Disaster Management Tax Relief
Disaster Management Tax Relief
On the 1st of April 2020, National Treasury published the 2020 Draft Disaster Management Tax Relief Bill and the 2020 Draft Disaster Management Tax Relief Administration Bill in response to the current COVID-19 crisis that our country is facing.
Due to the impact of the lockdown on the cash flow of many businesses, the government has proposed to relax certain elements of tax legislation to help businesses survive the next couple of months.
The bills are still in its draft phase and public comment is invited until the close of business on Wednesday the 15th of April 2020.
The draft amendments contained in the Draft Disaster Management Tax Relief Bill can be summarized as follows:
- Deferral of employees’ tax
- Deferral of provisional tax
- Expansion of employment tax incentive (ETI) age eligibility criteria
Deferral of employees’ tax
Relief is available in the form of a deferral of employees’ tax payments for qualifying taxpayers. A qualifying taxpayer is either a company, trust, partnership or individual registered for employees tax that is tax compliant with gross income of less than R50 million during the year of assessment ending on or after 1 April 2020 but before 1 April 2021.
Starting from the April 2020 period (due on 7 May 2020) up to the July 2020 period (due 7 August 2020), qualifying taxpayers will be allowed to defer 20% of their PAYE liability to later in the year.
It should be noted that the draft bill specifically refers to ‘employees’ tax due in terms of paragraph 2(1) of the Fourth Schedule’. This means that UIF and SDL payments will not be deferred.
The deferred PAYE liability will be due in six equal monthly installments starting from the August 2020 period (due on 7 September 2020) up to the January 2021 period (due on 7 February 2021).
For the duration of the deferral, no penalties and interest will be raised on outstanding PAYE payments, but if there are repayment defaults on the subsequent periods, SARS may raise penalties and interest.
The following example illustrates the deferral relief:
| Period | EMP201 PAYE liability | LESS 20% deferral |
EQUALS 80% payable |
SUBMIT BY |
| Apr-20 | 100 000.00 | 20 000.00 | 80 000.00 | 07-May-20 |
| May-20 | 105 000.00 | 21 000.00 | 84 000.00 | 05-Jun-20 |
| Jun-20 | 110 000.00 | 22 000.00 | 88 000.00 | 07-Jul-20 |
| Jul-20 | 105 000.00 | 21 000.00 | 84 000.00 | 07-Aug-20 |
| CASH FLOW BENEFIT | 84 000.00 | |||
| Period | AMOUNT PAYABLE |
SUBMIT BY | ||
| Aug-20 | 14 000.00 | 07-Sep-20 | ||
| Sep-20 | 14 000.00 | 05-Oct-20 | ||
| Oct-20 | 14 000.00 | 06-Nov-20 | ||
| Nov-20 | 14 000.00 | 07-Dec-20 | ||
| Dec-20 | 14 000.00 | 07-Jan-21 | ||
| Jan-21 | 14 000.00 | 05-Feb-21 | ||
| 84 000.00 | ||||
Deferral of provisional tax
Relief is also available in the form of a deferral of provisional tax payments for qualifying taxpayers. These taxpayers can defer a portion of their provisional tax payments without penalties or interest for the late payment of the deferred amount.
If the first provisional tax payment is due between 1 April 2020 and 30 September 2020, qualifying taxpayers will only have to pay 15% of their total income tax liability for the year as a provisional tax payment instead of the normal 50%.
The second provisional tax payment will be based on 65% of the total income tax liability for the year instead of 100% if the payment is due between 1 April 2020 and 31 March 2021.
The balance of the outstanding income tax liability will be payable as a third provisional tax payment according to the normal rules to avoid interest.
The following example illustrates the deferral relief:
A company with a 28 February 2021 financial year end will have to make a first provisional tax payment during the relief period. If the company estimates that its 2021 tax liability will be R500 000 for the year, it will only have to pay 15% of that amount as a first provisional tax payment by 31 August 2020. The payment will only be R75 000 instead of the normal R250 000.
The second payment that is due by 28 February 2021 will only have to be 65% of the total tax liability for the year. This means that the total amount of provisional tax payments must be at least 65% of the total tax liability for the year. The payment will be calculated as follows:
Total tax liability: R500 000
65% due at the end of the period: R325 000
Less: 1st provisional tax payment: (R75 000)
2nd provisional tax payment due: R250 000
The remaining 35% (R175 000) of the total tax liability for the year must be paid by 30 September 2021 to avoid interest.
A company with a 30 June 2020 financial year end will have already paid its first provisional tax payment on 31 December 2019 which is before the relief period. This means that 50% of the total tax liability will already have been settled by the time the 2nd provisional tax payment becomes due.
This second payment will however falls within the relief period and must be calculated as follows:
Total tax liability: R500 000
65% due at the end of the period: R325 000
Less: 1st provisional tax payment: (R250 000)
2nd provisional tax payment due: R 75 000
Expansion of employment tax incentive (ETI) age eligibility criteria
To minimize job losses during this time, the ETI programme will be expanded from 1 April 2020 to 31 July 2020. There are 3 changes proposed by government:
- For current eligible employees the amounts that can be claimed will be increase from R1 000 to R1 500 in the first period 12 months and from R500 to R1 000 in the second period of 12 months.
- An additional R500 per employee may be claimed for employees between the ages of 18 and 29 who are no longer eligible as the employer has already claimed ETI for a period of 24 months as well as for employees between the ages of 30 and 65.
- Monthly payments of ETI reimbursements will be made instead of bi-annual payments.
These incentives will only apply to employers that were registered before 1 March 2020 and can be illustrated as follows:
| Monthly Remuneration |
Qualifying employees (18 to 29 years old) [First 12 month period] |
Qualifying employees (18 to 29 years old) [Second 12 month period] |
1. Qualifying employees aged 18 to 29 and outside of the 24 qualifying months 2. Qualifying employees aged 30 to 65 (Only from 1 April 2020 to 31 July 2020) |
| R0 to R2 000 | R500 + (50% x monthly remuneration) | R500 + (25% x monthly remuneration) | R500 |
| R2 000 to R4 500 | R1 500 | R1 000 | |
| R4 500 to R6 500 | R1 500 – (75% x (remuneration R4 500)) | R1 000 – (50% x (remuneration R4 500)) | R500 – (25% x (remuneration R4 500)) |
