Written by David Hepburn, Partner, Jayna Hira, Associate, and Wade Jacobs, Candidate Attorney
The National Treasury and SARS have implemented measures to assist taxpayers to keep afloat and meet their financial obligations towards their employees and suppliers.
In order to apply for requisite tax relief, a taxpayer must be tax compliant, and all tax payments should be up to date. Furthermore, the taxpayer must have suffered some form of ‘serious financial hardship’ which has occurred as a result of the impact of the COVID-19 pandemic. This impact must have been ‘substantial and material’, and there is a corresponding duty upon the taxpayer to prove that an instalment payment arrangement is required.
Set out, below, are the latest relief options afforded to taxpayers.
There has been an increase in the employment tax incentive amount to R750 per month. Furthermore, there has been an increase in the proportion of tax to be deferred and in the gross income threshold for automatic tax deferrals. The proportion of employees’ tax that can be deferred will be increased to 35% and the gross income threshold for both deferrals will be increased to the amount of R100 million.
- VALUE ADDED TAX (VAT)
Smaller VAT vendors that find themselves in a net refund position will be accordingly allowed to file monthly, rather than once every two months, which would unlock the input tax faster and assist with cash flow. Systems shall be operational sometime in May 2020, specifically for Category A vendors that would only file in June 2020.
- PROVISIONAL TAX
Measures have been put in place to assist small to medium sized businesses to alleviate cash flow problems, by the allowance of a deferral of a portion of the first and second provisional tax liability to SARS. This shall be done without the imposition of penalties and interest for the late payment of the deferred amount. The first provisional tax payment, which is due from 1 April 2020 to 30 September 2020, will be based on 15% of the estimated total tax liability, while the second provisional tax payments due, from 1 April 2020 to 31 March 2021, will be based on 65% of the estimated total tax liability. Provisional taxpayers with deferred payments will be required to pay the remaining 35% tax liability when making the third provisional payment in order to avoid interest charges on assessment.
For May 2020 and June 2020, payments in regards to excise taxes on alcoholic beverages and tobacco products will be deferred by 90 days for excise compliant businesses. This will be to closely align tax payments through duty-at-source system with retail sales.
- SKILLS DEVELOPMENT LEVY
From 1 May 2020, there shall be a four-month holiday for skills development levy contributions, 1% of total salaries, to assist all businesses with cash flow.
- CORPORATE INCOME TAX
There has been a postponement of some 2020 Budget measures which would have broadened the corporate income tax base by, firstly, restricting net interest expense deductions to 30% of earnings, and, secondly, limiting the use of assessed losses carried forward to 80% of taxable income. These measures have been postponed to at least 1 January 2022.
- WAIVING OF PENALTIES
Applications to SARS for the waiving of penalties will be assessed on a case-by-case basis. Businesses with a gross income of more than R100 million that are able to illustrate that they are incapable of making payment due to the pandemic may apply directly to SARS to defer tax payments without incurring penalties. Application can be made via email at COVID19IPAaboveR100m@SARS.gov.za.
The above will also apply to businesses with a gross income of less than R100 million who may apply to SARS for additional deferral of payments without incurring penalties. Application can be made via email at COVID19IPAbelowR100m@SARS.gov.za.
- LIVING ANNUITY FUNDS
For those individuals who require cashflow immediately and who do not want to be forced to realise living annuity payments that have underperformed, Government has proposed an amendment to expand access to living annuities from 1 May to 31 August 2020.
This will allow the following: –
- Individuals who receive funds from a living annuity may temporarily and immediately increase or decrease the proportion they receive as annuity income, instead of waiting until their next anniversary date in order to do so;
- individuals may adjust their drawn down rates during four-month period mentioned above; and
- any elections made will only be applicable for the four-month period resulting in the drawn down rates automatically reverting to the rates applicable before the said election upon the lapsing of the four-month period.
In addition, Government has proposed a further amendment of a single R125 000 threshold to be applied as a minimum amount which will replace the minimum value of the annuity or part of the retirement interest which an individual can withdraw of R50 000, in the event that there was any previous lumpsum commutation in the fund and R75 000 in other cases. This single minimum threshold of R125 000 will continue to apply even after the four-month period.
- DEDUCTIONS IN RESPECT OF DONATIONS TO THE SOLIDARITY FUND
Taxpayers who donate to the solidarity fund will qualify for an additional tax break, as they will be able to claim an additional 10% as a deduction from their taxable income. Further clarity may be required in terms of this as section 18A of the Income Tax Act provides for organisations to qualify for a deduction that does not exceed 10% of the taxable income of a taxpayer. This could be interpreted to mean that the current 10% threshold will be increased to 20% or possibly that the taxpayer would be entitled to claim a deduction equivalent to 110% of the donation made.
- ADJUSTING PAYE FOR DONATIONS MADE THROUGH THE EMPLOYER TO THE SOLIDARITY FUND
When calculating the monthly employees’ tax to be withheld, employers may factor in donations of up to 5% of an employee’s monthly salary. An additional percentage can be factored in up to 33.3%, depending on the employee’s circumstances. This is set to lessen cashflow constraints for employees who donate to the Solidarity Fund.
The above information was extracted and adapted from the revised draft explanatory memorandum detailing the COVID-19 tax measures and the circumstances under which they will apply. These measures will be legislated into two revised Bills, namely the Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill. Same were published for public comment on the National Treasury and SARS websites on 1 May 2020.
The information contained herein is a summary and overview of relevant legislation. Due to time and space limitations, details affecting the businessperson may not have been covered. This article should therefore not be relied upon for detailed planning, but for guidance only. The reader is advised to consult a professional adviser for specific advice and information, and for guidance on new and existing legislation which may affect business and personal planning. This article should not be treated as a substitute for advice. Professional advice must therefore be sought in relation to any aspect referred to in this article. While every care has been taken in the compilation of this article, no responsibility of any nature whatsoever shall be accepted for any inaccuracies, errors or omissions herein.