Question with regards to crew members on working on an oil rig. 1. The taxpayer in question is an RSA company/employer who employs persons to perform work on various oil rigs off the coasts of Africa (ie Angola, DRC, Ghana etc)
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
There is an exemption (from normal tax) available to officers or crew members under specific circumstances – see section 10(1)(o)(i) and (1A). It is unlikely that this exemption will apply – see SARS’ interpretation note 34.
The section 10(o)(ii) one will only apply, as you indicated, where the more than 60 full days’ requirement was also met.
Once it applies the danger pay during the periods of absence will also be free from tax.
Based on the current interpretation by SARS, it will have to be apportioned. As is evident from our submission to SARS on the draft note, we don’t agree that it must be apportioned.
The same applies to allowances – in other words, they will qualify for the section 10(1)(o)(ii) exemption if the individual meets the 183 and 60 day requirements.
The current practice is that the potential for an exemption under section 10(1)(o)(i) does not automatically waive the obligation of an employer to deduct or withhold employees’ tax under the Fourth Schedule. An employer that is satisfied that the provisions of section 10(1)(o)(i) will apply in a particular case may, however, elect not to deduct or withhold employees’ tax in a particular case. In the case where the exemption was not applicable, the employer will be held liable for the employees’ tax not deducted as well as the concomitant penalties and interest.
Each remuneration item qualifying for the section 10(1)(o)(i) exemption must be disclosed under the relevant foreign service income source code on the employees’ tax certificate (IRP5 certificate). Foreign salary income must, for example, be disclosed under code 3651, bonus payments under code 3655 and medical aid contributions under code 3860.
In our guidance we said that the “same applies to allowances – in other words, they will qualify for the section 10(1)(o)(ii) exemption if the individual meets the 183 and 60 day requirements.” What we said is that the section 8(1) allowance, that you refer to, is also an allowance envisaged in section 10(1)(o)(ii). We linked it to section 10(1)(o)(ii) as such an allowance would not be remuneration envisaged in section 10(1)(o)(i) or (iA).
Because the full allowance, if it qualifies for the exemption, is free from normal tax, the portion that may exceed the daily amounts (whichever is used), will also be exempt.