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Scope of ‘variable remuneration’ to be expanded

The government intends to amend section 7B of the Income Tax Act to cater for performance-based variable remuneration, the 2022 Budget Review says.

In terms of the Act, “variable remuneration” includes:

  • Overtime pay, bonuses or commission;
  • An allowance or advance paid for transport expenses;
  • An amount to which an employee becomes entitled as a result of unused leave;
  • Any night shift or standby allowance; or
  • Any amount paid or granted for a reimbursement as contemplated in section 8(1)(a)(ii).

The Budget Review says the government is aware that this list may not provide for all types of variable remuneration.

In the formal sector, “commission” caters for performance-based payments that form part of an employee’s salary, but in the informal sector, such payments are more likely to be calculated based on units produced.

“Commission” means a percentage‐based payment and cannot be determined based on units produced, thereby excluding that type of performance-based payment from the ambit of section 7B.

Therefore, the government proposes amending section 7B to cater for variable remuneration based on units produced.

It is important that employees’ tax on variable remuneration is withheld in the correct tax period, as provided for in section 7B, and the payment must be reflected in the employee’s IRP5 certificate.

The section allows for the taxation of variable remuneration to be deferred to the date when the amount is actually paid to the employee rather than the date on which it accrues to the employee.

The reason is that variable remuneration is often paid after the end of the tax year because the remuneration can only be accurately determined after the work has been completed or the targets have been reached.

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