which is then deemed to be the cost per kilometre Reimbursements for business travelling using private transport Where an employee must use own private transport to carry out offi cial duties, the State compensates the employee according to tariffs determined by the National Department of Transport. Where an employee does not receive a travel allowance and is reimbursed for the actual distance travelled for business purposes at a rate per kilometre that does not exceed the rate as calculated according to Annexure B, the reimbursement is not subject to employees tax and is not taxable on assessment. The total reimbursement is, however, refl ected on the IRP 5 of the employee. Where a travel allowance is paid in addition to a reimbursive allowance and vice versa, the amounts will be combined on assessment and be treated as a travel allowance Accommodation expenditure and special daily allowances where an employee has to spend at least one night away from his or her usual place of residence Where an allowance is granted to an employee to meet offi cial expenditure incurred in respect of accommodation, meals and incidental costs, the portion of the allowance that is actually expended in this regard will not be included in the employee s taxable income when his or her income tax return is assessed. Proof of the actual expenditure must be available on request. However, for ease of administration, certain maximum amounts (deemed amounts) will be accepted as having been spent in respect of meals and/or incidentals without the need to produce proof of the expenditure. It follows that any amount (based on the expenditure to be incurred) that is less than or equal to the applicable deemed amount will not be subject to income tax. These deemed amounts are determined by the Minister of Finance for the relevant year of assessment by way of notice in the Gazette. Examples of the deemed amounts applicable to the 2005 year of assessment are discussed in more detail in and below. Where an employee receives allowances in excess of the deemed amounts, the employee must claim actual expenditure (proof must be available) in his or her income tax return to avoid paying income tax on the allowances. Alternatively, the employee can claim the deemed amounts and pay income tax on the amounts in excess of the deemed amounts. The direct payment of accommodation costs by the State is not a taxable benefi t, and is not refl ected on the IRP 5 of the employee. However, where an allowance is paid to an employee to cover accommodation costs, the allowance will be taxed unless the employee is able to submit proof of the actual accommodation expenditure. All claims will be limited to the amount of the allowance received Deemed amounts for official journeys inside South Africa for the 2004/05 year of assessment If an employee must undertake an offi cial journey locally the State will either pay his/her: Reasonable actual accommodation expenditure plus a special daily allowance for incidental expenses; or A fi xed, all-inclusive, allowance. 4 THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE 5

6 Where an employee is away from his or her usual place of residence on offi cial duty within South Africa, and meals and accommodation are provided by the State free of charge, a maximum of R60 per day will be deemed to have been expended on incidental costs. For this purpose, incidental costs mean any beverages, private telephone calls, gratuities and room service. Any allowance less than or equal to R60 per day for these expenses will, therefore, not be subject to tax but will be refl ected on the IRP 5 certifi cate of the employee. Where only accommodation is provided by the State free of charge, a maximum of R196 per day will be deemed to have been expended on meals and incidental costs during offi cial travel inside South Africa. Any allowance less than or equal to R196 per day for these expenses will, therefore, not be subject to tax, but will be refl ected on the IRP 5 certifi cate of the employee Deemed amount for official journeys outside South Africa for the 2004/05 year of assessment If an employee must undertake an offi cial journey abroad (i.e. outside South Africa), the State covers the employee s reasonable actual accommodation costs plus a special daily allowance for meals and incidental expenses. A maximum of US$190 per day will be deemed to have been expended on meals and incidental costs during offi cial travel outside South Africa. Any allowance less than or equal to US$190 per day for these expenses will, therefore, not be subject to tax, but will be refl ected on the IRP 5 certifi cate of the employee Resettlement expenditure The State generally pays the actual local resettlement costs incurred by an employee, and his or her immediate family, where the employee has to relocate as a result of offi cial duties, or in some cases, on termination of service or death. Where an employee is appointed, transferred or his or her services are terminated, and the State bears the resettlement costs incurred by the employee as a result thereof, the amount expended will not be taxed in the employee s hands. The expenses that are not taxable include transportation costs, settling in costs, and hiring of temporary accommodation for less than 183 days. Settling-in costs include expenditure incurred on new school uniforms, the replacement of curtains, motor vehicle registration fees, telephone, water and electricity connection. 5. TAXATION OF WORK FACILITIES 5.1. State and other housing (official quarters) The State provides specifi c housing for an employee when it deems it necessary. The State can either be the owner of such property or rent it from a lessor. The provision of residential accommodation by the State to an employee results in a taxable benefi t in the hands of the employee. The value of the taxable benefi t is normally calculated by a formula that takes into account the remuneration earned by the employee, the size of the house, municipal costs, and furniture. Where an employee occupies residential accommodation in an area where it can be proved that the actual rental value of the residence is lower than the formula-based calculation, it was agreed with the Department of Public Service Administration that the taxable value of the benefi t will be fi xed at R802 per month, less the rent paid by the employee. Where the residential accommodation is not owned by the State, the taxable benefi t is the greater of the formula result or the cost to the State to provide such accommodation. Any rent paid by an employee in respect of accommodation will be used to reduce the value of the taxable benefi t. 5.2 Uniforms and protective clothing Where the duties of an employee require wearing a uniform or particular clothing such as protective clothing, the State normally either provides the uniform or clothing or provides an allowance that covers the reasonable actual cost of the uniform or clothing. The value of the uniform, protective clothing or allowance is exempt from tax if the employee is, as a condition of employment, required wearing the uniform or protective clothing while on duty, and if the uniform or protective clothing is clearly distinguishable from ordinary clothing. 6. TAXATION OF SERVICE BENEFITS 6.1. Housing allowance In certain circumstances the State pays a housing allowance to assist employees to acquire or rent residential accommodation. 6 THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE 7

