The phasing out of standard income tax on employees

(SITE)

1. Introduction

1 March 2011 saw the start of the phasing out of Standard Income Tax on Employees (SITE). SITE taxpayers who received more than one Employee Income Tax certificate [IRP5/IT3(a)] resulting in a combined income of more than the tax threshold for that tax year – please refer to section 3 – will now be required to submit an Income Tax return (ITR12) as of the 2012 year of assessment onwards. Tax returns must be submitted during the Personal Income Tax (PIT) Filing Season which commences 1 July each year.

2. What is SITE?

SITE is a component of the Pay-As-You-Earn (PAYE) method of paying Income Tax and is a final withholding tax on the first R60 000 of your net remuneration deducted by an employer.

Net remuneration is any amount of income paid or payable to you, for example:

• Salary (which will appear as source code 3601 on your Employee Income Tax certificate [IRP5/IT3(a)])

• Pension (source code 3603)• Bonus (source code 3605) etc.

Less allowable deductions, for example:

• Pension fund contributions (source code 4001/4002)• Retirement annuity fund contributions (source code 4006/4007)• Medical expenses (source code 4005)• Income protection policy contributions (source code 4018)

All taxpayers whose net remuneration or annual equivalent did not exceed R60 000 were subject to SITE only and, therefore, were not required to submit an Income Tax Return (ITR12).

3. The tax thresholds

The tax thresholds are:

• For the 2012 year of assessment (1 March 2011 – 29 February 2012)

Age Tax thresholdBelow 65 years of age R59 750

Over 65 and below 75 of age R93 150

Over 75 of age R104 261

For the 2013 year of assessment:

Age Tax thresholdBelow 65 years of age R63 556

Over 65 and below 75 of age R99 056Over 75 of age R110 889

4. The changes explained

The SITE system is now being phased out because the tax collection system has been modernised and administrative processes improved over the years which enables the South African Revenue Service (SARS) to quickly and effectively process a taxpayer’s submission to SARS.

Furthermore, the Income Tax threshold (R59 750 for the 2012 year of assessment), for taxpayers younger than 65 years of age, is approaching the SITE limit of R60 000.

To ease the impact on affected taxpayers (who now have to submit an Income Tax Return), a phasing-out process over the next two years of assessment has been introduced. Administrative relief measures are provided for to limit any potential hardship to affected taxpayers.

Taxpayers who received more than one IRP5/IT3(a), from which only SITE (source code 4101) has been deducted, will now be liable to pay Income Tax for the first time on their combined income. The Income Tax payable will be at a reduced amount which will be calculated as follows:

• For the 2012 year of assessment you will pay the calculated SITE amount and one third (1/3) of the additional tax calculated

• For the 2013 year of assessment you will pay the calculated SITE amount and two thirds (2/3) of the additional tax calculated

• As of the 2014 year of assessment you will be liable for the full tax amount calculated.

5. Illustrative examples

5.1 2012 year of assessment

Mr Taxpayer, who is under the age of 65, receives two IRP5/IT3(a) certificates for the 2012 year of assessment (1 March 2011 – 29 February 2012). He makes contributions of:

• R1 200 to a pension fund• R3 500 to a retirement annuity fund• R14 400 to a medical scheme in respect of himself and one dependant.

His normal tax due to be paid will be calculated as follows:

IRP5/IT3(a) received1

(Rands)2

(Rands)

Assessment Amount [Combined IRP5/IT3(a)s]

(Rands)

Remuneration received 77,000.00 35,000.00 112,000.00

Less: SITE allowable deductions

17,900.00 - 19,100.00

Pension fund contributions 1,200.00 - 1,200.00

Retirement annuity fund contributions

2,300.00 - 3,500.00

Medical scheme contributions 14,400.00 - 14,400.00

Net remuneration 59,100.00 35,000.00 92,900.00

Normal tax as per tax rates 10,638.00 6,300.00 16,722.00

Less: Primary rebate 10,755.00 10,755.00 10,755.00

Normal tax payable - - 5,967.00

Normal tax payable 5,967.00

Less: SITE payable -

Normal tax liability 5,967.00

Less: Phasing-out relief of 2/3 for 2012 year of assessment

5,967 X 2/3 3,978.00

Normal tax liability to be paid to SARS for the 2012 year of

assessment1,989.00

5.2 2013 year of assessment

Mr Taxpayer, who is under the age of 65, receives two IRP5/IT3(a) certificates for the 2013 year of assessment (1 March 2012 – 28 February 2013). He makes contributions of:

• R4 000 to a pension fund• R2 400 to a retirement annuity fund• R14 400 to a medical scheme in respect of himself and one dependant.

His normal tax due to be paid will be calculated as follows:

IRP5/IT3(a) received1

(Rands)2

(Rands)

Assessment Amount [Combined IRP5/IT3(a)s]

(Rands)

Remuneration received 65,000.00 40,000.00 105,000.00

Less: SITE allowable deductions

5,750.00 - 6,400.00

Pension fund contributions 4,000.00 - 4,000.00

Retirement annuity fund contributions

1,750.00 - 2,400.00

- - -

Net remuneration 59,250.00 40,000.00 98,600.00

Normal tax as per tax rates 10,665.00 7,200.00 17,748.00

Less: Primary rebate 11,440.00 11,440.00 11,440.00

Normal tax payable - before medical tax credit

- - 6,308.00

Less: Medical tax credit - available R5520

- - 5,520.00

Normal tax payable after medical tax credit

- - 788.00

Normal tax payable 788.00

Less: SITE payable (not applicable in 2013 tax year)

-

Normal tax liability 788.00

Less: Phasing-out relief of 1/3 for 2013 year of

assessment788 X 1/3 262.67

Normal tax liability to be paid to SARS for the 2013

year of assessment525.33

5.3 2014 year of assessment

Mr A Taxpayer will be liable for the full tax payable amount in the 2014 year of assessment (1 March 2013 – 28 February 2014) and no phasing out relief will be granted.

6. How do I obtain an Income Tax Return (ITR12)?

You can obtain an Income Tax Return (ITR12) from 1 July by:

• Registering as an eFiler on www.sarsefiling.co.za where you can build your own return• Calling the SARS Contact Centre on 0800 00 SARS (7277)• Visiting your nearest SARS branch.

7. Will employers need to update their payroll systems?

The phasing out of SITE will have no effect on payroll systems for the next two years of assessment (2012 & 2013). Employers will continue calculating SITE as per the current methods up to the end of February 2013. From 1 March 2013 (2014 year of assessment) employers will no longer have to calculate and withhold SITE from taxpayers’ remuneration.

8. More information

For more information visit the SARS website www.sars.gov.za, call the SARS Contact Centre on 0800 00 SARS (7277), or visit your nearest SARS branch.

DisclaimerThe information contained in this leaflet is intended as a guide only and is not considered to be a legal reference, nor is it a binding ruling. The information does not take the place of legislation and readers who are in doubt regarding any aspect of the information displayed in the leaflet should refer to the relevant legislation, or seek a formal opinion from a suitably qualified individual.For more information about the contents of this publication you may:

• Visit the SARS website at www.sars.gov.za• Visit your nearest SARS branch• Contact your own tax advisor/tax practitioner• If calling from within South Africa, contact the SARS Contact Centre on 0800 00 SARS (7277)• If calling from outside South Africa, contact the SARS Contact Centre on +27 11 602 2093 (only between 8am and 4pm South

African time).