SARS published the updated version of Interpretation Note 145 (IN145) on 27 July 2026. The note deals with the meaning of "employee" for purposes of the Employment Tax Incentive Act 26 of 2013 (ETI Act). The July 2026 update refers to arrangements, often involving learning institutions, where SARS considers that participants may not meet the definition of "employee" for ETI purposes because they are not "working for" the employer claiming the incentive or assisting in carrying on that employer's business. The updates also refer to the 2018 amendment to the ETI Act in the context of employees of temporary employment services (TES) or labour brokers.
Before 26 July 2018, the definition of "employee" referred to a natural person who "works directly for another person". The Taxation Laws Amendment Act 23 of 2018 deleted the word "directly" from the definition as a response to the Constitutional Court's decision in Assign Services (Pty) Ltd v National Union of Metalworkers of South Africa and Others [2018] ZACC 22. The court held that employees of TES below the BCEA threshold are employees of the TES for the first three months, but then become employees of the client of the TES as sole employer after three months, even though the TES remains responsible for paying the remuneration.
The Explanatory Memorandum recorded the concern that, on the pre-amendment wording of the ETI Act, neither the TES nor the client might qualify to claim the ETI.
The deletion of "directly" was therefore made for the express purpose of enabling TES to continue to claim ETI even though, after three months, it would no longer be the employer for purposes of the Labour Relations Act 66 of 1995.
IN145 appears to accept that, after the deletion of the word "directly", a person supplied by a TES may satisfy the first part of the employee definition. However, the note then draws a distinction where a person (X) is employed by one entity (A) and placed with a third party (B) to perform work for that third party (B). The note states that, in those circumstances, X will generally not qualify as an employee of A because X does not work for A. SARS therefore appears to treat X as working for B. If A pays remuneration to X, then neither A nor B can claim ETI for X.
That creates the unresolved TES question in the updated IN145. With effect from 26 July 2018, Parliament removed the requirement that an employee work directly for the employer to accommodate TES arrangements. Employees supplied by a TES will often work at a client's premises and contribute to the client's business, while the TES remains responsible for paying remuneration. A similar issue can arise in secondment arrangements. IN145 does not clearly explain how the concepts of "working for" the employer and assisting in the employer's business are meant to operate in that setting.
If the 2018 amendment was intended to prevent TES arrangements from falling outside the incentive merely because the employees worked in a client environment, SARS's earlier treatment of TES claims becomes important context.
The High Court judgment in Commissioner for the South African Revenue Service v HR Focus CC (CA 118/2024) [2025] ZAECMKHC 20 records minutes of a meeting held between the taxpayer and SARS on 3 November 2016. A senior SARS official (Euan Davidson) was asked whether a labour broker could claim ETI. The judgment records his answer as "Euan confirmed that a labour broker can claim ETI".
A similar point arises in Citibank, N.A. South African Branch and Another v Commissioner for the South African Revenue Service (2022/043103) [2023] ZAGPPHC 1209; 2024 (1) SA 429 (GP) where SARS successfully argued that individuals seconded by foreign group entities to a South African branch and subsidiary remained employed by the foreign entities, even though the individuals worked at the premises of and under the supervision and control of the South African entities. That case was not decided under the ETI Act, but it illustrates that SARS has accepted in another context that employment may continue even where the employee performs services in a host environment.
These issues remain unresolved. IN145 may represent SARS's view, which should not be treated as the final word on the meaning of the legislation. As the Constitutional Court cautioned in Marshall NO and Others v Commissioner for the South African Revenue Service [2018] ZACC 11, SARS's own interpretation of legislation is not determinative, particularly where SARS is a party to the dispute. The answer must still be found in the text, context, purpose and legislative history of the ETI Act.
