I would like to know if section 3(5)(e) still applies (I have quoted the section below) in determining the SDL threshold if the directors remuneration was not estimated? SARS is saying that section 3(5)(e) only applies if a directors remuneration is estimate
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Section 3 of the Skills Development Levies Act, 1999, was substituted by section 88 of the Taxation Laws Amendment Act, 2017, Act No. 17 of 2017; and is deemed to have come into operation on 19 January 2017. It followed the repeal of paragraph 11C, of the Fourth Schedule to the Income Tax Act, by the Tax Administration Laws Amendment Act, 2016, Act No. 16 of 2016 that came into operation on 1 March 2017 and applies in respect of years of assessment commencing on or after that date.
We accept that your request doesn’t deal with the 2017 year of assessment, or an earlier one. The answer then is that the old section 3(5)(e) of the Skills Development Act no longer applies – effectively for years of assessment commencing on 1 March 2017 and later.
From your, and SARS’s, reference to ‘estimated remuneration’, which we accept is a reference to the remuneration determined under paragraph 11C of the Fourth Schedule of the Income Tax Act, it is possible that the year of assessment in question may in fact be before then. These amounts, the ones determined by applying the formula in paragraph 11C, were never included in remuneration for purposes of determining the ‘leviable amount’. It would consequently not have been relevant when the R500 000 threshold was determined. The purpose of section 3(5)(e) was to ensure that ONLY the actual remuneration, and NOT the amount of remuneration determined in accordance with the formula in respect of a director of a private company and deemed to have received from that private company during any month, is to be taken into account in determining the employees liability for the skills development levy.
We don’t know what the issue, or dispute, with SARS is and can therefore not provide any guidance. The point is that the remuneration, let’s call it the actual remuneration, was included in the leviable amount (since 1 March 2002).