Employment Tax Incentive (ETI) Refund Process

Nyasha Musviba

rp_2013_12thumbimg120_Dec_2013_063957349-ll-300x201.jpgHow does it work?

The Employment Tax Incentive Act and the draft amendments to this Act in terms of the Draft Taxation Laws Amendment Bill, 2014, allows for the introduction of a refund process that will refund employers the amount of the allowable ETI that wasn’t used to reduce the Employees’ Tax amount payable at the end of each six month reconciliation period (1 March to 31 August and 1 September to 28/29 February).
An ETI refund will only be paid if an employer is tax compliant. This means that all tax returns have been submitted and there is no outstanding tax debt, when the Employer Reconciliation documents [EMP501 and IRP5/IT3(a)s] are received and processed by SARS.
Top Tip: A non-compliant employer will have six months from the start of the next reconciliation cycle (1 September to 28 February or 1 March to 31 August in respect of the interim and annual reconciliations) to correct any non-compliance and be able to receive the ETI refund. If the employer doesn’t become compliant by the end of the next six month reconciliation period, 28 February or 31 August, the ETI refund will be forfeited.

When will refunds be implemented?

The refund process is expected to be introduced in the last quarter of 2014 and a final pay-out date will be announced soon.

Important facts about refunds

  • ETI not used at 31 August 2014
    • Is the “ETI not Utilised” amount on the August (201408) Employer Reconciliation Declaration (EMP501
    • This amount won’t be allowed to be carried forward as the “ETI Brought Forward” amount on the September (201409) Monthly Employer Declaration (EMP201)
    • The “ETI Brought Forward” amount on the September (201409) EMP201 must be zero.
Top Tip: This amount, “ETI not Utilised”, will be ring-fenced for refunding purposes, once the refund process is implemented.
  • ETI not used at 28 February 2014
    • Any amount of ETI not used to reduce the Employees’ Tax amount payable at 28 February 2014 could be included as an ETI carried forward amount.
    • This amount could be included in the ETI brought forward amount on the March 2014 (201403) EMP201.
    • This is the only time a rollover amount will be carried forward to the next reconciliation period.
      • This was necessary as no refund will be paid for an ETI carry forward amount at the end of February 2014.
Top Tip: Where the ETI amount not used at 28 February 2014 was included in the ETI brought forward amount on the EMP201 for March to August 2014 and was not used in full to reduce the Employees’ Tax amount payable over these months, the amount will be included in the “ETI Not Utilised” amount at 31 August 2014. This amount will be considered for refund purposes, once implemented.
  • ETI Errors
    • ETI not claimed or under-claimed in a previous month (including January and February 2014)
      • Where an ETI amount was not claimed or a lower amount than the qualifying amount was claimed, the shortfall must be claimed in the month during which the error is realised.
      • Include the amount (not claimed/shortfall) on the current month’s EMP201 under “ETI Calculated”.
      • The ETI information on the Employee Tax Certificates [IRP5/IT3(a)s] for that month mustn’t be changed to include the ETI information of the previous month.
    • ETI over-claimed in a previous month (including January and February 2014)
      • Where a higher ETI calculated amount was claimed than the qualifying amount, a revised EMP201 must be submitted for that period.
      • If the error is realised, after the EMP501 has been submitted, the ETI information on the relevant IRP5/IT3(a)s must be corrected and resubmitted together with the revised EMP501.
Top Tips:
  • Except for the March 2014 (201403), the ETI Brought Forward amount for March and September must always be zero.
  • Any ETI Carried Forward amount at the end of the reconciliation periods, [interim (31 August) and annual (28/29 February)] will be refunded, only if the employer is tax compliant.

Changes to the ETI Calculated amounts

During the interim and annual reconciliation submission periods, employers must send their EMP501 and IRP5/IT3(a)s to SARS.
Once received, SARS will verify the “ETI Calculated” amount on the EMP501 against the ETI information provided in the relevant IRP5/IT3(a)s.
Should any differences be found, employers will be asked to either correct or clarify these within 21 business days.
Any changes made to the “ETI Calculated” amounts, resulting in revised “ETI Utilised” amounts, will be shown on the Employer Statement of Account (EMPSA), which can be requested through eFiling or e@syFile™ Employer.
Top Tip: The changes may result in penalties and interest being charged, if the Employees’ Tax payable wasn’t paid in full by the due date.
Where an employer benefitted from the ETI incentive and was non-compliant on the last day of the month in which the incentive was used, the “ETI Utilised” amount will be reversed, which may result in penalties and interest being charged, if the Employees’ Tax payable wasn’t paid in full by the due date.
Source: SARS