This is article 2 in a series of articles discussing the updated Tax Exemption Guide for Recreational Clubs published by SARS.
Other applicable tax liabilities
Provisional tax
Provisional tax is dealt with in the Fourth Schedule. It is not a separate tax, but rather a mechanism to assist taxpayers in meeting their tax liability by spreading it over the relevant year of assessment, as opposed to paying a large amount at the end of the year of assessment.
A provisional taxpayer is required to estimate taxable income for a year of assessment and calculate the provisional tax payable on that estimate.
Recreational clubs are excluded from the definition of “provisional taxpayer” in the Fourth Schedule and are not required to submit provisional tax payments. Any liability to income tax on taxable income will become payable on assessment.
Estate duty
Estate duty is levied under the Estate Duty Act 45 of 1955 (Estate Duty Act) at the rate of 20% on the first R30 million of the dutiable amount of the estate of a deceased person, and at the rate of 25% of the dutiable amount that exceeds R30 million.
No exemption from estate duty is provided for bequests to recreational clubs. Any property bequeathed to a recreational club will not qualify as a deduction and will not be excluded from the net value of the estate, and thus will be subject to estate duty.
Transfer duty
Transfer duty is levied under the Transfer Duty Act on a sliding scale on the value of any property286 acquired by any person. The rates vary from 0% to 13% for all persons.
The person acquiring the property (the transferee) is normally the person who is liable for the payment of transfer duty.
Section 9 of the Transfer Duty Act provides for certain exemptions that may apply in different circumstances. There, however, is no specific exemption that applies to a recreational club.
One of the main exemptions is contained in section 9(15) of the Transfer Duty Act, which provides that if a supply of property is subject to VAT, it will be exempt from transfer duty.
Subject to any exemption that may apply, a recreational club will be liable to pay transfer duty on the acquisition of any property from any person that is not a VAT vendor. Transfer duty will also be payable on property acquired from a vendor that did not use the property for enterprise purposes under the VAT Act. This situation will apply, for example, to a property that was used for private purposes, exempt supplies, or other non-taxable purposes by the vendor immediately before being supplied.
Securities transfer tax
The STT Act provides that STT must be levied at the rate of 0.25% on the taxable amount of the transfer291 of every security issued by a close corporation or company incorporated in South Africa, as well as foreign companies listed on an exchange.
The Securities Transfer Tax Administration Act 26 of 2007 contains the administration provisions governing the payment of STT. Any STT payment must be made electronically through the SARS e-STT system. The exemptions from STT are contained in section 8(1) of the STT Act. There is, however, no specific exemption for STT for recreational clubs.
Employees’ tax
Employees’ tax is dealt with in the Fourth Schedule. The purpose of the employee’s tax system is to ensure that an employee’s income tax liability is settled at the same time that the employee’s remuneration is earned, therefore avoiding burdening the employee with a large tax bill on assessment. Employees’ tax deducted serves as an income tax credit that is set off against the income tax liability of an employee, calculated on an annual basis, to determine the employee’s final income tax liability for a year of assessment.
Employees’ tax must be deducted or withheld by every employer that is a resident (or, by an employer that is not a resident but conducts business through a permanent establishment in South Africa, or by a representative employer) who pays or becomes liable to pay an amount of remuneration to any person.
A recreational club is not exempt from the obligation to deduct or withhold employees’ tax.
The recreational club must register as an employer for employees’ tax purposes. The PAYE to be deducted or withheld is calculated according to the tax deduction tables prescribed by the Commissioner.
A recreational club that is an employer must, if any of its employees are liable for income tax, register for employees’ tax within 21 business days of becoming an employer. Registration is done by completing the prescribed application form EMP 101e.
A recreational club already registered for another tax type on eFiling may, as part of the single registration initiative, register for PAYE on eFiling. A registered employer will receive a monthly return, the EMP 201 form, which must be completed and submitted together with the payment of employees’ tax within seven days after the end of the month during which the deduction was made.
An employer must issue an employee with an employee’s tax certificate (IRP 5 certificate) if employees’ tax was deducted or withheld from the employee’s remuneration.
This certificate discloses, amongst other things, the total remuneration earned during a year of assessment and the employees’ tax and UIF contributions deducted by the employer.
Unemployment insurance contributions
The unemployment insurance system in South Africa is governed by the Unemployment Insurance Act and the Unemployment Insurance Contributions Act 4 of 2002 (UIC Act). These statutes, amongst other things, provide for the benefits to which contributors are entitled, and the imposition and collection of contributions to UIF, respectively.
The UIF305 gives short-term relief to workers when they become unemployed or unable to work because of maternity, adoption leave, or illness. It also provides relief to the dependents of a deceased contributor.
UIF contributions, which are equal to 2% of remuneration paid or payable by an employer to its employees, subject to specified exclusions, are payable by employers every month. The employer must pay a total contribution of 2% (1% contributed by the employee and 1% contributed by the employer) within the prescribed period. A contribution shall not apply to so much of the remuneration paid or payable by an employer to an employee as exceeds R17 712 per month (R212 544 annually) with effect from 1 June 2021.
