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Income Tax Act, 1962 (Act No. 58 of 1962)

Department of Finance

Practice Note No. 14

Employees Tax Deductions in Respect of Amounts Payable to Directors of Companies (Including Members of Close Corporations)


Date: 6 December 1991


1) The Income Tax Act was amended in 1990 to include in the definition of "remuneration" in paragraph 1 of the Fourth Schedule to the Income Tax Act any advance paid or payable to any director of any company in respect of services rendered or to be rendered by such director to such company. The definition was further amended to remove from the exclusion from "remuneration" certain amounts payable to directors of companies.


2) The effect and application of these amendments (which came into operation on 1 March 1991) to the definition of "remuneration" were dealt with in Practice Note No. 11 dated 11 February 1991. Problems have, however, arisen in cases where the tax years of the director and company coincide, and remuneration which accrues to the director in respect of a particular tax year is only quantified (determined) or voted some time after the end of that year. An example is that of a director who is entitled to a salary based on the company's profits and which is, therefore, only determined and paid after the end of the company's financial year when the profits are determined. The director takes no advances and at the end of February is required to pay provisional tax on the full amount of his estimated income, including his salary, it having accrued to him during the relevant year. There is no employees tax to be taken into account at that stage, but when, some time later, his salary is determined, employees tax must be deducted from the full amount thereof since it then is paid or becomes payable to him. The director will then have paid double the amount of his actual tax liability.


3) It has accordingly been decided in terms of paragraph 11 of the Fourth Schedule to the Income Tax Act that employees tax need not be deducted from—
3.1 advances paid or payable to a director of a private company; and
3.2 remuneration paid or payable to a director of a private company, if-
* the company's year of assessment ends during the last 6 months of the year of assessment of the director tie between 1 September and the last day of February); and
* the amount of the remuneration is only quantified after the end of the year of assessment in which the remuneration accrued to the director.


4) Employees tax must continue to be deducted from remuneration (including fringe benefits), other than remuneration referred to in paragraph 3.2, which is paid or becomes payable during the year of assessment in which it accrues.


5) Where the circumstances of a particular case are not covered by paragraph 3.2 of this Practice Note and it is considered that employees tax should not be deducted from remuneration payable to a director of a private company a directive supported by an explanation of the circumstances and reasons why employees tax should not be deducted may be requested from the appropriate Receiver of Revenue.


6) Practice Note No. 11 is hereby withdrawn.