Here's how SARS treats variable remuneration employees tax:
Section 7B of the Income Tax Act
effects your PAYE calculations. And also states that SARS is allowed to deny your tax deduction if it hasn't actually been paid.
Because of this, you must not make the mistake of declaring unpaid variable remuneration and deducting PAYE in any month other than in the month the amount is actually paid.
In other words, you can't deduct variable remuneration until you actually pay it to your employees.
You must also be careful with director's bonuses or profit shares for directors who are also shareholders – you can only claim the income tax deduction when it is actually paid, so crediting a shareholder loan account won't work in this instance!
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This will affect your employee's personal tax returns. You must keep this in mind when handing out your employee's IRP5 certificates. Let them know (and tell SARS) there was unpaid variable remuneration that was excluded from their taxable income. Essentially, your employee only earns variable remuneration on payment! (per Section 7B and Paragraph 2(1B) of the Fourth Schedule)
Important note! Don't apply Section 7B incorrectly!
To do that, here are some important things to watch out for:
• Never underestimate your provisional tax by thinking SARS won't pick up variable remuneration that you've paid after the tax year!
• Don't leave your employees in the dark – tell them what the implications are if they've earned variable remuneration that you haven't paid them over the end of a tax year.
• Section 7B has a direct effect on your employees tax calculations through the Fourth Schedule 2(1B). Only declare and pay PAYE on variable remuneration in the month you actually pay this to your staff.
• Section 7B affects your income tax and therefore your provisional tax! It deals with
the timing of deducting this.
• Variable remuneration is not all remuneration! Make sure you identify whether amounts due to your staff are part of the variable remuneration definition (e.g. unpaid normal salaries will still be deductible for income tax purposes).
• Don't' take any chances – SARS has the power to access and demand third party information. It can ask for your employee's bank statements to see if you actually paid their commission before year end!
We hope that this has been useful and that it had shed some light on how SARS treats variable remuneration employees tax!