- The revised Draft Disaster Management Tax Relief Administration Bill, 2020 (Revised Draft Admin Bill);
- The revised Draft Disaster Management Tax Relief Bill, 2020 (Revised Draft Tax Relief Bill);
- The Explanatory Memorandum on the Disaster Management Tax Relief Bill, 2020 Revised Draft (Revised EM); and
- Memorandum of Objects of the Revised Draft Admin Bill.
We discussed what the additional proposed tax relief would broadly entail, in our Tax & Exchange Control Alert of 24 April 2020. In this article, we discuss some of the provisions in the revised draft tax bills.
Deferral of interim payments for micro businesses
In the first set of draft bills, provision was made for a qualifying micro business to defer 35% of its interim payments in terms of paragraph 11(4) of the Sixth Schedule to the Income Tax Act 58 of 1962 (Act) for a period of six months. The period ran from 1 April 2020 to 30 September 2020. The Revised Draft Admin Bill provides for a five-month period from 1 April 2020 to 31 August 2020.
Similarly, the first set of draft bills provided for a twelve-month period in which a qualifying micro business could pay 65% of its interim payments instead of an amount equal to the amount of tax calculated in terms of paragraph 11(4) of the Sixth Schedule to the Act. This period ran from 1 April 2020 to 28 February 2021. The revised Draft Admin Bill provides for a six-month period, running from 1 September 2020 to 28 February 2021.
The Revised Draft Admin Bill also provides that interim payments that have been deferred will be subject to penalties in terms of paragraph 11(6) of the Sixth Schedule and interest in terms of paragraphs 11(3) or (5) of the Sixth Schedule, if not paid when due.
Donations to the Solidarity Fund
As anticipated, the Revised Draft Admin Bill contains provisions that regulate the deduction of donations made to the Solidarity Fund. In terms of the Revised Draft Admin Bill, an employer may deduct from remuneration so much of a donation made by the employer on behalf of the employee to the Solidarity Fund either:
- during a period of three months commencing on or between 1 April and 1 July 2020 as does not exceed 33.33% of the monthly remuneration of the employee. The employer will then be issued a receipt as contemplated in section 18A(2) of the Act; or
- during a period of six months commencing on 1 April 2020 as does not exceed 16.66% of the monthly remuneration of the employee.
Another provision which regulates donations to the Solidarity Fund is found in the revised Draft Tax Relief Bill. The Draft Tax Relief Bill provides that if the total amount of deductions under section 18A exceeds the amount allowed to be deducted under section 18A(1)(B) of the Act, the portion of the excess attributable to payment or transfer to the Solidarity Fund must, notwithstanding section 18A(1)(B) of that Act, be allowed to be deducted up to a maximum of 10% of the taxable income of the taxpayer as calculated before allowing any deduction under this section.
The Revised EM explains that the tax-deductible limit in terms of section 18A for donations, which is currently at 10% of taxable income, will increase to 20% in respect of donations actually paid or transferred to the Solidarity Fund. There will, thus, be a limit of 10% for any qualifying donations (including donations to the Solidarity Fund) and an additional 10% solely for donations to the Solidarity Fund.
From a practical perspective it is not clear how the proposed amendment to section 18A will be reconciled with the proposed amendment to paragraph 2(4)(f) of the Fourth Schedule to the Act in all circumstances. For example, it is possible that an employee’s donation to the Solidarity Fund will be taken into account for purposes of paragraph 2(4)(f) of the Fourth Schedule, but upon assessment of the employee’s income tax liability, it then appears that the total amounts deducted for purposes of paragraph 2(4)(f), exceed the 20% total deduction limit set in terms of the amendment to section 18A. It is not clear what will happen in this scenario as section 18A states that donations in excess of the 20% limit will be carried over to the following year of assessment, but may have already been taken into account for purposes of paragraph 2(4)(f) of the Fourth Schedule to the Act.
COVID-19 disaster relief organisations
In terms of the Revised Draft Tax Relief Bill, it is now possible for non-profit companies and associations of persons to also apply for approval as public benefit organisations (PBOs) in terms of section 30 of the Act, which carry on COVID-19 disaster relief activities. Previously, only trusts could apply and obtain approval. It was curious as to why the previous bill catered for the approval of trusts as PBOs and not companies nor associations of persons which in terms of the Act can on application be approved as PBOs. However, the proposed amendments to paragraph 2(4)(f) of the Fourth Schedule to the Act and section 18A of the Act (as discussed above) will not apply to donations made by taxpayers to such approved PBOs. To the extent that a person only makes donations to such an entity in excess of the 10% limit in section 18A, any amount of the donation which has been disallowed solely by reason of the fact that it exceeds the amount of the deduction allowable shall be carried forward and shall be deemed to be a donation actually paid or transferred in the next succeeding year of assessment.
Increase in the passive income limit for qualifying taxpayers
In the initial draft bills, a qualifying taxpayer was defined as a company, trust, partnership or individual that, amongst others, has a gross income of R50 million or less during the year of assessment ending on or after 1 April 2020 but before 1 April 2021. The proviso was that the gross income for the year of assessment does not include more than 10% income derived from interest, dividends, foreign dividends, rental from letting fixed property and any remuneration received from an employer. The Revised Draft Tax Relief Bill proposes that this limitation be amended as follows:
- the 10% limit on passive income be increased to 20%;
- passive income in this regard should be extended to include income derived from royalties and annuities; and
- passive rental income derived from the letting of fixed property should exclude rental income derived by a person whose main trading activity is the letting of fixed property.
Taxpayers should note that they have until 15 May 2020 to make submissions to National Treasury and SARS on the revised draft tax relief bills.