The amount that a taxpayer is liable to pay SARS is largely determined by the tax return submitted by the taxpayer. SARS receives information from various sources about the taxpayer prior to the opening of the tax season and populates the taxpayers tax return with this information.
When the tax season opens, and the taxpayer is able to access their tax return, they will see all of the information that SARS has already uploaded (IRP5s etc.). It is then for the taxpayer to confirm the information already submitted and to supply any other information that is not already captured on the tax return.
What is Included
South African’s tax system is based on residency so as a South African resident you are taxed on your worldwide income. If you are a non-resident you will only be taxed on your South African income.
Your marital regime will also have an impact on how you are taxed. If you are married in community of property you will be taxed on half of your interest, dividends, rental income and capital gain and half of the interest, dividends, rental income and capital gain of your spouse. This is regardless of in who’s name the assets are registered.
If a spouse has received assets in terms of an inheritance or a donation which specified that these assets are not subject to the effects of any marital regime then they will be excluded from the above.
Determination Taxable income
While each taxpayer’s circumstances may be different, the purpose of the process outlined below is to give a general overview of the steps to follow to calculate the tax owing.
Income (will include)
- Remuneration – including (from employment)
- Fringe benefits
- Lump sum payments
- Sole proprietor income (a side-line business or even your main business)
- Investment income (dividends, interest – both local and foreign)
- Capital Gains
- Donations received
- Deemed income
- Income from Farming
- Any income considered
- Non taxable
Allowable deductions and exemptions
- Interest exemption
- Dividends received
- Travel allowance
- Business travel
- Retirement funding contributions
- Donations to PBOs
- Medical expenses
- Wear and tear
- Bad debts/doubtful debts
= Taxable Income
= Taxation (according to tax tables)
- Primary rebate
- Medical Scheme Credits
= Tax payable to SARS.
It is important to note that a taxpayer is responsible for making a full disclosure on their tax return.
So even where a taxpayer has earned income which will not be taxed e.g. interest of less than R23 800 the taxpayer is still required to declare the full amount of interest earned and to then deduct it in determining their taxable income.
While an employer is responsible to correctly taxing the remuneration paid to an employee, the employee is still ultimately responsible for ensuring that their tax return is correct. The employer can only tax what they pay to an employee, they are not responsible for any deductions an employee may claim against that income e.g. travel allowances etc.
If you receive income from multiply sources, you will be a provisional taxpayer. An employer will tax the employee at the rate applicable as if the employee only earned remuneration as they will not be aware of the details of the “other income sources” which will probably make this rate different to the final marginal rate applicable to the taxpayer.
SARS is entitled to call for any documentation that supports the information in your tax return. Accordingly, it is very important that all figures captured in your tax return can be verified with adequate documentation. A failure to provide the requested documentation will result in deductions claims being disallowed.
The failure to provide any requested information will also cast doubt on your entire return so there are consequential challenges. In a worst-case scenario SARS may even impose levies of 200% for additional assessments of tax they believe are due and payable.
Retention of Records
While individual taxpayers are required to keep all their tax information (including all supporting documentation) for a period of 5 years it is advisable to keep all records for a minimum period of 7 years.
The retention of records refers to all physical items as well as data created by a computer, including data in an electronic form in which it was originally created or in which it is stored for back-up purposes.