Salary structuring is the second component of payroll. The first is deciding who must be taxed and how they'll be taxed.
Paying tax on your income is unavoidable. But even SARS acknowledges that it's your right to arrange your financial affairs so you can pay the minimum amount of tax legally allowed.
This is the aim of salary structuring.
And that's where salary sacrifice comes in.
The link between salary sacrifice and your payroll
So what exactly is salary sacrifice?
The Practical Tax Loose Leaf Service explains salary sacrifice or income substitution as the process where you grant a benefit to your employee. And the cost of the benefit is recouped from your employee's salary, resulting in a reduced salary in return for the benefit.
Is salary sacrifice legal?
Yes, salary sacrifice is lawful, provided you meet certain procedural and substantive requirements.
The courts have previously held that salary sacrifice is a common commercial practice and that employers and employees are entitled to structure salary packages to achieve maximum tax effectiveness.
But while you're allowed to structure salaries to minimise tax, you have to be careful that this isn't the sole or overriding purpose of your restructuring exercise.
If SARS suspects a sham transaction, it can attack the contract and apply the principle of substance over form.
But you can avoid a fight with SARS over a salary sacrifice
To do this, stick to the following guidelines:
Here's a checklist of the procedures you follow when you enter into a lawful salary sacrifice arrangement:
Again, you must be sure that your salary structure is legal or it'll be vulnerable to attack from SARS!