Are there tax concessions for relinquishing a CEO position for a smaller role in a company? From the 1 Jan 2018 my client will stand down as CEO of a company to take on a new position as Sales Executive of the same company.
Important:
This answer is based on tax law for the tax year ending 30 September 2018.
Answer:
The ‘incentive’ payment
This may well be a bonus and would then constitute ‘variable remuneration’ – see section 7B. It would be included in gross income, and remuneration subject to the withholding of employees’ tax, on the date paid to the individual. If it is not a bonus, it will be included in remuneration on the date of accrual.
Phantom share scheme
We are again not sure if the payment in this instance is ‘in respect of vesting … of any equity instrument”. In other words, is it due to vesting or did the instrument become unrestricted earlier. If in respect of vesting, the gain (see section 8C) is included in gross income the employer must obtain a directive from SARS regarding the amount of the employees’ tax to be withheld.
It is unlikely that any of these amounts would be a severance benefit, as defined in section 1(1). The tax table applicable to severance benefits will only apply if it is.
The term “severance benefit” is defined in section 1(1) of the Income Tax Act,1962 and means any amount that is received by or accrued to a person in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of the person’s office of employment or of the person’s appointment to any office or employment, if-
a) Such person has attained the age of 55 years;
b) Such relinquishment, termination, loss, repudiation, cancellation or variation is due to the person becoming permanently incapable of holding the person’s office or employment due to sickness, accident, injury or incapacity through infirmity of mind or body; or
c) such termination or loss is due to-
(i) the person's employer having ceased to carry on or intending to cease carrying on the trade in respect of which the person was employed or appointed; or
(ii) the person having become redundant in consequence of a general reduction in personnel or a reduction in personnel of a particular class by the person's employer,
unless, where the person's employer is a company, the person at any time held more than five per cent of the issued shares or members' interest in the company.