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Employment Tax Incentive ActGet Your Own Back!

The Employment Tax Incentive Act was promulgated in December 2013. The purpose of the Act is to assist with developing the labour market, particularly in connection with young job seekers. From our perspective it is uncertain whether the regulations will achieve this goal. However, if a company has recently (on or after 1 October 2013) begun employing younger employees between 18 and 29 years and are paid compensation under R6 000 a month, the company can potentially qualify to profit from the incentive.

HIGHLIGHTS

Basically, the impact of the regulation is that companies that are signed up for Employees’ Tax could minimise the Employees’ Tax payable to SARS without impacting the wage paid to qualifying workers. The reduction in Employees’ Tax paid to SARS depends on the compensation (as specified for PAYE objectives) paid to the relevant workers. The maximum tax benefit to a company is R1 000 a month for each qualifying worker earning between R2 000 and R4 000 a month. The benefits reduce to nil for reimbursement of R6 000 a month and over. The company benefits drop by 50% after the first 12-months a qualifying worker is employe.

For instance if a company employes a qualifying worker and pays them R4 000 a month, the company would pay the R4 000 a month to the worker and receive a R1 000 credit a month for the first 12 months of employment, provided the R4 000 remuneration remained consistent throughout the year. The credit is offsets against the total Employees’ Tax liability for all the employees. For the second 12 months of the worker’s employment the credit is cut in half to R500 a month assuming the reimbursement of R4 000 a month is the same throughout the year. A special new exemption provision makes the incentive exempt from Income Tax  in the hands of the employer.

CERTIFICATION REQUIREMENTS

The legislation is effective 1 January 2014 and is retroactive for qualifying workers employed after the 1 October 2013. The incentive will apply for the next 3 years and cease on 1 January 2017. It is important to note that the incentive only applied to the first 24 months of a qualifying worker’s employment.

In other words, a ‘qualifying worker’ is a one who is:

> Over 18 years of ages and not older than 29 years of age at the end of the month in  which the incentive is claimed;

> Employed by a company operating within a Special Economic Zone (irrespective of age)– No Special Economic Zones have yet been announced;.

> Employed in a business sector declared by the Minister of Finance by a notification in the Government Gazette. No such sectors have yet been declared.

On top of that, the worker should:

> Not be a ‘linked individual’ (as determined in the Income Tax Act) associated with the company;

> Not be a domestic worker;

> Either have a South African ID or an asylum seeker’s permit;

> Have commenced employment at the company or at an ‘associated person’ (as specified) on or after 1 October 2013;

> Be paid a minimum of the base wage relevant to the company or the R2 000 a month (where there is no base pay pertinent to the company); and.

> Earn less than R6 000 a month (or the equivalent for part of a month) for the month in which the credit is claimed.

Companies are forbidden from claiming the incentive when they have outstanding tax returns or tax debits (apart from tax debits under R100 or tax debts where  repayment arrangements with SARS have been).

EXTRAS CREDITS.

Where the incentive credit is greater that  the Employees’ Tax payable in a particular month, the surplus is carried over as a credit to the next month. If a company does not claim the credit in any given month (possibly as a lack of knowledge of the regulation), the unclaimed credit is rolled over as a credit to the following month.

If the company is suspended from claiming credits because of an outstanding income tax return or tax debt as described above, that credit continues to build up during the time of suspension. On the 1st day of the month after the IRP 501 reporting period, the total accumulated credits are limited to R6 000 for each qualifying worker.

Apparently, SARS will pay credits due at the IRP 501 reporting date in cash, given that the company is in good standing.

ANTI-DISPLACEMENT RULES.

The Act includes ‘anti-displacement’ policies, intended to prevent the termination of older, non-qualifying workers in a way that constitutes unfair dismissal as defined in the Labor Relations Act and substitute them with qualifying workers. In such cases a monetary fine of R30 000 for each displaced worker is payable and the company could be suspended from getting the incentive.

Call Herman on 011 907 7260 or email him at herman@vg-a.co.za to explore how you can take advantage of this Tax Break.

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One Response to “Employment Tax Incentive Act”
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  1. Mike says:

    Will this have the desired effect – to increase employment among young people? I doubt that the R1000 tax credit will be sufficient compensation for the additional management required to train and supervise the unskilled workers. Then there is the cost of correcting mistakes resulting from inexperienced workers. My guess is that this incentive will only benefit businesses that currently employ a high proportion of unskilled seasonal or contract workers.

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