Can you kindly let us know if our understanding of Section 3(5)(e) is incorrect? SARS has levied SDL on a company whose only employee was the director. (This is for tax years 2014, 2015, 2016 and 2017). The director’s remuneration was above the R500 000 t
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
We don’t agree with your interpretation. From the information provided it is clear that the years of assessment in issue are in fact before the amendment of section 3, but it is really irrelevant.
We said in our previous response, that 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.
So, where the director’s remuneration is factually more than R500 000, the company had to have registered, and paid, the levy in respect of this remuneration. We suspect that the SARS grounds for the assessment is that this remuneration is the actual remuneration that was payable to the director during the years concerned and not the amounts, determined by using the formula in paragraph 11C. That would be correct.
For the purposes of the Fourth Schedule, unless the context otherwise indicates "employee" means –
(a) any person (other than a company) who receives any remuneration or to whom any remuneration accrues;
…
(g) any director of a private company who is not otherwise included in terms of paragraph (a);
In terms of section 3(1), of the Skills Development Levies Act, the skills development levy is calculated with reference to the ‘leviable amount’. The ‘leviable amount’ means (see section 3(2)) the total amount of remuneration, paid or payable, or deemed to be paid or payable, by an employer to its employees during any month, as determined in accordance with the provisions of the Fourth Schedule to the Income Tax Act for the purposes of determining the employer's liability for any employees' tax in terms of that Schedule, whether or not such employer is liable to deduct or withhold such employees' tax.
You will notice that it uses the phrase ‘or deemed to be paid or payable’. If the exclusion, paragraph (e), was not there the director’s actual remuneration and deemed remuneration would have been subject to the levy – essentially the levy would then have been paid twice on the same amount (or substantially the same amount).
A director of a private company will be an employee if any remuneration accrues to him or her (paragraph (a) of this definition). If no remuneration accrues to him or her, the director will be an employee because of paragraph (g). If, in a year of assessment, no director’s remuneration accrued to the individual, and it was only the paragraph 11C (or the formula amount) in respect of which employees’ tax as paid to SARS, then no skills development levy would have been payable. There is a difference when the director gets a bonus. This will constitute ‘variable remuneration’ (see section 7B of the Income Tax Act) and is included in remuneration in the month it is paid. It will then, together with the other remuneration, be subject to the skills levy.
Whilst the grounds provided by SARS may be incorrect, we believe that the company also doesn’t have grounds to dispute the assessment issued by SARS.