A recreational club paying remuneration to its employees will also be liable for UIF contributions unless it qualifies for certain exemptions. These contributions must be paid to the UIF office of the Department of Labour or SARS within seven days after the end of the month during which the amount was deducted. Payment can be made via eFiling, electronic funds transfer (EFT), or at a branch of an approved banking institution.
Skills development levy
The SDL is a compulsory levy to fund education and training under the SDL Act. SARS administers the collection of the SDL, which is based broadly on 1% of the payroll of employers. Employers providing training to employees may receive grants from the relevant Sector Education and Training Authority (SETA).
The SDL Act imposes on every employer an SDL on the total amount of remuneration paid or payable or deemed to be paid or payable by an employer314 to its employee during any month. The amount of such remuneration is the same as the amount of remuneration determined under the Fourth Schedule, from which an employer is obligated to withhold employees’ tax, taking into consideration certain exclusions.
Section 4 of the SDL Act contains a number of exemptions from the SDL. There, however, is no specific exemption from SDL for a recreational club. A recreational club that is an employer whose annual payroll will not exceed R500,000 in the following 12 months will be exempt from paying SDL.
An employer liable to pay SDL must apply to the Commissioner in such manner as the Commissioner may determine to be registered as an employer for SDL.
Value-added tax
VAT is an indirect tax levied under the VAT Act. VAT is presently levied at a standard rate of 15% on most supplies and services in South Africa and most goods imported into the country. There is a limited range of goods and services that are subject to VAT at the zero rate when supplied in South Africa and on exports to other countries. Certain goods are also exempt when supplied in or imported into South Africa. VAT is payable only on imported services that are acquired for non-taxable purposes.
VAT is levied on an inclusive basis, which means that any prices marked on products in stores, and any prices advertised or quoted, must include VAT if the supplier is a vendor. Supplies that attract VAT at either the standard or zero rate are called “taxable supplies”. Any person who makes taxable supplies above the compulsory registration threshold or has been allowed to register voluntarily for VAT is referred to as a “vendor”. A vendor includes a person who is liable to register for VAT, even if that person has not actually registered.
The term “recreational club” used for income tax purposes is not used in the VAT Act. If a recreational club falls within the definition of an “association not for gain” as defined in the VAT Act and complies with the requirements for compulsory or voluntary registration such a recreational club will be treated like any other business making taxable supplies and will be liable to register and account for VAT according to the normal VAT rules applying to all vendors. There, however, are a few special provisions applying to associations not for gain.
A recreational club required to register for VAT, or which has registered voluntarily, must charge VAT (output tax) on any taxable supplies of goods or services made in the course of conducting the club’s enterprise.
Typical examples of income earned from taxable supplies on which output tax is payable by recreational clubs are as follows:
- Club membership fees.
- Entrance fees are charged for entrance to fundraising and sports events.
- Fees are charged for the use of sports facilities such as bowling greens, squash courts, and tennis courts.
- Charges for restaurant meals, bar facilities, and any other hospitality or entertainment.
- Tuck shop sales such as tea, coffee, and other beverages and snacks.
- Fees for hiring out facilities for weddings and other functions.
- Charges for the provision of commercial accommodation or office space
- Income from the sale of raffle tickets or fees for entry to competitions.
- Takings from coin-operated amusements such as pool tables or other vending machines.
- Entrance fees for theatre performances and film shows.
- Charges for hospitality boxes.
A recreational club registered for VAT will, subject to a few exceptions, be able to claim credit for any VAT paid (input tax) on goods or services acquired to make taxable supplies, subject to the documentary requirements being met. Since recreational clubs often make supplies of “entertainment”, the special VAT rules in this regard should be noted. The term “entertainment” means the provision of any food, beverages, accommodation, entertainment, amusement, recreation, or hospitality of any kind by a vendor, whether directly or indirectly, to anyone in connection with the enterprise carried on by that vendor.
The main rule regarding the deduction of input tax concerning supplies of entertainment is that the supplies must be made for a charge covering all the direct and indirect costs, or for a charge that is at least equal to the open market value of the supplies. A club that supplies entertainment may therefore deduct input tax on any goods or services acquired to make taxable supplies of entertainment, provided it meets these requirements.
Should a ruling request be required on a specific VAT issue, a ruling application may be submitted by e-mail to VATRulings@sars.gov.za.
Micro businesses
The Sixth Schedule sets out the conditions and requirements for an entity to qualify as a micro business for turnover tax purposes. A micro business may be constituted as a sole proprietor, partnership, close corporation, co-operative, or company. Another requirement is that the qualifying person’s qualifying turnover may not exceed R1 million for a year of assessment. An NPC approved by the Commissioner as a recreational club will not qualify as a micro business.
A future article will deal with the Administrative provisions of the Tax Administration Act.