A taxpayer wants to contribute a section 12J contribution on behalf of an employee. Is there an IRP5 code to use for this contribution?
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
I assume you mean that the employee will be the shareholder in the venture capital company. That being so, the payment by the employer on behalf of the employer is a fringe benefit. Relevant tax law Paragraph 2(h) of the Seventh Schedule to the Income Tax Act: “the employer has, whether directly or indirectly, paid any debt owing by the employee to any third person…” The employer has paid for shares in the VCC issued to the employee. Then paragraph (i) of the definition of “gross income” in section 1(1) of the Act includes in gross income: “the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of assessment of any benefit or advantage granted in respect of employment or to the holder of any office, being a taxable benefit as defined in the said Schedule…” And finally in paragraph 1 of the Fourth Schedule, the definition of “remuneration” includes: “(b) any amount required to be included in such person’s gross income under paragraph (i) of that definition…” So the payment is a fringe benefit, to be entered in IRP 5 on the code 3808, and subject to PAYE. The employee will claim the section 12J deduction in his/her tax return ITR 12.