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Did you know you can apply for a tax directive for Hardship due to illness or other circumstances Purpose of a tax directive

Paragraph 9(1) of the 4th Schedule prescribes that a tax directive (IRP 3) is issued by SARS to instruct the employer how to deduct employees' tax from certain payments where the prescribed tax tables do not cater for certain remuneration or other payments.

Tax calculations according to the tax directive should be regarded as a mere estimate as some employees may find that they still have to pay in substantial amounts or that a credit may be due to them once the final liability has been determined on assessment.

The following rules relate to a tax directive

    A tax directive is only valid for the tax year or period stated thereon.
    Employers may not act upon photocopies of directives.
    Employers may under no circumstances deviate from the instructions of the directive.
    Tax directives issued to electronic clients via the SARS Interface are valid directives.
    Employers must apply the percentage of employees' tax as indicated on the directive prior to taking into account allowable deductions for employees' tax purposes (e.g. pension, retirement annuity fund contributions, etc).

Reasons for a tax directives Gratuities on termination, impending termination of services or retrenchment

A gratuity is an amount, voluntary or otherwise, paid to an employee by an employer in respect of the termination of service.

The most common examples are:

      Normal termination of service as a result of resignation or discharge;
    Retirement or death;
    Termination of service as a result of retrenchment.

Hardship due to illness or other circumstances

Paragraph 11 of the 4th Schedule prescribes that the Commissioner may, having regard to the circumstances of the case, issue a directive authorising the employer to refrain from deducting any employees' tax or to deduct a specified amount to alleviate hardship due to illness or other circumstances or to correct an error in the calculation of employees' tax.

Arbitration Awards

Paragraph 9(3) of the 4th Schedule prescribes that an employer must ascertain from SARS the amount of employees' tax to be deducted from an amount awarded in respect of a settlement agreement or a court order (labour court awards, CCMA awards, etc.) before such amount is paid to the employee or former employee.

Sale of shares

Should the employee dispose of any shares held ion the company then a directive from the receiver must be applied for.

Directors of private companies / Members of Close Corporations

Paragraph 11C(1)(c)(ii)(bb) of the 4th Schedule prescribes that the employer must only apply for a tax directive to determine the minimum amount of remuneration where the minimum amount (deemed amount) cannot be determined for the purpose of the prescribed formula.

Paragraph 11 of the 4th Schedule prescribes that the director may apply for a relief where there is a verifiable result of hardship (refer to Hardship due to illness or other circumstances in paragraph 12.3).
Published: 21-September-2010 by Ian Hurst of Paymaster www.paymaster.co.za