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[FAQ] Employment Tax Incentive and connected persons
- 23 June 2021
- Payroll
- The Tax Faculty Tax Specialist
This article is based on tax law for the year ending 28 February 2021.
Background
A taxpayer would like to register his employees for ETI in his registered company. One of the employees is the owner's son.
Would he be eligible to register him under the business as the son earns a salary of R5 000 whilst being trained at the same time or is he considered to be a connected person?
Answer
Employment Tax Incentive Act
One of the criteria for a qualifying employee in terms of section 6(c) of the Employment Tax Incentive Act, is:
“In relation to the employer, is not a connected person as defined in section 1 of the Income Tax Act”
The first question which must be established is whether or not the employer is a company or a sole proprietor (individual). Where the employer is an individual, then section 1 of the Income Tax Act is clear that “any relative” is a connected person. Where the employer is a company, then section 1 of the Income Tax Act state the following:
“in relation to a company-
(i) Any other company that would be part ……
(iv) Any person………, holds directly or indirectly, at least 20% of the equity shares in the company or the voting rights in the company
(v) Where such a company is a close corporation-
(aa) any member
(bb) any relative of such member …. Which is a connected person in relation to such member; and
(e) in relation to any person who is a connected person in relation to any other person in terms of the foregoing provisions of this definition ….
Sub-paragraph (e) of the definition makes it clear that a son of the director (who manage the company) will be deemed to be connected person and therefore not qualify in terms of section 6 of the ETI Act.
Webinar Commentary
Refer to the following webinar: Compliance Series - Payroll compliance and how to deal with a SARS Payroll audit here.