Decoding the Draft Disaster Management Tax Relief Bill

The 2020 Draft Disaster Management Tax Relief Bill was published on April 1 for comment by April 15. Even though this is a bill and must still be promulgated, the proposals came into operation on April 1.

The bill contains the latest proposed amendments in regard to tax relief measures to soften the economic dampener caused by the Covid-19 pandemic.

The amendments are narrow, introducing small adjustments in two areas as detailed below.

Employment tax incentive

The employment tax incentive (ETI) may only be claimed by companies registered with the South African Revenue Service (Sars) as at March 1 and that have an annual turnover of less than R50 million.

First year of employment

Applicable only to those receiving remuneration equal to R6 000 per month or less, the incentive may be claimed for three categories of ‘qualifying employees’: those aged between 18 and 29; those employed in a fixed place of business located within a special economic zone (no age restriction); and those employed in an industry designated by the minister of finance (no age restriction).

• Where monthly remuneration is less than R2 000, the ETI increases to R500 plus 50% of the monthly remuneration; the maximum amount that can be claimed is R1 500.
• For monthly remuneration between R2 000 and R4 500, the ETI increases to R1 500.
• For monthly remuneration between R4 000 and R6 000, the ETI is determined in accordance with the formula X = A-B x (C-D), where A represents R1 500, B represents 0.75, C represents the monthly remuneration of the employee, and D represents R4 000.

Employment between 13 and 24 months

Applicable only to those receiving remuneration equal to R6 000 per month or less, the incentive that may be claimed is as follows:

• Where the monthly remuneration is less than R2 000, the ETI is the sum of R500 plus 25% of the monthly remuneration.
• For monthly remuneration between R2 000 and R4 500, the ETI is R1 000.
• For monthly remuneration between R4 000 and R6 000, the ETI is determined in accordance with the formula X = A-B x (C-D), where A represents R1 000, B represents 0.5, C represents the monthly remuneration of the employee, and D represents R4 000.

After the first 24 months

A new subsection has been inserted, providing for qualifying employees who have already been employed for 24 months by the same employer and receive remuneration equal to R6 500 per month or less. The incentive is applicable to: employees aged 18 to 29; employees aged 30 to 65; employees employed in a fixed place of business located within a special economic zone; and those employed in an industry designated by the minister of finance.

• For qualifying employees earning less than R4 500 per month, the ETI is R500.
• For qualifying employees earning between R4 500 and R6 500, the ETI is determined in accordance with the formula X = A-B x (C-D), where A represents R500, B represents 0,25, C represents the monthly remuneration of the employee and D represents R4 500.

The amendments apply to any remuneration paid on or before July 31, 2020.

Reimbursements may be claimed from Sars on a monthly basis, instead of every six months, “in the form and manner and at the time and place prescribed by the Commissioner for Sars”.

Covid-19 disaster relief trust

The second amendment allows for the registration of a Covid-19 public benefit trust for a limited four-month period (April 1 to July 31, 2020).

• Any trust established for the sole purpose of disaster relief in respect of the Covid-19 pandemic (Covid-19 disaster relief trust) must be deemed to be a public benefit organisation, and must be approved by the Sars Commissioner.
• Any amount received or accrued from a Covid-19 disaster relief trust must be deducted or excluded from remuneration when calculating the balance of remuneration.
• Any Covid-19 disaster relief trust that has not been dissolved, and the assets of which have not distributed by July 31, will be deemed to be a small business funding entity and will be deemed to be approved as such by the Sars Commissioner.

Please note that this article provides a brief summary of the proposed legislative amendments and does not constitute tax advice.

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