Real Estate Investor Magazine South Africa February/March 2019 | Page 58

TAX
Directors of private
companies are no longer
subject to PAYE
- true or false?
BY JOON CHONG, NINA KEYSER, CARRYN
ALEXANDER AND NABEELAH EDWARDS
W
here fixed monthly payments made up less than
75% of private company director remuneration,
paragraph 11C of the Fourth Schedule to the In-
come Tax Act 58 of 1962 used to apply to require payment
of employees’ tax for such directors on a monthly basis in
respect of “deemed remuneration”. This “deemed remuner-
ation” was a notional amount determined in terms of a for-
mula in paragraph 11C. Paragraph 11C was repealed with
effect from 1 March 2017.
The draft 2018 Tax Administration Laws Amendment
Bill, which was released for comment on 16 July 2018, now
proposes to remove directors of private companies from
the definition of “employee” in the Fourth Schedule (thus
appear to be exempting directors of private companies from
employees’ tax) with effect from 1 March 2019, in order to
be in line with the repeal of paragraph 11C.
We note that the existing section 7B on the timing of
incurral and accrual of variable remuneration applies to the
variable remuneration payable to the directors of private
companies. The variable remuneration of a director is thus
deemed to accrue to the director on the date on which it is
actually paid to the director, which shall be the same date
on which the amount of remuneration becomes claimable as
expenditure by the private company. Section 7B effectively
deals with the mischief at which paragraph 11C was
aimed and is the same regime that has applied to ordinary
employees all along. The object of the proposed amendment
is therefore unclear.
Further, paragraph  (a)  of the definition of «employee»
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FEBRUARY/MARCH 2019 SA Real Estate Investor Magazine
defines employee as «any person (other than a company)who
receives any remuneration or to whom any remuneration
accrues”.  Paragraph  (a)  is broad enough to include any
director of a private company who receives remuneration.
Consequently, the employer would still be obligated to
deduct or withhold employees› tax in terms of the Fourth
Schedule from remuneration paid to directors of private
companies.
The Draft Response Document on Taxation Laws
Amendment Bill, 2018 and Tax Administration Laws
Amendment Bill, 2018 which was published by National
Treasury and SARS on 12  September  2018, clarified that
the removal of directors of private companies from the
definition of “employee” was intended to apply only to
directors  who do not receive remuneration. The proposed
amendment would have the effect that no PAYE is to be
withheld when such directors receive amounts which do
not fall within the ambit of “remuneration”, for example,
amounts paid to non-executive directors. Remuneration
paid to directors of private companies would still be subject
to employees’ tax. Where such remuneration is in the nature
of variable remuneration, section 7B would still apply to
determine the date of incurral and accrual of the amounts.

SOURCE Webber Wentzel