The South African Revenue Services (SARS) takes a dim view of certain remuneration packages.
To structure salaries tax efficiently there are a number of areas you need to be aware of.
It is important to realise that it is legal to remunerate an employee in both cash and non-cash benefits. Generally, as an employer, you wish to know exactly what it is costing you to employ a member of staff, and because of this the principle of determining remuneration on a cost to employer basis has become more popular.
So you may state in your letters of employment that an employee's remuneration, on a cost to employer basis, will amount to Rx. You may then determine what that cost comprises.
Tax legislation, through the seventh schedule, sets out the methods that employers must use to value such fringe benefits.
If an employee does not receive benefits in the correct manner, the SARS may tax them in a different way to that set out in the seventh schedule.
Let's look at a few examples:
* If you supply residential accommodation to your employee, you are required to tax the value of that accommodation on the basis of a formula (if you rent this accommodation for your employee, this formula will fall away on March 1, 1999 unless certain conditions are met).
However, if the lease is not in your (the employer's) name but in the employee's name, you will effectively be paying your employee's debt and not supplying accommodation. The payment will be taxed based on the cost of the rental and not on the formula.
* If you decide to make the full contribution to your employee's medical aid (ie make it non-contributory for the employee) you must ensure that the medical fund's rules allow it and that the employee is aware of this. The SARS may request the agreement with the employee in writing.
* If you pay your employee's petrol bills and/or car maintenance bills, but the car is owned by the employee, these payments constitute the payment of your employees' debts and should be taxed. Alternatively, they may be paid as part of your employee's travel allowance in which case you would need to reflect the payments as such on the employee's IRP5 tax certificates and subject 50 percent of the amount to tax.
Remember that depending on the rules of the employees retirement fund, the more the package is structured, the more the retirement fund contribution may be reduced. This may affect the eventual payout on retirement.
If you haven't deducted employees' tax properly, generally the SARS will look to you, the employer, for the shortfall, penalties and interest. You would then have recourse to your employee for the taxes but this may prove difficult, especially if the employee has already left the company.