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Treatmnet of taxable earnings refunded in clawback of maternity leave

Posted 21 November 2014

My question is around the treatment of the tax on maternity leave that is clawed back. Our company pays 4 months full pay while an employee is on maternity leave,but there is a clawback should the employee resign within 12 months of returning from maternity leave.

We calculate the clawback on a gross salary plus allowances and any benefit payments, eg: Basic pay, plus travel allowance, plus company paid medical aid, plus company paid provident fund, and deduct the sum of these from any outstanding money due to the employee. We deduct the total due as an advance and credit the cost centre accordingly.
However, there is a tax implication to this, because even though the employee has breached her contract, she has overpaid tax on the money she has refunded the company. Would it be correct for us in payroll to adjust her YTD earnings with the money paid back, and she will be refunded by SARS on assessment?

I cannot find anywhere in legislation or online the correct treatment for this clawback in terms of the treatment of taxable earnings for money refunded by the employee (on gross salary).

Thank you in advance for your help with my query.

TaxTim TaxTim says:
27 November 2014 at 10:08

Effectively from a tax perspective as long as the IRP5 reflects the correct overall income earned for the year and this is declared to SARS then there should not be a problem. If money was paid to the employee and they were taxed and they then had to pay it back, there is provision for this under the deductions section of the return for them to decrease their taxable income.

Beverley says:
30 November 2014 at 8:29

Thank you for your help Tax Tim - this was extremely helpful and I have shared it with my team!
Enjour your week and thank you again dor your help
Beverley

TaxTim TaxTim says:
30 November 2014 at 20:50

Only a pleasure!

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