7 The housing allowance is fully taxable in the hands of the employee. Employees tax must be deducted from the allowance on a monthly basis. No deduction can be claimed to reduce this amount on assessment of the employee s tax return Medical assistance The State pays up to two thirds of an employee s normal monthly subscription to a registered medical scheme. Since the State s contribution does not exceed two-thirds of the total contributions to the medical scheme of an employee, no taxable benefi t will arise in this regard. Where the State contributes to the medical scheme of an employee who has retired from the State by reason of superannuation (i.e. old age), ill health or other infi rmity, no taxable benefi t will arise Service bonus (13th cheque) The State pays a service bonus to employees in the months in which their birthdays fall. If an employee is a member of the Senior Management Service he or she can structure a 13th cheque as part of his or her package Encashment of leave In the event where an employee encashes his or her annual leave days as part of the long service award, the amount is taxable in full and employees tax must be deducted from the amount Annual leave An employee may apply at the end of the grace period of a leave cycle for a leave payout in respect of the annual leave credits he or she could not use due to operational requirements. Furthermore an employee is eligible to a leave payout in the event where his or her services are terminated. The amount of the leave payout is fully taxable in the hands of the employee and employees tax must be deducted from the amount. 7. CONCLUSION This brochure will be updated annually to incorporate new developments. Comments relating to this document can be forwarded to policycomments@sars. gov.za The bonus amount is fully taxable in the hands of the employee 6.4. Transport between residence and work Where exceptional transport problems arise and no other solution appears viable, the State may authorise an employee to use State-owned transport between his or her residence and place of work. An employee who uses government transport under these circumstances shall pay the State for the transport according to the rates prescribed. Transport provided on this basis is not taxable Long service award The State provides a long-service award to an employee who has served the government continuously for 20 and 30 years respectively Cash award Where an employee receives a long service award in the form of a cash payment, the amount is taxable in full and employees tax must be deducted from the amount. 8 THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE 9

8 ANNEXURE A The statutory rates of tax in respect of the 2005 tax year are: TAXABLE INCOME RATES OF TAX R R R R % of each R1 ANNEXURE B Scale of rates per kilometre (as applicable for the 2004/05 tax year). Where the value of the vehicle Fixed cost Fuel cost R c/km c/km does not exceed R ,1 17,1 Maintenance cost and over % of the amount over 30% of the amount over 35% of the amount over 38% of the amount over 40% of the amount over Rebates Primary rebate R5 800 Additional rebate (Persons of 65 years and older) R3 200 exceeds R , but does not exceed R ,5 17,3 exceeds R , but does not exceed R ,8 17,8 exceeds R , but does not exceed R ,3 18,5 exceeds R , but does not exceed R ,8 19,2 exceeds R , but does not exceed R ,3 19,9 exceeds R , but does not exceed R ,5 20,6 exceeds R , but does not exceed R ,9 21,3 exceeds R , but does not exceed R ,1 22,2 exceeds R , but does not exceed R ,3 22,7 exceeds R , but does not exceed R ,5 23,4 exceeds R , but does not exceed R ,8 24,1 exceeds R , but does not exceed R ,5 24,8 exceeds R , but does not exceed R ,1 25,5 Tax thresholds Interest exemptions The tax thresholds at which liability for normal tax commences, are: Persons under 65 years R Persons 65 years and older R Persons under 65 years R Persons 65 years and older R exceeds R , but does not exceed R ,9 26,2 exceeds R , but does not exceed R ,4 26,9 Where the value of the vehicle exceeds R Fixed cost = R plus an amount of R3 874 for every R or part thereof by which the value of the vehicle exceeds R Fuel cost = 29,4 cents per kilometre. Maintenance cost = 26,9 cents per kilometre. 10 THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE THE TAXATION OF INCOME AND BENEFITS RECEIVED BY EMPLOYEES IN THE PUBLIC SERVICE 11

9 NOTES NOTES

10 NOTES

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