Draft taxation laws amendment bill 2011 – individuals and employment

DRAFT TAXATION LAWS AMENDMENT BILL, 2011

The Draft Taxation Laws Amendment Bill, 2011 (the "Bill") was released for public comment. Members of the public are invited to submit comments on the Bill to Treasury before 5 July 2011.
We summarize below some of the more important proposed amendments and set out our brief comments. If you would like additional information, please contact Anton Lockem.

INDIVIDUALS AND EMPLOYMENT
EMPLOYER PAYMENTS TO GROUP LIFE SCHEMES:

• Fringe benefit rules will be drafted in respect of employer payments made to group long term insurers.

OUR COMMENTARY:

• This proposal will effectively apply to employer contributions made to certain unapproved schemes in terms of which the policy owner is the employer, with a side arrangement that the employer will pay the policy proceeds to the employee. Previously certain taxpayers have argued that this arrangement does not fall within the ambit of the fringe benefit legislation on the basis that the employee is not the beneficial owner of the benefit. Given the effect of the proposed change, employers will have to re-evaluate their benefit structure and in particular consider if such benefits should rather be provided under an approved scheme, such as a retirement fund.

MEDICAL SCHEME CONTRIBUTIONS:

• The deductions for monthly medical aid contributions will be raised to R720 in the case of a taxpayer and spouse and to R440 for other dependants;
• in the longer term, the deduction system will be replaced by a credit system in terms of which the taxpayer will receive a monthly credit of R216 for themselves and their spouses and R144 for each other dependant. In this regard, the Treasury is of the view that the current deduction system favours wealthier families unfairly compared to lower income earners.

OUR COMMENTARY:

• We fail to recognize the rationale of the alleged discrimination, as wealthier families are significant contributors to the fiscus and, despite this have to fund their own medical care without any meaningful tax relief.

DIVIDENDS FROM EMPLOYEE SHARE SCHEMES:

• It is proposed that the ordinary revenue classification of dividends flowing from certain restricted shares should not be extended to shares held in an employee share trust.
OUR COMMENTARY:

• This exclusion is welcomed as employee trusts' in many cases exist merely for administrative convenience.