Tax question

[Dr Chopper]

If you are seeing this you are on the correct path. We are trapped between two loops, one going forward and one going backward. Inside the loops we receive the signals but don't know what it means until after we exit the loops momentarily.

Good luck.

 

[Messugga]

Employee's basic salary is R20,000 p/m and made a loan from his company of R20,000 that he wants to pay off at R5,000 per month over 4 months. The repayment was loaded as a monthly deduction but the employee declined and said that his basic salary must instead be reduced to R15,000 per month for 4 months, so as not to pay the extra monthly tax that he would have incurred on the original basic salary.

Is this a legal method to pay off the loan or is this tax avoidance?

No, it's dodge.

 

[Speedster]

If the R20k was a loan, then the loan needs be repaid with after tax money.

If the R20k was a salary advance, which is now withheld from current salary, the original R20k is taxable. So 6 of one, half a dozen of the other.

 

[bchip]

Employee's basic salary is R20,000 p/m and made a loan from his company of R20,000 that he wants to pay off at R5,000 per month over 4 months. The repayment was loaded as a monthly deduction but the employee declined and said that his basic salary must instead be reduced to R15,000 per month for 4 months, so as not to pay the extra monthly tax that he would have incurred on the original basic salary.

Is this a legal method to pay off the loan or is this tax avoidance?

This is unfortunately risky business for you. If SARS looks at employment contract or even just compares last years earnings to this years it can be questioned.

Also even more, the loan (if its interest free) could be a fringe benefit and then you might get a penalty for not deducting extra tax.

If its a smaller company might get away with it, but from a legal point of view it doesnt quite work like this.

 

[Tomtomtom]

Employee's basic salary is R20,000 p/m and made a loan from his company of R20,000 that he wants to pay off at R5,000 per month over 4 months. The repayment was loaded as a monthly deduction but the employee declined and said that his basic salary must instead be reduced to R15,000 per month for 4 months, so as not to pay the extra monthly tax that he would have incurred on the original basic salary.

Is this a legal method to pay off the loan or is this tax avoidance?

Why not reduce basic salary to R 0 and then the loan is paid off in one month.

Do it again next month.

No tax due at all, ever.

Clever!

 

[ToxicBunny]

Employee's basic salary is R20,000 p/m and made a loan from his company of R20,000 that he wants to pay off at R5,000 per month over 4 months. The repayment was loaded as a monthly deduction but the employee declined and said that his basic salary must instead be reduced to R15,000 per month for 4 months, so as not to pay the extra monthly tax that he would have incurred on the original basic salary.

Is this a legal method to pay off the loan or is this tax avoidance?

It's tax avoidance and illegal... The original offer of a 5k deduction is the only real option

 

[Mike Hoxbig]

Employment contract says 20k. That's his salary and that's what he's taxed on.

If he's not paying the tax, somebody has to. Guess who that would be...

 

[Steamy Tom]

Agree, R5k deduction after taxes you dodgy fsck

 

[Johnatan56]

Based on a quick skim of Sars docs searching for "salary advance", it counts as extra income for future work and is taxes as and when received, not when the salary is supposed to be paid.

There's a special code for it (think it was 306, lost the doc now, am on phone), so assume employee can get a refund on it when proving pay back or something.

Paying back of multiple months is not going to fly I think, that's a loan, salary advance is e.g. (partial) End of month pay now but you'll not get the paycheck then as already paid, not multiple months payoff.

I do wonder legality of instead doing constant salary advances always one payday month + 1 week or something until 4/5 months later back at correct payday.