The hidden sting behind the attractively advertised "RXXXX package" job only becomes evident to employees at this time of year when they start to fill in their tax forms.
The opportunity offered to some employees to "structure their own packages" may be inappropriate and, while take-home pay can be artificially enhanced during the course of the year, it may be followed by large demands for cash from the Receiver of Revenue once the assessment has been completed.
A typical example of poor planning is the case of a librarian who was given a travelling allowance. A travelling allowance is added onto salary but only 35 percent (40 percent from July 1) is subject to tax. At the end of the tax year the librarian was presented with a demand from the Receiver for several thousands of rands in taxes owed on the remaining 65 percent since she had not built up sufficient business mileage.
Employers do not always offer structured salary packages out of the goodness of their hearts. Some of the extras on top of the basic package are excluded when calculating pensionable salary.
Where complex salary arrangements are involved, those earning relatively modest salaries may be forced to pay for expert tax advice if the employer, as frequently happens, did not provide that advice in the first place.
According to Chris Beneke, a tax partner at Deloitte & Touche, the opportunity for many employees to minimise tax legally is limited. But there are some allowances which may be appropriate even for those earning lower salaries.
Beneke says a lot of Deloittes' clients have set up internal mechanisms to advise employees on the most appropriate salary structure. This advice should be available well before employees receive their first salary cheques.
Johan van der Westhuizen, professional executive remuneration consulting at FSA Contact, says there has been an increasing focus on structuring pay packages, and FSA Contact advises companies on the most appropriate arrangements. The trend has been towards offering a smaller basic pay and adding a range of variable pay, such as incentive bonuses.
"We advise clients to base their pay structure in such a way that employees gain maximum advantage in terms of tax efficiency."
Christo Henning, media liaison officer for SA Revenue Services, says it is allowances, as opposed to fringe benefits, that cause the most difficulty.
Fringe benefits, itemised in the Seventh Schedule to the Income Tax Act, are intended, if used correctly, to ease the tax burden on individuals. Fringe benefits include, for example, company cars or housing; low interest or interest-free loans; or the right to use or acquire an asset.
Allowances are cash-type benefits, such as travelling allowances or entertainment allowances, which are business expenses incurred by the employee on behalf of the employer.
Only the unspent portion, ie the portion of the allowance not used for business purposes, is taxable at the individual taxpayer's marginal rate.