A special project has been established by the Large Business Centre that focuses on the deduction of PAYE especially in the context of travel allowances and share incentive schemes. This follows from the reinforcement of the relevant provisions in the fiscal legislation and the question whether employers applied these provisions correctly to date.
Generally SARS does not go back more than five years from the date of audit. However, SARS may go further back to the extent that there may be evidence supporting an assessment.
SARS also argues that the prescription provisions contained in section 79 of the Income Tax Act does not apply to the levying of PAYE assessments. In particular, it is argued that assessments are raised in terms of the Fourth Schedule to the Income Tax Act and not in terms of section 79 of the Income Tax Act. The three-year rule therefore does not apply in these instances according to SARS.
The issues in relation to share incentive schemes are predominantly the following:
- capital distributions in respect of restricted equity instruments which are also now deemed to be income;
- the date when the relevant restrictions fall away and when the tax liability arises;
- what is in fact an equity instrument, especially in the context of vested rights in and to a trust;
- the position where employees only have an entitlement to receive dividends (on the basis that the dividends are always exempt).
In the context of travel allowances it is always difficult for an employer to substantiate the granting of travel allowances to its employees. Generally the principle should be that, if an employee is expected to travel for business purposes, the travel allowance can be granted to the employee and it is then up to the employee to justify whether or not he in fact travelled for business purposes during the period concerned.
However, SARS seems to focus on employees who claim reimbursements of expenses in circumstances where they do not receive travel allowances or potentially that employees are expected to claim reimbursements even if they do receive travel allowances (which is difficult to justify). In other words, the fact that somebody receives a travel allowance implies that he will not automatically claim a reimbursement of travel expenses to the extent that he actually travels for business purposes. SARS also argues that, even to the extent that PAYE cannot be recovered from the employer, they may reconsider approaching employees with a view to recover amounts from employees in circumstances where they cannot support the fact that they travelled for business purposes.