REVIEWING THE TIMING OF ACCRUAL AND INCURRAL OF VARIABLE REMUNERATION

Section 7B of the Income Tax Act (‘the Act’) allows for the taxation of what’s referred to as ‘variable remuneration’ to be deferred to the date when the amount is actually paid to the employee rather than when it accrues to the employee.

On the tax deduction side, this deferral principle also applies to the employer incurring and paying variable remuneration with the time of the deduction triggered at the time of payment.

Under the Act, variable remuneration includes:

(i)??????????overtime pay, bonuses or commission;

(ii)?????????an allowance or advance paid for transport expenses;

(iii)????????an amount the employee becomes entitled to as a result of unused leave;

(iv)????????any night shift or standby allowance; or

(v)?????????any amount paid or granted for a reimbursement as contemplated in the Act.?

The Government acknowledges that the list contained in the section is not exhaustive or comprehensive and therefore, does not accommodate all possible variable remuneration which employees receive such as performance-based payments. Accordingly, it is proposed that the definition be extended to include the currently excluded types of variable remuneration.

We believe that this will also provide clarity to the employers regarding the timing of deductible performance‐based variable payments in the informal sectors. Previously, these amounts would have been deducted by employers under section 11(a) on an accrual basis regardless of whether payment had been made or not as they would not have been specifically included and recognised as variable remuneration under section 7B.

Perhaps the starting point for the Government in broadening the variable remuneration definition would be to consider the different SARS source codes applicable to employees tax certificates and whether any of the remuneration types would qualify or fit the scope of variable remuneration.