Bargaining councils offered reprieve over neglected benefit deductions

Certain bargaining councils have apparently neglected to deduct employees’ tax on benefits given to their members for decades. They have now been offered the opportunity to become tax compliant by paying a hefty levy on the total employees’ tax that should have been deducted from all payments to members over the past five years.

However, it seems as if there is a fair amount of confusion in the industry about the way forward. There is also concern that relief offered to noncompliant bargaining councils is too narrow. What is clear is that once the councils are compliant, members can expect that the payments they receive will be smaller due to the tax deductions.

National Treasury announced in the draft Taxation Laws Amendment Bill, published in July, that bargaining councils had not been deducting pay-as-you-earn (PAYE) tax from a large number of members for holiday, sick leave and year-end payments.”Many bargaining councils have also not been paying income tax in respect of the returns generated from the financial investments of the bargaining council. “According to Treasury, the noncompliance dates back decades.

It says some of the councils would be at risk of closure or would suffer “severe financial distress” if high penalties and interest were imposed. Several bargaining councils have offered products to their members — such as funeral plans, bursaries for children, medical assistance and even disability cover. Employers or trade unions collect an amount from the employee’s salary, which is paid to the bargaining council as the worker’s contribution to become a member of the council.

It now appears from the amnesty given to the bargaining councils that they are considered “employers”, and that the sick leave or year-end payments are considered “remuneration”, from which they will have to deduct PAYE.

The South African Institute of Tax Professionals (SAIT) says bargaining councils have a variety of funds that deal with benefits other than holiday, sick leave and year-end payments, with potential liabilities for taxpayers other than the bargaining councils. “Yet, the relief is offered only for bargaining councils in respect of funds providing holiday, sick leave, and end of the year payment benefits,” says Beatrie Gouws, vice chair of SAIT’s personal tax work group.

She suggests in a presentation to Treasury that the proposed relief should be extended to cover a full array of benefit funds. Stephan Spamer says he does not think the noncompliance is across the board for bargaining councils. He says it is also unclear why Treasury is focusing only on bargaining councils.
He also notes that when an employer is obliged to withhold and pay employee’s tax to the South African Revenue Service (SARS), but has failed to do so, it has the right of recovery against its employees. “It will be interesting to see if the bargaining councils will try to recover the money from their members, if they are still members of the councils,” says Spamer. In terms of the relief, a levy of 10% must be paid on all employee’s tax that was not deducted from payments made between March 1 2012 and February 28 2017.

They will also have to pay 10% of the income tax that should have been paid in respect of all undeclared income for the same period. Erika de Villiers, head of tax policy at SAIT, says the bargaining councils must be fully tax compliant from March 1 2017. PAYE must be withheld and paid over to SARS monthly.

De Villiers says bargaining councils that wish to claim the relief may well already be in default of this requirement. She says it might be more useful to have the relief period run from March 1 2013 to February 28 2018. The bargaining councils must submit a return and pay the bargaining council levy to SARS before September 1 2018.

By Amanda Visser

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)