SA Budget 2024/25 – Tax Policy considerations on Individuals, employment and savings

Curbing the abuse of the employment tax incentive scheme

Changes were made to the Employment Tax Incentive Act (2013) in 2021 and 2023 to curb abuse of the employment tax incentive from aggressive tax schemes, which used training institutions to claim the incentive for students. It is proposed that punitive measures to support those amendments be refined in the legislation to address the abusive behaviour of certain taxpayers towards the incentive.

Amending the definition of remuneration proxy in section 1

In 2013, the definition of remuneration factor in the Seventh Schedule to the Income Tax Act (1962) was replaced by a new definition of remuneration proxy in section 1. The new definition of remuneration proxy refers to an associated institution in relation to the employer without referencing paragraph 1 of the Seventh Schedule, where this term is defined. It is proposed that the definition of remuneration proxy be amended to include a reference to an associated institution as defined in paragraph 1 of the Seventh Schedule.

Payroll amendments and refunds made in the current year

With the move by the South African Revenue Service (SARS) for payroll administrators to report payroll monthly, government proposes amending section 11(nA) of the Income Tax Act to cater for taxpayers seeking to make refunds of amounts received or accrued during the same year of assessment.

Clarifying anti‐avoidance rules for low‐interest or interest‐free loans to trusts

The Income Tax Act contains an anti‐avoidance measure aimed at curbing the tax‐free transfer of wealth to trusts using low‐interest or interest‐free loans, advances or credit arrangements (including cross‐border loan arrangements). The transfer pricing rules in the act also apply to counter the mispricing of cross‐border loan arrangements. To avoid the possibility of an overlap or double taxation, the trust anti‐avoidance measures specifically exclude low‐ or no‐interest loan arrangements that are subject to the transfer pricing rules. It has come to governments attention that the above‐mentioned exclusion does not effectively address the interaction between the trust anti‐avoidance measures and transfer pricing rules where the arms length interest rate is less than the official rate on these cross‐border loan arrangements. It is proposed that amendments be made to the legislation to provide clarity in this regard.