One of our clients needs to get a CCMA payout. I need to apply for a tax directive according to VIP but I am unsure which directive to apply for? What is your view / interpretation? The amount is only R11 000 so not sure if there is a limit before you nee
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
It is not the employee, or ex-employee, who must apply for the directive.
For purposes of the guidance that follows, we accept that there is no dispute that the amount (or amounts) in question should be included in gross income irrespective of its capital nature. This would be because it is “in respect of services rendered”; “in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of any office or employment or of any appointment (or right or claim to be appointed) to any office or employment”; or “in commutation of amounts due under any contract of employment or service”.
Interpretation note 26 (the current practice prevailing) confirms this and states that “these amounts will, in most cases, be taxed in terms of the general provisions of the definition of “gross income” in section 1 of the Income Tax Act, or in terms of the provisions of paragraph (d), paragraph (f), or paragraph (c) of that definition. Applications for directives, to determine the amount of employees’ tax to be deducted from the awards, must be submitted by the employer to the relevant SARS branch office.”
It is paragraph 9(3)(a) of the Fourth Schedule that deals with this and it reads as follows:
“The amount to be deducted or withheld in respect of employees' tax from any lump sum to which paragraph (d) or (e) of the definition of 'gross income' in section 1 or section 7A applies, shall be ascertained by the employer from the Commissioner before paying out such lump sum, and the Commissioner's determination of the amount to be deducted or withheld shall be final.”
The fact that the amount is low is irrelevant, unless it is a severance benefit (unlikely on the facts). The employer must apply for the directive.